May 26, 1904

LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

I think I can answer my hon. friend by asking him his authority for the statement. If anybody said so, I give him the most unqualified contradiction. If my hon. friend will find the person who started the rumour, he can give him that answer. We brought down last year a contract dealing with this matter, which was carefully drawn, and as we think guarded the public interests very well. What happened at that time ? Hon. gentlemen opposite declared that it was a contract entirely in the interests of the Grand Trunk Railway. They declared that the people who negotiated that contract on the side of the government were either grossly incapable or grossly dishonest. They said that the Grand Trunk Railway had its own way in everything, that the contract was one which was only of value to the Grand Trunk Railway, and that we were giving that company a tremendous gift at the expense of this country. Now, we knew when we made that contract that we were dealing with men of eminence in the railway world, but we knew that we were not dealing technically with the Grand Trunk Railway itself. We had a contract signed by the leading men of the Grand Trunk Railway, the president, several of the directors, and the general manager ; and while we were convinced that these men were acting in good faith, we were quite aware of the fact that they were not authorized by any vote of the shareholders of the Grand Trunk Railway to enter into any engagement. Therefore, as some portions of that con-

tract contemplated the doing of certain things by the Grand Trunk Railway itself, it became necessary, before any further progress could be made, that the shareholders of the Grand Trunk Railway should approve of it.

When we came to deal with the Grand Trunk itself, we discovered that the company were not prepared to go on with the undertaking. This was not through any lack of good faith on the part of the gentlemen who made the contract. They had acted in good faith, and they believed, and had a right to believe, no doubt, that the contract which they had assented to in Ottawa would receive the assent of the shareholders of the company. And I suppose they had the more right to believe so in view of the representations made by bon. gentlemen opposite that this was such a profitable and valuable contract to the Grand Trunk Railway Company. These hon. gentlemen had spoken of this contract as being all one-sided, declaring that we were making a great gift to the Grand Trunk Company. And yet when the Grand Trunk Company came to consider the matter by its board of directors and subsequently by its body of shareholders in London, we found that the company had so little faith in the statement of the hon. gentlemen op-Xjosite that they refused to accept as a free gift this contract which hon. gentlemen opposite said was full of profit for them. The Grand Trunk Company, no doubt, had followed closely the discussions in this House ; they had heard our side of the case-and we made the best argument we could in favour of what we believed to be a good contract. And the Grand Trunk people, no doubt, had followed the speeches of the hon. gentlemen on the other side. If they had accepted the statement of these hon. gentlemen that this contract was one-sided and all for the benefit of the Grand Trunk Company and to the injury of the Dominion, surely the directors of the Grand Trunk Company would have been delighted to accept it, and the shareholders would have been only too haippy to endorse their action. The Conservatives of Canada, who were educated by hon. gentlemen opposite to believe that this was such a profitable thing for the Grand Trunk, and to believe that we were giving the company such a generous present in the form of this contract, must have been astonished when they discovered that the Grand Trunk did not regard it in that light, but, on the contrary, believed that the obligations under that contract were such as would bring disaster to the Grand Trunk itself. When you compare the attitude of hon. gentlemen opposite on that subject with the attitude of the Grand Trunk Company by its directors and shareholders, I think you must come to the conclusion that these careful, sagacious financial men in London did not put much faith in the views advanced by

hon. gentlemen opposite as to the great profit the Grand Trunk would make out of it. The hon. gentlemen opposite have quoted very frequently in this debate the utterances of Sir Charles Rivers-Wilson in favour of the contract. Well, when we presented the contract to our shareholders, the parliament and the people of Canada, we naturally made the best case-we could for it.

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?

Some hon. MEMBERS

Hear, hear.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

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CON

James Clancy

Conservative (1867-1942)

Mr. CLANCY.

Does the hon. gentleman (Mr. Fielding) endorse Mr. Merlin's views '!

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

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CON

Thomas Simpson Sproule

Conservative (1867-1942)

Mr. SPROULE.

I suppose the hon. minister (Mr. Fielding) is aware that Mr. Allen expressed these views before these last concessions were granted ?

