COURT FILE NO.: 98-GD-018420

DATE: 20120706

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

GREAT LAKES POWER LIMITED Applicant – and – MUNICIPAL PROPERTY ASSESSMENT CORPORATION, THE CORPORATION OF THE CITY OF SAULT STE. MARIE, THE CORPORATION OF THE TOWNSHIP OF MICHIPICOTEN, MICHIPICOTEN LOCALITY EDUCATION, and THE SAULT STE. MARIE BOARD OF EDUCATION Respondents

Adam Stephens, Counsel for the Applicant

Donald G. Mitchell, Counsel for Municipal Property Assessment Corporation J. Paul Cassan, Counsel for Corporation of the Township of Michipicoten

HEARD: October 24, 26 and 27, 2011

ellies, j.

REASONS FOR DECISION (corrigendum)

Introduction

[ 1 ] What parts of a hydro-electric power generating station are exempt from taxation under the Assessment Act ? That is the main issue in this application by the taxpayer, Great Lakes Power Limited (“GLP”). The question turns out to be much easier to ask than it is to answer, at least for the years involved in this case.

[ 2 ] The question is a difficult one because the Act contains no definition of the crucial terms comprising the exemption claimed by the taxpayer and because of the manner in which the exemption provision is worded.

[ 3 ] At the centre of the controversy is section 3(a), paragraph 18 of the Act (“paragraph 18”), a section which I am advised has never been considered by this court and will never be considered again by it in the form it was at the time in question, as it has since been amended. The answer to the question requires an examination of the applicable principles of statutory interpretation to determine the meaning of certain terms contained in the paragraph, a consideration of the approach adopted by our Court of Appeal with respect to a similar provision, and a review of the evidence adduced regarding the various components in issue.

[ 4 ] Considering those things, I have concluded that substantially all of the items at issue in this case are exempt from taxation. I have also determined that all of the electric power generated by GLP at the stations in question qualifies for the exemption. Lastly, because the expert evidence conflicts to such a degree on the matter, I have concluded that the issue of the extent of the foundations that qualify for exemption must proceed to trial.

Background Facts and Legislation

[ 5 ] GLP operates 11 hydro-electric power generating stations in the province. It claims an exemption from taxation under paragraph 18 with respect to a number of components comprising a typical hydro-electric power generating station. At issue are approximately 40 items commonly found at each site, although not all of the items take exactly the same form at each one.

[ 6 ] Historically, the respondent, the Municipal Property Assessment Corporation (“MPAC”), has not undertaken the task of classifying the various components of GLP’s stations to determine those that are taxable and those that are not. Instead, it has applied a rough percentage to come up with that determination. The practice has changed and the parties are unable to agree with respect to a number of issues arising under paragraph 18.

[ 7 ] Paragraph 18 reads:

Property assessable and taxable, exemptions

3 . (1) All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:

Machinery for producing electrical power

18. All machinery and equipment including the foundations on which they rest to the extent and in the proportion used for producing electric power for sale to the general public but not including any buildings, structures, structural facilities or fixtures used in connection therewith.

[ 8 ] In addition to the exemption under paragraph 18, GLP submits that it is also entitled to an exemption from taxation pursuant to the provisions of section 3(1), paragraph 17 (“paragraph 17”), which provides as follows:

Machinery

17. All machinery and equipment used for manufacturing or farming purposes or for the purposes of a concentrator or smelter of ore or metals, including the foundations on which they rest, but not including machinery and equipment to the extent that it is used, intended or required for lighting, heating or other building purposes or machinery owned, operated or used by a transportation system or by a person having the right, authority or permission to construct, maintain or operate within Ontario in, under, above, on or through any highway, lane or other public communication, public place or public water, any structure or other thing, for the purposes of a bridge or transportation system, or for the purpose of conducting steam, heat, water, gas, oil, electricity or any property, substance or product capable of transportation, transmission or conveyance for the supply of water, light, heat, power or other service.

Issues

[ 9 ] There are five areas of dispute, namely:

(a) The proper characterization of a number of components of a typical hydro-electric power generating station, including the “intake”, the “penstock(s)” and the “surge tank(s)”. The applicant argues that these are “machinery or equipment” and, therefore, exempt. The respondents submit that they are “structures, structural facilities or fixtures”, and, therefore, assessable for tax purposes.

(b) Whether GLP has adduced sufficient evidence with respect to the foundations that may be exempt under paragraph 18.

(c) Whether a number of components are “used for producing electric power” within the meaning of paragraph 18, including the three items referred to above.

(d) The extent to which the power generated by GLP at the stations in question is produced “for sale to the general public”, as that phrase should be interpreted in paragraph 18.

(e) Whether paragraph 17 also applies to GLP.

Evidence Filed in Connection with the Application

[ 10 ] The only other respondent that participated in the hearing of the application was the Township of Michipicoten (“Wawa”).

[ 11 ] All three parties filed affidavits sworn by engineers in their field, as well as transcripts of the cross-examinations of those experts. Affidavits were sworn by Robert McLean, the expert retained on behalf of GLP; Dennis Creamer, the expert retained by MPAC; and Michael Rooker, the expert retained by Wawa. No direct attack has been made on the ability of any of these individuals to render an opinion, although I interpret some of the comments made by MPAC in its factum to be a challenge to the impartibility of GLP’s expert (see paragraph 19). As no argument was directed at the existence of such bias, or of the potential effect of it upon the credibility of the expert, I have concluded that no issue is raised with respect to the qualifications of each of the witnesses as experts.

[ 12 ] The expert evidence falls into four main areas, namely:

(a) evidence about the nature of the general operation of a hydro-electric power generating station;

(b) evidence about the specific functions performed by each component;

(c) evidence about the terminology employed in the hydro-electric power generating industry to describe the various components; and

(d) the experts' opinions as to the proper characterization of the various components in issue for the purpose of paragraph 18.

[ 13 ] There is agreement amongst the experts with respect to how electricity is generated at a hydro-electric power generating station. In general, the process involves the conversion of potential energy to kinetic energy to mechanical energy to electrical energy. [1] Potential energy is created by the dam and the items associated with it, the function of which is to create the reservoir or head pond. Water then flows through a “power waterway”, which starts at the intake and continues through a penstock at most stations. The penstock directs the water to the turbine, which, together with the generator, is contained in the “powerhouse”. The water is then discharged through what is known as a “draft tube”.

[ 14 ] The parties agree that the following components are buildings, structures, structural facilities or fixtures within the meaning of paragraph 18 and are, therefore, not exempt from taxation, namely: the dam, the “spillway” structure (which allows water to bypass the power waterway), and the powerhouse superstructure.

[ 15 ] The parties also agree that the following components are machinery or equipment used for producing electric power within the meaning of paragraph 18, namely: the turbines, including associated items such as governors; the generators, including associated items such as excitation systems; and the switch gear, cabling, instrumentation and controls within the powerhouse.

[ 16 ] There is also general agreement amongst the experts that the following items are normally considered equipment within the hydro-electric industry, namely: gantry cranes, gates, guides, hoists, ice/trash booms, stop logs, trash racks, and valves. However, the parties do not agree that these items are used for producing power. Furthermore, despite the fact that these items are normally considered to be equipment within the industry, MPAC takes the position that they should be characterized as structures, structural facilities or fixtures within the meaning of the paragraph 18 because they form part of the structures into which they are incorporated.

[ 17 ] There is substantial disagreement amongst the experts with respect to the characterization of the remaining components as either machinery or equipment, on one hand, or buildings, structures, structural facilities or fixtures, on the other. This disagreement results largely from the different approaches taken by the experts to the task.

[ 18 ] Mr. McLean defined “equipment” as an article which performs an activity, such as an implement or tool. In order to determine if an item was equipment, Mr. Creamer considered whether it had moving parts, the manner in which it was constructed, whether it was manufactured off-site and what type of engineer (mechanical, electrical, or civil) designed it. Mr. Rooker adopted a similar approach to that of Mr. Creamer, leading to similar conclusions regarding the characterization of a number of items. And yet, Mr. Rooker reached the opposite conclusion to that of Mr. Creamer with respect to the issue of whether an item was used for producing power, in many cases.

[ 19 ] The experts also disagree with respect to what comprises the foundations upon which the various pieces of machinery or equipment rest. In particular, there is a dispute with respect to what portion, if any, of the powerhouse superstructure is exempt from taxation as a result of being the foundations upon which the turbine and the generator rest. MPAC also says that there is an absence of evidence with respect to what constitutes the foundation for other items potentially characterized as machinery or equipment.

[ 20 ] As I will explain, it is not necessary, in my opinion, for this court to attempt to resolve the conflicts in the evidence of the experts regarding the proper characterization of the components in issue as either machinery and equipment or buildings, structures, etc. Unfortunately, it is necessary, but not possible in my opinion, to resolve the conflict in the evidence concerning the foundations.

