August 28, 1917

CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

It says so.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

William Manley German

Liberal

Mr. GERMAN:

Not at all. It does not

say so. It says that His Majesty may acquire those shares on such terms and conditions satisfactory to the Governor in Council as may be set out in an agreement to be made between His Majesty and the owners and pledgees of not less than five-sixths of the stock. What is the agreement to contain? Not the purchase of the shares, the Minister of Finance surely cannot seriously suggest such a thing as that. It is not an agreement to purchase the shares, so far as this Bill is concerned. It does not say anything about purchasing the shares. In any event why is an agreement necessary to purchase the shares? It does not require an agreement with Mackenzie and Mann to purchase the shares, nor yet does it require an agreement with the pledgees to purchase the shares, because the pledgees have no higher or greater rights than Mackenzie and Mann. If the Canadian Bank of Commerce holds, as it is stated they do, $51,000,000 of that stock in pledge, they took shares with full knowledge of what the Act of 1914 contained, and with full knowledge that the Government had the right, on default to take over the whole property without paying Mackenzie and Mann one penny for it. That being so, why is an agreement necessary for the purchase of the shares? I submit it is no such thing, and the Minister of Finance is deliberately evading the question when he makes that contention. He knows there is no necessity for an agreement for the taking over of those shares. We must have some explanation as to that, either to-night or later on in this session; because I may state to the Minister of Finance that though he can closure this Bill through to-night and force it through the committee without giving an explanation which the committee requires and is entitled to have, and without giving an explanation which the country requires and is- entitled to have, we shall have another chance before the Bill becomes law, which chance I apprehend will be taken

advantage of, and the Government will have to explain to the House what the minister means when he says that he can give good reason why the Act of 1914 should not be put into operation in taking over this property. Furthermore, we are entitled to have a draft agreement showing what is to be done, the same as we had in 1914 when the Bill providing for the guaranteeing oi the $45,000,000 was before us. Why should we not have this agreement now, to know what arrangement the Government intends to make with Mackenzie and Mann and the pledgees of this stock? We are entitled to have it, and we must have it if at all possible before this Bill becomes law.

The Finance (Minister stated that the arbitrators could decide that nothing should be paid for this stock. I differ from him because he says in the Bill that the stock is to be acquired for a price to be determined by arbitration. There is to be a price even if there is no value. The royal commissioners stated that there was no value. It is nonsense, in the face of their report, for any one to argue that there is a value. But, notwithstanding that the commission say there is no- value, the Governments say that a price is to 'be paid. They recognize immediately a value because there can be no price paid for a thing unless the thing has a value or unless there is an assumption of value, because price recognizes value. The Government speaks about a price to be hereafter determined. The arbitrators start out with the tacit as,, sumption on the part of the Government that -the -stock has value. Then they can fix such price as may be determined. But, outside of, and beyond that, I call upon the Minister of Finance to explain to the committee what he means by the statement that he could give good reasons why the Act of 1914 should not be made effective. I want to know what those reasons aTe. The Minister of Finance, the Prime Minister and -hon. gentlemen- on the other side have discussed this matter from every angle, but this one. Why do they not put into effective operation the Act of 1914 which they said would be so effective, so -speedy and so just to the owners of the railway? Then, I -say, we are entitled to know what the agreement is to contain, what it is to be and we should have a draft of that agreement placed before Parliament so -that, before it is entered into, Parliament may know exactly what it is -authorizing the Government to do. I have, Mr. Chairman, finished my remarks in connection with this matter and I trust the Minister of

Finance will do us the justice to explain what he meant by that expression.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

Edmund William Tobin

Liberal

Mr. TOBIN:

Mr. Chairman, I think it

my duty to say a few words on this important question. I was somewhat surprised. when my hon. friend from Bou-ville (Mr. Lemieux) finished his speech a few minutes ago, to hear a noise on the Government benches. I thought hon. gentlemen opposite were chloroformed, but they must have wakened up because we had not heard from them for some time. I am surprised, in view of the legislation passed in 1914, that the Government have not taken advantage of the provision contained in that Act to take over the road. If you look at the statutes of 1914, you will see that it contains the following provision:

22. Upon the happening of any event of default and at any time or times while the same shall continue, it shall be lawful for the Governor in Council after such notice to the Canadian Northern as the Governor in Council may direct, to declare' to be vacant the offices of the directors of the Canadian Northern and of any of the Constituent or Subsidiary Companies which may be subject to the legislation authority of the Parliament of Canada, and to appoint a board or boards of directors in lieu thereof respectively (any former director being eligible for appointment.)

2. The power of appointment herein conferred upon the Governor in Council shall be a continuous power and shall be exercisable from time to time and so often as any event of default may exist and be continuing.

23. The directors so appointed by the Governor in Council shall hold office during the pleasure of the Governor in Council, and any such director may be removed and another appointed in his place. Vacancies occurring from time to time may be filled by the Governor in Council. The said boards respectively shall have all the powers of a board of directors elected by the shareholders and acts of the board requiring the authority and approval of the shareholders shall if authorized by the Governor in Council be as valid and effectual as if authorized or approved by the shareholders.

