May 5, 1904

CON

Haughton Lennox

Conservative (1867-1942)

Mr. HAUGHTON LENNOX (South Sim-coe).

I wish to ask the Minister of Railways (Mr. Emmerson) if lie has looked into the matter of the return of correspondence, &c., in reference to the Cattle-guard Commission, which was referred to the day before yesterday.

Topic:   INQUIRY FOR RETURN.
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LIB

Henry Robert Emmerson (Minister of Railways and Canals)

Liberal

Mr. H. R. EMMERSON (Minister of Railways).

I think the order of the House is dated April, 1903. At that time, there was no report from the commission, and the papers could not be furnished. The order of the House would cover papers in the Department of Railways or in the several departments of the government up to that date. I would ask my hon. friend (Mr. Lennox) in order to make all regular, to make another motion. The papers are all ready and will be furnished with expedition.

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CON

Haughton Lennox

Conservative (1867-1942)

Mr. LENNOX.

I understand from the minister that, if I make a motion the papers will be brought down almost immediately.

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LIB

Henry Robert Emmerson (Minister of Railways and Canals)

Liberal

Mr. EMMERSON.

They are all ready, but cannot be regularly furnished under the order of the House as it now appears.

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GRAND TRUNK PACIFIC RAILWAY.


House in Committee on Bill (No. 72) to amend the National Transcontinental Railway Act.-Sir Wilfrid Laurier.


LIB

Peter Macdonald (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. DEPUTY SPEAKER.

The committee will resume consideration of clause 9 of the schedule.

On clause 9 of the schedule,

9. Notwithstanding anything in the twenty-seventh paragraph of the said contract contained, the Grand Trunk Railway Company shall not, after the acquisition of the twenty-five million dollars ($25,000,000) of common stock therein mentioned (less shares held by directors, not exceeding one thousand), be prevented from making any such disposition of such common stock as the said Grand Trunk Railway may deem expedient, provided, however, that the said Grand Trunk Railway Company shall, during the delay mentioned in the said paragraph, continue to hold a majority of the said stock by such title as shall enable the said Grand Trunk Railway Company to control the policy of the company.

Topic:   GRAND TRUNK PACIFIC RAILWAY.
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CON

William Barton Northrup

Conservative (1867-1942)

Mr. WM. B. NORTHRUP (East Hastings).

The clause now before the committee is, I think it will be admitted, perhaps one

Topic:   GRAND TRUNK PACIFIC RAILWAY.
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LIB

HE VISED EDITION-


My board feel that we could not ask the shareholders to affirm the agreement in its present precise form. The government are askecl to consent to something which is described as being utterly immaterial in order to allay ' any possible apprehensions of our shareholders.' Have the people of Canada sunk so low, is the credit of Canada so fallen that we are *compelled on bended knee to give concession after concession of enormous value simply, in the words of the president of the Grand Trunk Railway Company, to allay the apprehensions of his shareholders ? Why Sir, would it not have been millions of dollars in the pockets of the people of this country if we had sent the right hon. leader of the government, the hon. Minister of Finance and also the hon. member for Annapolis over to the old country and paid their expenses that they might there meet the shareholders of the Grand Trunk Railway Company and with the rosy pictures they would draw of the glorious land through which this line is to run, of the happy hunting ground and unbounded wealth of these regions, allay the apprehensions of the Grand Trunk shareholders rather than allay them by the frightfully expensive mode that has been adopted by the government in consenting to the concessions now before the House ? It is perhaps not out of place to call attention to the fact, that, having before us the report of the directors of the Grand Trunk Railway Company, having before us the original contract signed by the leading men of the company, we are able to form a very fair idea who these people would be on the board of directors who had to be satisfied before this matter could be brought before the shareholders. It was not the president, Sir Charles Rivers-Wil-son, who signed the contract; he was satisfied. It -was not Lord Welby who signed the contract; he was satisfied. It was not John 'A. Glutton-Brock who signed the contract; he was satisfied. It was not Mr. Joseph Price, it was not Mr. Alfred W. Smithers. it was not the general manager, Mr. Charles M. Hays, it was not Mr. Frank W. Morse, the assistant vice-president, it was not Mr. John Bell, the counsel of the company, it was not Mr. Win. Wainwright, the controller, because they were all satisfied. Every man on the board of the Grand Trunk Railway Company who had a practical knowledge of finance, every man who had a practical knowledge of the operations of the Grand Trunk Railway Company was perfectly^ satisfied with the contract save one man, because, by reference to the report Of the meeting of shareholders, we find one single director only who was dissatisfied, Mr. Allen, and he continued dissatisfied and did not come in even when the amended contract was introduced and when the president of the company had expressed himself as satisfied that if Mr. Allen could


CON

William Barton Northrup

Conservative (1867-1942)

Mr. NORTHRUP.

have been there and had seen and understood the amended contract he would have assented to it. When we find that all the practical men on the board of the Grand Trunk Railway Company, having all the knowledge in October, when this Bill passed the House, that they had on the 15th December, when this letter was written for the purpose of asking the right hon. leader of the government to amend the contract, were perfectly satisfied with the concessions already given for securing the construction of this road and when one director only held out and when the president of the company expressed the opinion that they could secure his assent at any time, does it not strike the House that we are paying rather a high price for very little gain ? When it comes to the shareholders themselves, when we read the report of the meeting of the shareholders it turns out that even with the amended contract the shareholders were unwilling to jeopardize what they had. Why? Because, as Mr. Hays, the general manager pointed out, they did not know where they stood. The shareholders even with the amended contract were unwilling to carry out the contract and apparently the contract would have been repudiated then and there only for the fact that Mr. Hays pointed out: Gentlemen, this is only a case of retaining the dividends you have. Your position is that if you do not take this step you will lose the dividends you have.