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

Mr. Allen's memorandum was read after the last concessions were granted and at a meeting which was assembled for the very purpose of ratifying the contract as amended by those concessions.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

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CON

Thomas Simpson Sproule

Conservative (1867-1942)

Mr. SPROULE.

Is it not the fact that one of the directors intimated that Mr. Allen's memorandum was written before the last concessions ?

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

I think Sir Charles Rivers-Wilson said that he hoped the later concessions had removed some of Mr. Allen's objections. But the fact remains that Mr. Allen's memorandum was read by his own son at a meeting of the shareholders called not only after the concessions had been made but called for the very purpose of considering and ratifying the contract thus amended. And it is evident that the concessions did not remove Mr. Allen's objections. Otherwise he would not have sent his son to the meeting to join in a protest. Now, what we learn from this is that we should not adopt extreme views. And, inasmuch as Mr. Allen on one side presented the extreme view that this contract was going to be disastrous to the Grand Trunk and we declined to believe him, equally we declined to believe the speeches of hon. gentlemen on the other side who presented the other view declaring that this was a disastrous scheme for Canada. One thing we do know-that the popular financial opinion or the moment was voiced by Mr. Allen rather than by Sir Charles Rivers-Wilson, because, I am informed, immediately after the meeting, the Grand Trunk stocks were depressed on the London market. I have no doubt that if they have not already come up they will come up, because as the right hon. the Minister of Trade and Commerce (Sir Richard Cartwright) said last year the best kind of a bargain that you can make is a bargain where the interests of both sides are fairly considered and where both sides may be able to make a fair return for their investment.

Now we may consider for a moment why we are dealing with this matter to-day. The hon. gentlemen opposite have opened up the whole question, but in reality we are now met for the consideration of the amendments only. Let us see what they are. They were dealt with very fully in the committee and I shall not weary the House by dwelling on them at any length. The first one,-not the first in order, but I mention it first because it is the one which has been most discussed in the House-is that which relates to the common stock. In the original contract it was provided that the Grand Trunk Company should take and hold certain common stock. They came afterwards and asked that they might be permitted to pledge or use that stock in such a way as would assist them in raising money. We agreed on the understanding that they should retain a controlling interest in the stock. The concession is not of importance as regards any immediate interest; its only importance is in relation to the capitalization of the railway, in respect of the amount upon which dividends shall be earned and freight

rates be based. It bas already been pointed out in the debate that in the past the capitalization of a railway has been regarded as of particular importance, because of the experience which this country has had with another contract, not made by this government but made by the political party with which the hon. gentlemen opposite are associated. In the Canadian Pacific Railway contract there is what is called the 10 per cent clause. By that clause it is provided that until the company earns 10 per cent upon its capital the ordinary provisions of the Railway Act respecting the supervision of railway rates shall not apply. That has been regarded, especially in recent years, as a very objectionable condition and we know that the people of the Northwest have protested against it and have in the strongest manner asked that some relief be afforded. At this moment there is pending in the courts a suit for the purpose of determining what constitutes properly the capital of the Canadian Pacific Railway upon which earnings are to be computed. I do not for a moment presume to say what the decision may be. but I point out that there is this great difference between the former contract and the present one, that whereas there was such a clause in the former contract, the Canadian Pacific Railway contract, and it therefore became r, matter of importance as respects that contract to be able to determine what the capital is, no such importance can be attached to the question of capital in this contract because there is no 10 per cent clause. .In the case of the. Canadian Pacific Railway you have to submit the question to the decision of the courts in order that you may find out whether the capital upon which interest is to be earned and upon which freight rates may be based means the 25 cents on the dollar for which Canadian Pacific Railway stock at one stage was sold, or whether it means the whole dollar which the shareholders no doubt will claim to-day. That point has to be settled as respects the Canadian Pacific Railway, and if we had a similar clause in this contract it would be of vital importance to us to take care that no watered stock should be computed in the capital of the road ; but inasmuch as there is no 10 per cent clause in this contract, it is not of importance. I have pointed out before, and only repeat it now by way of record, that in the Railway Act of Canada we have the most unlimited and unqualified power to fix the rates of jthe Grand Trunk Pacific. There is no limitation such as the late government placed in the contract of the Canadian Pacific Railway. This Grand Trunk Pacific is to come as fully, as completely, as unreservedly, as respects freight rates,' under the control of the railway commissioners of Canada as the smallest railway within the Dominion. This point is of the utmost importance, because conditions which might have been necessary in the case