24. If authorized by the Parliament of Canada, the Governor in Council may on such terms and conditions (if any) as Parliament may prescribe, at any time while any event of default shall exist and be continuing, by order declare the equity of redemption of the Canadian Northern and of all other persons whomsoever in the mortgaged premises to be foreclosed, and thereupon the equity of redemption of the Canadian Northern (and of such other persons) in the mortgaged premises and every part thereof shall be and become absolutely-barred and foreclosed, and the same shall thereupon be vested in His Majesty in right of the Dominion of Canada any statutory enactment or any rule of law or equity to the contrary notwithstanding.

That is what the Government could have done.. It could have availed itself of the provisions of that statute. This is purely a business proposition between two par-

ties, the Government and Mackenzie and Mann. I would ask you, Mr. Chairman, if you would go into such a deal, where such a large amount of the money of the people of Canada is involved, without the necessary information. I do not think so. I am surprised at the action of my hon. friend the Minister of Finance. I have been informed that he was the manager of the National Trust Company, but I am sure that, as manager of that company, he would not consider such a proposition without taking the advice of the best experts, investigating it and ascertaining the assets, revenue and liabilities of the company. For my part I cannot understand why, in face of the report made by the commissioners appointed by this Government, the Government would bring in any such legislation as this. If you will look at the Drayton-Acworth report you will find the following statement:

Value of Canadian Northern Undertaking.

Cash Investment.

The property investment of the Canadian Northern Railway system is stated in the balance sheet of June 30, 1916, at $494,112,489.34. This figure admittedly has been written up to include $100,000,000 of capital stock. And this stock, as we have already said, was issued without any cash consideration. We have endeavoured to ascertain the actual cost of the system. From the company's official reports and special statements supplied to us, we have ascertained that the maximum cash investment that can have been made in the property is $383,302,451.33.

The report says further:

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. This valuation is, in his opinion, a liberal estimate of the fair cost of reproducing new, at pre-war prices of labour and material, the system at present existing. It includes property belonging to the system at its estimated cost, if it had to be acquired or constructed to-day. And therefore it not only gives the company credit for lands which it in fact owns, even though it obtained them as a grant; but it also credits the company with the increment of land values since the date of the original acquisition. And these two items are quite large.

A little further on we find the following:

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. If, then, the people of Canada have already found, or assumed responsibility for, the bulk of the capital; if they must needs find what further capital is required; and if they must make up for some years to come considerable deficits in net earnings, it seems logicallv to follow that the people of Canada

should assume control of the property. We return later to the Canadian Northern Company in order to set out our recommendations as to its ownership and management in the future and as to the terms to be offered to the existing shareholders.

^According to this report, the liabilities of the company are gTeateT than its assets. Yet the Government is going blindfolded into an undertaking that will involve an expenditure of hundreds of millions of dollars. Is it reasonable that these millionaires, Mackenzie and Mann, should unload this property on Canada? I submit that it is not reasonable. Speaking in this House on May 18, 1914, page 3943 of Hansard, the Minis-er of Finance said:

I have dealt with the question of securities, and come now to the question of remedy upon default. Some hon. gentlemen have said: why do you not take security upon the stock? I need not tell the lawyers of this House that a creditor stands in a higher position than a stockholder, and that except for convenience it is not at all necessary to take the stock of any company for security. If I have a mortgage on a company's undertaking I do not care very much for the stock as security except that it is advisable to have the stock in order that I can take possession of the company, put in my own receiver.

I think it is about time that the minister acted upon the principles that he set forth in 1914 and put the Canadian Northern system into the hands of a receiver. The Government should withdraw this Bill; that course would be more satisfactory to the people than the passing of a measure that will involve an expenditure of over 5600,000,000.

The hon. gentleman said further:

What security have we? I have seen a good deal of financing in my time, and I know something of law although my hon. friend from Pictou (Mr. Macdonald) does not think so, and I want to say this: I have never seen as effectual a means of entering into possession of a property upon which a mortgage is held as has been devised by the Solicitor General in connection with this transaction. And further -he will not mind this coming from me-I take off my hat to the Solicitor General for the way he has performed the legal work In connection with this transaction which is one of the most complicated that has ever come before the House.

I am afraid that the people will not take off their hats to the Solicitor General or to the Minister of Finance for what they have done in connection with this measure. Speaking in the House on May 14, 1914 (page 3733 of Hansard), the member for St. Antoine (Sir Herbert Ames), a good business man, who has some standing in the province of Quebec, said:

There is another feature of this matter which, I think, is well worthy of consideration. What

is to happen in case of default? We have hitherto been dealing with the situation in case of success ; the Government has very carefully looked ahead in regard to what might happen in case of failure. Ordinarily it is a very slow process to foreclose a railroad and for the bondholders gradually to take possession of the physical assets thereof. The Government in this case, however, has supplied a method of quick procedure whereby the axe drops instantly and whereby there can be no coming back for further assistance. It is definitely stipulated in this undertaking what shall constitute any event of default.

Why does the hon. member for St. Antoine not persuade the Government of which he is a supporter, and with which he has considerable influence to drop the axe and appoint a receiver for this road? That is what the business men of Canada want. Why does the member for St. Antoine not ask the Government to drop the axe and thus save the Canadian taxpayers millions of dollars?

With regard to the amount that this transaction will cost the country, I have before me the figures given last evening by the member for Pictou (Mr. Macdonald).

