PARTIES:	Mobil Oil Australia Ltd

	v

	David Read (Commissioner of Taxes)

TITLE OF COURT:	Supreme Court of the Northern Territory

JURISDICTION:	Supreme Court of the Northern Territory 
	of Australia at Darwin exercising 
	Territory jurisdiction

FILE NO:	SC No. 176 of 1993

DELIVERED:	28 February 1996

HEARING DATES:	27 October 1995

JUDGMENT OF:	Thomas J

CATCHWORDS:

Statutes - statutory interpretation - petroleum products - whether a certain petroleum product is capable of use in propelling a diesel engine road vehicle

Business Franchise Act (NT); s3(1)

Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297, applied
Grey v Pearson [1843-60] All ER 21, followed

REPRESENTATION:

Plaintiff:	A. Wyvill		Mildrens
Defendent:	D. Lisson		NT Attorney-General’s Department

Judgment category classification: B
Court computer code: 176/93
Judgment ID Number: tho96002
Number of pages: 15
	(tho96002)
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN

SC No. 176 of 1993

						BETWEEN:

						MOBIL OIL AUSTRALIA LIMITED
							Plaintiff

						AND:

						DAVID READ (COMMISSIONER OF
						TAXES)
							Defendant

CORAM:  THOMAS J

	REASONS FOR JUDGMENT

	(Delivered 28 February 1996)

	This matter proceeded to hearing by summons on originating motion.

	The originating motion sought the following relief:

	"The plaintiff seeks relief by way of declarations construing the meaning of the expression 'Petroleum Products' used in the Business Franchise Act administered by the defendant as Commissioner of Taxes, holding office pursuant to section 5 of the Taxation (Administration) Act, and the proper application of that meaning to the substance known as Light Fuel Oil 'LFO12' and costs."

	At the hearing the application was amended and proceeded on an application by the plaintiff seeking a declaration that:

	"The fuel oil manufactured by the plaintiff, known as 'LFO-12' and with a specification of a kind similar to that described in annexure P3 to the affidavit of John Norman Bennett sworn 1st December 1993 is not a petroleum or shale product capable of use in propelling a diesel engined road vehicle within the meaning of paragraph (a) of the definition of 'petroleum products' in s3(1) of the Business Franchise Act (N.T.)."

	It was agreed that at the relevant time the definition of petroleum products was under s3(1) of the Business Franchise (Tobacco) Amendment Act as follows:

	"'petroleum products' means

		(a)	a petroleum or shale product used or capable of use in propelling a diesel engined road vehicle; or ...."

	This definition was as a consequence of Amendment No. 27 of 1987 to the Business Franchise (Tobacco) Act 1981.

	In this matter, there is no evidence that LFO-12 was in fact used by the plaintiff to propel a diesel engined road vehicle.  Neither is there any evidence that LFO-12 has ever been used to propel a diesel engined road vehicle.

	Accordingly, the real issue in this case is whether or not LFO-12 is capable of use in propelling a diesel engined road vehicle.  A number of documents and affidavits were tendered for the consideration of the Court.  These were:

	1)	A bundle of correspondence between the parties (Exhibit P1).

	2)	Affidavit of Gordon Thomas Wilkinson, a chemical engineer, sworn 24 November 1993 (Exhibit P2).

	3)	Affidavit of John Norman Bennett, a chemical analyst, sworn 1 December 1993 (Exhibit P3).

	4)	Affidavit of Charles Edward Calcroft, an automotive engineer, sworn 30 November 1993 (Exhibit P4).

	5)	Affidavit of Peter Leslie Lee, Head of Department of Chemical Engineering at the University of Queensland, sworn 13 July 1995 (Exhibit P5).

	6)	Curriculum vitae of Gordon Thomas Wilkinson (Exhibit D1).
	7)	Affidavit of Gordon Thomas Wilkinson, chemical engineer, sworn 18 September 1995 (Exhibit D2).

