September 15, 1903

CON
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The MINISTER OF JUSTICE.

Just begin with the government, enumerate those who have been retained by the government.

Topic:   J. F. HELLMUTH.
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CON
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The MINISTER OF FINANCE.

My hon. friend conveys the impression that we retained a large number.

Topic:   J. F. HELLMUTH.
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Mr OSLER.

I asked Mr. Blake, whose opinion I should have. He suggested at once Mr. Shepley. I also asked Mr. Walter Cassels.

Topic:   J. F. HELLMUTH.
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The MINISTER OF FINANCE.

Are these gentlemen retained by the government ?

Topic:   J. F. HELLMUTH.
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CON
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The MINISTER OF FINANCE.

The hon. gentleman will pardon me. He states that tiie government have retained a large army of legal gentlemen. If they are retained by either the government or the Grand Trunk, I ask him to state who they are.

Topic:   J. F. HELLMUTH.
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CON

Edmund Boyd Osler

Conservative (1867-1942)

Mr. OSLER.

I said by the Grand Trunk or tile government. I think I am quite right.

Topic:   J. F. HELLMUTH.
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The MINISTER OF FINANCE.

That is not fair. There is nobody retained by the government in this matter.

Topic:   J. F. HELLMUTH.
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CON

Edmund Boyd Osler

Conservative (1867-1942)

Mr. OSLER.

I remember the minister himself saying that Mr. Shepley had been here on behalf of the government revising this contract-and Mr. Gormuily too.

Topic:   J. F. HELLMUTH.
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IND

William Findlay Maclean

Independent Conservative

Mr. MACLEAN.

Perhaps the government will say whom they have retained.

Topic:   J. F. HELLMUTH.
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CON

Edmund Boyd Osler

Conservative (1867-1942)

Mr. OSLER.

However, I do not think any legal gentleman in this House will dispute the standing of Mr. Hellmutli or of Mr. Donald Maemaster, or would suggest for a moment that because of their political leanings they would give an opinion which would discredit them in the eyes of the legal profession. I would trust their opinion absolutely as if they were on this side of politics.

Mr. Macmaster's opinion, which is a very lengthy one, is as follows :

Topic:   J. F. HELLMUTH.
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CASE FOR OPINION.


The questions submitted for opinion are : 1. What is the true effect and meaning of clause 17 in the contract of the 29th July, 1903, between the government of Canada, and Sir Charles Rivers Wilson and others, acting on behalf of the Grand Trunk Pacific Railway Company, and more particularly



(a.) Is its scope limited to the remission of duties on materials and supplies imported by the government after the construction of the eastern division, and while it is leased and operated by the company, or, (b.) Is it applicable to importations of the like materials when used in the original construction of the eastern division ? and (c.) Is the government absolved from the obligation to remit duties upon importations o! materials and supplies when these are made through contractors to whom the government has let the work of construction ?


CLAUSE SEVENTEEN.