Use to Be Made of Expert Evidence

[ 21 ] There are two steps to the process of characterizing the items at issue for the purposes of paragraph 18. The first requires the court to determine the meaning of some of the terms used in that paragraph. This is an exercise in statutory interpretation. It involves a question of law (see Canadian Lift Truck Co. Ltd. v. Deputy Minister of National Revenue for Customs and Excise (1995), 1955 411 (SCC), 1 D.L.R. (2d) 497 at 498 (S.C.C.)). The second requires an examination of the nature of the item in order to properly characterize it. This is a question of fact ( ibid. ).

[ 22 ] With respect to the first step, there is a presumption in favour of the ordinary, non-technical meaning of words in statutes that deal with matters which affect people generally, as opposed to acts dealing with a particular trade, business or field of endeavour (see Ruth Sullivan, Sullivan on the Construction of Statutes, 5 th Ed., LexisNexis, at page 51). In my view, the Act is one of general application. It applies to individuals as well as to particular businesses. Even the provisions of paragraph 18 are general in scope. The paragraph refers to producers of all types of electricity, regardless of the method of generation. Because the terms used in paragraph 18 are not used in any technical sense, expert evidence on the issue of interpretation is not necessary.

[ 23 ] Nonetheless, with respect to the second part of the exercise, namely characterization, evidence relating to the design, construction, nature and function of the items in question is of assistance. So is evidence of the manner in which items are characterized within the industry. In Metals & Alloys Co. Ltd. v. Regional Assessment Commissioner, Region No. 11 et al. (1985), 1985 2191 (ON CA), 49 O.R. (2d) 289, [1985] O.J. No. 2422 (Ont. C.A.), a case to which I will make reference below, Arnup, J.A. had regard (at paragraph 8) to the terminology employed in correspondence between the plaintiff and its consulting engineers before construction of the item in question, as well as the terminology employed by the plaintiff’s own manager of engineering and maintenance. However, as we will see, evidence of the manner in which the industry characterizes a particular item is only one of a number of factors to be considered.

The Problems with Paragraph 18

[ 24 ] The dispute between the parties in this case arises for three main reasons. Firstly, none of the items mentioned in paragraph 18 are defined within the Act . This is particularly troubling with respect to some terms not often used in ordinary parlance, such as “structural facilities”. Secondly, some of the terms used in the paragraph are very broad. For example, the word “equipment” is broad enough to encompass machinery. The word “structure” is broad enough to cover buildings and some types of equipment and machinery. The word “fixture” is broad enough to cover both machinery and equipment, where the same are sufficiently affixed to the real property. Thirdly, the wording of the paragraph, and the lack of punctuation in it, permits several different interpretations. For example, it is possible to interpret the words “fixtures used in connection therewith” as referring to fixtures used in connection with “buildings, structures or structural facilities”. However, it is also possible to interpret the word “fixtures” as a stand-alone term, like the words “buildings, structures, or structural facilities”, instead. The consequences of one interpretation or the other are significantly different.

[ 25 ] In order to resolve the issues created by these problems, it is necessary to employ the principles of statutory interpretation applicable to legislation of this type.

Principles of Statutory Interpretation to be Applied

[ 26 ] Taxing statutes such as the one at issue in this application are no longer subject to special rules of interpretation. In Québec (Communauté Urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 58 (SCC), [1994] 3 S.C.R. 3, the Supreme Court of Canada reviewed the jurisprudence regarding the interpretation of such statutes. After referring to Driedger’s “Modern Principle of Interpretation”, Gontier, J. summarized the rules regarding the interpretation of taxing statutes on behalf of the court as follows (at p. 20):

− The interpretation of tax legislation should follow the ordinary rules of interpretation;

− A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

− The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

− Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statutes;

− Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by resource to the residual presumption in favour of the tax payor.

[ 27 ] The court pointed out that rules of statutory interpretation should not be confused with the general rule that the burden of proof lies with the party claiming the benefit of a legislative provision to show that they fit within it. As Gontier, J. pointed out (at p. 15):

According to the general rule which provides that the burden of proof lies with the plaintiff, in any proceeding it is for the party claiming the benefit of a legislative provision to show that he is entitled to rely on it. The burden of proof thus rests with the tax department in the case of a provision imposing a tax obligation and with the taxpayer in the case of a provision creating a tax exemption... In any event, the rule of strict construction relates only to the clarity of the wording of the tax legislation: regardless of who bears the burden of proof, that person will have to persuade the court that the taxpayer is clearly covered by the wording of the legislative provision which it has sought to apply.

(See also The Religious Hospitallers of St. Joseph Housing Corp. v. Regional Assessment Commissioner, Region 1 (1998), 1998 2943 (ON CA), 42 O.R. (3 rd ) 532 (Ont. C.A.), at p. 534.)

[ 28 ] However, as the court subsequently clarified in Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715 (at para. 27 ), Notre-Dame de Bon-Secours did not overrule the existing jurisprudence to the effect that there is no burden of proof regarding the proper manner in which to interpret a statutory provision, as opposed to the burden that rests on the party alleging that it fits within it.

[ 29 ] Placer Dome is also helpful in describing the role that the residual presumption in favour of the taxpayer plays in the interpretation of a taxing statute. At paragraph 24, Lebel, J. wrote on behalf of the court:

Although there is a residual presumption in favour of the taxpayer, it is residual only and applies in the exceptional case where application of the ordinary principles of interpretation does not resolve the issue: Notre-Dame de Bon-Secours, at p. 19. Any doubt about the meaning of a taxation statute must be reasonable, and no recourse to the presumption lies unless the usual rules of interpretation have been applied, to no avail, in an attempt to discern the meaning of the provision at issue.

[ 30 ] Lastly, in Notre-Dame de Bon-Secours, Gontier, J. quoted from Driedger’s text, Construction of Statutes (2 nd Ed. 1983), concerning the “ordinary rules of construction” (at page 17):

“...the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”. The first consideration should therefore be to determine the purpose of the legislation, whether as a whole or as expressed in a particular provision. (emphasis added)

[ 31 ] Bearing these principles in mind, I turn now to the legislation at issue in this application.

Scheme and Object of the Act

[ 32 ] The object of the Act is obviously the raising of revenue through the taxation of real property. The scheme of the Act is to cast the net broadly, but to alleviate the effect of taxation on certain entities by granting specific exemptions. Section 1(1) reads as follows:

1. (1) In this Act,

“land”, “real property” and “real estate” include,

(a) land covered with water,

(b) all trees and underwood growing upon land,

(c) all mines, minerals, gas, oil, salt quarries and fossils in and under land,

(d) all buildings, or any part of any building, and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land,

(e) all structures and fixtures erected or placed upon, in, over, under or affixed to a highway, lane or other public communication or water, but not the rolling stock of a transportation system;

[ 33 ] Most of the exemptions are found in section 3. For example, section 3(1) of the Act contains exemptions for such things as religious organizations (para. 3), educational institutions (para. 4), hospitals (para. 6) and certain charitable institutions (para. 12). It will be seen that many of the exemptions granted from taxation appear to relate to institutions benefiting the public.

[ 34 ] GLP argues that the purpose of paragraph 18 is to make it cheaper to produce electric power. I disagree. If the Legislature wanted to make it cheaper to produce electric power when paragraph 18 was enacted, it would have been better to provide a complete exemption from taxation, as it did in 2000 with respect to hydro-electric power generating stations (see section 3(1), paragraph 28), rather than simply exempting machinery and equipment used in the process. I agree with MPAC’s submission that the purpose of paragraph 18 is to exempt chattels used in the business of producing electric power that would otherwise be taxed because of the broad definition of land, etc. contained in section 1(1). I find support for this position in the history of the legislation and in two cases decided by our Court of Appeal.

[ 35 ] Paragraph 17 of the Act is similar to paragraph 18, and has been in existence for a lot longer. The purpose of paragraph 17 was dealt with in Nabisco Brands Ltd. v. Ontario (Regional Assessment Commissioner, Region 15) (1988), 1988 4594 (ON CA), 64 O.R. (2d) 135, [1988] O.J. No. 2770 (Ont. C.A). In Nabisco, the court referred with approval (at page 147) to the following passage from Re. Ford Motor Co. of Canada Ltd. and Town of Ford City (1929), 1929 421 (ON CA), 63 O.L.R. 410 at pp. 411-12, [1929] 2 D.L.R. 109 (Ont. C.A.):

Prior to the passing of the Assessment Act of 1904, all property, real and personal, was subject to assessment. By that Act, personal property ceased to be liable to assessment, and, in lieu of the assessment on personal property, there was substituted a business assessment, fundamentally based upon the value of the land actually occupied in connection with the business which forms the subject-matter of the assessment.

The effect of this change was to exempt from taxation all machinery used in connection with the business carried on, unless the machinery had become land for the purpose of assessment, regard being had to the provisions of interpretation clause sec. 1 (h)(4), which made “land” cover, for the purpose of assessment, “all... machinery and fixtures, erected or placed upon, in, over, under, or affixed to land.”