The whole argument of Mr. Hays and Sir Charles Rivers-Wilson was one which we would naturally expect from these gentlemen. They were officials of the Grand Trunk Railway, addressing the shareholders of that company and discussing the amended contract from the standpoint of that company alone. They were giving reasons to show that the contract with the amendments was one in the interests of the Grand Trunk shareholders. They were not pointing to it, as a contract in the interests of Canada, but as in the interests of the company. So we find, just as we would have expected, that the statement of the president was literally true, when he said that the Grand Trunk Railway directors had been eighteen months devising a scheme and had finally succeeded in compassing one by which a road would be built from North Bay westward through Winnipeg to the coast for the express purpose-and this is the pivotal point of the whole negotiations- of securing freight for the Grand Trunk Railway. Who can doubt for a moment that the Grand Trunk Railway Company arc going into this great enterprise to secu -e freight for their own road ? Sir Charles Rivers-Wilson would be a traitor to his trust, Mr. Hays would be false to his duties, the solicitor' of the company would b * recreant to his obligations-these gentle-n en would fail in their duty if through-1 out all the negotiations they had not a

sole eye to the interests of the company they represent. We find therefore the Grand Trunk Railway people going, into this scheme for the express purpose of benefiting that railway by securing to it freight from the Northwest.

This proposed clause allows the Grand Trunk Railway to dispose of the stock they acquire. I do not wish to discuss the terms on which the Grand Trunk Railway is to acquire the stock, further than to point out that it may be acquired in return for giving the guaranty and not necessarily on the payment of cash. It is provided that the Grand Trunk Railway may, after they acquire the $25,000,000 common stock, dispose of that stock. There seems to be a general impression that under the Act pased last session there had to be $20,000,000 preferred and $25,000,000 common stock. But there is not a word in either the original or the amended contract to that eflect. We have heard speaker after speaker laying stress on the issue of $20,000,000 preferred stock as if the Act provided that there must be stock of that character. But there is not a word to that effect in the original agreement. Clause 26-which is the clause in the original agreement that deals with the issue of stock-reads as follows.

The capital stock of the company shall be $45,000,000, of which not more than $20,000,000 shall be preferred and not less than $25,000,000 common stock.

You cannot have more than $25,000,000 preferred or less than $20,000,000 common. But you may have the whole $45,000,000 common if you choose. So that, under the amendment proposed the Grand Trunk Railway might acquire every dollar of the stock in return for its guaranty. Supposing this stock be acquired by the Grand Trunk Railway, what may they do with it ? Why the task of trying to understand this contract and find what there is really in it in the interests of the country is enough to clishearten any one. We have had ministers of the Crown gravely tell us that it is necessary the Grand Trunk Railway should be allowed to sell the stock in order that they may provide the money for the equipment of the road and the purchase of the various essentials required to make it a complete and running concern. There is nothing in the agreement to warrant any such conclusion. When the Grand .Trunk give their guaranty, they will be paid for it : and for all we know, their

pay may consist of the whole $45,000,000 of stock. There is no limit whatever imposed on the amount of stock which the Grand Trunk Pacific may give the Grand Tiunk Railway in consideration of their guaranty. But hon. gentlemen opposite say that the Grand Trunk Railway will have to sell this stock in order to build the road. Just consider, Mr. Chairman, the absurdity 834

of such a proposition. If it be true, as hon. gentlemen opposite say, that the Grand Trunk Railway must sell the stock in order to raise the money to build the road, there could be no objection to adding a clause providing that all money received by the Grand Trunk Railway from the sale of the stock shall be expended on the Grand Trunk Pacific. But we find nothing of that kind in the agreement or in the Bill. The Grand Trunk Railway is one corporation and the Grand Trunk Pacific another. While the leading officials of the Grand Trunk Railway are also the leading officials of the Grand Trunk Pacific, the corporations are wholly distinct, and the manager of the Grand Trunk Railway, when he receives the $25,000,000 of common stock in consideration of the guaranty given by his company, will receive it for the Grand Trunk Railway. It goes into the coffers of the Grand Trunk Railway and not of the Grand Trunk Pacific. Mr. Hays would be recreant to his trust if having received $25,000,000, presumably for an honest consideration-because it is not for us to say, whatever our opinion may be, that if the officials of the Grand Trunk Railway charged $25,000,000 for the guaranty, they are necessarily fakirs or dishonest, and we must assume that whatever they charge for the guaranty they believe to be a fair consideration for it-he would use that stock for other purposes than those of his own company. The Grand Trunk has paid for the stock, not by cash but by guaranty, the money becomes the property of the Grand Trunk Railway, and the Grand Trunk Pacific has nothing to do with it, and will have to go elsewhere to secure the funds required for the purposes of the road. Even apart from that, would not the Grand Trunk Railway be justified, if they got $25,000,000 of stock, in saying : We will sell this stock and utilize the money and hold it as a guaranty for the liability we may have to meet later on. Who could find fault with the Grand Trunk Railway for taking that stand ? We might find fault with the government for having put that company in that position of vantage, but we would not be justified in finding fault with the Grand Trunk Railway officials, who merely did their duty by the company, in whose interests alone they were acting, l ast year we had an illustration, which shows how little reliance may be placed even on the statement of a minister with regard to this contract. Probably my hon. friend the Minister of Justice understands it as well as any member of the House, but it is a long and complicated document, unprecedented in its character, and speaking lost year on this very point of the disposition of the stock, my hon. friend informed the House that it would be necessary for the Grand Trunk Railway to sell the stock in order to raise the money with which

to purchase the terminals of the road. I do not blame the hon. minister because thi>

.contract is a very complicated one, but. he committed himself to that statement as a reason why it would be necessary for the Grand Trunk Railway to raise the money on this stock. But, Sir, one need only read the contract to see that terminals are included in construction expenses and are to be paid for out of the proceeds of the bonds guar anteed by the government and the Grand Trunk Railway. So that, even on so important a point, we bird one of the most efficient members of the government unaware of the exact position of the Grand Trunk Railway and the opportunities at its disposal. I say unhesitatingly that once the Grand Trunk Railway disposes of the stock, every dollar of it becomes the property of that company, and, as my hon. friend the Minister of Finance told us last year, when we go to the Railway Commission to have the rates adjusted-and that is where the interests of the people come in-we will be faced by this fact: here are bona fide shareholders who bought their stock from the Grand Trunk Railway for a valuable consideration, and you cannot fix the rates simply in the interests of the people, but must also consider the interests of bona fide stockholders. While the government may say that they have control over the rates, I venture to assert that we will have no more control over the rates on the Grand Trunk Pacific than on any other railway in the country. The Railway Commission, like any court of law, must be governed by certain limitations ; and if that commission were to lay down the principle that the sole thing to be considered was the interests of the people, and that the interests of the stockholders were not to be considered at all, how much money in the future could be raised for the construction of any national enterprise in this country on railway securities ? We are necessarily bound by the moral obligation to observe good faith just as if that were a legal obligation ; and if this stock be sold by the Grand Trunk Railway, the very difficulties pointed out by the hon. Minister of Finance last year arise at once.

