February 5, 1923

LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

You will bear in mind,

Mr. Speaker, the reason given by my hon. friend why this entire amalgamation, which refers more to the Grand Trunk than it does to the Canadian Northern did not take place;

I shall deal with that when I am dealing with the Grand Trunk.

As I said before, the Canadian Northern system is made up of a great many entities. There was stock outstanding on the Canadian Northern system which it was thought

. The Address-.-Mr. Graham

not wise to have as stock of the Canadian National system-some five or six shares which have since been brought under the control of the government. In addition to that, there are certain Canadian Northern securities in the hands of the British Columbia government as collateral-I use that word for lack of a better term. We think we shall be able to get control of this stock. I would point out that no attempt was ever made to get control of this stock until a year ago.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

Is that Canadian Northern stock? I think it is, from memory.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

I am so informed.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

The act of 1919 provides for the acquiring of that and paying for it in exactly the same way as the other stock was to be acquired.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

It was not acquired, at all events, and we are trying to acquire it now, and hope to have the matter in shape in a little while. I would point out that if there were no reason why it could not be acquired in two months by the present government-

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

If they are in no hurry, I do not see why we should be.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

The amalgamation cannot take place until that stock is acquired. The stock may possibly be replaced by other securities and will not have to be paid for.

There is another question that has arisen concerning the amalgamation of the Canadian Northern which I am afraid my right hon. friend did not investigate. When the $45,000,000 guarantee was given to the Canadian Northern, there was a trust deed drawn up which is now in the hands of the National Trust Company of Toronto. Accompanying that is the stock of a great many of the smaller companies of the Canadian Northern system. Now when that agreement was drawn, it was thought that there was nothing ia it that would interfere with the amalgamation, but the National Trust Company think that there is, and, as that company will have to vote the stock of these smaller companies in order to carry out the amalgamation, every impediment in the way of voting that stock by the trustees must be removed while at the same time protecting the bond holders of the Canadian Northern. There is a clause in that trust deed-I shall give it verbatim in a few moments-which provides that the Canadian Northern may amalgamate with any companies that belong to the Canadian Northern system; but it does not provide that the Canadian Northern may amalgamate with the Canadian National, for the very

good reason that there was no Canadian National at that time. The National Trust Company takes the ground, that that point must be cleared up to the satisfaction of the bond holders. That cannot take place until a meeting of the bond holders is called and they agree, which they will, to the amalgamation of the Canadian Northern with the Canadian National, and then the agreement will be changed accordingly. Lest owing to my lack of legal knowledge I may have misstated the case, I shall read, if the House will permit me the advice given to me by the solicitor for the Canadian National Railways, who was also for many years the solicitor for the Canadian Northern and had much to do, I believe,, with the drawing up of the various agreements, trust deeds, am statutes. Mr. Ruel, speaking of the nonamalgamation of the Canadian Northern company and subsidiary companies with the Canadian National, says:

"The reason was because of objection raised by the trustees of what we call the $45,000,000 mortgage. That was the mortgage executed by the Canadian Northern Railway Company to the National Trust and British Empire Trust on the 15th July, 1914, pursuant to the parliamentary enactment of 1914, chapter 20. Under that mortgage it is the duty of the Canadian Northern to carry on not only its own enterprise but the enterprise of its various subsidiary companies, and failure to do so would be an event of default under the mortgage. However, permission is given in the mortgage to amalgamate under certain terms, as follows :

"Article II

"9. Notwithstanding the mortgages and charges hereby created or anything contained in this Indenture, any Railway Company comprised in the Canadian Northern system (including the company which is now or may hereafter be subject to the legislative authority of the Parliament of Canada, may with the approval of the Governor in Council, enter into arrangements and agreements with any other railway company comprised in said system, which is now or may hereafter be subject to said legislative authority, or which has now or may hereafter have power to enter into the same, respecting the operation by or the leasing to or the sale and transfer to such other railway company of its undertakings, assets, rights, franchises and powers or any of them; and any railway company (including the company) comprised in the Canadian Northern system which is now or may hereafter be subject to the legislative authority of the Parliament of Canada may under the provisions of the Railway Act amalgamate with any other or others of the railway companies comprised in said system which is now or may hereafter be subject to such legislative authority, or which if not so subject has now or may hereafter have power to enter into such amalgamation."

The important part of this section 9 is the sentence at the end of the section:

"and any railway company (including the company) comprised in the Canadian Northern system...may... amalgamate with any other or others of the railway companies comprised in said system."