In furtherance of the policy underlying this Act, there is the additional provision found in sec. 4(19), which, notwithstanding the provision quoted, exempts from taxation “all fixed machinery used for manufacturing or farming purposes, thus according to fixed machinery the same exemption from taxation that had resulted in the case of chattel machinery by reason of the exemption of personal property.

[ 36 ] Thus, the purpose of paragraph 17 is to treat “fixed” machinery the same as “chattel” machinery for a broad group of taxpayers.

[ 37 ] From 1904 to 1955 machinery “used, intended or required” for the production or supply of “motive power”, including electric motors, was specifically excluded from the exemption for “fixed machinery” contained in paragraph 17 and its predecessor. From 1955 to 1970, paragraph 17 specifically excluded from the “manufacturing and farming exemption” (my words), machinery and equipment which were “used, intended or required” for producing power for sale.

[ 38 ] However, paragraph 17 was amended, effective January 1, 1970. The exclusion from the exemption that applied with respect to machinery and equipment used, etc. for producing power for sale was removed. At the same time, section 86 of the Act was enacted, which provided that taxation of machinery and equipment used for producing power for sale was to be decreased from 100% to 20% of the assessed value between the years 1970 to 1974, when the predecessor to the present paragraph 18 was enacted. Thus, the Legislature phased in an exemption for the producers of electric power 70 years after the exemption was first granted to other manufacturers.

[ 39 ] These changes had all taken place prior to the decision of the Court of Appeal in Great Lakes Power Ltd. v. Ontario (Regional Assessment Commissioner, Region No. 31), [1999] O.J. No. 2833 . The majority in Great Lakes Power upheld a decision of the Divisional Court in which it was decided that Great Lakes Power was a “manufacturer” for the purposes of former section 7 of the Act. In dissent, Borins, J.A. pointed out that the Legislature had enacted a separate paragraph (paragraph 18) to deal with machinery and equipment used to produce power, rather than simply removing the specific exception for machinery and equipment used, etc. for producing power from the manufacturing and farming exemption in paragraph 17. He relied on this fact in support of his opinion that the Legislature intended to treat the power producing industry differently than other manufacturers. For the majority, Finlayson, J.A. was not persuaded by this argument. He held (at paragraph 34):

Hydro generated electricity has been such a significant source of power in this Province for so many years that one can only assume that it if the legislature intended to treat it in some special manner under the Assessment Act, it would have done so long before this date.

[ 40 ] For these reasons, I find that the purpose of the exemption in paragraph 18 is to put producers of electric power in the same position as other manufacturers, to the extent that the power is produced for sale to the general public.

[ 41 ] Bearing in mind the object and the scheme of the Act, I turn now to the interpretation of a number of terms contained in paragraph 18.

Interpreting Paragraph 18

[ 42 ] In this section, I intend to simply canvass some of the jurisprudence relating to the more settled terms contained in paragraph 18 and then to deal with the more difficult terms, namely “structures”, “structural facilities” and “fixtures”.

Meaning of “Machinery and Equipment”

[ 43 ] In Metals and Alloys, the Court of Appeal overturned a trial decision in which a structure that had been erected around a metal shredder for the purpose of protecting the environment from noise and other pollution was held to be machinery, and not a building. After criticizing the definition of machinery adopted by the court in City of London v. John Labatt Ltd. 1953 147 (ON SC), [1953] O.R. 800, [1954] 1 D.L.R. 401 as being overly broad, Arnup, J.A. went on to observe (at p. 306, para. 48, O.J.):

Admittedly “machinery” in today’s scientific and technocratic world can properly be applied to things undreamed of when the word first entered the Assessment Act.

[ 44 ] Arnup, J.A., reviewed a number of cases dealing with the definition of “machinery”. Amongst them was the decision of the Supreme Court of Canada in Northern Broadcasting Co. Ltd. v. Improvement District of Mountjoy, 1950 9 (SCC), [1950] S.C.R. 502, in which it was held (at page 509) that moving parts were not required to constitute machinery and in which the Oxford Dictionary definition of machinery was adopted by the court, namely “any instrument employed to transmit force or to modify its application”. Arnup, J.A. also referred to the definition of machinery used in the British case of Chamberlayne v. Collins (1894), 10 T.L.R. 233, namely: “...the adaptation of mechanical means to a particular end by the application of natural forces”.

[ 45 ] Metals and Alloys did not deal directly with the meaning of the word “equipment”. The parties agree that the word “equipment” is broad enough to include machinery. In other words, not all equipment is machinery, but all machinery is equipment. In Sogemines Ltd. v. Municipal District of Stony Plain No. 84, [1971] A.J. No. 77, O’Byrne, J. of the Alberta Supreme Court commented (at para. 36) that:

Judicial opinions support a broad interpretation of the term “equipment”. The term “equipment” is broad in meaning and is not restricted in its application to anything in the nature of mechanical devices.

[ 46 ] In Anglo-Canadian Oil Co. Ltd. v. Minister of National Revenue, 1947 297 (CA EXC), [1947] Ex. C.R. 63, Cameron, J. had regard to the definition of equipment contained in the shorter Oxford Dictionary, which defined the word as meaning:

...anything used in equipping. To provide with what is requisite for an action, as arms, instruments or apparatus.

[ 47 ] In Abitibi-Price Inc. v. Newfoundland (Minister of Finance), 1991 7435 (NL SC), 91 Nfld. & P.E.I.R. 316, 1991 CarswellNfld 54, Halley, J. of the Newfoundland Supreme Court, Trial Division referred to the definition of “equipment” contained in the concise Oxford Dictionary (1982, 7 th Ed.), as meaning, “outfit, tools, apparatus, necessary for expedition or job”.

Meaning of “Buildings” and “Structures”

[ 48 ] MPAC argues that the word “structures” should not be interpreted ejusdem generis with the word “buildings” in paragraph 18. It relies on British Columbia Forest Products Ltd. v. Canada (Minister of National Revenue), 1971 156 (SCC), [1972] S.C.R. 101 in support of that proposition. I agree, but not on the basis of that decision.

[ 49 ] It is not always helpful, in my view, to attempt to apply the results of one case to the interpretation of a completely different statutory provision in another. The income tax legislation at issue in British Columbia Forest Products referred to “a building or other structure”. In holding that the word structure should not be construed ejusdem generis with the word building, the court placed significance on the fact that the word “structure” was preceded by the word “other”, thus contemplating structures other than buildings. That is not the wording of paragraph 18. Further, the Supreme Court of Canada applied the ejusdem generis principle of statutory interpretation to the Assessment Act of New Brunswick, in New Brunswick (Minister of Municipal Affairs) v. Canaport Ltd., 1975 168 (SCC), [1976] 2 S.C.R. 599, a decision referred to in Nabisco (at pgs. 149-150). In Canaport, the court held that “installations” should be interpreted ejusdem generis with the words “machinery, equipment and apparatus” which preceded it.

[ 50 ] Nonetheless, it is my view that the word “structures” should not be interpreted ejusdem generis with the word “buildings” in paragraph 18. Having regard to the object and history of the Legislation, it is my view that it was the intent of the Legislature in employing the words, “buildings, structures, structural facilities or fixtures” to refer in that group to all “land” as defined in section 1(1) of the Act, other than “machinery and equipment”.

[ 51 ] To what does the word “structures” refer, then, if not to “building-like” structures? In British Columbia Forest Products, the Supreme Court made reference to the judgment of Denning, L.J. (as he then was) in Cardiff Rating Authority v. Guest, Keen Baldwin’s Iron & Steel Co. Ltd., [1949] 1 K.B. 385 at 396, [1949] 1 All E.R. 17, regarding the meaning of the word “structure”, in general:

A structure is something which is constructed, but not everything which is constructed is a structure. A ship, for instance, is constructed, but it is not a structure. A structure is something of substantial size which is built up from component parts and intended to remain permanently on a permanent foundation but it is still a structure even though some of its parts may be moveable as for instance about a pivot thus a windmill or a turntable is a structure.

[ 52 ] In Nabisco, the court was called upon to decide whether a number of silos used in the production of flour were “machinery” or “structures”. In finding that the silos in question were structures, if not buildings, Dubin, J.A., appears to have placed significant weight on the fact that the silos were all freestanding, were composed of reinforced concrete, rested permanently on their own foundations, and could not be moved without complete destruction (see p. 148 O.R., para. 24 O.J.). However, he did not stop there, as I will expand upon below.

Meaning of “Structural Facilities”

[ 53 ] GLP argues that the term “structural facilities” should be ignored. It says that the term has neither a technical, nor an ordinary, meaning. It points out that none of the experts were able to define the term and that all of the experts were able to categorize the various components found at GLP’s power generating stations under the remaining terms of paragraph 18. It argues that this is one of those rare circumstances where a court should remove or substitute words so that the meaning of an Act is intelligible, like the situation that faced the court in Association of Parents for Fairness in Education, Grand Falls District 50 Branch v. Minority Language School Board No. 50 et al. (1987), 1987 5249 (NB CA), 40 D.L.R. (4 th ) 704 (N.B.C.A.).