Clause 17 is as follows ' No addition shall be made to the cost of construction or to the capital of construction account in respect of customs duties in casts where there is direct importation of material or supplies by the government.' To answer these questions it is necessary to look at the whole scope of the agreement, to construe this clause, and each of the clauses, with reference to the whole agreement, and to collect the common intention of the parties therefrom. The agreement provides for the construction of a railway from Moncton, in New Brunswick, passing through central New Brunswick, and through the province of Quebec to the city of Quebec, and thence through northern Quebec and Ontario to Winnipeg ; from Winnipeg, over the prairies to the Rocky mountains and through the Rocky mountains to a seaport at or near Port Simpson, in British Columbia, on the coast of the Pacific ocean. The railway is subdivided into two divisions- 1. That from Moncton to Winnipeg is called the eastern division ; and 2. That from Winnipeg to the Pacific ocean is called the western division ; and the latter division, in turn, is divided into two sections-the prairie section and the mountain section. So far as construction is concerned, the scheme of the agreement appears to be this : That the government of Canada should, itself, construct the eastern division, and that it should lend its credit to the extent of $13,000 a mile in the prairie section, and $30,000 a mile in the mountain section, to enable the company to raise the money to construct the western division. The Grand Trunk Pacific Company also agrees that the Grand Trunk Railway Company of Canada shall guarantee its bonds for the balance required for the construction of the western division, exclusive of twenty millions of dollars required for the first equipment of the whole line, of which twenty millions, five millions shall be applicable in respect of the equipment of the eastern division of the railway. The company agrees to deposit five millions of dollars as security for the construction of the western division, and for the first equipment of the whole line of railway. The western division of the railway is to be constructed at the cost of, and is to be owned by, the company. Ths eastern division is to be constructed by, and at the expense of, the government (clause 5), and the company agrees to construct, maintain an! operate the western division, and to take a lease of, maintain and operate the eastern division for fifty years, upon the terms ani conditions in the agreement set forth. The government, however, has not the decisive voice in determining how the eastern division shall be constructed. There is, in respect of that, a * joint supervision ' by the company and by the government, or, what has been, perhaps, more aptly termed, a ' dual control ' or * joint voice.' That is provided for by clause 7 of the agreement, which is as follows :- ' 7. In order to insure, for the protection of the company as lessees of the eastern division of the said railway, the economical construction thereof in such manner that it can be operated to the best advantage, it is hereby agreed that the specifications for the construction of the eastern division shall be submitted to, and approved of by, the company before the commence-