The statement made by the trustees is simply that the Canadian National Railway Company is not a company comprised in the Canadian Northern railway sys-

The Address-Mr. Graham

tem and cannot be so declared. The point is highly technical, and personally I do not agree with it at all. Power was given in the 1914 act to the Governor in Council to declare any companies to be companies comprised in the Canadian Northern railway system, and this same power was echoed in the Canadian National Railways Act, Stats. Can. 1918, chapter 13. We proposed to pass an order in council declaring the Canadian National Railway Company to be a company comprised in the Canadian Northern railway system within the provisions of the trust deed. The trustees say that we cannot do this because of the wording of Section 21 of the Canadian National Railway Company Act of 1919, which says that the company (the Canadian National Railway Company) may amalgamate with any company comprised in the Canadian Northern railway system. They say that indicates that the company is not comprised in the Canadian Northern railway system, and that the wording excludes any idea that it is so comprised. This seems to me to be splitting hairs with a vengeance. My reply, of course, is that there is nothing in the two enactments restricting the power of the Governor in Council to declare any company to be a company comprised in the Canadian Northern railway system, and unless you find an express restriction you cannot imply a restriction.

However, the trustees have the voting power on the stock of the subsidiary companies which is deposited with them, and the trustees will, of course, act only on the advice of their counsel. Under these circumstances, we have nothing to do but to accept the ruling of the counsel for the trustees and to take immediate steps for the amendment of the clause in the trust deed by the bondholders. This means that a bondholders' meeting will be called in London, England, as soon as we can get the notice published, and we will submit to the bondholders that the clause in question be extended so as to include authority to amalgamate with the Canadian National Railway Company or any other railway company approved by the Governor in Council."

I think, Mr. Speaker, that covers the ground. The statement is in legal phraseology and can now be referred to by any members of the House. That is the reason I have placed it on Hansard.

Now I come to the Grand Trunk Pacific. I think I have made it clear to the House that the amalgamation of the Canadian Northern is not such an easy task and must be approached-not approached because we have approached it, but must be carried on- with all regard to the securities held against the Canadian Northern system, and the government of Canada accepts all the liabilities as well as the assets.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

Will the hon. gentleman permit me? I merely want to get at what he is driving at. I am not clear myself and I do not think other hon. members are, as to what amalgamation he looks forward to, of the Canadian Northern with the Canadian National Railway system, other than what now exists. That is to say, what other amalgamation does he think is legally possible? I realize what he says is true, that the entity must be preserved because of the legal securities that are outstanding. I have never

complained of the lack of amalgamation of the Canadian Northern; I do not know what other amalgamation of the Canadian Northern with the Canadian National system my hon. friend looks forward to. I understand the order in council of January 30, 1922, provides what can be done further in the way of amalgamation of the Grand Trunk.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

Well, as I understand it the government of Canada have become the shareholders of the Canadian Northern as they now are the shareholders of the Grand Trunk.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

We are shareholders now.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

We have not all the stock, as I pointed out.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

That is all provided for by law. We do not want any further vote of the National Trust for that; there must be something in the way of physical amalgamation that the counsel has in mind.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

Well, at the present time the Canadian Northern railway is being operated by the Canadian National Railway board-in fact, although not legally speaking, the Canadian National Railway board to-day is also the Canadian Northern board. By this amalgamation there will be operation by a Canadian National Railway board. Under the act of 1919 the Canadian Northern system will be brought in as an entity of the Canadian National Railway system, and not operated separately as the Canadian Northern system is operated separately now, even though that operation is by the same board of directors.

Now let me take up the Grand Trunk Pacific as one of the entities that make up this system. The Grand Trunk Pacific was an integral part of the great transcontinental system inaugurated a few years ago. From Moncton to Winnipeg, some 1,800 miles, it was called the Transcontinental Railway, and was constructed by the people of Canada. From Winnipeg to Prince Rupert the line was called the Grand Trunk Pacific Railway, and was made up of two sections-the prairie section, and the mountain section. Guarantees were given by the Canadian government to the Grand Trunk Pacific. In addition the old Grand Trunk Railway Company of Canada gave a guarantee of bonds. That company did not meet the interest on these bonds under the guarantee, and aid was given year after year, both for operating deficits and to meet liabilities on securities which the government had guaranteed. A question arose with the government of that day concerning

