for a principal amount equal to seventy-five per centum of the coat of construction of the said division, as defined and ascertained in accordance with the provisions of paragraph eighteen hereof, but such principal amount shall not in any case exceed thirteen thousand dollars per mile of the mileage of the prairie section, nor thirty thousand dollars per mile of the mileage of the mountain section, although seventy-five per centum of such construction may have exceeded the said respective sums per mile.
30. The said bonds shall bear interest at the rate of three per centum per annum, payable half yearly, and shall have attached thereto coupons representing the instalments of interest thereon, and shall be in such form as the government shall determine.
The Grand Trunk Railway Company of Canada were to guarantee the bonds of the Grand Trunk Pacific Railway Company for an amount sufficient to raise the balance of the money required for the construction of the line.
At the time this agreement was entered into, the 3 per cent stock of the Dominion of Canada stood at about par. Shortly afterwards there was a fall in that stock in common with other high class low interest-bearing securities, and as a result it was seen that the 3 per cent Grand Trunk Pacific Railway Company's bonds guaranteed by the Dominion of Canada would not nearly realize par. In order to meet that situation a supplementary agreement was entered into in the following year. Among other things it removed the limit as to the $30,000 a mile upon the mountain section, but allowed the ,$13,000 per mile as a maximum of bonds to be issued by the Grand Trunk Pacific Railway Company cn the prairie section to stand. And then comes the important section to which I direct your attention upon which litigation subsequently arose and these judgments were rendered.
5. Notwithstanding anything the said contract contained the government may and shall, preserving always the proportions in the said contract provided as between the ' Prairie ' and ' Mountain ' sections of the western division implement for the purposes and subject otherwise to the provisions of the said contract its guarantee of the bonds of the said company to he issued for the cost of construction of the said western division in such manner as may be agreed upon so as to make the proceeds, of the said bonds so to he guaranteed a sum equal to seventy-five per centum of the cost of construction of the western division ascertained as provided in the said contract, hut not exceeding in respect of the Prairie section thirteen thousand dollars per mile.
In 1905 a trust mortgage was executed over the entire western division, securing the bond issue of £14,000,000 to be guaranteed by the Dominion of Canada. Differences of opinion arose between the government and the Grand Trunk Pacific Mr. WHITE (Leeds).
Railway Company as to the construction of the clause I have just read. On the part of the government it was contended that implementing the guarantee meant that the Grand Trunk Pacific Railway Company should issue its bonds guaranteed by the government to an amount which would realize by sale A total amount equal to $13,000 per mile on the prairie section and par for the amount of bonds required on the mountain section.
The Grand Trunk Railway Company, on the other hand, contended that the true meaning of implementing the guarantee was that the government of Canada should pay the difference between the net selling price of the three per cent bonds of the Grand Trunk Pacific Railway Company, issued from time to time, and par; in other words that the government should be directly liable to thq Grand Trunk Pacific Railway Company, for an amount sufficient to implement or make up the difference between the net selling price and par, and that there was no obligation on the Grand Trunk Pacific Railway Company to issrne its bonds further than to the amount of $13,000 a mile, no matter what they realized. The government, as I have said, contended that their liability on this was secondary or as guarantor.
So there was a clear issue between the government, and the Grand Trunk Pacific Railway Company, the difference being that tlhe government contended that it would have merely to guarantee bonds of the Grand Trunk Pacific Railway Company sufficient to make up the difference between the net selling price of the bonds and par, and the Grand Trunk Pacific Railway Company on the other band contended, that the government must be directly liable and responsible to the Grand Trunk Pacific Railway Company for an amount sufficient to make up the difference in cash.
A case was submitted to the Supreme Court of Canada, and that Court held in favour of the contention of the government, nameily that its liability was to guarantee bonds issued by the Grand Trunk Pacific Railway Company to an amount sufficient for the purpose of implementing. An 'appeal was taken to the Judicial Committee of the Privy Council, and the Judicial Committee reversed the decision of the Supreme Court of Canada so that in the result the contention of the Grand Trunk Pacific Railway Company prevailed, and the Dominion of Canada, under the terms of that judgment, have become responsible to the Grand Trunk Pacific Railway Company for a very large sum. I shall read the last portion of the head note of the judgment of the Privy Council.
Held, that the liability of the government under this agreement was not a secondary
liability as guarantors only, the primary liability falling oil tlie company, but that the government were liable to make the bonds of the first issue up to tlieir nominal value without recourse over against the company.
That is substantially the history of the transaction, and the effect of the judgment. As to the amount involved, which, as I have said, is very large, I have had a memorandum prepared, showing the position to date, and the estimated total lia-ability under the terms of this judgment. The memorandum is as follows:
Memorandum respecting Privy Council decision, Grand Trunk Pacific Railway Company v. The King.
Sales of Grand Trunk Pacific Railway Company's three per cents guaranteed by the government which have already taken place- In 1905 £ 3,200,000 were sold at 92J
and produced $14,559,674 08
In 1909 £ 2,000,000 were sold at 80
and produced 7,773,495 15
In 1910 £2,000.000 were sold at about £80 13s. 9d., and produced. 7 856,119 67 The amounts here stated as being produced from the respective sales include interim interest accretions in London before tlie transfer of the funds to this country, and to that extent the net proceeds as above stated are too great.
The sum to lie paid the Grand Trunk Pacific Railway Company by the government under the Privy Council judgment, in respect of these sales, will therefore be approximately $4,900,000.
On the basis of the estimated cost of construction of the mountain section made by the government chief engineer, there will yet have to be sold of these three per cent bonds approximately £5,515,220.
Assuming that when a sale of these bonds has to he made they bring the same price as the last lot, sold, viz.: £80 13s. 9d. for each hundred pounds, there will he required to he paid in cash by the government in respect of such sale, to make the proceeds of the sale equal to par, the sum of $5,183,617.40.
On these estimates this will make a total cash contribution by the government of approximately $10,080,000, dn order to make the proceeds of the government guaranteed bonds equal to par.
That is substantially the position as I understand it, and I, therefore, beg to move that the House go into Committee of the Whole to consider the resolution standing in my name.
Motion agreed to, and House went into committee on the resolution.
Resolution reported, read the second time and agreed to.
Mr. WHITE (Leeds), moved for leave to introduce Bill (No. 95) respecting the National Transcontinental railway.
Motion agreed to, and Bill read the first time.