I am surprised that the Government does not seem to consider seriously what will be the tax upon the people in respect of this undertaking. This road will cost Canada $653,246,949.39. That is a considerable tax upon the people of this country. I contend that such a measure as this should not be put before the people-at a time when so much money is being expended for war purposes and for carrying on the ordinary business of the county-simply to give a present to two millionaires of Toronto. These men have obtained money from nearly every province except Quebec-and Quebec will have to be taxed with the other provinces to meet this expenditure. The Prime Minister, in answer to a question put yesterday in regard to pensions, said:

My hon. friend from Pictou (Mr. Macdonald) made an inquiry with regard to a resolution on the Order Paper with respect to the Board of Pension Commissioners and the rates of pension. Hon. gentlemen will remember that on March 14, 1916, a committee was appointed for the purpose of taking into consideration the rates of pensions. On the 10th May, 1916, the committee made a unanimous report. The chairman of the committee, on the 18th May, moved that the report should be commended to the consideration of the Government. Parliament prorogued on the same day. There was not an opportunity to bring in legislation at that session. Accordingly, on the 3rd June, 1916, the recommendations of the committee were put into the form of an Order in Council and passed under the War Measures Act. By a resolution on the Order Paper it was proposed that a similar committee should be appointed this year to take into consideration representa-

tions that had been made to the Government from various quarters, and more particularly by several organizations of returned soldiers, as to the desirability of increasing the rates of pensions then allowed. This was urged for various reasons, several of which have a great . deal of force. We have reached the conclusion that it would be impracticable to deal with the matter in a thorough and satisfactory manner at this session and that it is a subject which should be dealt with finally and permanently by the new Parliament which is to be summoned in the early future.

Apparently the Government have no time to attend to the wants of the widows and orphans of the men who have gone to the front to fight our battles; yet they have time to attend to the millionaires. No, Mackenzie and Mann cannot wait. They say: "You cannot afford to put this company into the hands of a receiver." What about the Farmers' Bank. Where was the Minister of Labour in 1910, when he used to weary the House for hours and hours wanting the Government to recoup the stockholders of the Farmers' Bank? Do we hear anything about that from the Government benches now? Hundreds and hundreds of poor people lost their money by the failure of that bank. Their money was stolen from them. What did the Government do? The poor people can wait, but the millionaires cannot wait. The people of this country can well call this Government a government of millionaires. In an editorial in the Morning Citizen of August 21 I find the following paragraph:

The Citizen thinks that the Government is wrong in referring the all important matter of the valuation of the 600,000 shares to arbitration. The Acworth-Drayton report says that these shares are practically worthless. If they have no equity of any value, why should the country pay for them any amount a board of arbitrators may decide? The matter is not one for arbitration but for action by the Exchequer court. Briefly, the fact that the administration has not taken advantage of its legal recourses against the company in the circumstances should not compel it to the other extreme of generosity with the money of the people. The matter is one of tremendous interest to Canadians. At present it would seem that the Government is in an untenable position. Indeed its proposal, if enacted into law, will do a grave injustice to the tax burdened people of Canada.

Last evening the Minister of Finance, who is generally pretty fair in his remarks, gave this House to understand that Mr. F. N. McCrea, the member for Sherbrooke, was a director of the Bank of Commerce, and the hon. minister's friends on the other side cheered him. I think the members of the House understood the minister to say that Mr. McCrea was a director of the bank. At any rate, he insinuated that he was.

Mr. McCrea is not a director of the Bank of Commerce, and never was. He was a director of the Eastern Townships bank, which was taken over a few years ago by the Bank of Commerce, and I think they pensioned off all the directors- of the Eastern Townships Bank, and Mr. McCrea was one of them. I think the Minister of Finance should not play upon words, but tell the House that Mr. McCrea is not a director of the Bank of Commerce.

I have here a statement from the Annual Financial Review-Canadian, May, 1916, which gives a list of the directors of the Bank of Commerce, which reads:

The Canadian Bank of Commerce. Head office Toronto, Canada. Directors: Sir Edmund Walker, C.Y.O., LL.D., Toronto, President ; Z. A. Hash, K.C., LL.D., Vice-President, Toronto; John Hoskin, K.C., LL.D, D.C.L., Toronto; J. W. Flavelle, LL.D., Toronto.

I presume the last mentioned name is familiar to all members of the committee. The other names are as follows:

A. Kingman, Montreal-; Hon. Sir Lyman Melvin Jones, Toronto; Hon. W. C. Edwards, Ottawa ; E. R. Wood, Toronto; Sir John M. Gibson, K.C.M.G., K.C., LL.D., Hamilton; Robert Stuart, Chicago, 111.; G. F. Galt, Winnipeg; Wm. Farwell Sherbrooke, D.C.L. ; Hon. Geo. G. Foster, K.C., Montreal; Chas. Colby, M.A., Ph.D., Montreal; A. C. Flummerfelt, Victoria, B.C.; G. W. Allan, K.C., Winnipeg; H. J. Fuller, Montreal; F. P. Jones, Montreal; H. C. Cox, Toronto.

General Manager, John Aird; Assistant General Manager, H. V. F. Jones.

Mr. McCrea's name was never on the list of directors of the Bank of Commerce. It is somewhat surprising that this Government should press this legislation as public opinion is strongly against it. If you go into the city of Montreal and meet any business men, Conservative or Liberal, they will tell you that this is the most damnable legislation that ever came before this country.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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?