The Address-Mr. Graham

a certain amount of money, I think it was something like $900,000, which the company wished to apply to the payment of interest on the bonds; but the government insisted, and I think rightly so, that that amount should be applied to operating deficit. As a consequence the company ceased operating the road. The government of Canada then took it over, and the Minister of Railways of that day became receiver of the company. That line is still under a receivership, although operated by the Canadian National board. Now, in regard to the guarantee of the Grand Trunk Company, the government's guarantee of course, on the bonds of the Grand Trunk Pacific was absolute. The guarantee given by the Grand Trunk Company on the bonds of the Grand Trunk Pacific was somewhat restricted, and provided that the interest on those bonds should be met out of the net earnings of the Grand Trunk. The purchasers of those bonds bought them on the understanding that the interest would be paid out of the net, earnings of the Grand Trunk. When the Grand Trunk came to the point where it had no net earnings, no interest was paid, and none, I believe, has been paid since. In reference to the receivership of the Grand Trunk Pacific, the act of 1919 provides, that when the amalgamation would take place and the Grand Trunk was brought into the Canadian National system it would be possible to dissolve the receivership of the Grand Trunk Pacific. That has not yet been done, and there are many obstacles in the way of doing it. I believe the Grand Trunk Pacific will form an integral part of a road which will be a paying proposition in the future development of Canada, even though it is not paying now. It never was intended, in the construction of the transcontinental system, of which the Grand Trunk Pacific forms a part, that it should run from the Atlantic to the Pacific and stop there. As in the case of the Canadian Pacific Railway, it was hoped and believed that it would be connected with the Orient; that it would be possible to carry traffic from Europe to the Orient by a route several hundred miles shorter than by any other line. I look forward to the time when the system will give such a service, making connection at Prince Rupert with a privately or publicly-owned line of steamships. When that time comes the project will be an asset and not a loss to the people of Canada.

Now, Sir, I come to the acquisition of the Grand Trunk, but first I want to deal for a moment with the objection of the ex-Minister of Finance (Sir Henry Drayton). Referring to the Grand Trunk, rather than the

Canadian Northern, he gave as a reason for the former government being without proper energy for two years, the fact that the Board of Arbitrators appointed to determine the value, if any, of the preference and common stock of the Grand Trunk had not yet reported, and consequently it was difficult to make the amalgamation without this report.

I submit that the report, no matter what it contained, would not stand in the way of amalgamation. When the Board of Arbitrators wished to extend the time, it was made a condition by the government that the operation of the road should be handed over to the government. That was done. Then the award of the arbitrators was made. I submit that whether the award was made or not, no matter what it meant as to the value of the preference or common stock, if it had been decided, as it in fact had, to amalgamate the Grand Trunk with the Canadian National system, there was nothing that has come to my knowledge to prevent the government of that day, from the year 1919 until 1921, making that amalgamation.

Now my hon. friend says that the fact that the award had not been made really prevented them from proceeding with the amalgamation. Perhaps there may be something in it of which I am not cognizant, but. speaking from my own knowledge, that should not have interfered with it, because the government of Canada was committed to take over the Grand Trunk, the terms had been agreed upon, and the only question was what Canada should pay for it in addition, if anything. But, take the other viewpoint. Suppose that were the case; the award of the arbitrators was not given until after the appeal was decided. There was an appeal made to the Judicial Committee of the Privy Council and if the non-appearance, or the nonhanding out of that award, made by the arbitrators, prevented my hon. friend from making the amalgamation for two years, then that time was extended automatically after the appeal was entered until such time as the appeal was decided by the Privy Council. Let me give a few dates to clear up this point. Notice of the appeal by the Grand Trunk to the Privy Council was served October 1st, 1921, but the case was not heard until July 10th, 11th and 13th, 1922, and judgment was pronounced on July 28th, 1922. We might call that August 1st. Two months after that decision was rendered the Canadian National Board of Directors was appointed by the present government.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

That was not amalgamation.

The Address-Mr. Graham

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

It was much nearer amalgamation than anything my hon. friend ever attempted.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

Not a particle.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

The first step towards amalgamation was to form a board under which amalgamation should take place, and for two years the hon. gentleman did not make an attempt to even appoint a board. They gave the one system the name Canadian National, but it was operated by the Canadian Northern and the Grand Trunk as separate entities. Two months after the Privy Council had rejected the appeal this government named a board of directors under the act passed in 1919, and that board set the wheels in motion for the amalgamation of the Grand Trunk with the Canadian National system. The award was handed out on July 28th. On October 4th the new board was appointed,-the House will understand the difficulties surrounding this matter, insurmountable for two years,-and the new board set to work with their counsel to see just how rapidly this amalgamation could be brought about. Even bringing in the Grand Trunk was not so easy, and I am not blaming the hon. gentlemen for not getting it. through in two years, but I think they should not blame us for not getting it through in two or three months.

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

The hon. gentleman cannot be really serious in what he says, if he understands the agreement with the Grand Trunk. Under that agreement the Grand Trunk board remained in control, pending the decision of the arbitrators. In the spring of 1921-only a few months before the award -when they delayed the arbitration as we believed we came to parliament and got authority to put our board in, but it would have been rude injustice to the shareholders of the Grand Trunk to have amalgamated and done away with the Grand Trunk altogether, when there was a possibility that they would require access to data for the purposes of the arbitration.

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LIB

George Perry Graham (Minister of National Defence)

Liberal

Mr. GRAHAM:

I suppose these were all necessary for the purpose of the appeal?

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CON

Arthur Meighen (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. MEIGHEN:

No. The evidence was in.

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February 5, 1923