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.