I am sorry the Finance Minister is not here, because I would like to hear from his own lips how at the present time he justifies a change from a state of affairs which he thought last year afforded one of the greatest securities to the government and one of the greatest reasons to justify members in supporting the Bill, namely, that the Grand Trunk Company had to hold the stock in its coffers, that it would have to pay cash for it, and that when the time came to fix rates, the rates would be fixed on that basis. Assuming that the Bill would go through, and that the arrangement had to be made with the Grand Trunk Pacific Company, then the provision of last year was a wise one ; and we.on this side of the House could say Mr. NORTHRUP.

that if the road were to be built, which we thought never should be built, we could see how the holding by the Grand Trunk Company of that stock would so far secure the interests of the people. That is the position my hon. leader took the other day, when, in referring to the speech of the Minister of Finance of last year, he praised the safeguard in the existing contract. The Minister of Finance said he was pleased to see him converted to the approval of his proposition of last year-a most illogical position. The leader of the opposition took the ground that if we are to have the contract, he would like to see certain safeguards thrown around it; but that does not imply that he is in favour of the contract itself.

Now, Sir, it seems to me that it would naturally strike a Canadian that if the Grand Trunk Company can acquire this stock up to the amount of $45,000,000, would it not be in the interest of the country that the Grand Trunk Company should be compelled to hold that stock as security for the people of this country ? Let us see where the people of Canada come in. The Grand Trunk Company guarantee 25 per cent of the bonds of the western division ; the people of Canada guarantee 75 per cent. Now. as a business proposition, when the government were sitting down to make an arrangement with the Grand Trunk Company to guarantee the bonds of the Grand Trunk Pacific Company, the government might well have said, we will guarantee 75 per cent, but we want an unlimited amount of stock as our security for that guarantee. Surely the government would have been justified in saying to the Grand Trunk Company, you are either assuming a liability that can result in loss or you are not. If you are not, you should not be allowed to have these millions of stock. If you are assuming such a liability, what about this country, which is guaranteeing 75 per cent of the bonds, while you are guaranteeing only 25 per cent ? If you lose, we lose. Under the amended contract the government might lose and the Grand Trunk Company might- not lose ; but by no possibility can the government be any better off than the Grand Trunk Company. Therefore if the Grand Trunk Company are to be allowed to receive $25,000,000 or $30,000,000 or $45.000,000 of stock-an unlimited amount at a sum fixed by Mr. Hays of the Grand Trunk by agreement with Mr. Hays of the Grand Trunk Pacific, by Sir Rivers-Wilson of the Grand Trunk with Sir Rivers-Wilson of the Grand Trunk Pacific, by Mr. Bell of the Grand Trunk with Mr. Bell of the Grand Trunk Pacific, by Dr. Jeltyll with Mr. Hyde, it matters not what consideration is paid by the dual man. If there is no limit on the amount of stock the Grand Trunk Company may receive on their guarantee, surely the people of this country should get something on their guarantee, which is three times as great. If the Grand Trunk Company, in-

261S

is to be built, every one on this side of the House as well as on the other side wants to see it a success. We will endeavour to do all we can to prevent it being built, because we believe it is not in the interest of the country ; but when once it is decided that it shall be built, we shall endeavour to make it a success. But when we

stead of disposing of this stock, were obliged to hold to it, it could be made a security for the people of this country. Let them hold it as security for both themselves and the country for all who hold the bonds. But I fail to see on what conceivable grounds it can be justified that the partner who endorses 25 per cent of the bonds is to have unlimited consideration while the partner who endorses 75 per cent is to be given no consideration.

But the hon. gentleman seems to think that the provision in the last part of clause 9 was sufficient to justify the sale of the stock by the Grand Trunk Company-a sale which will be made by the Grand Trunk directors for the benefit of the Grand Trunk Company, and the proceeds of which they must necessarily as honest men transfer to the coffers of the Grand Trunk Company. The last part of clause 9 says :

Provided, however, that the said Grand Trunk Railway Company shall, during the delay mentioned in the said paragraph, continue to hold a majority of the said stock by such title as shall enable the said Grand Trunk Railway Company to control the policy of the company.

It has been pointed out again and again by the hon. member for West Toronto (Mr. Osier), the hon. member for Hamilton (Mr. Barker), and others of practical experience in railway matters, that it is a common practice in the neighbouring republic to have stock held on such terms that the dividends shall go to one person and the voting power to another ; and it looks as if the lawyers who drafted this clause had that arrangement in their minds, because one cannot conceive of language that would better fit that state of affairs. It does not say that the Grand Trunk Company shall hold the stock. It says that it shall hold the stock by such title as shall enable it to control the policy of the Grand Trunk Pacific. If what the hon. member for West Toronto says is being done every day in the United States-that stock is sold to A, B or C, and a part of the consideration of the sale is that a proxy is to be given to the vendor to allow him to vote on that stock for 99 years or whatever the term may be-is a legal transaction, it would comply with this part of the section, and would enable the Grand Trunk Company to control the policy of the Grand Trunk Pacific. But why do we want the Grand Trunk to control the policy 1 That is one of thO mysteries which has puzzled us throughout the whole discussion of this matter. I have no doubt the premier is sincere in his desire to gain something for this country, and is perfectly satisfied that he has done so. He said the other day that the Grand Trunk Company was in and of this scheme, and he gave as a reason why the Grand Trunk was selected in preference to any other railway was that it, having a foothold in two provinces, was in a better position to handle the traffic than any other. I admit that ; but if the road