	I have read and considered all of this material and set out relevant excerpts from the affidavits tendered as evidence.

	From a reading of the correspondence between the parties, the Commissioner of Taxes by notice dated 1 December 1993 pursuant to the Northern Territory Business Franchise Act notice of re-assessment section 24, imposed on the plaintiff an additional licence fee assessed at $252,388.92 being licence fees on light fuel oil, LFO-12, for period July 1987 to September 1993.

	On 24 December 1993, the plaintiff in these proceedings lodged a notice of objection to the re-assessment of licence fees.  One of the grounds of objection being that LFO-12 is not a petroleum product for the purposes of the Business Franchise Act.

	By letter dated 8 March 1994, the respondent advised solicitors for the plaintiff that this objection was disallowed. The plaintiff subsequently appealed this decision and now makes application to this Court for declaratory relief in respect of the meaning of a provision under the Business Franchise Act as set out above.

	By agreement between the parties all the evidence in this matter proceeded by affidavit extracts of which are as follows:

	1)	Affidavit of Gordon Thomas Wilkinson, Chemical Engineer, sworn 24 November 1993, paragraph 4 to 8 and 11 and 17:

	"4.	In my opinion, the use of LFO-12 would generate sufficient power to propel a diesel engined road vehicle.

	 5.	In my opinion, LFO-12 has the capacity for use in propelling a diesel engined road vehicle.

	 6.	In my opinion, LFO-12 is not fit for use in propelling a diesel engined road vehicle.  The term "fit" implies that the fuel is "appropriate" or "suitable", in which case the particular sample of LFO-12, whilst it is capable of being used as a diesel fuel, is not entirely suitable since its viscosity is too high.  This could lead to problems in the long term use of the fuel.
	 7.	In my opinion, it would be possible to use LFO-12 in the propulsion of a diesel engined road vehicle.

	 8.	In my opinion, it would not be desirable to use LFO-12 in the propulsion of a diesel engined road vehicle.  If used exclusively it would be undesirable to use LFO-12 in the place of diesel fuel over an extended period of time.  I refer to my remarks on the consequences of high viscosity in paragraph 6 above.  However, it is quite feasible to blend LFO-12 of the given analysis to bring the viscosity down.  For example, kerosene would be appropriate for blending.

	11.	I refer to the term "capable of use in propelling a diesel engined road vehicle".  My interpretation of "capable" in this context is whether it is at all possible irrespective of circumstances.  Thus, even if significant engine modifications or adjustments were required then the fuel would certainly be "capable of use".  However, the term might be chosen to apply to current vehicle engines commonly in production and available, and exclude the possibility of custom designed, in which case the fuel would be unsuitable.

	17.	In summary, it is my opinion that the sample of LFO-12 analysed could be used [as] a diesel fuel, at least for a limited period of time, and certainly blended with distillate or kerosene to moderate its viscosity and presumed low volatility.  The fact that the viscosity is almost twice the diesel fuel upper limit is not likely to cause serious problems in use in the short to medium term.  Operation in a warm climate would reduce the operational viscosity and so compensate to some extent.  Because of the wide specification limits on the light fuel oil, and inevitable variations in product properties from time to time, it is conceivable that some batches of light fuel oil would be less suitable for diesel use than the sample analysed."

	2)	Affidavit of John Norman Bennett, Senior Technical Consultant employed by the plaintiff, sworn 1 December 1993 paragraphs (3), (4) and (8):

	"3	The petroleum product known as LFO12 is of a higher viscosity (i.e. it is thicker) than the diesel fuel which automotive diesel engine manufacturers specify for use in engines produced by them.  The use of LFO12 for the purposes of fuel in a diesel engined road vehicle, i.e. an automotive diesel engine, will have an adverse impact on that engine and its performance.

