May 14, 1914

CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

against this Parliament declaring the Canadian Northern Pacific to be a work for the general advantage of Canada under this Act, because by turning to section 17 of the British Columbia Act, I find clearly stated:

The Northern company agrees that the Pacific company will agree that the Pacific company shall not, and the Northern company agrees that it will not, at any time apply to be declared a work for the general advantage of Canada.

How, in face of that statutory agreement by the Canadian Northern Railway Company and the Canadian Northern Pacific Company with the people of the province of British Columbia, are we to do this thing? I say there is no point more clearly established than that provincial rights must be maintained. The autonomy of a province is quite as much to it constitutionally, when it is in the wrong financially, as the autonomy of a province is to it when it is in the right. The province of British Columbia is not asking us to do this thing, because it cannot do it without breaking this solemn contract. In any event the legislature and not the Government must act. The Canadian Northern Railway Company cannot do it and the Canadian Northern Pacific Railway Company cannot do it without breaking this solemn contract.

Then, why should we do something which the covenant of two railway companies says we shall not be asked to do, and which the Government of British Columbia said should not be done? That is the first question. I am against this measure so far as it declares this work to be a work for the general advantage of Canada, because it is an interference with provincial rights, because it interferes with the autonomy of provinces, and because it is a violation of a contract made between a railway company and the representatives of the people, which contract has since been approved of and validated by the people themselves in a general election.

Now, leaving that, we come to the Canadian Northern Alberta, and that road's bonds are guaranteed by this Dominion. We must do something to take care of them. The main line guarantee need not give us any concern, because our guarantee is only $13,000 a mile, annual charges less than $550 per mile, which is not a matter of great concern or importance-we know they will take care of themselves.

Then, from Port Arthur to Ottawa we have the Canadian Northern Ontario. The bonds of that company also are guaranteed by the Dominion, and Mackenzie and Mann

say they cannot build the line. Now, I ask my hon. friends, why should we interfere with the guarantees of provinces, whether they be Liberal or Conservative in their administration? Why should not we concern ourselves with our liability under our own guarantees? In other words, I say we have no right to interfere with Alberta, Saskatchewan or Nova Scotia. What interest have I, living on the prairies, in the Halifax and Southwestern railway? An hon. gentleman near me suggests I am a Canadian. But I have no interest as a Canadian financially in that railway, because this Government is the trustee for Canadians as Canadians, hut the Government of Nova Scotia is the trustee for the people of that province. The Government of British Columbia, when they made their bargain, were the trustees for the people of that province, and so with the Government of Alberta for the people of Alberta. My hon. friend from Kingston (Mr. Nickle) pointed out the extent of the guarantees given by the various provinces and by the Dominion. I say that guarantees have been given recklessly, absolutely recklessly, in western Canada. The only province absolutely free from peril in that regard is the province of Manitoba, because on the old lines the guarantees were only $8,000 and $10,000 a mile and because of the lease of the Northern Pacific lines. But west of Manitoba there is danger and peril to the body politic by reason of the recklessness of the guarantees that have been given. I ask, what is going to happen if the Dunvegan road (defaults? There are other roads there, besides the Canadian Northern railway and the Grand Trunk and the Canadian Pacific. There are two lines of road whose bonds are guaranteed for $20,000 a mile, or $1,000 a mile per annum fixed charges. Is this Government going to save these also? And if so, if we are going to pay the piper, why should not we exercise some control and some discretion? The Chairman of the Railway Commission pointed out a few days ago that one of the greatest evils in Canada to-tday was the duplication of lines, and he said that would have to be dealt with. If that be so, why should we put ourselves behind the guarantees of all these provinces for this road forgetting that there are other roads in the same position? I say that as a matter of law it is unsound; as a matter of policy it is unsound, in every way you view it it is

unsound. Why? Because it is bringing upon this Parliament untold responsibilities with the creation of which we had nothing to do and with respect to the carrying out of which we know nothing. I wish to make that clear at the very threshold of this matter. That is to say, if I am correct-and I do not think you can possibly get away from it-on the 1st of January of this year, this Dominion and this Parliament was confronted with a liability under our guarantees for the Canadian Northern Alberta, the Canadian Northern Ontario and the main line of the Canadian Northern railway. The main lines will take care of themselves as I have indicated and will provide for the underlying guarantees in some cases Dominion and in some cases provincial. So far as we are concerned we need be apprehensive only of the ability of the contractors to finish the two lines the Canadian Northern Alberta and the Canadian Northern Ontario. Now, these companies are solvent, or they are insolvent. The Solicitor General told us last night they were insolvent. The Government has investigated the matter and finds that they are unable to carry out their undertakings. If that be so, what follows? A receivership follows; .and this Parliament is sitting here to-day to advance money practically as though we were advancing it to a receiver. What is a receiver? He is an official appointed by the court to stand between the security-holders on the one hand and the property on the other; to see to it that the property is maintained and operated for the benefit of those who advanced money to make its construction possible. We have a road in a forward state of completion, but it is insolvent-* they tell us absolutely insolvent; they cannot raise money, they cannot finish the road, and they come to you and me sitting here as the high court of Parliament and ask us to advance money practically to somebody as receiver. But the road is under contract. Who are the contractors? Mackenzie and Mann Company, Limited. