August 15, 1917


[DOT]14GB



any considerable extent to immediately pledge its credit in the raising of loans for the Canadian Northern system. The same remark will apply to the financing of the purchase of rolling stock which may, and will, be required for the Canadian Northern system and its subsidiary companies. There is great need of rolling stock on the part of all the railways of Canada with the exception possibly of the Canadian Pacific. Taking over the Canadian Northern Railway Company as we do by acquiring its stock and preserving as we do the corporate entity of the company, there is no reason why the Canadian Northern should not continue to issue rolling-stock bonds as it has in the past. I think the House is quite familiar with the character of those securities. If the Dominion Government took over the physical properties of the system it would Ibe obliged not only to take care of the large indebtedness which of necessity would become due, but also would be obliged to find the money to. purchase equipment, because I cannot conceive of the Dominion Government issuing debentures secured by the pledge of rolling stock. So much for that phase of the criticism which was offered to the resolution in the committee stage. The other criticisms were, first, that on account of the findings of the Drayton-Acworth report, there was no value in the common stock which we proposed to 'submit to arbitration, and, secondly, it was suggested that instead of arbitration there should be ia reference to the Exchequer Court. I shall deal briefly with these two features of the criticism to which the legislation has been subjected. It has been .stated by hon. gentlemen opposite that the Drayton-Acworth report expressly finds that there is no value in the property of the shareholders of the Can)ad,an Northern Railway Company. On page 44 of the report they reached this conclusion. We conclude, therefore, that the shareholders of the company have no equity either on the ground of cash put in, or on the ground of physical reproduction cost, or on the ground of the saleable value of their property as a going concern. Some hon. gentlemen opposite, resting upon that finding, have submitted that there is no value in the common stock which could be submitted to the decision of arbitrators. Sir Henry Drayton and Mr. Ac-worth, in reaching their conclusion, deal, first, with the question of the cash investment, page 41 of the report, and their finding under that heading is that $370,000,000 is the maximum possible cost of the Cana- [Slr Thomas White.] dian Northern system as at present existing. They deal, secondly, and this is one of the most important portions of their report, with the physical basis. At page 43 of their report they say: But money cost is not all. We decided also to ascertain the approximate value, on the basis of reproduction cost, of the property as it exists to-day. And we rely on Professor Swain's valuation for this purpose. After adverting to his valuation they find that the value on the basis of reproducing the entire physical Canadian Northern system in its present condition is $402,749,663. They go on to say: Now the outstanding liabilities (bonds, debentures, notes, and bank and other loans) of the company exceed $400,000,000. On page 44 they refer to the valuation upon the basis of the company as a going concern and they state that: Calculating on this basis, in the light of the figures set out above, it is evident that no purchaser would offer for the property a sum amounting to the total of its liabilities. Upon this finding some hon. gentlemen opposite have argued that there should be no submission to arbitration because of the calculations of the commissioners as to the value of the assets, the amount of the liabilities of the company and their opinion of its value as a going concern. But, I would point out to the House that there are certain important omissions in the Drayton-Acworth .report. Professor Swain himself overlooked in his valuation the land owned by the company amounting to 3,000,000 acres, of which 2,000,000 are in the province of Ontario, 400,000 in the province of Quebec, and, speaking from memory, about 800,000 in the West. He also overlooked the deferred payments on lands sold amounting, according to the statement of the company, to $7,000,000 and cash in land sales trust account of $2,400,000. The position then is that Professor Swain, in his valuation of the undertaking, overlooked a substantial body of assets. In his report, on page 43, he calls attention to the working capital and cash on hand, his statement 'being: In an estimate of physical valuation on the cost of reproduction basis, it is usual to add to the value of physical elements a certain sum for working capital, for the reason that a company beginning operations with only the physical elements in its possession, and no working capita], would be unable to do business. For this reason, the addition of a certain sum for working capital has been frequently approved by, courts and commissions. Cash on hand, is, of course, a physical asset. He goes on to say-and when he says "your attention" he means the attention of the commissioners: Tour attention is called to these two matters ror the reason that neither have been included in the present valuation, and it may be desirable for you to inquire as to the cash on hand and to take account of it as well as of a proper allowance for working capital, in whatever use you may wish to make of the results of this valuation. Messrs. Drayton and Acwo-rth, in their report, inadvertently overlooked that recommendation of Professor Swain's.