of the Canadian Pacific Railway with a 10 per cent clause are not necessary in this case when there is no such clause. Therefore while I myself would have preferred, for reasons which I gave in the debate last year, that that contract should have remained as it was, still the change that has been made is not open to objection as fully as the hon. gentlemen think it is. The hon. the leader of the opposition (Mr. R. L. Borden) speaking of it to-day, made repeated references to watered stock upon which dividends would have to be earned and upon which freight rates would have to be computed. There is no possibility under the legislation respecting this contract for watered stock to be considered in the fixing of freight rates. The Railway Act, section 309, provides the fullest and most ample authority for the railway commission to inquire into all the operations of railway companies, and to find out not only their nominal capital, but to find out exactly what that capital represents, what good was done by the company with it, what value was received, and then the commissioners can judge what capital is to be the basis on which a reasonable interest will be allowed. Section 309 is lengthy, but if the House will permit, I will read it, because it has not yet been read during this discussion. This section provides :

The board may from time to time, by notice served upon the company, or any officer, servant or agent of the company, require it. or such officer, servant or agent to ' furnish the board, at or within any time stated in such notice, a written statement or statements showing in so far, and with such detail and particulars as the board requires, the assets and liabilities of the company-the amount of its stock issued and outstanding-the date at which any such stock was so issued-the amount and nature of the consideration received by the company for such issue

The amount and the nature of the consideration received by the company for such issue. ' They cannot take it at 25 cents on the dollar and, as in. the other case, ask to earn interest on the 100 cents which is the nominal value.

the amount and share of the consideration received by the company for such issue, and, in case the whole of such consideration was not paid to the company in cash, the nature of the services rendered to or property received by the company for which any stock was issued-the gross earnings or receipts or expenditure by the company during any periods specified by the board, and the purposes for which such expenditure was made-the amount and nature of any bonus, gift, or subsidy, received by the company from any source whatsoever, and the source from which and the time when, and the circumstances under which, the same was so received or given-the bonds issued at any time by the company, and what portion of the same are outstanding and what portion, if any, have been redeemed-the amount and nature of the consideration received by the company for the issue of such

bonds-the character and extent of any liabilities outstanding, chargeable upon the property or undertaking of the company, or any part thereof, and the consideration received by the company for any such liabilities, and the circumstances under which the same were created-the cost of construction of the company's railway or of any part thereof,-the amount and nature of the consideration paid or given by the company for any property acquired by it,-the particulars of any lease, contract dr arrangement entered into between the company and any other company or person,-and generally, the extent nature, value and particulars of the property earnings, and business of the company. '

Notv, Sir, with that section before them the Board of Railway Commissioners are clothed with ample power to inquire into the issue of all common stock, into the manner in which this common stock is received by the Grand Trunk and the value which they give to the Grand Trunk Pacific for that stock, the purposes to which the money so received-if the payment is in money- is devoted and the value in money or in any ether form of any assistance which the Grand Trunk Railway render in return for that stock. On every question of that kind the board of Railway' Commissioners becomes the sole and only judge and therefore there is no chance whatever for watered stock as a basis for freight rates.

At six o'clock House took recess.

After Recess.

House resumed at eight o'clock.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

Mr. Speaker, when you left the chair at six o'clock I had been'inviting the attention of the House to the circumstances under which the government deemed it expedient to propose to parliament some changes in the Grand Trunk Pacific contract of last year. I pointed out, Sir, that while we had a contract with eminent men connected with the Gfand Trunk Railway Company, including its president and chief officials, nevertheless, we were aware that the contract, before it could be carried into execution, would have to be approved by the shareholders of the Grand Trunk Railway Company. We had every reason to suppose that the arrangements made by the president and principal officials of the company would probably receive the support of the shareholders. As it turned out, however, difficulties occurred in that direction. A member of the board of directors of the Grand Trunk Railway Company took exception to the arrangement, just as one of our colleagues in the ministry had taken exception on the other side of the case, and the directors of the Grand Trunk Railway Company came to us with the statement that they were not able to carry the shareholders with them in giving approval to the contract. Therefore, it became necessary for us to consider what course we should then pursue. We might have told the