Some hon. MEMBERS:

Order, order.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

Edmund William Tobin

Liberal

Mr. TOBIN:

Some gentlemen express

themselves that way. I would not say that the Government would steal, but people say this is a big steal. Here is a resolution passed by the Constitutional Club of Toronto. The hon. Finance Minister comes from that city. The following paragraph appeared in the Toronto Globe on August 25, 1917:

Impeach All Those Connected With C.N.R.- Sweeping Resolution Passed By the Constitutional Club.

A resolution has been passed by the Constitutional Club, demanding the impeachment of all members of the Dominion Government and of public services, such as the Imperial Muni-

tions Board, who at present or in the past have, either personally or in the capacity of directors of incorporated companies, been connected in any of the financial institutions involved in the affairs of the Canadian Northern Railway.

The "resolution sets forth that Parliament has prolonged its own existence beyond the limits prescribed by law, and that it does not adequately represent the country. It also quotes the statements of Mr. R. B. Bennett, M.P. to the effect that the public life of the country has been corrupted, and declares that the Government has admitted the existence of interlocked directorates and personal interests among financiers and financial institutions associated with the affairs of the Canadian Northern

Railway. ,,

The resolution was moved by Mr. T. A. bean-lan and seconded by Mr. Archibald Draimin.

I am against this legislation, because it is not in the interest of this country, and I am against it being considered in the last days of a dying Government. The life of this Parliament expired in October, 1916, and I have no mandate from my people to vote for such a measure. This Government has taxed this country up to the hilt for the benefit of their friends. Now, this is a large amount of money, something that is going to tax every man, woman and child in this country for years to come, and I vote against the measure because I consider it is not in the interest of this Dominion.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

James Alexander Robb

Liberal

Mr. ROBB:

Having listened to the instructive and convincing address of the bon. member for Montreal (Mr. Lafortune),

I am inclined to think that the members of the Government are now perhaps sorry that the closure has been put on, and that they are therefore unable to give vent to their feelings on this important question. Having in mind the legislation of 1914, the arguments of the ministers in presenting that legislation and the arguments of their foltowers in (supporting it, we on this side have reason to-day to question why at this time the closure has been put on. All the arguments of the ministers in presenting the legislation of 1914 and the arguments of those who supported them were an effort to convince the House and the country that that was the last call; that the legislation of 1914 was so carefully drawn up, so ironclad, if you will, that whenever Mackenzie and! Mann or the Canadian Northern Railway company defaulted in their interest payments, automatically the Canadian Northern railway with its connections, mines, timber limits, elevators and valuable rights along. the harbour fronts, of this country, would all lock, stock and barrel, become the property of the Canadian people. And, so we wonder to-night why

it is that the Government, having this legislation in charge, have adopted the closure.

Is it because they are afraid of their own supporters? Is it because there is rebellion amongst the supporters of the Government who find it hard to swallow this indigestible pill that is being presented to them? The Government supporters may swallow this " high finance " pill, coated with a ' win-the-war " covering, but the electors, the taxpayers, the men who will be loaded with this debt, will not swallow the pill so easily.

I am sure hon. gentlemen opposite, from following the public press and from the many telegrams and messages which, I can imagine, have been sent to them asking why they allow this legislation to go through without any protest, are not altogether ignorant of the protests that have been made by representative financial interests throughout this country who heretofore have given loyal support to the Conservative party.

I am sure the Government must be aware that throughout this country there is great unrest at this time when the Government propose, at one stroke of the pen, to increase the public diebt of this country by over 1600,000,000. I am sure the people will take the first opportunity of registering their protest against a Government which has so arbitrarily attempted to put through Parliament what a recent speaker has termed a gigantic steal. I, as representing taxpayers of the county of Huntingdon, wish to take exception to the remarks of my good friend the hon. member for Montcalm (Mr. Lafortune) who never loses an opportunity to tell us that Montcalm is the best county in the Dominion of Canada. I invite the hon. member for Montcalm, to attend, next week if he will, the exhibitions in the united counties of Chateauguay and Huntingdon, and there he will see what is really the best county in the Dominion of Canada. Not only is . that county a representative agricultural and industrial county, but perhaps there is no section in all the Dominion that is so representative of the two great races that make up this country as the united counties of Chateauguay and Huntingdon. It is true that the Canadian Northern railway does not run through those counties, but we have other good railways operated by private interests; the service is all that could be desired, and whatever may be the opinion of electors in other districts in the Dominion of Canada, in the county which I have the honour to represent, we have no great faith in public ownership.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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CON

Samuel Francis Glass

Conservative (1867-1942)

Mr. GLASS:

You are behind the times.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

James Alexander Robb

Liberal

Mr. ROBB:

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

Alexander Kenneth Maclean

Liberal

Mr. A. K. MACLEAN (Halifax):

Mr. Chairman, I have not taken any part in the debate upon this Bill, and before it closes to-day I desire to address the committee very briefly on some phases of it. As far as the principle of the acquisition of the shares of the Canadian Northern Railway company is concerned, I find myself in agreement with the vast majority of hon. gentlemen on both sides of the House, that is, that in the failure of any matured alternative proposition, the acquisition of the shares of the company is about all we can do under the circumstances. I hardly am able to agree with those hon. gentlemen who have suggested liquidation proceedings and the appointment of a receiver.

There are difficulties in the way of that procedure, although I admit it has merits. But, we must remember that we are dealing with a railway system and not with a railroad. Upon this railway system there are quite a number of securities issued and, in fact, some of the securities issued by this company and guaranteed by the Government do not cover the entire system. It wou'd be impossible, even if the road were forced into liquidation, to have a sale of the property as a system. It is possible to work it out, but there would be tremendous difficulties in the way and it would take a long number of years to put ourselves in the position that we will be in by acquiring the shares under this Act.