LIB

Charles Murphy

Liberal

Mr. MURPHY:

Was Prof. Swain's attention brought to these omissions and did he admit that he made them?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

I am unable to make a statement about that. It is clear the omissions were made; there seems no doubt that Messrs. Drayton and Acworth inadvertently overlooked this recommendation of Prof. Swain that they should consider cash and working capital, and, as a result, cash to the amount of $25,000,000, and current accounts to the amount of $8,700,000 were not included in their valuation of the assets of the Canadian Northern system. On the other side of the account, the commissioners overlooked the income charged convertible bonds amounting to about $25,000,000, so that the findings of the Acworth-Drayton Commission, namely that the outstanding liabilities of the company exceed $400,000,000 and that the assets are represented by the sum of $402,000,000, is not quite accurate. I do not mean to say for a moment that this- common stock is worth the difference between the liabilities and the assets of the company.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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LIB

William Pugsley

Liberal

Mr. PUGSLEY:

In the statement of liabilities which Prof. Swain has found to be $400,000,000, are the land debenture bonds included?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

mentioned, would undoubtedly be able to reach a fair conclusion as to what was the equitable or reasonable value to place upon the common stock of the Canadian Northern Railway Company which we propose to acquire. Therefore, in so far as criticism of the arbitration proposals is founded upon the statement in the Drayton-Acworth report, it would seem to me not to be conclusive. Such a considerable body of assets has been overlooked on the one hand, and such a considerable amount of liability on the other hand, that undoubtedly the findings of the commission, through inadvertent mistake, are not entitled to be regarded as conclusive.

Another objection which was made by some members was that the value of this stock should be determined by the Exchequer Court. I may say that the Government concluded against this course for the reason which I think I indicated when we were considering the resolutions in committee, namely on account of the time which would be taken in litigation of this kind before a Court of Record- a court bound by hard and fast rules of procedure and by the technical laws of evidence. I think any lawyer in the House will agree with me that, having regard to the magnitude of this system, the expert evidence which could be called on both sides, the determination by accountants of liability, and generally the litigation of so large a question, the determination of this issue before a court of record, which has other business to transact might take two years, and I am sustained in that view by the opinion of the Department of Justice. On the other hand, it occurred to us- and this was the principal reason for determining upon arbitration-which, I might say in passing, was recommended by the Drayton-Acworth report as a mode of settling the differences between the Canadian Northern Railway Company shareholders and the Dominion Railway Company-that arbitrators could proceed in summary fashion. They will not be bound to the same extent, under the language of this legislation, by the hard and fast rules of evidence, but can proceed expeditiously to the determination of the question of what is the fair value of the stock of the Canadian Northern Railway Company. We therefore thought it would be fair to all parties concerned if the value of this stock which we are about to acquire was determined by a Board of Arbitrators, one to be appointed by the (Dominion Government, one by the owners and pledgees of

the stock, and the third to be agreed upon by those two, or, failing agreement, to be appointed by the senior judge of the Exchequer Court. For the information of the House I might say that the arbitrator whom we have had in view, and whom I am able to say will act for the Dominion Government, is Sir William Meredith, Chief Justice of Ontario. I am sure all members of the House will agTee with me that the interests of the people of Canada in so important a transaction as this could not be confided to more capable or more trustworthy hands.

' Mr. DEVLINS: What experience in railway matters has Sir William Meredith had? This matter is not to be referred to the Exchequer Court but to arbitrators- arbitrators, presumably, who have some knowledge of railway matters. What knowledge of railway affairs has Sir William Meredith?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

The judicial experience oif Sir William Meredith, Chief Justice of Ontario, ,to say nothing of his long experience as a lawyer of the highest standing, is such as to eminently qualify him for a position such as this, in which he will represent the Dominion Government in determining the vaflue of this stock.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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LIB

Charles Murphy

Liberal

Mr. MURPHY:

That is hardly an answer to the question of my hon. friend (Mr. Devlin).