find the premier giving the Grand Trunk Company control of the line which is to run to the north, when it has a rival line to the south for carrying goods from the west to the east and from the east to the west, that is the precise reason why the Grand Trunk Company above all should not be allowed to control the policy of this new road. For tlie Grand Trunk Company are determined to carry freight as far as they can over their own line. They are in duty bound to do that. In the summer time, for seven months in the year, practically all the grain must be carried by the lakes and over the Grand Trunk system through Canada to the States. During that time there can be no question that the Grand Trunk will get all the freight that goes over that line to the head of the lakes ; none of it will go to the eastern division of the Grand Trunk Pacific. Then, in the winter time, why should the Grand Trunk Company so manage the new line as to injure its own trade ? Why not rather utilize its own line for its own benefit ? It seems to me that we are imputing one of two things to the directors of the Grand Trunk Railway Company. If we expect that they are going to decline freight for their own line-if we expect that a line which we were told the other day has $150,000,000 <*f assets, is going to sacrifice its trade to help a company whose capital stock is $1,000,000, with 10 per cent paid up, surely we must consider the directors of the Grand Trunk to be either knaves or fools, and I am sure that no man considers that they are either.

In the speech made by the president of the road he pointed but that one great advantage of this contract to the Grand Trunk Railway was that the Grand Trunk Railway and the government had become partners, and were to work together for the joint benefit of Canada and the company. That sounds well, and I can quite understand that, if I were a shareholder of the Grand Trunk, Railway, somewhat anxious about my dividends, which had not been too sure in the past, I would be very much gratified at having my president point out that my company had joined in partnership with the Dominion to work for the common benefit of both. But the possibility would suggest itself to my mind that, taking into consideration the assets of each partner, the stronger partner would be able to so swing matters that the junior would be swept out of existence. I would be Inclined to ask the president : What are the terms 1 Are you quite sure that the larger interests will not completely swamp the smaller interests !

In his letter to the Prime Minister, Sir Charles Rivers-Wilson gives the answer to this question, for he there points out the respective positions of the two partners. He says :

It has always seemed to me that the government of Canada and the .Grand Trunk Railway Company, being in point of fact partners in the enterprise-the former actuated by considerations of national policy, the latter by the necessity for securing its share in the growing prosperity of the Northwest.-the burden of financial liability should be shared between the two in as equable proportions as possible.

There is a fair proposition laid down, in the opening of the negotiations, by the president of the Grand Trunk Railway to the leader of the government. The government and the company were to become partners, and the financial liability shared between the two In as equable proportions as possible That was a fair business proposition, in reply to which, I think, the leader of the government might well have said that in deciding what was an equable division, the respective interests should be taken into account. The right hon. gentleman might have said : If we assume a greater liability, we must have a larger interest. Whoever puts in the most should have the largest share. But. taking the view of the president of the road, that each should assume an equal liability, what have we to say of this contract, which binds the Grand Trunk Railway to do nothing, except guarantee 25 per cent of the cost of construction from Winnipeg to the Pacific coast, and obliges the government to guarantee 75 per cent of that cost and build, in addition, some 1,800 miles of road from Winnipeg east ? Is that, to use the language of the president of the Grand Trunk Railway, sharing the burden of financial liability in as equable proportions as possible ? Let us see how it will work out. Suppose the road should prove a success from Moncton to the Pacific. Suppose it should pay Its way and meet all its obligations ; what will be the practical result ? In that case the road will not cost the Grand Trunk Railway one dollar. The Grand Trank Railway will have control of a transcontinental line that has never cost It a cent, it will be able to divert the traffic to its own line to the extent of millions of dollars,, and its shareholders will make money out of the road built by this country. Where does the country come in ? In any event, the country would be considerably out. We get our interest at 3 per cent, but will have to pay 34 on the bonds. There you have a loss at once. The reason given by the right hon. the First Minister for these concessions was that the condition of the money market had changed, that money could not be got as cheaply to-day as a few months ago. But if that be the case, and if the government should have, to pay 4 per cent, should not the Grand Trunk Pacific be called on to pay a larger rental during its fifty years' lease ?

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CON

William Barton Northrup

Conservative (1867-1942)

Mr. NORTHRUP.

In the agreement the rental is based on the government being able to borrow at 3 per cent; but if, as the Prime Minister expects, the government will have.to pay more, surely there should be a provision in the contract binding the Grand Trunk Pacific to pay a proportionate increase in rental. If the Grand Trunk Railway are to get an increased assistance because of the change in the money market, why should not that company pay a rental on the eastern division equivalent to the interest which the government will have to meet ? U.nder the terms of this contract the government have to pay seven years' interest on the eastern section without getting any return, and on the western section the government is to get no interest during seven years on the bonds it guarantees. The government may have to pay the interest during an additional three years, the amount of which shall be capitalized, and is precluded from taking possession, by reason of non-payment of interest by the company, until the company be in default to the extent of five years' interest. We, therefore, can see what an immense amount of interest may have to be paid by the government before it can get any return. Where then is the gain to the government, compared with the immense advantages to he gained by the Grand Trunk Railway, even if the road should prove a success ? But suppose the road should turn out a failure ; suppose the expenditure in the northern part of Ontario and Quebec should he far greater than is anticipated and the revenue far less than we hope for, what will happen ? The worst that can possibly happen the Grand Trunk Railway would be a liability of $15,000,000, which cannot accrue for nearly twenty years. First ten years, then five years before the government can take possession, and these must count from the completion of the road, so that we can add seven or eight years more. Practically, it will be twenty-three or twenty-four years before the' Grand Trunk Railway could be hurt at ail. The Grand Trunk Railway cannot be hurt in the lifetime of the magnates who have entered into this contract, no matter how the thing works out. In the meantime, that company will have diverted an immense amount of western freight to its own lines. That is the point which Sir Charles Rivers-Wilson relied on. So that even in the case of failure, the Grand Trunk Railway cannot be htirt for twenty-five years, and how much can it be hurt then ? Suppose the interest should not toe paid the government on the eastern section, what would happen ? It is all very well to draw a lease with all possible provisions, there Is a vast difference between tying a man up by a contract and then recovering damages. There is not a lawyer in the country who can tie up a road like the Grand Trunk Pacific, which is Mortgaged for every dollar it cost, in such a way that you can be sure of collecting anything in case of default. Sup-