I rise, however, to direct the attention of the committee particularly to clause 4 of the Bill. This clause enacts that the arbitration to be appointed shall determine the value of the snares to be acquired and the arbitrators shall proceed in a summary way and may apply their "own judgment in determining such value. The section proceeds to say that the arbitrators

may receive . . . such reports and statements authenticated in such way as they may decide and such evidence as they may deem necessary or helpful.

The matter at issue is really one as to the determination of the value that the company is to receive for the shares. That is the important question. If the board is unanimous in its finding there is no appeal and the value is to be determined upon the judgment of the arbitrators. Therefore, the question which will be before the Board of Arbitrators is a very important one and a very serious one for the country and for all interests involved. I think that every hon. gentleman will admit that this is an extremely difficult problem. In the first place, we are not acquiring the road by expropriation or condemnatory proceedings and we are not entering into possession of the property as mortgagees. We are involuntarily acquiring the road. The arbitrators will be confronted with the problem of deciding what principles will be involved, or invoked, in determining the value of the shares. It is important that we shall determine - if we can, by statute, what principles shall guide the arbitrators in fixing and determining the value to be paid for these shares. Personally, I do not see much need for the appointment of a Board of Arbitration to determine the value of these shares. I think it might as well have been done by the Government themselves. They might have at least studied the matter, made a recommendation to

Parliament and asked Parliament for its approval. I would just as soon take the judgment of some members of the Government as I would that of the Board of Arbitrators to be appointed.

They would, I think, be in a better position than this proposed board would be to determine the value. What is the position of the Government? They have the Dray-ton-Acworth report. They would have the testimony of their own auditors who have been engaged in the auditing of the accounts of the Canadian Northern Railway system for the past two or three years; they would have the evidence of the engineers of the Railway Department, who must know every mile of tihat system, because of examinations made prior to the payment of subsidies; they know the cost of the railway; they know the reproduction cost; they know its financial earnings and the cost of operation; they have just as good an idea of the prospective value of the railway as any board that could be appointed. I think, therefore, that it would have been in the interests of the country and acceptable to Parliament if, in presenting the proposal to acquire the shares of the company, the Government had recommended to Parliament what in their judgment was the value of the shares to be acquired. Then we should have been through with this question once for all and Parliament and the country would have known what they were liable for in this connection. *

I said that difficulties would be encountered by the board of arbitration in determining the value. The valuation of a railway is quite a modern term; the idea is new. Prior to the days when railways were valued for purposes of fixing of rates, no one ever heard tell of the valuation of a railway upon this continent. I doubt very much whether the physical property of any railway system was ever valued in Canada, or in the United States, except within the past few years, when it became a matter of policy on the part of state and national Governments to fix the rates of freight to be charged by transportation companies. In determining the value of railways for purposes of fixing rates certain principles have been established. The question occurs to me whether the principles that have been fixed by utility boards in Canada and) the United States will obtain when you come to fix, not for purposes of rate control the value of a railway which you are acquiring. As I said before, we are hardly expropriating the road;

the proceedings will hardly be condemnation proceedings; they are hardly like the proceedings followed whem the value is being estimated for the purpose of fixing rates. 'So that the question arises; what principles wijl guidte the board of arbitrators when they come to fix the value? In some courts of the United States it has been held that in the fixing of railway values for purposes of rate control and in the fixing of railway values for the purposes of condemnation proceedings-or, as we term it in this country, expropriation- different principles should obtain. One Teason why I think the 'Government should have determined, by negotiation or otherwise, absolutely the amount which should be paid, if any, for the acquisition of the equity in the Canadian .Northern system is that so many principles wild be invoked by the owners and pledgees of shares that no one can say approximately what amount may be awarded by the board. The valuation will be determined by the board according to their own judgment; the judgment of one set of arbitrators might differ vastly from the judgment of another. If they are unanimous in their finding, notwithstanding the fact that the amount fixed may be absurdly high, there is no appeal. I think that the statute should set down some principle for the guidance of the arbitrators, ISome hon. gentlemen iwho are lawyers can easily anticipate Claims that will be made to establish the values. For instance, there is the franchise value, the market value, the strategic value, the value of good-will, and the going value. It has always been

recognized in this country-at least it has in the United States-that there is such a thing as franchise value. The member for Calgary (Mr. R. B. Bennett) referred to a judgment delivered by Mr. Justice Brewer of the United States. I forget the name of the particular case to which my hon. friend referred, but I wish to give to the committee an extract from a decision made by this distinguished jurist upon the matter of franchise value:

When by the taking of the tangible property the owner is actually deprived of the franchise to take tolls, just compensation requires payment not merely of the value of the tangible property itself, but of the franchise of which he is deprived.

There is little doubt that the franchise value will be urged as a basis for estimating the value of the shares in this particular

case. I submit, however, that it should not enter into the judgment of the arbitrators. This franchise-at least, most of it-was granted by the Parliament of Canada, and as we propose to acquire the equity in this road, it should be clearly set forth that no allowance shall be made for the franchise value. In most of the provinces of Canada to-day municipalities impose taxes upon public utilities and directly and specifically tax the franchise. It may be that the Canadian Northern system franchise has, in some provinces or in some munic'palities, been taxed. If we wish to avoid payment upon a claim of this kind, I submit that we should provide in the statute that no allowance ,be made by the arbitrators for franchise value.