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

directors of the Grand Trunk Railway Company and the promoters of this scheme that we would stand on the contract of 1903 and that unless that contract would be carried out to the letter the whole arrangement would have to go. Wei might, on the other hand, have met the company in the spirit of fair discussion, to see whether we could agree upon some changes which would meet the wishes of the company without in any way seriously imperilling any public interest. The conclusion -the government came to was that it would not be wise to put in peril a great national undertaking to which we attached so much importance if amendments could be made of such a character as to meet the wishes of the company without any serious disadvantage to the Dominion. Hon. gentlemen opposite have interpreted that transaction in a somewhat unpleasant and by no means polite way. They have presented the state of affairs as being that the Grand Trunk Railway Company said :

' We must have these amendments,' and the government granted them. I suppose that could be said as respects a transaction between any two parties. What happened was that the two parties to this undertaking sat down to consider whether concessions could be granted that would meet the criticisms of the objecting Grand Trunk Railway people without seriously disadvantaging the interests of the government and the people of the Dominion. Now one would think from the tone of hon. gentlemen opposite that to propose changes in a contract originally made in a grave matter of this sort is something quite unheard of and necessarily very wicked and bad. Do we forget the case of the Canadian Pacific Railway contract, that after the government of the day had granted many millions of money, that after they had granted many millions of acres of land, that after they had granted exemption from custom taxation, that after they had granted exemption from land taxation, that after they had granted exemption from railway competition, that after they had given to the Canadian Pacific Railway very nearly everything on the earth and in the waters under the earth, the Canadian Pacific Railway came back here in a few years and said that they would have to drop the whole undertaking if the government of Canada did not come to their assistance. Have hon. gentlemen forgotten that that great corporation at a very early stage in its history came back and said : Unless you can advance us $30,000,000 to aid this enterprise we are sorry to have to tell you that the whole thing will have to be given up. That was the position which was presented to Sir John Macdonald at that time. He had his choice. It may be that some ungenerous critic on the Liberal side did state that the Canadian Pacific Railway had s^id : Ion must do this and the government did it. But looking back over the transaction now, even those who differed from the gov-

eminent of that day would probably acknowledge that it was a wise step on the part of the government and parliament of Canada to come to the aid of the Canadian Pacific Railway, as they did at that time, and help them out in their great national undertaking. As it turned out the loan that was then made to the Canadian Pacific Railway was repaid to the government and the government and people of Canada lost not one cent on that account. But, it might have turned out otherwise. There was no guarantee at that time that the Canadian Pacific Railway would prove the great success which ultimately it did prove. The government of the day felt, and I think, looking back over it now, that we can say wisely felt, that it was not well to put in peril that great national undertaking if they could meet the cotnpany by granting some concessions that might seem fair and reasonable. It was in that spirit that this government met the people connected with the Grand Trunk Pacific Railway Company and sat down to negotiate for changes. Immediately before the recess I called attention to shie of these changes and I will now briefly proceed to speak of the others. The most of these changes are of comparatively little importance. There are only two of them that are of serious financial importance. The others were changes to which the Grand Trunk people attached some importance because they would enable them to remove objections from the minds of the shareholders, and because they would remove objections from the minds of timid capitalists, and we know that capitalists are always timid in regard to matters of this sort. For example, there was a proposal to increase the time for the completion of the road from five to eight years. We do not anticipate that the eight years will be exhausted, but the promoters of the company came to us and said : You are to have $5,000,000 of our money as a forfeit and you cannot expect us to obtain the assent of our shareholders to the forfeiture of that large sum of money unless we shall have the most liberal time for the completion of the road. They said that they did not expect to take eight years. They still believe that they will be able to complete the road in five years. But they said that for the assurance of their stockholders and for the assurance of timid capitalists it would be better to grant an extension of time to eight years, instead of the five years originally stipulated for the completion of the road. That concession we agreed to give them. I do not think that anybody in the House will regard it as a matter of very great importance. Then they asked that we should make arrangements respecting the leasing of the portions of our line that might be completed. Our original scheme contemplated the leasing of the eastern division to the Grand Trunk Pacific Railway Company. It was provided by the Act that