ment of the work, and that the said work shall be done according to the said specifications and shall be subject to the joint supervision, inspection and acceptance of the chief engineer appointed by the government and the chief engineer of the company, and, in the event of differences as to the specifications, or in case the said engineers shall differ as to Ike work, the questions in dispute shall he determined by the said engineers and a third arbitrator, to be chosen in the manner provided in paragraph four of this agreement.' And the arbitration referred to is provided for in the latter part of clause 4, as follows :- ' In case the said engineers shall differ, the question shall be determined by the said engineers and a third arbitrator, to be chosen by them, and, in the event of their inability to agree on a third arbitrator, the Chief Justice of the Supreme Court of Canada may appoint the said third arbitrator, and the decision of the majority shall be final.' The term ' cost of construction ' is defined by clause 15 of the clause, as follows :- 1 The expression ' cost of construction ' in the case of the eastern division, shall mean and include all the cost of materials, supplies, wages, services and transportation required for, or entering into, the construction of the said eastern division, and all expenditure for right-of-way and other lands required for the purposes of the railway and for terminal facilities, accommodation works and damages and compensation for injuries to lands and for accidents and casualties ; cost of engineering, maintenance, repairs and replacement of works anl material during construction, and superintendence, book-keeping, legal expenses, and, generally, costs and expenses occasioned by the construction of the said division, whether of the same kind as, or differing in kind from, the classes of expenditure specially mentioned, including interest upon the money expended ; the interest upon such outlay in each year shall be capitalized at the end of such year, and interest charged thereon at three per cent per annum until the completion of the work and until the lessees enter into possession under the terms of the said lease ; and, for the purposes of this agreement, the amount of such cost of construction, including the principal and all additions for interest, to be ascertained in manner aforesaid, shall, on completion, be finally determined and settled by the government upon the report of such auditors, accountants, or other officers as may be appointed by the government for that purpose.' The * cost of construction ' referred to in clause 15 is, obviously, the original cost of construction up to the completion of the work by the government, and the taking possession of it, under the lease, by the company. Then there is provision in the contract for the treatment of sums of money expended by the government for the improvement of the eastern division after its completion and its delivery to the company for operation during the period of the lease, and that is provided for in clause 16 of the contract : ' 16. In case, after the completion of the eastern division and the taking possession thereof by the company under the lease thereof, hereinafter referred to, or at any time thereafter during the continuance of the said lease, the government shall deem it necessary to expend any sums of money for the improvement of the said eastern division, the replacement of structures by others more modern, or otherwise upon Mr. OSIA-1R. capital account for betterments, and not being ' working expenditure payable by the company, the government may expend such sums, and the amount thereof shall be added to the capital of the construction account at the end of the year in which such expenditure takes place, and shall thereafter be considered as part of the cost of construction, upon which interest, by way of rental, is to be paid by the company; provided that no such expenditure shall be entered upon without the consent and approval of the said company.' The ' cost of construction ' whether for original construction, or for subsequent improvements, is the sum upon which interest at 3 per cent is payable by the company to the government, which interest Is, under the agreement, the rental which the company obliges itself to pay to the government. That is provided fo * in clause 20 and in that clause there is a specific reference to the paragraphs 15 and 16 of the agreement above quoted and commented upon. Clause 20 is as follows :- ' When completed the said eastern division shall be leased to, and operated by, the company for the period of fifty years, at a rental, rayable as follows, namely :- For the first seven years of the said term the company shall operate the same, subject only to payment of ' working expenditure ' as defined in paragraph fourteen of this agreement ; for the next succeeding forty-three years the company shall pay annually to the government, by way of rental, a sum equal to three per centum per annum upon the cost of construction of the said division, ascertained in the manner defined in paragraphs fifteen and sixteen of this agreement, provided that, if any one or more of the first three years of the said period of forty-three years, the net earnings of the said division, over and above * working expenditure ' shall not amount to three per centum of the cost of construction, the difference between the net earnings and the rental shall not be payable by the company, but shall he capitalized and form part of the cost of construction, upon the whole amount of which rental is required to be paid at the rate aforesaid, after the first ten years of the said lease, and during the remainder of the said term.' Then, we have clause 17-the one in question : ' 17. No addition shall be made to the cost of construction or to the capital of construction account in respect of customs duties in cases where there is direct importation of material or supplies by the government, and immediately thereafter, clause 18, which relates to another subject, namely, the construction of the western division. Clause 47 makes provision for interpreting, the agreement, the obligations of the parties to it, and what constitutes * working expenditure ' or ' cost of construction.' It is as follow's :- * 47. Any dispute which may arise as to the meaning or construction of this agreement, or as to the performance of any of the obligatiou3 of either of the parties to this agreement, or as to working expenditure or cost of construction, shall, if not herein otherwise provided for, be determined by the award of a single arbitrator, if the parties concur in his appointment, or, if not, by the award of three arbitrators, one of whom shall be appointed by the government, one by the company, and the third by ! the two so appointed, or, in the case of their j being unable to agree, by the Chief Justice of the Supreme Court of Canada, and the award of a majority of such three arbitrator's shall be Anal.' It will be observed that the decisions of the arbitrators, under clause 47, as well as under clause 4. are final. Clause 17 must be drawn into perspective with all these clauses. Taking the clause by itself, there is no ambiguity in it, but before pointing out its clear and obvious meaning, it must be remembered that the ' dual control ' or ' joint voice ' or ' toint supervision ' referred to in clause 7 above cited, must have its full effect. The railway company which is