Then, take the strategic value, which is referred to in the Drayton-Acworth report. The Public Utilities Board of the State of Washington some two or three years ago were engaged in the valuation of all the railway systems in that state for the purposes of rate control. That commission, perhaps not properly, decided that there was such a thing as strategic value in a railway. I think the judgment of the board was regarded by text-book writers and by jurists in the United States as not well founded.

I only refer to it for the purpose of calling the attention of the Government and the committee to the fact that, unless there is a statutory protection for the country in that respect, that the same argument will be invoked by the owners of the shares when they appear before the Board of Arbitration. The Washington State Board considered that where a road is so located that it cannot be paralleled and made to suffer from competition it occupies a strategic position which is to be recognized in the determination of value. There may be many instances where the Canadian Northern Railway system might well invoke that argument. For instance, I understand they pre-empted the only remaining route from Edmonton to the Pacific coast. I believe this is true, at least in so far as a great part of the territory of that mountain section is concerned. Are we prepared to entertain the suggestion that, because they Xire-empted the only possible remaining route from the prairie country to the Pacific coast, their system has in this respect some strategic value and that therefore the arbitrators must consider that point m fixing the price which is to be paid by the country for these shares?

Then I want to direct the minister's attention also to two or three other principles which are involved in the fixing of values. I do not think the minister has given enough consideration to clause 4, and that there is not a sufficient limitation to the principles which the arbitrators may invoke in assessing the value. For instance, there is the principle of goodwill and the principle of a going concern, or the going value. I believe going value is the term. Good-will and going value are principles well settled by the courts of this country and the courts of the United States. We know what they are. I do not intend to occupy the time of the committee with a statement of the substance of these definitions, as given by the courts from time to time, but I say that we should be careful that the Board of Arbitration may not invoke to too great an extent these standards which will enable them to give the owners of the shares a value which Parliament and the country never anticipated. In many well known instances in Canada and the United States arbitrators have taken the structural value of public undertakings and have arbitrarily added 10, 20 or 30 per cent. They have reached the value in this summary and arbitrary way. I submit that in the acquisition of an undertaking of this size we should be careful by our legislation to make it impossible for arbitrators in 'a summary and arbitrary way to fix an unreasonable value which cannot be corrected by Parliament or by any other power in this country if the arbitrators are unanimous in their decision. Public Utility Board in the state of New Jersey in a certain case which I have in mind, after having fixed the structural value of a public utility which was being acquired, said there should be added to that an additional valuation of 30 per cent. One may say that this will not be done, and cannot be done, in the case of the acquisition of the shares of this railway, but there is nothing to prevent it. It is true we are acquiring merely the shares, but you may be sure that the owners of the shares will invoke all these principles, when the matter comes before the Board. And, after all, when you come to fix the value, there is no difference between the acquisition of the shares and the acquisition of the physical property of the system. Then, in ascertaining the value of the road, the promoters' interest have frequently been considered. I could give to the committee a statement made by the late James J. Hill, an eminent railway man, well known not only to this country but [Mr. A. K. Maclean. J

to the entire world, who stated that in determining the value of a railway it was proper to take into consideration the time and labour of the promoters, and the facts that dividends had been deferred, and that they had received no payment whatever in connection with their promotion, except possibly some salaries. It is true, this statement which I have given to the committee as having come from James J. Hill was merely his own statement, given in evidence, before some body in the United States, but the principle has also been established by many courts in the United States, and particularly in recent years by Public Utility Boards.

I have enumerated to the committee only a few of the arguments and contentions which will be advanced and presented to the board of arbitration in fixing the value of these shares. The statute merely says that the board shall fix, upon their own judgment, the amount which shall be paid to the shareholders. Section 4 of the Bill does not pretend to lay down any principle by which they shall be guided, except in so far as the section is amended by the amendment presented yesterday by the Minister of Finance, to the effect that reproduction cost shall be based upon values of pre-war days.

Topic:   CANADIAN RAILWAY SITUATION.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

The hon. gentleman is overlooking the fact that an amendment has been proposed, to strike out the clause under which the arbitrators may use their own judgment.

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LIB

Alexander Kenneth Maclean

Liberal

Mr. A. K. MACLEAN:

I have been referring to that. That is in the original Bill.

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LIB

William Pugsley

Liberal

Mr. PUGSLEY:

That amendment stood with the others.

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LIB

Alexander Kenneth Maclean

Liberal

Mr. A. K. MACLEAN:

I was not aware that the w-ords "apply their own judgment" wrnre struck out, although, on reflection, I remember the Minister of Finance informing the member for Calgary (Mr. R. B. Bennett) a few days ago that he proposed striking it out. I am not sure there is any great value in striking out these words. I am not impressed with the view that the elimination of such w'ords strengthens the section. I think they are still at liberty to apply their own judgment. I believe that section 4 should eliminate some of the standard principles which are usually invoked in such circumstances in the fixing of the values of public utilities or railway systems. I have mentioned only a very few of these principles. Many others might be mentioned, but I do not purpose detaining the committee at any greater length by

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enumerating them or by any reference to them whatever.