[ 54 ] With respect, I disagree. It is possible to give the words “structural facilities” meaning, even if that task is a difficult one. As the Supreme Court held in Placer Dome ( supra, at para. 45), a court should avoid adopting an interpretation that renders any portion of a statute meaningless or redundant.

[ 55 ] MPAC submits that “structural facilities” means something less than a structure, but associated with a structure, that facilitates the use of that structure. For example, it argues that the guide posts into which stop logs used to control the flow of water on a spillway are inserted may be structural facilities. The guide posts are embedded in the concrete that forms part of the spillway structure. Thus, according to MPAC, the word “facilities” modifies and refers to the word “structural”. With respect, I do not share this view.

[ 56 ] Although I am mindful that this exercise should not be turned into one in which a decision is made between competing dictionary definitions, dictionaries can be a useful resource in the statutory interpretation process. At page 37 of her text, Sullivan on the Construction of Statutes, (supra), Professor Sullivan writes:

Despite their shortcomings, dictionaries do have a role in statutory interpretation. They provide a useful starting point by indicating a range of meanings that a word is capable of bearing within a particular linguistic community. If the meaning an interpreter wishes to rely on is mentioned or included in a dictionary entry, it shows that the proposed meaning is at least plausible. If it is mentioned in numerous standard dictionaries, the evidence of plausibility is that much stronger. Similarly, the absence of any reference to a proposed meaning suggests the obverse.

[ 57 ] In defining the term “structural facilities”, I start by considering the fact that, in combination, the words are not a noun, at least not a common one. They are not found together in any dictionary that I have consulted. Thus, they are unlike the words “structural steel”, for example.

[ 58 ] The word “facility” is found in the dictionary, albeit alone. It is a noun, like the other words in the group in which it is found (“buildings, structures”, etc.). The concise Oxford English Dictionary (11 th Ed., Revised) defines “facility” as, “a building, service or piece of equipment provided for a particular purpose”. In its plural form, “facilities” often refers to particular services, such as washroom facilities or research facilities. In my view, the word “structural”, which is an adjective, modifies the word “facilities”, which is a noun. Together, they refer to a structure designed or constructed for a particular activity or purpose.

[ 59 ] A similar meaning was given to these terms in the only statute that counsel have been able to find in which the terms are defined. In particular, the Railway (Alberta) Act, R.S.A. 2000, c. R4, defines “structural facilities” in section 1 as meaning:

...in respect of a railway, bridges, tunnels, overpasses, culverts, crossings and similar structures.

[ 60 ] As well, the meaning that I have given to the term “structural facilities” avoids redundancy in paragraph 18. If the definition suggested by MPAC were to be adopted, the term “structural facilities” would have a meaning very similar to the word “fixtures”, a term to which I now turn.

Meaning of “Fixtures”

[ 61 ] Unlike the term “structural facilities”, the term “fixtures” is one which has a well-defined meaning in law. At common law, a fixture is an article that has, by virtue of the degree to which and the purpose for which it has been attached to real property, become part of the land (see British Columbia Forest Products Ltd. v. Minister of National Revenue (1969), 1969 1607 (CA EXC), 69 D.T.C. 5127 (Exch. Crt.)). Thus, a gas engine affixed by bolts and screws to prevent it from rocking has been held to be a fixture and, therefore, part of the land (see Hobson v. Gorringe (1896), 1 Ch. D., 182, as referred to in British Columbia Forest Products Ltd. )

[ 62 ] When it comes to the use of the term “fixtures” in paragraph 18, the problem is not so much in defining the term, but in determining to what it refers. GLP argues that the words “used in connection therewith” (which follow the word “fixtures”) refer to the words “buildings” and “structures”. MPAC argues that the word “fixtures” is a stand-alone term, like “buildings”, “structures” and “structural facilities”.

[ 63 ] As argued by the parties, therefore, “fixtures” refers to one of two things:

(1) to fixtures used only in connection with buildings, structures or structural facilities; or

(2) to any fixtures used in connection with producing electric power for sale to the general public.

[ 64 ] There are problems with both possibilities. As GLP points out, MPAC’s argument creates a conflict in the legislation because most, if not all, of the machinery and equipment in issue are fixtures. Thus, the paragraph would both include an exemption for machinery and equipment, and yet also contain an exclusion for machinery and equipment that were fixtures in law. This is true. However, GLP’s argument rewrites the paragraph in a way that the legislature did not see fit to do. In essence, GLP’s interpretation of paragraph 18 rewrites the paragraph to read as follows:

All machinery and equipment including the foundations on which they rest to the extent and in the proportion used for producing electric power for sale to the general public but not including any buildings or structures, or structural facilities or fixtures used in connection therewith.

[ 65 ] However, there is a third possibility that, in my view, makes more sense and is more in keeping with the object and scheme of the Act. In particular:

(3) the term refers to fixtures used in connection with machinery and equipment.

[ 66 ] The subject of paragraph 18 is "machinery and equipment", not "producing power for sale". Thus, one could remove the words "to the extent and in the proportion used for producing electric power for sale to the general public" and the paragraph would still be grammatically correct.

[ 67 ] In order to avoid the problem created by MPAC’s submission, the word “fixtures” must have a more restricted meaning in paragraph 18 than it does in other contexts. At a minimum, the words “fixtures used in connection therewith” must refer to fixtures other than exempt machinery and equipment. It is my opinion that, by including the word “fixtures” in paragraph 18, the Legislature intended to draw a dividing line between two groups of machinery and equipment, both of which could arguably be involved in the production of electric power and both of which are fixtures.

[ 68 ] In my view, the exemption ends at the equipment by which things such as the stop logs, trash booms, hoists and cranes are fastened to the realty. This is consistent with the purpose of paragraph 18, which is to treat what would otherwise be chattel (i.e. movable) machinery and equipment as tax exempt. The non-exempt equipment would include, for example, the bolts and screws by which the engine in Hobson was attached, if they were embedded in concrete. It also includes, in the case at bar, the guides to which I made reference above and the anchors by which the powerhouse crane rails are secured (see category "J" in "Appendix "C" to GLP's factum), if similarly embedded.

Characterization of the Components in Issue

[ 69 ] I now turn to the other items at issue in this application. First, however, the process itself must be addressed.

The Characterization Process

[ 70 ] GLP concedes that the intake, penstocks and surge tanks are “structures”. However, it submits these items can still be machinery or equipment. MPAC, however, says that this can only be true if the applicant uses the “integration test”, a test which the Ontario Court of Appeal has repeatedly held was inapplicable to this stage of the analysis. MPAC says that something cannot be both a structure and machinery or equipment. It argues that, once an item has been found to be a building or a structure, there is no room to consider whether the item is also machinery or equipment. This is a sort of “stop at first appearance” argument. In my view, it is based on a mistaken interpretation of the two cases upon which MPAC relies in support of it, namely Metals and Alloys and Nabisco.

[ 71 ] In Metals and Alloys, Arnup, J.A. reviewed the jurisprudence and accepted a submission made by counsel for the Regional Assessment Commissioner that the “integration test” had been improperly used to determine whether an item was a “building” or “structure” on the one hand or “machinery” on the other. He wrote (at para. 42, O.J.):

In short, I agree that once it has been decided that in all the circumstances the item is a “building”, it cannot then be held to be “machinery” because it is used in conjunction with the manufacturing process. (emphasis added)

[ 72 ] In my view, Arnup, J.A. did not mean to hold that something that has certain characteristics of a building cannot be machinery. He went on to formulate a list of questions designed to assist the court in determining whether an item is a “building” on the one hand, or “machinery” on the other. After reviewing a number of cases in which that issue had been dealt with by the courts, Arnup, J.A. wrote (at para. 338):

...I would observe that in each of the foregoing cases, the land owner had constructed an “item” in which something physical happened, as part of the manufacturing process. In some, what happened was mechanical; in some, chemical; in another, electrical.

[ 73 ] Arnup, J.A. went on to write (at p. 303, O.R., para. 39, O.J.):

During the argument, I expressed the view, which I still hold, that the question: “What is this item used for?” is an appropriate question for the assessor, or the tribunal of fact, to ask. It is, however, only one of the questions to be asked and answered. Other questions are: How was this item constructed? Why was it constructed in this shape, or of this material, or of this size? Does it look like a building? Is it built like a building? Does something happen within or on this item that is an integral part of the manufacturing process, as distinct from happening within or on a piece of machinery that the item encloses?

[ 74 ] The list of questions which Arnup, J.A. formulated did not stop after “Does it look like a building?”, nor after “Is it built like a building?” By going on to ask “Does something happen within or on this item that is an integral part of the manufacturing process, as distinct from happening within or on a piece of machinery that the item encloses?”, he formulated a question which contemplated that something that looked like a building or was built like a building could, instead, be machinery.