to pay interest upon the principal expended for original construction ot the eastern division, as well as for subsequent improvements and betterments, is 'entitled, under clause 7, to say that that division shall be ' economically constructed and in such a manner that it can be operated to best advantage.' These are the berms of the clause, and it is, perhaps, the most important clause in the contract. What, then, is the true interpretation of clause 17-having reference to the context and to all the provisions of the contract ? It will be observed that duties are not to be added to the ' cost of construction ' or to 1 the capita] of construction account ' in cases where there is direct importation of material and supplies by the government. The ' cost of construction ' referred to in this section, means the ' cost of construction ' as defined in section 15, namely, the original cost of construction, and added thereto, any sums expended by the government for improvements and betterments during the continuance of the lease. (Clause 16). Both expenditures are treated as the cost of construction upon which rental is payable in the form of interest, to the government. The expressions ' the capital of construction account ' and ' cost of construction ' as used in section 17 of the agreement, miean the same thing, for paragraph 16 enacts in terms, that the expenditure on improvements and betterments ' shall be added to the capital of the construction account at the end of the year in which such expenditure takes place, and shall thereafter be considered as part of the cost of construction upon which interest, by way of rental, is to be paid by the company.' The remission of duties, is, however, only applicable in cases where the government makes direct importation of material and supplies whether for the purposes of original construction or for improvements and betterments. But if the government should omit to import supplies and material when they could be obtained more economically abroad than in Canada, a very serious question might arise between the company and the government, under the provisions of clause 7 by which the company, as lessees and. therefore, rent-payers on the expenditure incurred, are ' insured ' that the * construction ' of the eastern division shall be ' economical ' The agreement states that this clause is inserted ' for the protection of the company as lessees.' It must receive its full effect. Under and in virtue of the agreement the company has an appeal to arbitration, not only in respect of differences between the engineer of the company, and the engineer of the government, but as .to the meaning of the agreement itself as" to the performance of the obligations of either party, and as to what constitutes * cost of i construction.' So much for the agreement. To confirm the agreement, a Bill has been submitted to the legislature, and it may be important to inquire whether the proposed legislation contemplates 355 a variation of the terms of the agreement. I do not find that it does. On the contrary, the second clause of the National Transcontinental Railway Bill provides that :- * The said agreement bearing date the 29th day of July, 1903, a copy of which forms the schedule to this Act, is hereby ratified and confirmed and declared to be legally binding upon His Majesty and the said Grand Trunk Pacific Railway Company, and His Majesty and the said company are hereby authorized and empowered to do whatever is necessary in order to give full effect to the said agreement.' Section 8 provides that :- ' The eastern division of the said Transcontinental Railway, extending from the city of Moncton to the city of Winnipeg, shall he constructed by or for the government in the manner hereinafter provided and subject to the terms and provisions of the said agreement of the 29th July, 1903.' So far as the questions under consideration are concerned, these are the two dominant clauses of the Bill. Then follow provisions in order to enable the government to discharge its obligation in respect of construction, which is to be under the ' charge and control ' of three commissioners. The three commissioners and the chief engineer are the agents of the government, one of the contracting panties. The powers conferred upon the commissioners and chief engineer in no respect derogate from the rights of the company under the contract. The powers of the commissioners are defined. Under clause 13 of the Bill, they are ' authorized to enter upon and take possession of any lands required for the purposes of the said eastern division,' and in respect ,of the eastern division the commissioners ar,e to have the powers, &c., conferred upon a railway company, . under the Railway Acts and amendments thereto, when not in conflict with the Bill. Then follow certain provisions in regard to construction, and i.t is enacted that ' the commissioners shall l,et the work of constructing ' the eastern division by tender and contract. (Clause 16). Clause 18 provides that * no money shall be paid to any contractor until the chief engineer shall have certified that the work for or on account of which the same is claimed has been duly executed and that such money is due aud payable, nor until such certificate shall have been approved by the said commissioners.' Clause 21 authorizes the Governor in Council ait any time to suspend the progress of the work upon the eastern division until the then next session of parliament. Clause 22 provides that :- ' The Minister of Finance and Receiver General may, on the recommendation of the Minister of Railways and Canals, from time to time pay such claims and accounts for work done or services performed in the construction of the said eastern division as have been approved and certified by the chairman of the commissioners : Provided, however, that no money shall be so paid until a sufficient appropriation has been made by parliament for the purpose.' And Clause 25 further provides that : - ' The commissioners shall from time to time as moneys are required for payment for work or services in the construction of the said eastern division, issue and deposit with the Minister of Finance and Receiver General, a debenture.' &c. The commissioners and the chief engineer are the servants of the government which has undertaken to construct the road. There is no-



thing in the Bill expressly authorizing the commissioners to purchase supplies or material, though they may ' let the work ' by tender and contract under the supervision of their principal, the government, and issue debentures 'for payment for work or services.' The Minister of Finance may, from time to .time, pay claims and accounts for ' work done or services performed ' upon the certificate of the chairman of the commissioners, when a sufficient appropriation has been made by parliament for that purpose. There is no reference here to the power to purchase supplies and materials, but that is plainly included in clause 2, which not only confirms the agreement, but authorizes and empowers His Majesty to do whatever is necessary in order to give full effect to it. A clear line of cleavage is drawn between the letting of work and the payment of ' work and services,' on the one hand, and the purchase of supplies and materials. The government has not divested itself of the power to purchase supplies and materials. And the conclusion, after that long preamble- Some horn. MEMBERS. Oh, oh.


September 15, 1903