	 4	LFO12 is only suitable for use in diesel engines which are used in a stationary application at a constant speed and under a constant load and which have been especially reconfigured to run on LFO12.  The use of that substance as a fuel in an automotive diesel engine (or a stationary engine that had not been specially reconfigured and was not run at constant revolutions and under a constant load) would lead to poor or no combustion, rapid build up of carbon residues and excessive prohibited emissions.

	 8	LFO12 does not meet with any of the specifications set out in either AS3570-1988 or ASTM-2D and, in my opinion, is of a nature which is such that if used in a diesel engined road vehicle as fuel, would lead to severe engine damage and such difficulties of operation as to classify that substance as not capable of propelling the vehicle."

	3)	Affidavit of Charles Calcroft, Chief Automotive Engineer employed by the plaintiff, sworn 30 November 1993 paragraphs (3), (4), (5) and (6):

	"3	The Mobil product known as "LFO12" does not meet the fuel specification requirements set by the automotive diesel engine manufacturers, Detroit Diesel, Caterpillar or Cummins, which are the principal manufacturers of automotive diesel engines in use in Australia.  I am not aware of any manufacturers that would recommend the use of LFO12 an automotive application.  Mobil does not recommend to its customers to use this product in this application.  In my opinion LFO12 would not in a practical sense be capable of use in propelling a diesel engined road vehicle without adversely affecting the performance and condition of the diesel engine.

	 4	In any diesel engine used in an automotive application, it is important to use the correct type of diesel fuel to ensure engine performance and life.  All modern automotive diesel engines supplied and used in Australia are designed and manufactured to specific tolerances to cope with high and variable speeds and stringent emission requirements. 

	 5	In my opinion use of LFO12 in an automotive application would immediately cause the engine to run below its optimum performance and due to the higher viscosity ("thickness") of LFO12 compared to the standard of diesel fuel specified by the manufacturers of automotive diesel engines, result in a failure of the fuel pump and injectors which deliver the fuel into the engine, within a short period.

	 6	The result of such damage to the fuel system would be either a blockage of the fuel injectors which would starve the engine of fuel causing the engine to stop without warning, or the fuel injectors would be jammed open and the engine would run at maximum revolutions; either consequence is a sufficient technical impediment to warrant rejection of LFO12 for use on public highways."

	4)	Affidavit of Peter Leslie Lee, Chemical Engineer, sworn 13 July 1995 paragraphs (15), (19), (20) and (24):

	"15.	In my opinion, it is undesirable therefore, to use fuels with high viscosities as LFO12 in road transport vehicle diesel engines.

	 19.	Carbon Residue:

		I believe that carbon residue for LFO12 is specified as a maximum value 2.5% mass.  This compares with a value of 0.2% mass as specified by AS3570, 0.15 to 0.35% mass for Detroit Diesels and O.25% mass for Cummins Diesels.

	 20.	I am, therefore, of the opinion that a high carbon residue, and in this case over ten times the amount, could result in severe carbon deposition which in turn could render the fuel injection system unworkable in a short time.  This view is reinforced by Cummins Emergency Fuel specification of 5% mass.

	 24.	In my view this is the case for electric generators driven by diesel engines.  ASTM standard D975 defines grade No. 4-D as having a viscosity equivalent to 5.5 cSt, the higher end of the specification defined by AS3570.  I note, however, that LFO12 has a viscosity nearly twice this value.  I believe that higher speed engines are recommended to use lower viscosity fuels, Grades No. 1-D, with a viscosity approximately 1.5 cSt.  For these reasons, in my opinion, LFO12 is wholly unsuitable for use as a fuel in diesel engines used in road transport."

	5)	Affidavit of Gordon Thomas Wilkinson, Chemical Engineer, sworn 18 September 1995 paragraphs (2) and (3):

	"2.	I have read the affidavit of Peter Leslie Lee sworn the 13 day of July 1995, and carefully considered the facts and opinions deposed to therein.  I offer the following comments and observations:

		(i)	There is much common ground between us on the use of LFO-12 as a diesel fuel and the effects of the use of high viscosity fuels in diesel engines.