any portions of the road which might be completed in the meantime might be operated by the commissioners. The Grand Trunk Pacific Railway Company came to us and said : If you complete any portion of the road in the meantime we think you should give the lease to us, and we could offer no objection to that. We have no desire to operate this road at all. We object emphatically to the operation of this road as a government work. Later on I will be ready to take issue with my hon. friend, and if he is prepared-as he has not yet done- to come boldly out as the champion of government ownership and operation, 1 tell him frankly that as respects this great national work we differ from him, and we will carry our difference into the discussions before the people of this country.

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CON

Thomas Simpson Sproule

Conservative (1867-1942)

Mr. SPROULE.

You cannot help it.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

What does my hon. friend say ? .

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CON

Thomas Simpson Sproule

Conservative (1867-1942)

Mr. SPROULE.

It is Hobson's choice with you ; you cannot help it.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

I cannot understand my hon. friend.

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LIB
LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

My hon. friends over there speak for two railway companies who are in the habit of advising them what to do, but they must remember the homely adage: that you should not measure

another man's corn by your own bushel. We had no desire to operate this eastern division, and inasmuch as we did not want to operate the road when completed, we saw no reason why we should not make an arrangement with the Grand Trunk Pacific for the operation of any portion of that road which when completed they might be willing to operate. In giving them that concession we gave them nothing which in any sense could be deemed a disadvantage to the people of Canada. Another amendment, and a very trivial one, is as regards the causes which might arise for the noncompletion of the road. In nearly all contracts of this character there are clauses providing that if, from the act of God, or the King's enemies, or because of floods, &c., a work is delayed, the contractors shall not he held to account, and in this case the clause did not include the word ' strikes ' among the causes which might delay the work. We saw no reason why we should not agree to insert the word ' strikes ' in this contract.

Then a question arose as regards the rolling stock. The company were under obligation to provide $20,000,000 worth of rolling stock of which the sum of $5,000,000 was to be designed for that eastern division. The company pointed out that while they were bound to complete the western division in a given time there was no time

fixed for tlie completion of the eastern division. We were building the eastern division ourselves, and there was no reason why we should bind ourselves to complete it at a certain fixed date, although it is needless for me to say that, subject to physical difficulties, that eastern division will be pushed forward with all possible speed. However, the Grand Trunk people pointed out that as there was no time limit fixed for the completion of the eastern division, it might possibly happen that if they finished their western division they would have their rolling stock ready for the western division, and we not having completed the eastern division would not be in a position to receive and make use of the $5,000,000 worth of rolling stock which they were bound to provide for it. I do not think it was reasonable that we should penalize the Grand Trunk Railway for a possible default of our own. We do not anticipate that there will be any such default. We fully understand that the eastern division will be pushed forward to completion as rapidly as possible, and we expect it to be completed as soon as the western division. If that be the case, then this amendment has no effect whatever. But if it should turn out from auy cause that they have finished their road before our road it finished, then we say that if they have provided $15,000000 worth of roiling stock under the terms of the contract, and if they ear-mark $5,000,000 worth of that as belonging to the eastern division, even though they cannot yet put it on the eastern division, we will regard that as a substantial compliance with the conditions of the contract. Surely no one would contend that we should penalize the company for a possible default of our own. That is the explanation and all the explanation that is needed as to the change in the contract with respect to the rolling stock.

Then, as to the foreclosure and sale. The company asked that no temporary default should lead to foreclosure, and that that power should, not be exercised by us until they should be five years interest in default. We thought that that was not an unreasonable request. In the ordinary relations between the owner of a house and another man who holds a mortgage on it, the mortgagee does not usually desire to force his friend and customer into difficulty by foreclosing the mortgage, because the interest may be for a time in default. In the ordinary relations of life a reasonable time would be allowed the mortgagor to overcome his difficulties and make good his default, and it generally happens that a foreclosure does not take place because a man may be one or two or even three years' interest in default.

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CON

Robert Laird Borden (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. R. L. BORDEN.

But the power is -there.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

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May 26, 1904