[ 75 ] Arnup, J.A. went on to indicate that it was not his intention to lay down a “test” or that the foregoing list of questions should be exhaustive (see p. 306 O.R., para. 47 O.J.). To this list of questions, GLP would add: “How does the industry treat it?” I agree. As mentioned above, this was one of the factors considered by Arnup, J.A., although it did not find its way into his list of questions.

[ 76 ] Nothing in Nabisco altered Arnup, J.A.’s decision in Metals and Alloys. Indeed, Dubin, J.A. used almost identical phraseology to that employed by Arnup, J.A. when he held that the silos in question were structures. He wrote (at para. 24, O.J.):

Once that determination is made, the silos cannot then be held to be machinery because they are used in conjunction with a manufacturing process. (emphasis added)

[ 77 ] In my opinion, the Court of Appeal in Metals and Alloys and Nabisco held that what would otherwise be a building or structure because of its nature cannot become machinery or equipment by virtue of the integration test alone, i.e. by virtue of the fact that the building or structure was used in the manufacturing process. In Metals and Alloys (at para. 47, O.J.) Arnup, J.A., after referring to the integration test, wrote:

I do not agree with the use of this test to decide, without more, whether a disputed item is “machinery”. I have already stated that the use of the item is one factor to be considered, but there are other questions to be asked as well. (emphasis added)

[ 78 ] While Dubin, J.A. was critical of Metals and Alloys for including “use” as a factor in the determination of whether something was a building or machinery, he did not change the list of questions set out in Metals and Alloys and, indeed, employed them as an alternate means of arriving at his conclusion (see para. 32, O.J.) that the silos in question were structures, if not buildings.

[ 79 ] This interpretation is supported by the jurisprudence since Metals and Alloys and Nabisco were decided. In Re. St. Mary’s Cement Co. and Regional Assessment Commissioner, Region No. 13 et al. (1985), 1985 1951 (ON SC), 52 O.R. (2d) 677, [1985] O.J. No. 2683, Barr, J. of the Ontario High Court of Justice was required to consider whether certain portions of a cement manufacturing plant were machinery and equipment used for manufacturing purposes. In the course of doing so, he referred to the decision in Metals and Alloys . He held that while something may be a structure, if its dominant characteristic was that of machinery or equipment used for manufacturing, it was exempt from taxation. The Divisional Court reversed Barr, J.’s decision with respect to certain “clinker silos” and a “beehive”, which were used to store clinker. In the course of doing so, however, the Divisional Court wrote:

There is no processing or any chemical, mechanical or electrical action that takes place in either of these structures . (emphasis added)

Thus, the Divisional Court in St. Mary’s contemplated that structures may be machinery or equipment where some form of processing or a chemical, mechanical or electrical action takes place within the structure.

[ 80 ] In Dresser Canada Inc. v. Regional Assessment Commissioner, Region No. 18, [1995] O.J. No. 197, a 1994 decision of Fleury, J. of the Ontario Court of Justice (General Division), the court held that a geodesic dome structure designed to collect and control the emission of gas and particulate matter resulting from the manufacture of abrasive materials was exempt from taxation as machinery and equipment. Fleury, J. held that, although the item in question had certain external characteristics of a building or structure, the same was “one and an entire unit of machinery and equipment”.

[ 81 ] In another case decided in 1994, Reilly, J. of the Ontario Court of Justice (General Division) held in U.L. Canada Inc. v. Ontario (Regional Assessment Commissioner, Region No. 20), [1994] O.J. No. 3116 that freezing chambers used to manufacture ice cream were machinery and equipment. After making reference to Metals and Alloys, Nabisco, and to St. Mary’s Cement at the Divisional Court level, Reilly, J. held that, “the entire freezing chamber constitutes the machine, in the same way a common household refrigerator is a “machine”.

[ 82 ] I conclude that a structure can still be machinery or equipment for the purposes of the Act, depending upon what occurs within it during the manufacturing process (and not only because it is part of the manufacturing process).

[ 83 ] Having reviewed the meaning of various terms in paragraph 18 and the jurisprudence with respect to the process to be followed, I turn now to the characterization of the items at issue in this application.

Intake

[ 84 ] The intake is the means by which water passes from one side of the dam to the other, where it is then used to generate electricity. According to GLP’s engineer, the intake is made at the same time as the dam is built, using forms which are set inside the concrete of the main dam. At the entrance to the intake water passage, the shape is generally rectangular. At the downstream end of the intake water passage, the shape is circular. There is a gradual transition in the shape of the intake water passage from one to the other, so that the intake water passage can connect with the circular penstock or the circular turbine scrollcase at the end of the intake water passage. The intake water passage is reinforced within the concrete of the dam by steel.

[ 85 ] GLP argues that the intake is “equipment” and exempt from taxation as a result. It argues that the intake is specially designed to increase the velocity of water, which it does as a result of the fact that the size of the intake decreases as water enters the penstocks.

[ 86 ] While it may be true that something does happen within the intake of a mechanical nature, in the sense that the water velocity increases, whether something of a mechanical (or other) nature takes place within the structure is not the only question to be asked during the characterization process.

[ 87 ] The evidence is that the intake is really nothing more than a reinforced hole in the dam, which the parties agree is a structure. A diagram produced by Acres for GLP refers to the intake as a “structure”. During his cross-examination, GLP's engineer testified that the intake “is an opening in the structure” (see transcript of cross-examination taking place January 20, 2004, at question 156).

[ 88 ] In my view, without meaning to be critical or flippant, characterizing the intake as machinery or equipment is akin to saying that the hole in a donut is a handle. The intake is part of the structure of the dam, and not machinery or equipment subject to the exemption in paragraph 18. If not a structure, the intake is a structural facility. It is a facility (i.e. something designed for a particular purpose) that is structural in nature.

[ 89 ] The intake is not the same as the well that was at issue in Anglo-Canadian Oil Co. Ltd. v. The Minister of National Revenue, 1947 297 (CA EXC), [1947] Ex. Cr. 63. In that case, the Exchequer Court of Canada held that the costs associated with the drilling of an oil well were costs related to the construction of “equipment”. In my view, Anglo-Canadian, is distinguishable in that the hole in the ground was not a hole in a structure, formed at the same time as the structure. It was created as a separate entity.

[ 90 ] Nonetheless, I draw a distinction between the intake and the items associated with it. The associated items are not part of the structure. For the sake of clarity, I do not include the gates, trash racks, cranes or any of the other items specifically at issue in this application as part of the intake. I will deal with these items, below.

Penstocks

[ 91 ] Penstocks are a different matter, in my opinion. Penstocks are in the nature of a “pipeline”. They connect the intake to the turbine. They are often constructed of steel. GLP alleges they control the flow of water, although MPAC’s engineer disagrees with this. There is no disagreement, however, that the size of the penstock is determined by the rate of the turbine, or that the penstock is the means by which water is delivered to the turbine.

[ 92 ] MPAC’s expert admits that, “in some cases, within the industry, some of the component parts of a penstock are referred to as equipment” (see page 76 of Creamer’s October 27, 2000 affidavit).

[ 93 ] Although not determinative, it is noteworthy that the penstocks were granted an exemption from federal sales tax as “machinery or apparatus” (see McLean affidavit, sworn October 21, 2009, at para. 32 and Exhibit “M”).

[ 94 ] Other courts have found penstocks or pipelines to be equipment. In Anglo-Canadian, supra, the court held that the casing or pipeline placed into a well was “equipment” and therefore exempt from tax under the Income War Tax Act.

[ 95 ] In Abitibi-Price Inc. v. Newfoundland (Minister of Finance) (1991), ( 1991 7435 (NL SC), CarswellNfld. 54, 91 Nfld. & P.E.I.R. 316) the Newfoundland Supreme Court, Trial Division found that a penstock was an “apparatus” and, therefore, a piece of “equipment” within the meaning of the Retail Sales Tax Act, 1978 . That Act apparently contained no internal definition of equipment. Therefore, the court’s decision was arrived at after consulting a dictionary definition of that term. While it is true that the (Newfoundland) Act did require that the equipment be “used by a manufacturer in carrying on manufacturing”, I disagree with MPAC’s submission that the case is distinguishable because the court was therefore required to apply an integration test of the type previously employed by Ontario courts.

[ 96 ] At paragraph 19 of the decision, the court rejected a submission that it adopt “the integrated plant concept”. In my view, the court in Abitibi-Price engaged in the type of two-step process that courts in Ontario are now required to engage in when considering exemptions under paragraphs 17 and 18 of the Act, i.e. to first characterize the item and then to determine its use. In PPG Canada Inc. v. Ontario (Regional Assessment Commissioner, Region No. 25), [1990] O.J. No. 2574 (Div. Ct.), the court held with respect to determining whether an exemption applies under paragraph 17:

This approach contemplates two distinct analytical steps. The first one may be referred to as the characterization process. It requires that items be characterized as either “buildings or structures” on the one hand or “machinery or equipment” on the other hand. Following that process, step two need only be considered if the items have been characterized as machinery or equipment. If the items have been so characterized, it becomes necessary to determine whether the machinery or equipment is “used for manufacturing purpose”.