		(ii)	Dr Lee has considered the general characteristics of LFO-12 also the particular sample for which an analysis was provided.  My comments and opinions have addressed the particular batch of LFO-12, although I have acknowledged that the wide LFO-12 specification permits production of some batches which would be less suitable for diesel use than the sample analysed.

		(iii)	I note that Dr Lee refers to the general characteristics of LFO-12 in paragraph 8 of his affidavit and the table referred to therein.  Although we are in substantial agreement, I would add that it is quite conceivable that a particular batch of LFO-12 may be sufficiently close to diesel fuel that blending may allow it to be used for that purpose.  Such is the batch of LFO-12 under discussion.

		(iv)	It is apparent that light fuel oils, whether it be LFO-12 or the competitor product BPLFO, are sufficiently close to diesel in both viscosity and cetane index to cause problems in definition of use and that there will be times when particular batches of LFO could well be used in diesel road engines with minimal blending.

		(v)	I note that Dr Lee does not address the specifications of the specific batch of LFO-12 provided in respect of this matter.  A clear opinion as to the suitability (as opposed to capability) of LFO-12 as a fuel for a diesel engined road vehicle is impossible unless a particular batch is referred to or unless the specifications are refined by, for example, placing a maximum value on the cetane index.
		(vi)	As to paragraphs 21 and 22 of the draft affidavit of Dr Lee, I note that we are in agreement as to the engine modifications which would be required to use LFO-12 for diesel engine road vehicles for extended periods.  For shorter periods, no modification would be required.

	 3.	The conditions of use in the Northern Territory would favour use of the particular sample of LFO-12 which was analysed in this matter, for the following reasons:

		(i)		high ambient temperatures;
		(ii)		minimal start-stop motoring;
		(iii)		long haul, large distance, and
		(iv)		relatively flat terrain.

	The four deponents in the five affidavits referred to broadly reach the same conclusion: that LFO-12 is not a fuel suitable for use in propelling a diesel engined road vehicle.  On the affidavit of John Norman Bennett sworn 1 December 1993 use of LFO-12 would lead to severe engine damage and such difficulties of operation as to classify the substance not capable of propelling the vehicle (paragraph (8)).  His opinion is supported by the affidavit of Charles Edward Calcroft sworn 30 November 1993 who states in paragraph (3) inter alia:

	"In my opinion LFO 12 would not in a practical sense be capable of use in propelling a diesel engined road vehicle without adversely affecting the performance and condition of the diesel engine"

and Peter Leslie Lee who states in affidavit sworn 13 July 1995 inter alia paragraph (24):

	"For these reasons, in my opinion LFO 12 is wholly unsuitable for use as a fuel in diesel engines used in road transport."

	The affidavit of Gordon Thomas Wilkinson sworn 18 September 1995 appears to modify considerably  the opinion he held in his affidavit sworn 24 November 1993.  The thrust of his affidavit sworn 18 September 1995 is that blending may allow LFO-12 to be used in a diesel engined road vehicle and that engine modification would be required to use diesel engined road vehicles for extended periods, although no modification would be needed for short trips.  Mr Wilkinson indicates in both affidavits that he tested a particular batch of LFO-12 and acknowledged that other samples of LFO-12 would be less suitable for use than the sample he analysed.  In his affidavit sworn 18 September 1995 (paragraph 3) Mr Wilkinson makes certain assumptions about conditions in the Northern Territory and the way in which motor vehicles are driven.  There is no evidence the plaintiff drove their vehicles in such conditions or in such manner.

	There is no evidence that LFO-12 has in fact been used in propelling diesel engined road vehicles.  If in fact it was used either by blending with another substance or by modification to the engine then it would be caught within the first part of the definition of "petroleum products" which means:

	"(a)	a petroleum or shale product used .... in a diesel engine."