pose the Grand Trunk Pacific is operating the road from Winnipeg to Moncton, and fails to pay the interest, what can the government do ? It is all very well to say, we will compel it to pay interest, we will have this and the other security. Suppose you have $5,000,000 rolling stock as security Yand we do not admit that you will-and suppose the road has cost some $60,000,000 or $70,000,000, on which the Grand Trunk Pacific will have to pay 3 per cent, what security would that rolling stock be to you in case of default ? After that stock has been used a few years, you could not sell it at fifty cents on the dollar. It would not realize sufficient to pay one year's interest. Where would you be, supposing the company were to default on the eastern section from Winnipeg to Moncton ? This country will have spent an immense amount of money on that section, and if the calculations of the hon. member for West Toronto (Mr. Osier) be correct-which he made on his reputation as a railway man-if, in the first ten years after the railway is constructed, it will cost about as much in ballasting and renewals as it did to construct it originally, this country will be from $125,000,000 to $150,000,000 out of pocket on the eastern section. If then there should be default on the part of the Grand Trunk Pacific, in what position would the government be ? The people would insist on the road being run. The government might put in a manager, but the people would be responsible for the running of the road. So that you will be punishing the company which does not pay any rent by taking the road off its hands and running it at your own expense. If the road be a failure, the country will have nothing to fall back upon as far as the Grand Trunk Pacific is concerned. The rolling stock will not be any serious asset, and you will have a road on your hands which you must run, and the people will be loaded up with a frightful yearly deficit. When you look calmly at the situation and do not jump at the conclusion that you have the Grand Trunk Railway guarantee and the Grand Trunk Railway behind the road, for you have not, you will see that in the case of failure there is nothing the government can do except go on their knees again and beg the magnates of the Grand Trunk Railway to keep on running the road, even if they do not pay the interest, for that would be better than for the government to run it and sink deeper and deeper into debt.

When speeches are made in this House, they are made not for the members of the House alone, but for the benefit of the country. Past year, the Minister of the Interior (Mr. Sifton) made a strong speech, an admirable speech from his point of view. One of the arguments he brought forward, and one which must have impressed the country, we cannot tell how much, was the straight statement that the Grand Trunk Railway Company had been induced by the

government to enter into this contract in order that the government might secure, as they had done, the undertaking of that company to pay three per cent on the cost of the eastern division. I have under my hand the hon. gentleman's exact words, but I will not take time to read them now. And the leader of the House (Sir Wilfrid Lau-rier) spoke to the same effect. I have his speech in Hansard also under my hand, declaring that the Grand Trunk Company had guaranteed three per cent on the cost of the eastern division. And the hon. member for Saskatchewan (Mr. Davis) speaking only a day or two ago also said-and his words as recorded in Hansard I have here-that the Grand Trunk had guaranteed three percent on the eastern division. We in this House know perfectly well-it has been pointed out so often that there is not an hon. member who does not know it-that there is no covenant on the part of the Grand Trunk Company to pay three per cent or any per cent on the cost of that road. There is no obligation, no liability that the government could enforce on the Grand* Trunk to pay such a rental. The Prime Minister admitted, when asked by the leader of the opposition (Mr. R. L. Borden)-admitted by a circuitous sort of argument-that in all probability it would be to the interest of the Grand Trunk Railway to pay three iter cent, and therefore they would be likely to pay it. But that is about as strong a legal obligation as the Grand Trunk Railway Company have bound themselves to in that regard. Yet, these statements go to the people, and there is not the slightest doubt that there is many an honest reformer in this country who would ridicule the contention that the government was incurring the slightest liability in building the eastern section, because the Grand Trunk Railway Company had guaranteed three per cent on the cost. And, taking the speeches of the Minister of the Interior, the Prime Minister and such a distinguished member as the hon. member for Saskatchewan, declaring that the Grand Trunk had guaranteed this three per cent, we can hardly wonder at the friends of the government taking that position. And When we find such misunderstanding of this contract on the floor of this House, it is not to be wondered at that the people misunderstand it. But I venture to say that, when they have studied it one-tenth of the time the members of this House have studied it, they will understand it better than it appears to be understood in this House. Last year, I was amazed to hear the hon. gentleman who appeared to be put forward as the railway expert of the government, the hon. member for North Norfolk (Mr. Charlton) whose absence from the House, I am sure, we all deplore, make a statement with regard to the letting of the contracts on this eastern division. I refer hon. gentlemen for his words

to page 8796 of last year's Hansard. As showing the honesty and economy with which the eastern division was to be built, he argued that the country had a guarantee of this in the fact that there was to be a common control on the part of the government and the company. He said :

The company is interested in having the road constructed as cheaply as possible, as it has to pay three per cent interest on the cost. It has joint supervision with the government in the letting of contracts and the construction of the line.

I do n,ot doubt at all that the hon. member for North Norfolk believed that; that he honestly^ thought that the Grand Trunk Railway Company, or the Grand Trunk Pacific Railway Company, had joint supervision with the government in the letting of the contracts and the building of the line. Yet I, myself, last year, pointed out that the government had carefully avoided the supervision of contracts by the company. Where plans were to be drawn the engineers of the company could come in and see what was being done ; but when the contracts were to be let, there was not a word to justify the statement that there was to be supervision by the railway of the construction of the road. Many people would be impressed by the statement given forth by the railway expert of the government that there would be joint supervision in the letting of the contracts and that in this way the country would have a guarantee of honesty and economy in construction, while as a matter of fact there is no such provision in the contract.