[ 97 ] On the other hand, the decision relied upon by MPAC with respect to this issue, West Lorne (Village) Public Utilities Commission v. Aldborough (Township), [1967] O.J. No. 442 (Ont. C.A.) is distinguishable. In that case, the court characterized pipelines as “structures”. However, the legislation in issue (section 43(10) of the Act) referred to “structures other than buildings”, so as to include everything that could be a structure apart from a building. No reference was contained in the section to either equipment or machinery. Moreover, the court in West Lorne Village did make reference to the predecessor of paragraph 17 of the Act and wrote (at para. 2) that, “even if (the pipelines) could be considered as machinery and equipment under paragraph 17, (they) are clearly not machinery and equipment either for manufacturing or farming purposes .” Thus, the Court of Appeal did not find that pipelines could not be machinery or equipment under paragraph 17, only that they were not used for manufacturing or farming purposes.

[ 98 ] Lastly, I note that West Lorne was decided prior to the Court of Appeal’s decisions in Metals and Alloys and Nabisco.

[ 99 ] For these reasons, I find that the penstocks are equipment and, therefore, exempt from taxation, subject to my discussion of the other issues arising from paragraph 18, below.

Surge Tanks

[ 100 ] The evidence reveals that surge tanks are connected to the penstock as close as possible to the turbines. They provide a chamber into which the water can flow (upstream) and thus reduce pressure within the penstocks, when necessary. They are made of steel, manufactured off-site and assembled on concrete foundations on-site.

[ 101 ] In one sense, surge tanks are like silos. A number of cases have considered silos under paragraph 17 and characterized them as structures. However, these cases are distinguishable, in my view.

[ 102 ] In one of the earlier cases, St. Mary’s Cement, referred to above, Barr, J. dealt with silos that were involved in the manufacture of cement. Indeed, the evidence indicated that the silos were sometimes referred to as “surge tanks”. His decision that the silos were machinery or equipment was overturned by the Divisional Court. The silos in question, however, were used for nothing more than the temporary storage of materials such as “clinker”.

[ 103 ] In St. Lawrence Cement Inc. and Regional Assessment Commissioner for Region No. 15 et al. (1985), 1985 2150 (ON SC), 52 O.R. (2d) 545, Callon, J. of the Ontario High Court of Justice again dealt with clinker silos. After reviewing Metals and Alloys, he found the silos in question to be structures. However, the evidence in that case also indicated that the silos did nothing other than store the clinker. Further, I note that Callon, J. dealt only with whether the silos were “machinery” and not whether they were “equipment”.

[ 104 ] In PPG Canada, supra, the Divisional Court also found that concrete storage silos were buildings or structures, and not machinery or equipment. The court allowed the appeal on the basis that the trial judge did not have the benefit of the decisions in Metals and Alloys and Nabisco at the time that he arrived at his decision and that, had those cases been decided, he would have arrived at a different result. Once again, however, the silos in question appeared to be used for nothing other than storage.

[ 105 ] The surge tanks at issue in this case are unlike the silos referred to in the cases above in one important respect: the main purpose of the surge tank is not storage. In particular, the tanks in the case at bar perform as equipment, in the sense that they act to maintain the proper hydraulic pressure of the water that flows through the turbines. When the flow of water in the penstock starts or stops quickly, the surge chamber allows water to flow into or out of the penstock and minimizes any sudden positive or negative pressure waves or surges in it. Unlike silos, the surge tanks are connected directly to the penstocks and, in my opinion, function as part of that equipment.

[ 106 ] Therefore, the surge tanks are subject to the exemption contained in paragraph 18, provided the other criteria relevant to that exemption are met.

Gantry Cranes, Gates, Guides, Hoists, Ice/Trash Booms, Stop Logs, Trash Racks and Valves

[ 107 ] MPAC concedes that these items are normally considered “equipment” within the hydro industry. However, it argues that these items should be characterized as structures, structural facilities or fixtures because they are incorporated into and form part of the structures into which they are incorporated.

[ 108 ] In my view, with the exception of the guides and the anchors securing the powerhouse crane, which I have already discussed, these items remain items of equipment, because they are not incorporated into structures to the degree suggested by MPAC. The evidence shows that, apart from the guides and the anchors, the other items referred to above can all be removed from the structures with which they are associated without the necessity of destroying either the structure or the equipment. In other words, they are type of equipment that the paragraph was meant to exempt.

“Foundations Upon Which they Rest”

[ 109 ] The parties agree that, in order to be exempt from taxation, the “foundations upon which (machinery and equipment) rest” must be specially built to directly support the said machinery and equipment. This was the ruling in Shell Canada Ltd. v. Ontario (Regional Assessment Commissioner, Region No. 26), [1985] O.J. No. 416 (Ont. High Crt.), a case decided under paragraph 17. Thus, the parties agree on the proper interpretation to be given to the wording of the exemption. However, MPAC argues that GLP has not satisfied the onus upon it of demonstrating that it comes within the exemption.

[ 110 ] GLP concedes that there is more to do on its part with respect to this issue. GLP submits that it made no sense to incur the expense associated with additional expert evidence before this court made a ruling as to which items of machinery and equipment are exempt. GLP embraces the method employed by Wawa’s expert of “limit lines” and proposes to build upon that concept following receipt of this court’s ruling with respect to the other issues in this application.

[ 111 ] With respect, it is not open to GLP to unilaterally decide to bifurcate the application process. I appreciate that the task of introducing evidence about the foundations under all of the machinery and equipment at issue in this application is an onerous one. However, in my view, GLP ought to have either obtained the consent of the other parties to bifurcating the matter or, alternatively, a court order to that effect prior to the application proceeding.

[ 112 ] Nonetheless, there is evidence on the record with respect to the extent to which certain foundations have been specially designed or built for some of the machinery and equipment at issue. In particular, it is obvious from some of the photographic and other evidence that the concrete saddles which sit above ground upon which certain penstocks rest are specially built to do so. Even MPAC’s expert agrees that the “penstock support cradles or anchor blocks” would be an “obvious application of the term, ‘foundation for equipment’” if the penstocks were considered to be equipment used to produce power.

[ 113 ] There is also photographic evidence of other foundations which appear to be specially designed or built for machinery or equipment. In particular, I refer to the photographs of the foundations upon which the surge tanks rest, reproduced on pages 12 and 15 of GLP’s factum.

[ 114 ] Further, there is expert evidence in the record with respect to the foundations which have been specifically designed and built for the two pieces of machinery MPAC concedes are used to produce power, namely the turbine and the generator. However, the expert evidence is conflicting.

[ 115 ] GLP’s expert’s opinion is that the entire powerhouse substructure is a foundation specifically designed and built to house the turbine and the generator. MPAC’s expert disagrees. In his affidavit of October 27, 2000, Mr. Creamer testified as follows (at para. 38):

In paragraph 23, McLean refers to the powerhouse substructure as “... a complex foundation for the ...equipment...”. This is incorrect, at least in part, and the text description of the substructure” ... as a foundation...” is misleading. (emphasis in original)

[ 116 ] In his affidavit of October 25, 2010, MPAC’s expert also testified concerning the powerhouse substructure (at para. 17):

Even in respect to the generating units (turbine/generator), the extent, if any, of the adjacent concrete that should be classed as foundation is debatable. (emphasis added)

[ 117 ] In his reply affidavit of November 23, 2010 GLP’s expert testified (at para. 4(c)):

At paragraph 17, Mr. Creamer states that with respect to the generating units (turbine/generator), the extent, if any, of the adjacent concrete that should be classed as foundation is debatable. He allows that the so-called second stage concrete, which is filled in between the turbine components and the first stage concrete, is properly considered foundation. While I agree that the second stage concrete is properly considered foundation, the foundation for the generating units also includes the first stage reinforced concrete surrounding the second stage concrete, which resists all of the loads that are generated by the operation of the equipment and the hydraulic loads that are applied externally. Put simply, the second stage concrete, without the surrounding first stage concrete, would be incapable of holding the turbine/generator in place.

[ 118 ] From these excerpts, it is obvious that there is substantial disagreement at least between these two experts, as to the extent of the foundations which are specifically designed and built for the turbine and generator. It is reasonable to assume that, even if GLP had adduced additional evidence with respect to the foundations under which other machinery and equipment rest, there would have been further disagreement amongst the experts.

[ 119 ] Unlike the conflicting evidence relating, for example, to the terminology employed in the hydro-electric industry to describe the various items at issue in this application, the conflicting evidence relating to the extent of foundations specifically designed for the various components must be resolved in order for the application to be determined. That is not possible in the confines of a “paper case”. Therefore, it is my view that this aspect of the application must proceed to trial, pursuant to the provisions of rule 38.10(1)(b) of the Rules of Civil Procedure.