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

It would appear to me to be a very complete answer. My hon. friend says: Why not refer the matter to the Exchequer Court? If I used the same argument as my hon. friend I might ask what experience has the judge of the Exchequer Court had in practical railway matters? Judges are men who acquire an immense amount of information in connection with their judicial duties. Apart from that, evidence will be submitted to these arbitrators by the Dominion Government and 'by the owners and pledgees of the stock as to its value. It would appear to me, -therefore, that the interests of the people of Canada could not be entrusted to more capable or more trustworthy hands than to tho.se of the Chief Justice of the province of Ontario.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
LIB

Charles Murphy

Liberal

Mr. MURPHY:

Has my hon. friend determined on counsel, as well as an arbitrator, to represent the Dominion Government?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

No, we have not considered that.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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LIB

William Pugsley

Liberal

Mr. PUGSLEY:

Section 4 says that the arbitrators., in determining the value of the shares, may apply their own judgment. Does the minister think there would be an appeal to the Supreme Court of Canada with respect to the exercise of that judgment?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

I think there

would, beeause we have been careful in the wording of that section to provide that there-shall 'be an appeal to the Supreme Court of Canada on questions not only oif law, but of.' facts. 1 do not desire to elaborate, but I do not think it would be possible to secure as arbitrator for the Dominion Government in this important transaction .a man having-actual Tailway experience who would have-tbe *qualifications possessed by the gen-tl'*-maa whom I have mentioned.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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LIB

George Perry Graham

Liberal

Mr. GRAHAM:

If the Bill now before the-Senate should pass, would it be possible-for Sir William Meredith to act?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

I have the consent, of Sir William Meredith to act for the Dominion Government as arbitrator, and I anticipate no difficulty in connection with, the legislation my hon friend mentions or any other legislation.

It is not my intention to take up further the time of the House because, as I stated at the outset, this matter was very fully discussed during the committee stage. In concluding, I just wish to say further that by acquiring all the capital stock of the Canadian Northern Railway Company the-Government obtains the ownership and control of the entire system-a system of 9,500 miles of railway, with the appurtenances of telegraph, express, steamship, elevator, storage and other facilities. The system cannot render the service which it should to the people of Canada unless it is financially able, not only to pay its fixed charges and provide for betterments and improvements, but also to provide for needed extensions. If we brought down, as was suggested by some hon. gentlemen opposite, legislation providing assistance of a temporary character this year, such as was brought down last year, that would only be postponing the problem. Next year there would be the same application for assistance and the same need of relief. The same may be said of the following year; in fact, it is not too much to state that for the next three or four or five years, the Dominion Government would be compelled each year to make provisions for further assistance to the Canadian Northern Railway Company if we proceeded upon the basis of our action of last year. But that, as I

stated last year, is not to be thought of-We appointed a commission for the purpose of finding if possible a permanent solution of the question, and with regard to the assistance which the Dominion Government will be called upon now to furnish to the Canadian Northern Railway system, we can say this: The benefit of the expenditure from the funds so granted by way of assistance, whether employed for the purpose of providing betterments and improvements or acquiring rolling stock or making extensions, will inure to the new owners, the people of Canada, who will own the entire $100,000,000 of the capital stock of the Canadian Northern Railway, and thus control the entire system.

I move the second reading of the Bill,

Hon. GEORGE P. GRAHAM (South Renfrew) : Mr. Speaker, we are in a somewhat-peculiar position regarding this Bill; it cannot be said that the situation is absolutely clear. Three parties seem to be concerned in this proposal: first, the Government of Canada; second, a group of financiers,, bondholders and others; "and, third, Mackenzie and Mann. From the information so far brought down we have no documentary evidence that the Canadian Northern Railway Company has -asked for this legislation; neither have we any documentary evidence that Mackenzie and Mann have asked for aid. On the contrary, the statements presented to the House by the Canadian Northern Railway Company rather indicate that Mackenzie and Mann believe that they could swing this enterprise without legislation. It looks as if the financiers behind! the owners, not the owners themselves, have-asked the Government to pass this legislation and to take over the enterprise.