	I have some reservation about accepting all of the evidence in the two affidavits of Gordon Thomas Wilkinson.

	The affidavit evidence of the three other persons to whom I have referred supports a finding that LFO-12, whilst it can be used to propel a diesel engined road vehicle, is not fit for use in a diesel engined road vehicle because of the damage that will result to the vehicle.  I accept the matters set out in the affidavits of John Norman Bennett, Charles Edward Calcroft and Peter Leslie Lee.  I accept on this evidence that LFO-12 is unsuitable for use in propelling a diesel engined road vehicle.

	I have gone into some detail to set out the basis of my finding of fact as I consider that to be important in deciding the application of the definition in the Business Franchise (Tobacco) Act.

	I summarise my findings of fact as follows:

	(1)	There is no evidence LFO-12 has been used in the Northern Territory or anywhere else in Australia to propel a diesel engined road vehicle.

	(2)	The reason it is unsuitable is not because of local conditions but because of the nature of the composition of LFO-12.

	(3)	LFO-12 can be used to start a diesel engined road vehicle, however, on the affidavit evidence I have already accepted it will damage the engine if used for more than short periods.

	(4)	If LFO-12 is blended with other substances and then actually used as distinct from being capable of being used to propel a diesel engined road vehicle, then it will be subject to the application of the Business Franchise (Tobacco) Amendment Act under the first part of the definition of petroleum products, because it has been used in propelling a diesel engined road vehicle.

	(5)	LFO-12 is, on the evidence, unsuitable to use to propel a diesel engined road vehicle because of the long term damage it causes to those vehicles.

	I accept the defence submission that the legislature should be seen to have avoided a subjective standard for good reason:

	.	uncertainty is avoided.
	.	the taxpayer should know precisely when a tax may be applicable.

	I apply the principle of statutory interpretation expressed in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 per Mason and Wilson JJ at 320-321:

	   "There is a similar problem with the related so-called "golden rule" of construction.  There are standards of the rule which would confine the courts to the ordinary grammatical sense of the words used unless that produces an absurdity or inconsistency.  It is to be noted that Dixon J. in Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) (1937) 56 CLR 337 at p.371) observed that departure from the ordinary grammatical sense is not legitimate unless there is "some obscurity or some inconsistency", though it may be that "obscurity" was intended to be a reference to "absurdity".  For the reason already given in the discussion of the literal rule, departure from the ordinary grammatical sense cannot be restricted to cases of absurdity and inconsistency.

	   In some cases in the past these rules of construction have been applied too rigidly.  The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole.  But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction.
	   The rules, as D.C. Pearce says in Statutory Interpretation, p. 14, are no more than rules of common sense, designed to achieve this object.  They are not rules of law.  If the judge applies the literal rule it is because it gives emphasis to the factor which in the particular case he thinks is decisive.  When he considers that the statute admits of no reasonable alternative construction it is because (a) the language is intractable or (b) although the language is not intractable, the operation of the statute, read literally, is not such as to indicate that it could not have been intended by the legislature.

	   On the other hand, when the judge labels the operation of the statute as "absurd", "extraordinary", "capricious", "irrational" or "obscure" he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred.  But the propriety of departing from the literal interpretation is not confined to situations described by these labels.  It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions."

	The onus rests upon the Commissioner of Taxes to show that LFO-12 is capable of being used in propelling a diesel engined road vehicle and that the plaintiff falls within a provision that levies tax (Commissioner of State Taxation (W.A.) v Merifield Cooksey Holdings Pty Ltd (1994) 30 ATR 21 per Kennedy J at 30):

	"In Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297; 11 ATR 949; 35 ALR 151, Mason and Wilson JJ said, at 323:

		The fact that the Act is a taxing statute does not make it immune to the general principles governing the interpretation of statutes.  The courts are as much concerned in the interpretation of revenue statutes as in the case of other statutes to ascertain the legislative intention from the terms of the instrument viewed as a whole.