“Used for Producing Electric Power”

[ 120 ] Even if they are characterized as machinery or equipment, MPAC argues that the ice/trash boom, spillway gates and stop logs, ice/trash sluice gates and stop logs, trash racks, bulkhead gates, main intake gates, intake gantry crane, penstocks, surge tanks, penstock valves, draft tube gates, hoists, powerhouse crane, draft tube gantry crane, and draft tube stop logs are not used for producing power, within the meaning of paragraph 18.

[ 121 ] GLP says that the process of generating hydro-electric power begins at the intake and ends at the draft tube. MPAC argues that, for the purposes of paragraph 18, the process starts at the turbine and finishes at the generator, including associated equipment. MPAC argues that only machinery and equipment directly involved in the process that changes the raw material into a finished product is used to produce electricity.

[ 122 ] In support of its submission that the machinery and equipment must be directly used, MPAC relies upon the decision in U.L. Canada, supra . In that decision, Reilly, J. wrote (at para. 20) concerning paragraph 17:

The jurisprudence is clear that the “item” in question must be directly involved in a “change or a part of the process from raw materials to finished product”. More specifically, in the context of these applications, I conclude that if the items in issue, the freezing chambers, are used for storage as opposed to manufacturing, per se, they do not qualify for exemption from taxation under section 3(17) of the Assessment Act. I would refer to the cases of Re: St. Lawrence Inc. v. Regional Assessment Commissioner, Region No. 15 (1985), 1985 2150 (ON SC), 52 O.R. (2d) 545, The Norfolk Fruit Growers Assoc. v. The Regional Assessment Commissioner et al. (1982), County Court, Ontario (unreported) and Weyerhaeuser Canada Ltd. v. City of Sault Ste. Marie 1967 150 (ON SC), [1968] 1 O.R. 460. In Weyerhaeuser, at pg. 463, Vannini, D.C.J. distinguishes between “suitable for use” and “what they are in fact and what they are in fact used for”. That distinction is relevant in this case.

[ 123 ] With respect, at least two of the three cases relied upon by the trial judge in U.L. Canada do not support the proposition for which they are relied upon. I have been unable to locate a copy of the decision in Norfolk Fruit Growers, the unreported decision referred to by Reilly, J. However, a review of the other two cases fails to turn up any support for the proposition that the equipment and machinery must be used directly in a process involving a change from raw materials to finished product. In St. Lawrence Cement, a decision referred to elsewhere in these reasons, the court was dealing with the characterization of the silos in question under paragraph 17, and not with the utilization of those items. In other words, the court was dealing with the first of the two processes referred to in PPG Canada, supra.

[ 124 ] An examination of the decision of Vannini, J. in Weyerhaeuser reveals that the case may, in fact, stand for the opposite proposition to that for which it was relied upon by Reilly, J. In Weyerhaeuser, Vannini, J. held that a dry kiln and a steam vat were used in the process of manufacturing lumber and veneer because they formed “an integral part of the overall or general process” even though he was unable to find that anything occurred in either unit resulting in a change in the nature or character of the material or substance.

[ 125 ] An appeal from the result in U.L. Canada to the Divisional Court was unsuccessful ( (1997) O.J. No. 4092 ). Counsel for MPAC argues that the Divisional Court implicitly, if not explicitly, rejected the argument that machinery or equipment is used for manufacturing purposes so long as the manufacturing plant would not be viable without it. With respect, I do not view the decision of the Divisional Court in that fashion. The Divisional Court merely held that the manufacturing process was complete before the ice cream in question entered the particular area of the plant at issue in the appeal. While an analogy between the manufacturing of ice cream and the production of hydro-electricity is difficult, I view the decision in U.L. Canada as dealing with machinery or equipment that might exist after water leaves the draft tube gate in the case at bar.

[ 126 ] MPAC also relies on a decision from the Nova Scotia Supreme Court – Appeal Division, which dealt with an exemption from taxation under the Nova Scotia Health Services Tax Act. In, Stora Kopporbergs Bergslags Aktiebolag v. Nova Scotia (Minister of Finance) (1987), 1987 9351 (NS CA), 78 N.S.R. (2d) 354, [1987] N.S.J. No. 135, the court held:

To gain exemption from taxation under the Health Services Tax Act, “machinery and equipment” must be used in the actual transformation or conversion of the ultimate product being produced for sale and not simply be a part of the overall process of the industry which manufactures the specific product ultimately sold.

[ 127 ] MPAC argues that this rational should be applied to the facts of the case at bar. If so, it submits, it would preclude such things as the ice/trash booms, which protect the intake, from qualifying for the exemption. It would also exclude such things as the gates and hoists associated with the draft tube.

[ 128 ] However, the facts in Stora Kopporbergs were very different than those in the present case. In that case, the court was dealing with wood chippers used to create wood chips which were burned to generate steam, which was used to create electricity which, in turn, powered pulp and paper producing equipment. In other words, the equipment was not just one, but several steps removed from the process. It is not surprising that the court found the wood chippers were not used in the production process.

[ 129 ] A later case from the Nova Scotia Supreme Court – Appeal Division, Stora Forest Industries Ltd. v. Nova Scotia (Minister of Finance) (1991), 1991 8246 (NS SC), 82 D.L.R. (4 th ) 88, 1991 CarswellNS 380, which dealt with the same exemption from taxation under the Nova Scotia Health Services Tax Act, is of more assistance, in my opinion. In that case, the court held that machinery (and equipment) were used in the process of manufacture or production of goods for sale where the machinery or equipment was “reasonably essential” to the process. The court considered the earlier Stora Kopporbergs case and held that closed-circuit cameras which monitored machinery in the wood preparation and hog fuel systems of the mill were involved as a necessary part of the manufacturing process.

[ 130 ] Even where legislation specifically requires that machinery and equipment be directly involved in the production process, a number of American cases have interpreted the requirement broadly. In the U.S. case of Coca Cola Ltd. v. Deputy Minister or National Revenue for Customs and Excise, 1983 5070 (FCA), [1984] 1 C.F. 447, the Federal Court of Appeal overturned a lower court decision which held that cases that carry bottled product to and from filling stations were not used directly in the manufacture or production of goods.

[ 131 ] In Department of Revenue, State of Indiana v. Kimball International, Inc., 520 N.E.2d 454 (Ind.App. 3 Dist., 1988) the Indiana Court of Appeals for the 3rd District dealt with whether spray booths used in the manufacture of finished wood products were exempt from retail tax. The statute at issue required that the machinery be directly involved in production. The court held that without the equipment in question the process would be impossible from both an operational and a safety standpoint. Therefore, it was found to be exempt.

[ 132 ] In The Carborundum Co. v. Bowers Tax Commissioner of Ohio, 187 N.E.2d 600, 119 Ohio App. 195 (Ohio App. 8 Dist., 1963), the Court of Appeals of Ohio for the 8 th District held that fume exhaust and dust collecting equipment whose function was to protect employees and machinery involved in the manufacture of abrasive products was directly involved in the manufacturing process.

[ 133 ] In a case dealing specifically with the production of hydro-electric power, the Supreme Judicial Court of Maine in UAH-Hydro Kennebec, L.P. v. State Tax Assessor, 659 A.2d 865 (Me., 1995), considered whether bascule gates used to allow water to bypass a hydro-electric facility without flowing through the turbines were machinery and/or equipment used in the production of electricity. The legislation at issue required that they be used directly in the said production. The type of hydro-electric facility at issue in UAH-Hydro was a “run of the river” facility in which flow of the river upstream had to equal the downstream flow at all times. The court held that production commenced with the movement of raw materials “to the first production machine after their receipt and storage at the production site (after receipt of the materials are not stored)”. In the result, the court held that the bascule gates were directly involved in the production of electricity.

[ 134 ] In my view, MPAC’s position is not consistent with the object and scheme of the Act. Even if the purpose of paragraph 18 is only to exempt from taxation machinery and equipment that would otherwise be taxed as a result of the changes made to the Act in 1904, there is no rational reason why the Legislature would restrict the exemption in the way suggested.

[ 135 ] Nor is MPAC’s position supported by the wording of paragraph 18. The section does not require that the machinery and equipment be used “directly” or used “in the actual transformation” involved in the manufacturing or production process. It would have been a simple matter for the Legislature to include such language, but it chose not to do so. Instead, it specifically included the word “all” before “machinery and equipment”.

[ 136 ] I find the result in the American decisions to which I have been referred to be more in keeping with the scheme and object of the Act, and the wording of the paragraph.

[ 137 ] Therefore, I conclude that, in order to be used in the production of electric power, machinery and equipment must be necessary to the safe operation of the hydro-electric station, but not necessarily directly involved in the transformation of flowing water to electric power.

[ 138 ] I do not need to review the expert evidence with respect to the function of each piece of equipment mentioned above in order to determine if it meets this definition. The experts agree that it is all necessary for the production of hydro-electric power in the sense that no hydro-electric generating station would be built without it. Therefore, in my view, all of the machinery and equipment referred to in paragraph 120 above is machinery and equipment used for producing electric power.