The Prime Minister only the other day spoke of this change in clause 9 as one that would allow the Grand Trunk Railway Company to go into the market to raise the money necessary to carry on the enterprise. I have referred to that before. But I hope the right hon. gentleman will weigh the view I take, because it seems to me unquestionably correct-that instead of allowing the Grand Trunk by this clause, to go into the market and raise money for this enterprise, you are doing exactly the opposite thing. You are allowing the Grand Trunk to raise money-that is very true, and up to that point I am in thorough accord with the right hon. gentleman-but, having purchased the stock by giving the guarantee of the company, the sale of that stock will be raising money for the purposes of the Grand Trunk Railway Company, and as honest men, they must apply it for the purposes of that company and no other. I do not care to occupy more time in discussing that question. I have a number of references here which I had intended to give, but will not because I have given enough to illustrate the point I intend to make. The main point I bring forward is that hon. gentlemen opposite. not only those on the treasury benches, but those behind them, make statements in Mr. NORTHRUP.

connection with this contract-and I wish to be distinctly understood, but I do not say they are making them falsely or with any desire to deceive the people-statements, nevertheless, which are wholly contrary to the facts of the case, and which, if the people of this country are to have a fair opportunity of judging for themselves whether this contract is a good one in their interest or not, hon. gentlemen opposite should withdraw and apologize when their errors are pointed out. The hon. member for Annapolis (Mr. Wade) is in his seat now ; he was not in his place when I began. Speaking of these changes under this amended contract that hon. gentleman was very positive that nothing done would increase the burden on the people of this country. I wonder if he is still of the same opinion. I understand the hon. member for Annapolis to say he is still of the same opinion. Well, I begin to understand now, Mr. Chairman, how it is that the right hon. leader of the government hopes that the majority of the people of this country can be led to approve of such a contract as this. When a gentleman of the legal and railway standing of the hon. member-and I hope I say nothing offensive-makes the statement that these new concessions can in no way add to the burdens

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LIB
CON

William Barton Northrup

Conservative (1867-1942)

Mr. NORTHRUP.

Let us see what the hon. gentleman said. I refer to page 872 of the revised ' Hansard ' :

With regard to these concessions, I wish to place myself upon record as saying that the agreement as amended will not cost the Dominion one extra dollar.

The agreement as amended provides that the country is to guarantee the bonds of the western division to the extent of 75 per cent of the cost, whatever that cost may be. I presume the hon. member for Annapolis will not dispute that.

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Fletcher Bath Wade

Liberal

Mr. WADE.

If the hon. gentleman will read the balance of my speech, he will see how that is.

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CON

William Barton Northrup

Conservative (1867-1942)

Mr. NORTHRUP.

Life is too short. I want to confine myself to fact, and decline to devote my time to the reading of the hon. gentleman's speeches. If, in view of the fact that the obligation formerly limited to $30,000 a mile has now become an unlimited obligation, the hon. member for Annapolis still says that not a dollar of additional obligation is placed on the people of this country, nothing that I can say, nothing that any one can say, nothing that the poet can write or the artist picture, would make the position of the hon. gentleman more preposterously absurd than it is made by his own statement. In conclusion let me repeat that I think this House is entitled to an explanation from the Minister

of Finance (Mr. Fielding) wlio last year so strongly argued in favour of this contract on the ground, which to him was all important, that this stock was to be held by the Grand Trunk. This year when we find that the proposition is that that stock should be disposed by the Grand Trunk we are entitled to hear from the hon. Minister of Fnance an explanation as to why he has changed his base to that extent. I think that the right hon. the leader of the government (Sir Wilfrid Laurier) may well let us know how it is that he explains that the Grand Trunk by purchasing this stock by means of a guarantee-and in this very act express power is given to the directors of the Grand Trunk and the Grand Trunk Pacific to convey any amount of stock they like in consideration of the guarantee,-will be enabled to go into the markets of the world to raise money for the Grand Trunk Pacific.

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CON

James Clancy

Conservative (1867-1942)

Mr. CLANCY.

I do not think I need apologize for asking a few moments from the House to protest against one of the most extraordinary railway schemes ever proposed on this continent. So far as I am able to see-and I speak entirely as a layman-the scheme is without any parallel in the whole history of railway building on the continent of America. That may seem a very extraordinary statement to make and I shall ask hon. gentlemen opposite, as I proceed for a very few minutes, to deny one statement which I make. Here is a great and wealthy railway corporation which wishes to get into the Northwest Territories for the purpose of improving its property in the east. That company, after negotiating with the government, gets the Prime Minister to consent to the creation of what is a mere legal fiction, namely the * Grand Trunk Pacific Railway Company, for the purpose of shielding and protecting the Grand Trunk, who are really the only persons concerned, from the expenditure of a single dollar, and from any but the most limited liability. I do not think any hon. gentleman will deny the truth of this statement. The next thing they got the Prime Minister to consent to is the building of 1,900 miles of unprofitable road in the east which is to be handed over to the Grand Trunk, I repeat, the Grand Trunk. By what means ? Through their straw man. or fiction, that has not a dollar in it, that cannot put a dollar in it, that has not a dollar and has no existence, except for the purpose of shielding the Grand Trunk from liability. They lease that road. The Grand Trunk who are mainly to be affected by it, are not liable for one copper of rent ; the government must look for their rent to the man of straw. The Grand Trunk go further ; through their straw man they will issue bonds to the extent required for the construction of practically the whole western division. The government of the day guarantees three-fourths of the cost of the mountain section, whatever it may be, and probably more that three-fourths of the cost of the prairie section, because it may not cost much more than $13,000 a mile. The Grand Trunk comes in and guarantees bonds of the so-called Grand Trunk Pacific, which are their own bonds, and not the bonds of the Grand Trunk Pacific because that has no existence, it is all Grand Trunk. What follows? As a compensation for guaranteeing its own bonds, in the name of the Grand Trunk Pacific, to the extent of 25 per cent, it takes $25,000,000 stock of which it may dispose of and put upon the market and upon which the people of this country must pay dividends in the form of higher freight rates. I challenge hon. gentlemen to say that I have not made a perfectly accurate statement of the case. Here is a great wealthy corporation, but its wealth does not count for one particle except to give it a respectability which enables it to hoodwink the government. Sir Rivers-Wil-son put it very plainly when telling his shareholders of the liability of the Grand Trunk Company ; he has put it beyond a doubt. Mr. A lien, a shareholder, took some exception to the bargain that was being-made and Sir Charles Rivers-Wilson in replying to him said he had entirely misconceived the facts. Referring to Mr. Allen, Sir Rivers-Wilson'said :