	But it remains the case, as Scarman LJ remarked in C & J Clark Ltd v IRC [1975] 1 WLR 413, at 419, that "it is for the Crown to show that a taxing statute imposes a charge on the person sought to be taxed - a principle once described by Lord Normand as "that last refuge of judicial hesitation": Ayrshire Employers Mutual Insurance Association Ltd v IRC  (1946) 27 TC 331, 344".  And there may still be cases in which, as it was put by Lord Wilberforce in Customs & Excise Commissioners v Top Ten Promotions Ltd [1969] 1 WLR 1163, at 1178, "the legislator runs the risk that the courts may find themselves so totally unable to draw the line as to decide nothing more than that the subject has not clearly enough been taxed"."

	With respect to the relevant definition under the Business Franchise (Tobacco) Amendment Act, Mr Lisson, counsel for the defendant, makes the following three points:

1.	Does not attempt to venture into the areas of "fitness" or "suitability" or "common use" or "recommended use".
2.	It is objective, as it should be.
3.	Avoids subjective standards such as fitness, suitability, etc which are fraught with uncertainty and subject to change as new fuels and blends are developed and new technology is introduced.

	Counsel for the defendant contends that LFO-12 is "capable" of propelling a diesel engined road vehicle.  He further submits the differences in the evidence as to suitability, requirement of modifications to some engines in some circumstances, the effect of blending etcetera are irrelevant to the question.  The legislature should be seen to have intended an objective standard and to have avoided a subjective standard which would introduce uncertainty, invite deliberate manipulation of specifications and render the Act obsolete as new blends and new engine technology are developed.

	I accept the submission of counsel for the defence that the fundamental and overriding principle of interpretation was succinctly stated by Lord Wensleydale in 1857 in Grey v Pearson [1843-60] All E.R. reprint 21 at 36:

	"I have been long and deeply impressed with the wisdom of the rule, now I believe universally adopted - at least, in the courts of law in Westminster Hall, that in construing wills, and indeed statutes, and all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further."

	This principle has been applied by the High Court of Australia in Nolan v Clifford (1904) 1 CLR 429 and Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129.  The principle applies equally to a taxing statute Symington v Port Adelaide Corporation (1974) 8 SASR 209.

	Mr Wyville, for the plaintiff, submits that it is unnecessary to insert words into s3(1) of the Business Franchise Act in order to obtain the commonsense, practical meaning of that section in context of the statute.  The ordinary meaning of the word “capable” incorporates “fitness” and as such applies to ordinary diesel fuel in common use.  The question of fitness is an objective test to be determined on the evidence.

	"Capable" is defined in the Shorter Oxford Dictionary as:
	"....  Having capacity, power, or fitness for. ...."

	In my opinion, the plain meaning of the words "capable of use" in the context of the relevant legislation, must include its fitness for use.

	On the facts as found in this case I am not satisfied on the balance of probabilities that LFO-12 is fit for use in a diesel engined road vehicle.  It is not practical for use in a diesel engined road vehicle without adversely affecting the performance and condition of the diesel engine.

	Accordingly, I am not satisfied on the balance of probabilities that the defendant has discharged the onus of proof that LFO-12 is capable of use in propelling a diesel engined road vehicle.

	For these reasons, I make the declaration as sought by the plaintiff in the plaintiff's application (as amended) that:

	"The fuel oil manufactured by the plaintiff, known as 'LFO-12' and with a specification of a kind similar to that described in annexure P3 to the affidavit of John Norman Bennett sworn 1st December 1993 is not a petroleum or shale product capable of use in propelling a diesel engine road vehicle within the meaning of paragraph (a) of the definition of 'petroleum products' in s3(1) of the Business Franchise Act."

	I grant liberty to the parties to apply on the question of costs.

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