It can readily be seen that to the bondholders Government ownership of the Canadian Northern would be much more attractive than private ownership of the: system under existing conditions. Should this Bill become an Act of Parliament, at once the holders of those securities will find themselves the possessors of a value that they never anticipated and never would have realized had this legislation not been introduced. To them it will be a wonderful and a very profitable piece of financing. However, this Parliament has to do what is best for the country rather than what is best for private individuals. Regard for the interests of the financial group or for the interests of Mackenzie and Mann must, in the minds and acts of members of Parliament, take a secondary place to- what

is considered to be in the best interests of the people as a whole.

My hon. friend has discussed the arbitration provision and the proposal to have a reference to the Exchequer Court. It is unnecessary for me to reply to this portion of my hon. friend's 'argument, because I propose to move an amendment that will require neither arbitration nor Exchequer Court proceedings.

The Minister of Finance has rather repudiated the Drayton-Acworth report. I am not going to argue whether that report be correct or incorrect. A great deal of work was done in connection with it and a great deal of industry was displayed; but I am going to brush that to one side; I am not going to ask the House to consider whether the Drayton-Acworth report is reliable or unreliable. It does seem peculiar, though, that a report made by such eminent gentlemen, appointed by the Government, should contain a mistake of so many millions and that that mistake should be discovered only to-day. I do not say that the mistake did not occur; but if it did occur-then the Lord deliver us from the findings of commissions. After all, though we may read reports and statements, we have to come back to our own judgment and take the responsibility of what we do, regardless of what commissioners may find. I am sure that the Minister of Public Works (Hon. Robert Rogers) agrees with me in that respect.

My hon. friend has referred to the short term liabilities. If my memory serves me correctly, these short term liabilities carry with them collateral of Government securities. As a matter of fact, if the Canadian Northern were able to renew its short term notes, the Government of Canada would find the securities which it had guaranteed put up as collateral for these short term notes. So that the situation in reference to these short term notes remains practically the same whether the Government owns the road or whether it is left in the hands of the Canadian Northern Railway Company.

I suggested a few moments ago that it was the group of financiers interested, not Mackenzie and Mann, who were urging the Government to take over this enterprise. The Finance Minister has brought down to the House a statement made by his own department which indicates that, at least in certain respects, Mackenzie and Mann have not defaulted. I refer to the provision in the statute of 1914, under which the Government agreed to advance

[Mr. Graham. 1

the interest on the $45,000,000 guarantee for three years, divided into six semiannual payments. This interest was to become part of the capital loan to the Canadian Northern, and was to be repaid when the $45,000,000 were repaid, but the company agreed to pay regularly the interest on this advanced interest. The statement brought down by the Finance Minister shows .that the Government has advanced to the Canadian Northern under .this section of the statute $2,634,500.01, and that the Canadian Northern has paid interest on this interest to the apiount of $35,952.04. The next payment of interest becomes due on September 1; therefore they cannot be said to be in default.

I have intimated that the statement presented to the Government and by the Government to the House rather lead one to the conclusion that Mackenzie and Mann or the Canadian Northern Railway Company believe that the enterprise could get along without any legislation by this Parliament at this time. I have before me a statement made by the assistant to the vice-president, Mr. Mitchell; it is an interim condensed general balance sheet of the Canadian Northern Railway system at April 30, 1917.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
CON

John Allister Currie

Conservative (1867-1942)

Mr. CURRIE:

Has that been tabled?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
LIB

George Perry Graham

Liberal

Mr. GRAHAM:

Yes. This includes a

statement of estimate of cost to complete lines and terminals under construction and financial provision for the same; statement of contractors' and other construction accounts outstanding, June 30, 1917; memorandum re unsold lands; estimate of amount required for betterments and rolling stock for three years. This would seem, although it is an interim report up to April 30, 1917, to cover everything in connection with the Canadian Northern. I will not weary the House by reading this statement, 'but I will merely point out that, in the statement of assets and liabilities, 'Mackenzie and Mann claim a surplus of $37,49(4,870.71,

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. R. B. BENNETT:

What value is

placed upon the lands?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
LIB

George Perry Graham

Liberal

Mr. GRAHAM:

I will come to that in a moment.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink
LIB

William Pugsley

Liberal

Mr. PUGSLEY:

That is over and above the common stock of $100,000,000.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   MOTION FOR SECOND READING OF CANADIAN NORTHERN RAILWAY BILL.
Permalink

August 15, 1917