He boldly states that the liability upon the Grand Trunk will amount to nine millions sterling, and he divides that nine millions sterling into three millions liability in respect of guarantees, five millions in respect of rolling stock, and one million in respect of the deposit. [DOT]

He then proceeds to deal with Mr. Allen's statement:

As regards the three millions of guarantee, that, as I stated to you, will undoubtedly be a liability, and, as I stated to you also, will swell the liability of the Grand Trunk Company.

Let me for a moment deal with that. That is a liability, but not a sole liability of the Grand Trunk Company. It is quite true that they guarantee their own bonds in the name of the Grand Trunk Pacific, but in case of default by the Grand Trunk Pacific they are secure because they then are in the position of first mortgages, if those rights can be exercised. They have only a limited liability. Sir Rivers-Wilson continues :

As regards the five millions for rolling stock, it is not five millions-it is estimated at three millions. With that the Grand Trunk has nothing to do. That rolling stock will be provided by the Grand Trunk Pacific Company, and, as the general manager will tell you, they have laid their plans for providing that rolling stock by a trust fund.

That disposes of that : then he proceeds :

Therefore, you may wipe it out and call it four millions. And as regards the one million

deposit, that deposit will not cost you one single halfpenny.

Now, Mr. Speaker, liere I repeat is a great corporation which must have mesmerized the government-I should not like to use language that would be fitting to the occasion-to such an extent that they have uttex

ly disi'egarded the mere elementary considerations of common sense and business, as to permit any l'ailway corporation, wealthy or not, to come here and put up a man of straw and to make such a bargain.

I care not how the Grand Trunk Pacific may be bound by the contract or agreement you cannot enforce the agreement, as my hon. friend from Bast Hastings (Mr. Northrup) has pointed out, unless they have the substance and the means of paying any forfeits they may be called upon to pay. There is not a dollar of security that we have not created ourselves. Our mortgage is founded on the property that we have created, upon the credit of Canada, on the money that we have put into the enterprise. Now, there is a further surrender than the one which relates to this clause. The avowed purpose of asking the Grand Trunk Railway Company to take an interest in this matter, as stated by the hon. Minister of Finance and by the right hon. leader of the government was simply this : We wish to have the security of the Grand Trunk Railway Company behind this enterprise. How are we going to get that ? We are going to compel them to take $25,000,000 of the stock to be held for what purpose ? The first pui

pose that it would be held as security for the payment of the interest on the bonds we have guaranteed. That was the strongest consideration that could be urged. The next consideration was that it would not only be held as security for the payment of the interest on these bonds but that it would be held for a further reason, namely, so that the stock should not be put upon the market, and so that it should not turn up as a ghost before the people upon which they would have to pay dividends in the shape of freight rates. Both of these conditions have been absolutely surrendered. What are we reduced to to-day ?-the humiliating position of saying that the Grand Trunk Railway Company would not consent to do what they had agreed to do and that we were obliged to surrender. The right hon. leader of the government asked : Why should we not treat this railway company .lust as other railway companies are treated? Why should we not allow them to have their stock and put it on the market or do what they thought proper ? The answer is very plain, namely, that there is no other railway company in the same position. We are the guarantors for their bonds. While we are the guarantors for their bonds and put the money of the people of Canada into the construction of this railway they draw all the benefit from it and while controlling Mr. CLANCY.

the policy of the railway they are not liable for a single dollar. What is the policy of that railway company ? The policy of the Grand Trunk is to enhance the railway which is already built in Canada with its great terminals at Chicago, Buffalo and Portland. I want to say in conclusion that this stands out as one of the most extraordinary transactions that has ever been undertaken in Canada. I defy the right hon. leader of the government in the most respectful manner to deny a single statement that I have made both as to its standing alone as the most extraordinary bargain that has ever been made with a railway company in Canada and as to the truth of the statement that this great railway corporation is making use of the Grand Trunk Pacific Company as a mere legal fiction and that the right hon. gentleman is making a bargain with a shadow while the substance is taken from the pockets of the people.

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CON

Edmund Boyd Osler

Conservative (1867-1942)

Mr. OSLER.

The government contend that this agreement that they have gone into is for the purpose of conserving to the Canadian people the trade of the west. They say that they have gone into it for that purpose and that all of these large bonuses are given with the object solely of conserving to the people of Canada and to Canadian ports the trade which is now existing and which will in future come from the northwest. We on this side of the House oppose this agreement because we believe that so far from this present scheme carrying out any such purpose it will have a directly contrary effect, that the enormous expenditure which the government are making upon this scheme, while, of course, benefiting the Grand Trunk Railway Company, will divert the trade of Canada to American ports. On this side that is how this bargain strikes us. The government, in all sincerity, say that they hold the opposite view. We claim, and I do not think the claim can be disputed, that the interest of the Grand Trunk Railway Company in this matter will be to collect all the business they can in the west, to bring it down over the line which the government are building from Winnipeg eastward, to make connection in winter time at North Bay, or wherever the junction may be, in summer time at Port Arthur by the branches built, owned and controlled by the Grand Trunk Railway Company and thus feed the Grand Trunk Railway Company's main system. That is the common sense view that any one would take in studying this transaction. That is the view which the Grand Trunk Railway Company had in mind when they first proposed to go into this scheme practically at their own expense, or at all events with a certain bonus to assist them in building theirjline. I think the scheme that the government are proposing to adopt is going to have that direct effect. We have more evidence of that than the other because we see how