I repeat what I said at the beginning, namely: that I regret that the Government, in presenting to Parliament their proposal to acquire the shares of the Canadian Northern, did not at the same time present their view as to the value of the equity in those shares. I have as much faith in the judgment of some of the members of Government as I would have in the judgment of the arbitrators who will be appointed-even more, because the Government would have a better appreciation of the public view of this question and would not be so apt to be influenced by the many specious arguments which, I know, will be advanced for the purpose of impressing the Board of Arbitrators as to what is the real value of these shares. I therefore think that even now the Government, with all the evidence they have before them-and they have practically everything that could be presented to the board-should undertake to re-open negotiations with the owners or pledgees of the shares and come to Parliament and state the amount, if any, which, in their judgment, is the value of the equity in those shares, and then let us dispose of the matter at once. But failing that, I say that section 4 of the Bill should be amended in such manner as to indicate, further than has already been done, the principles which should guide and influence the arbitrators in determining the value of the shares to be acquired by the Government of Canada, and specifically to eliminate some of the methods which are ordinarily invoked by the owners of public utilities in endeavouring to establish abnormal values for those utilities when acquired by governmental or municipal bodies.

Topic:   CANADIAN RAILWAY SITUATION.
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CON

Frederick Laurence Schaffner

Conservative (1867-1942)

Mr. SCHAFFNER:

Although the Canadian Northern railway Iras many important branches in the East, that road is essentially a western road. It is a western road in its inception, and most of its lines are in the West. I wish to place on record a strong hope and desire that, whoever the arbitrators may be who are appointed to do this work, at least one of them will be selected from Western Canada.

I wish to refer for a moment to some of the remarks made by the hon, member for Huntingdon (Mr. Robb) who certainly was not very familiar with the facts. If I understood the hon. gentleman aright, he said that he never knew additional railways to cause lower freight Tates. There is one instance of that, and that is the Canadian Northern. Every one from Western Can-

320i ! ; [ |

ada knows that tire building of the Canadian Northern in Western Canada had a very great deal to do with the lowering of the freight rates to farmers and others in that part of the country. He also' referred to the telephone system of Manitoba. While that question may have nothing to do with the acquisition of the Canadian Northern railway, his facts were not correct in respect to that telephone system as he proved later on in his address. No other province in Canada to-day has a telephone system that is giving greater satisfaction that the telephone system of Manitoba. The hon. gentleman said that he was prepared to advocate increased freight rates for the reason that labour and everything-else that enter into the carrying on of railways to-day cost more than they did a few years ago. He said that the telephone-rates in Manitoba were higher to-day than they were a few years ago. That may be the case, but the citizens of Manitoba are today finding no fault with the bargain made by the Roblin Government in connection with the telephones of that province, and if it costs a little more to conduct the telephone system in that province to-day than it did five or six years ago, the reason is exactly the same as that given by the hon. member for Huntingdon why the freight rates should be increased, namely; that it costs more-and that is a question I need not elaborate-to run either freight trains or telephone systems to-day than it did a few years ago. I simply hope my request will not be overlooked, that one of those arbitrators may be selected from Western Canada.

Topic:   CANADIAN RAILWAY SITUATION.
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LIB

John Howard Sinclair

Liberal

Mr. SINCLAIR:

This debate has lasted a considerable time, and we have not yet heard the last word on this question. I am somewhat surprised that we have heard so little from the opposite side of the House. There is a feeling that there is too much partisanship in Canada, and there is a revolt, I understand, against what is known as machine politics. I should suppose that we have never had a greater exhibition of what I would describe as machine politics than we have had in this House during this discussion. We are proposing by this measure practically to double, or more than double, the public debt of this country, and since three o'clock this afternoon-it is now after one a.m.-hon. gentlemen. opposite have not responded at all to the challenges that have been thrown across the floor from this side of the House. They have practically been dumb in the

face of the arguments that have been put forward from this side of the House to show why this Bill should not pass. I say that is machine politics with a vengeance.

Topic:   CANADIAN RAILWAY SITUATION.
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LIB

William Pugsley

Liberal

Mr. PUGSLEY:

They will speak when no one can answer.

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LIB

John Howard Sinclair

Liberal

Mr. SINCLAIR:

The Minister of Finance has succeeded in gagging every man who sits behind him, with the exception of the hon. member for Souris (Mr. Schaffner), who is the only man we have heard on that side of the House since three o'clock this afternoon. I have had the honour of a seat in this House for the last twelve years or more, and I have never until tonight, seen a case in which the Opposition was able absolutely to silence and cow the Government on a question that came up for discussion. If there was any justification at all for the proposal of the Government, do you not think, Sir, that some arguments would have been presented from the Government side? But we have had the the spectacle of hon. gentlemen sitting dumb while argument after argument has been put forward from this side of the House to show why this measure should not pass. Is it any wonder that we are suspicious and think that some sinister influences are at work on the other side of the House to keep them silent? Is it not proof of the statement that has been made by hon. members on this side of the House, that the money-masters of Toronto are influencing the Government in this matter?

We are proposing practically to double the public debt. Hon. gentlemen opposite have said that we are getting something by the transaction, that we are getting an asset. The test of an asset, to my mind, is what it will produce. Does any hon gentleman in this House expect that this is a good investment, or that it will produce even running expenses and interest? This railway system is not now producing running expenses and interest in the hands of private owners, who are doing everything that can be done to make money out of the system. Our experience of government ownership is that a government cannot do as well as a private company. It is not to be expected, therefore, that this Government will be able to do anything more than pay the running expenses out of the earnings of this road, and they will do well if they succeed in doing that. If we are adding over $400,000,000 to the public debt-I do not put it at $600,000,000, although I believe it will reach that figure in the end-

the people will have to pay interest on that debt. I have the honour to represent a county that has not been fairly treated by this Government, or by former Governments, in railway matters. I am sorry to say that I represent a non-railway county.