“For Sale to the General Public”

[ 139 ] Like the issues surrounding the proper characterization of the various components found at GLP’s power generating stations, this aspect of the application requires the court to consider both the meaning of the words used in paragraph 18 and whether GLP fits within them.

[ 140 ] The parties agree that, for the years in question, 100 percent of the power produced at GLP’s power generating stations was sold to the following customers, namely:

Sault Ste. Marie Public Utilities Commission (“PUC”) 37%

Industrial Customers, consisting primarily of Algoma

(Essar) Steel and St. Mary’s Paper 56%

Rural retail customers (directly) 7%

[ 141 ] Historically, MPAC has always assessed GLP on the basis that all the power it produced was for sale to the general public. However, that has changed. GLP says that the change in MPAC’s position is a “creature of litigation”. Now, MPAC submits that only seven percent of the power produced by GLP is for sale to the general public.

[ 142 ] During the argument of this matter, I questioned whether MPAC was precluded from adopting its present position by virtue of the Ontario Court of Appeal decision to which I referred earlier in Great Lakes Power. In the course of his dissent on that issue, Borins, J.A. wrote:

It appears to be common ground that GLP generates, transmits and distributes electricity for sale to the general public to whom it charges rates for electrical services that are regulated by Hydro.

[ 143 ] Having had the benefit of argument by counsel, I am of the view that MPAC is not precluded from adopting its present position. Although there are several reasons for this, two will suffice. Firstly, counsel for GLP candidly admitted during argument that it could not be said that there was such an agreement between the parties at the level of the Ontario Court of Appeal. Secondly, even if one accepts that this reference in the decision of Borins, J.A. is a fact of which this court might take judicial notice, the decision in question is nearly thirteen years old. It would be wrong, in my view, to assume that the same set of facts exists today.

[ 144 ] Returning to the issue at hand, MPAC argues that the word “general” limits the word “public” in the phrase “for sale to the general public”. It submits that the sale of power to the PUC and to large industrial consumers is not a sale to the general public. With respect, I disagree. In my view, the word “general” broadens, not restricts, the word “public”. The words “for sale to the general public” are intended to refer to the sale of power to more than one specific segment of the public, not to preclude sales to any one particular segment.

[ 145 ] In C.C.H. Canada Ltd. v. Law Society of Upper Canada, 2002 FCA 187, [2002] F.C.J. No. 690, a copyright infringement case, the Federal Court of Appeal interpreted the meaning of the word “public” as follows (at para. 244):

The ordinary meaning of the word “public” appears to be the community or people as an aggregate, or at least a particular section, group or a portion of a community, and is certainly more than a single person. (emphasis added)

Thus, the word “public”, on its own, can refer to a particular segment of community, rather than the entire community. The sale of electric power only to large industrial consumers, for example, might be permissible using this definition of the word.

[ 146 ] Some cases have treated the words “general public” and “public” as being synonymous (see U.S. ex rel. Rost v. Pfizer Inc. 446 F. Supp. 2d 6, 28 (D. Mass. 2006), at page 6). However, in my view, the word “general” in paragraph 18 should not be ignored. It must be given meaning, where possible (see Placer Dome, supra, at para. 45; Losenno v. Ontario Human Rights Commission (2005) 2005 36441 (ON CA), 78 O.R. (3d) 161 (Ont. C.A.), at page 173).

[ 147 ] The word “general” is defined in the Concise Oxford English Dictionary (11 th Ed., Revised) as meaning, “affecting or concerning all or most people or things; not specialized or limited”. Thus, the word “general” is the opposite of “specific”. In my opinion, therefore, the inclusion of this word means that the taxpayer claiming an exemption under paragraph 18 must sell power to all segments of the community, and not just to a specific section, group or portion of it.

[ 148 ] This is in keeping with the decisions in other jurisdictions. In Spencer v. Lutkehaus, [1986] B.C.J. No. 130, the British Columbia Court of Appeal considered the meaning of the terms “public” and “general public”, both of which appeared in the definition of “highway” in regulations made pursuant to the British Columbia Automobile Insurance Act. The court held that the words “general public” were broader than the word “public”, which might refer, for example, only to patrons of a particular business or enterprise.

[ 149 ] MPAC admits that, after purchasing power from GLP, the PUC sells electricity to members of the general public. Therefore, MPAC’s argument is that in order to qualify for the exemption, there must be no “middle man”. In other words, MPAC argues that only power sold directly to the general public qualifies. However, paragraph 18 does not contain this requirement, nor is there any valid reason to read such a requirement into the paragraph in order to give effect to the object of the Act and the exemption.

[ 150 ] And what of the power that is sold directly by GLP to large industrial consumers? In my opinion, MPAC’s argument that this also fails to qualify under paragraph 18 is inconsistent with its concession that the PUC sells to the general public. The parties have agreed that the PUC sells to both residential and business consumers. If, as MPAC concedes, the PUC sells to the general public, then GLP is doing exactly that by selling directly both to businesses, and to residential consumers.

[ 151 ] In the result, I find that GLP satisfies this aspect of paragraph 18 with respect to 100% of the electricity it produces.

Whether Section 3(1), Paragraph 17 Applies

[ 152 ] GLP argues that it also qualifies for an exemption under paragraph 17, which contains no requirement that machinery and equipment be used for manufacturing products for sale to the general public. In part, GLP relies upon the decision of the Ontario Court of Appeal in Great Lakes Power, referred to earlier, in which the Court of Appeal upheld a finding that GLP’s predecessor was “a manufacturer” within the meaning of section 7(1)(d) of the Act. With respect, I am unable to accept that argument.

[ 153 ] By virtue of the principle of statutory interpretation known as generalia specialibus non derogant, the scope of a general provision will be reduced by subtracting from it the subject matter of the special provision (see Mills v. Star Quality Homes Ltd. (1978), 1978 1389 (ON CA), 21 O.R. (2d) 39, [1978] O.J. No. 3505, (Ont. C.A.)). Paragraph 18 applies only to the producers of electricity, whereas paragraph 17 is a more general provision, applying to manufacturers of all sorts, with certain specific exceptions. Applying this principle, only paragraph 18 would be available to GLP.

[ 154 ] The legislative history that I reviewed earlier also supports a conclusion that paragraph 17 is not applicable to GLP. The production of power was specifically excluded from paragraph 17 until 1970. At the same time as the paragraph was amended to remove the words “or for producing power for sale”, the gradual reduction in taxation through sections 86 and paragraph 18 were implemented. In my view, it is reasonable to infer from this that power producers were to be dealt with separately from other manufacturers. It would defeat the intention of the Legislature in enacting paragraph 18, if GLP could rely on paragraph 17 to avoid the requirement that the power be produced for sale to the general public and that the exemption be limited to that extent.

[ 155 ] Therefore, I find that GLP is not entitled to an exemption under paragraph 17.

Order/Declaration

[ 156 ] With the exception of the intake passageway, the rail anchors and the guides referred to therein, the items listed in Appendix “C” of GLP’s factum are machinery and equipment used for producing power for sale to the general public under Section 3(1), paragraph 18 of the Assessment Act .

[ 157 ] All of the power produced by GLP is for sale to the general public.

[ 158 ] GLP is not entitled to claim an exemption under Section 3(1), paragraph 17 of the Assessment Act .

[ 159 ] GLP shall be permitted 60 days from the date of the release of these reasons within which to serve any additional expert evidence upon which it intends to rely with respect to this particular issue. The respondents shall have 60 days from the date upon which they receive that evidence to serve any responding expert reports. The applicant shall have 30 days thereafter to serve any reply report. The parties shall be permitted an opportunity to discover one another’s experts on that issue thereafter. A date for trial shall be set within 12 months of the release of these reasons and may take place before me.

Costs

[ 160 ] Success in this application was divided. For that reason, it is hoped that the parties can agree on the issue of costs. If not, they may deliver written submissions, limited to five double-spaced pages, excluding authorities, as follows:

• By GLP, within 30 days of the release of these reasons;

• By MPAC and Wawa, within 20 days thereafter;

• Any reply by GLP, within 10 days thereafter.

[ 161 ] I would like to thank counsel for their able assistance in this matter.

Ellies, J.

Released: 20120706

ONTARIO SUPERIOR COURT OF JUSTICE GLP POWER INC. – and – MUNICIPAL PROPERTY ASSESSMENT CORPORATION, THE CORPORATION OF THE CITY OF SAULT STE. MARIE, THE CORPORATION OF THE TOWNSHIP OF MICHIPICOTEN, MICHIPICOTEN LOCALITY EDUCATION, and THE SAULT STE. MARIE BOARD OF EDUCATION REASONS FOR decision Ellies, J.

Released: 20120706

[1] In making this statement, I am aware of the dispute between GLP’s expert and the expert retained by MPAC with respect to the degree to which kinetic energy is involved in the production of hydro-electric power (see Creamer affidavit, sworn October 27, 2000 at paragraph 30). However, MPAC’s expert does admit that at least a small portion of the potential energy is converted to kinetic energy in the process.