thoroughly the Grand Trunk directors at their meetings and during the course of these negotiations have avoided assuming any responsibility. They have avoided any reference to the eastern part of this line, to the very part that is going to cost Canada a great deal of money. They assume that they are going into this for the benefit of their shareholders with the object of improving their old property. It strikes us on this side of the House that that is exactly what this scheme will do. We want to impose upon the Grand Trunk Railway Company, which is the only responsible party in this transaction, certain obligations which will compel them, as far as it is possible to carry out what the government say they have in view, namely, sending over Canadian lines to Canadian ports the traffic which in future may be expected to come from the west. The government, from time to time in connection with this contract, have shown themselves to be entirely in the hands of the Grand Trunk Railway Company. The Grand Trunk people say and the government assume that the shareholders of the Grand Trunk Railway Company would not and did not agree to the first proposition, the scheme which was outlined last year. Now, Sir, I say this is not a true statement of the case because the Grand Trunk directors never submitted and evidently never intended to submit to their shareholders the scheme as it came from this parliament last year.

They got from the government all the concessions they could, because they were forced into this scheme which they did not want to have anything to do with, and when certain directors of the Grand Trunk signed the agreement to carry out that arrangement, they did not afterwards show that they had any honest intention of putting it into effeet. They did not submit the first agreement to their shareholders, but after the date for putting up the deposit had passed, they opened up negotiations with the government or the government opened up negotiations with them. There never was any refusal of the Grand Trunk Railway shareholders to accept the first contract. The directors of the Grand Trunk Railway Company have the confidence of the vast majority of their shareholders, and had they submitted the first contract with their endorsation, it would have been accepted by the shareholders just as enthusiastically as was this amended contract when it was submitted to them. The Grand Trunk directors never had any intention of submitting to their shareholders the contract, which, through the dummy Grand Trunk Pacific, they signed last year. They saw that the government was so committed to some such scheme that they knew they could obtain modifications, and so they got all they asked for ; the wonder being they did not ask for more, if more was left to be obtained. It does seem a very extraordinary thing, that in regard to the western division which both the Grand Trunk people and the government say will be a paying division, the Grand Trunk should receive all that stock, although the government guarantees three-fourths of the cost. The Grand Trunk guarantee 25 per cent, and they get one hundred per cent of the stock. The clause is so worded that it is the evident intention of the Grand Trunk Company to use that stock either in giving it by way of bonus, or to make a speculative factor of it, as has been done with the common stock of the Grand Trunk Railway, for the last forty years. The Grand Trunk common stock has had a value on the market for the last thirty years out of all proportion of its real value, because it was a speculative stock, and in the same way this stock will have a value on the market. In case of default in the western section, the government have no control, because the Grand Trunk Railway Company, with its voting power on this stock, will elect the directors of the Grand Trunk Pacific and they will control the receiver who is put there to operate the road, as to three-fourths for the benefit of the government, and as to one-fourth, for the benefit of the Grand Trunk. It is admitted by railway men that no railroad can pay which is simply a back bone through any country, and the Grand Trunk owning all the branch lines, they can bring to their own line all the business which offers. The Grand Trunk will naturally do that, because as business men, once they get the control, they will operate the system in such a manner as to make it pay the best return to the Grand Trunk proper in which they have such an enormously preponderating interest, compared with which their interest in this new road is a mere bagatelle. The Prime Minister stated in introducing this amended contract, that there were practically no material changes in it, compared with the contract of last year. But the Minister of Finance admitted that the changes were material, and that the government had no alternative but to accept these changes, because the Grand Trunk Railway had forced the amended contract upon them. Here we have a very serious difference of opinion between two leading ministers of the government. The Grand. Trunk directors, at the meeting of the shareholders, studiously avoided any reference to the eastern section. Practically, the only reference made to it was by the retiring director, Mr. Allen, who spoke of a memorandum which had evidently been passed about amongst the directors, and which stated that the eastern section was probably premature. They evidently looked upon it that they had no liability with regard to this eastern section, and no liability if there should be any default in carrying out that part of the scheme. I state without hesitation, that it will be in

the interest of the Grand Trunk Railway to direct the traffic of the Northwest over their new line to Lake Superior, which may reduce the distance from Winnipeg to Duluth to something like 300 miles. That will be the route over which a great part of the freight will be sent from Winnipeg, and that line will be built by the Grand Trunk Railway or by somebody else very shortly. If, however, the Grand Trunk Railway should send freight from Port Arthur, they will send it as far as they can control it to their own roads on the eastern side of the Georgian Bay. They will send it over their own road as far as they can through Ontario, and in winter they will send all their exports by Portland. It is against the interest of the Grand Trunk Railway Company to send one bushel of grain over the northern part of this road to Quebec because they will get nothing for it, whereas if they were to send it over their own lines, they would get the freight from western' Ontario to Portland.

I do not want to enter into details, but I wish to make this statement in as strong terms as I can. I am speaking for myself and I believe I am speaking for every member on this side of the House, when I say, that we are anxious that the Grand Trunk Railway should get into the Northwest. We all approve of that; we believe that it is in the interest of Canada and in the interest of the Northwest that the Grand Trunk Railway Company should get there. But, if they come to this government for assistance to get there, then the strongest possible conditions should be imposed upon them to compel them to take the trade which they gather in the Northwest to Canadian ports. I contend that this bargain which the government proposes, has not the effect in any shape or way of conserving Canadian interests, but on the other hand, we are called upon to give the Grand Trunk Railway Company enormous subsidies without providing any adequate protection for Canadian ports. I believe that the interest of the Grand Trunk Railway Company in the future, will be the interest that it has to-day, and that its present interest will not be changed one iota by this contract. The interest of the Grand Trunk will.be to send all the freight and passengers possible over its existing lines in which it has such an enormous amount of capital invested. There is not one dollar of inducement for the Grand Trunk Railway to send its traffic over this line from North Bay to Quebec, and there is not one dollar of security taken by this government to penalize them, in case they should not do so, and in case the views which we hold on this side of the House, turn out to be correct.

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May 5, 1904