1 represent men who have all their lives been paying the interest on railway subsidies for the benefit of other parts of Canada, and it is a serious matter for the people I represent to know that their burdens in that respect are to be doubled without any expectation of the enormous expense that is being incurred being of any advantage to them, or of very little advantage. This doubling of the public debt is a serious matter, because we are now paying such an enormous interest on the money we have borrowed. When this Administration came into power the Government could borrow money easily at four or four-and-a-half per cent. They are now paying the enormous rate of about six per cent; that was the rate paid for the last loan [DOT] which was' floated.

I want to direct the attention of the Minister of Finance to the fact that .the savings of the people of this country, which are very large, are bringing only three per cent. How is it that the Minister of Finance has not managed to secure some of this enormous sum of money that is packed away es the savings of the Canadian people, for which they are getting only the trifling rate of three per cent, when at the same time the minister is floating bonds among the millionaires of New York, and among our own millionaires at home, at the rate of six per cent? I have a friend in Nova Scotia, a merchant who has now retired from business and is doing some thinking on malters of this kind. In a letter to me recently he asked me to ascertain how much the savings of the people amounted to, which were netting them only three per cent interest. I asked the question in the House a few days ago, and the Minister of Finance answered as follows:

Mr. Sinclair:

1. What was the total amount on deposit in savings banks of all kinds in Canada on June 30, 1917?

2. How much was on deposit in Government savings banks at said date?

Sir Thomas White:

1. Approximately $998,856,922.61.

2. Dominion Government savings banks, $13,167,436.64. Post office savings banks, $41,105,644.92.

So that in the Government savings banks of both kinds there was the sum of $54,273,081.56. While the savings of the people

amounted to $998,000,000-practically a billion dollars-the Minister of Finance was able to secure only $54,000,000 of that money for the use of the country. Would it not be a good thing for the people of Canada, and a good thing for the revenue of this country, if the Minister of Finance, instead of taking trips down to New York and paying New York millionaires six per cent for the money he borrows, were to give a little more interest to the people who have deposited their savings in the banks of this country, or at all events were to secure the savings for the use of the public?

Is it not an, amazing thing that we have the enormous amount of about one billion dollars on deposit, nearly all in the commercial banks, and that the Government has not been able to secure more than $54,000,000 of that amount? There must be some reason for it. Is the reason that the Government is endeavouring to favour the banks and leave all this money under their control so that they may borrow it from the people at three per cent, and lend it to the Government at five or six per cent, and charge the people who borrow from them as high as seven per cent or eight per cent? It looks that way. It looks as if the Minister of Finance was standing in with the money-masters of Toronto. The merchant who wrote me made this remark in his letter in regard to the loans which have been made recently in Canada:

How do matters stand re Government war loans? If I understand the situation the United States Government issued its celebrated Victory Loan at three and a half per cent and paid no commissions. This for 2,000 million dollars was a smaller proportionate issue than was $350,000,000, the amount of the three issues in Canada for the Dominion. We paid from one-half to one-quarter of one per cent in commissions, say $1,250,000, and sold five per cent bonds at 97i. Our $350,000,000 thus netted us $340,000,000, and as we pay five per cent on the face value, we pay 5.15 per cent on the net amount.

He was not speaking of the last loan but of the first three.

The average duration of these bonds is fifteen years. How do we compare in our financing with our next door neighbor?

340 millions at 3|% for 15 years amounts to $178,500,000 interest.

340 millions at 5.15% for 15 years amounts to $262,650,000 interest.

A difference in favour of the United States of $84,150,000.

That is to say, on a loan of $350,000,000 for 15 years, and the Canadian people will have $84,150,000 more to pay for interest than will the people of the United States. The President of the United Statee called

the financial men together and explained to them that he wanted a victory loan-a loan to carry on the war-and the bankers were so generous and so willing to help that they agreed to hie proposition, and this enormous loan was floated without one cent of commission having been paid. The Minister of Finance has paid a very large commission to his friends the Canadian bankers. Not only has he done that, but he went to the United States a few weeks ago and paid an enormous commission to the brokers and bankers there-$3,750,000 in commissions, a quarter of a million dollars of which went to one of the Canadian banks, or to a certain gentleman in the city of Montreal. That is the way my hon. friend has financed his loans. It becomes a serious question.

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Sir THOMAS WHITE:

My hon. friend is doing an injustice to the Bank of Montreal. I made a statement yesterday correcting a report which had appeared in connection with- that.

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LIB

John Howard Sinclair

Liberal

Mr. SINCLAIR:

Do I understand the

minister says now that he did not give any commission to the Bank of Montreal?

'Sir THOMAS WHITE: A Tebate of one-quarter of one per cent of the commission was obtained for the Government by the Bank of Montreal.

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Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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LIB

William Pugsley

Liberal

Mr. PUGSLEY:

What was the commission paid?

Topic:   CANADIAN RAILWAY SITUATION.
Subtopic:   CONSIDERATION OF CANADIAN NORTHERN RAILWAY BILL RESUMED IN COMMITTEE-RULE 1TB APPLIED.
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August 28, 1917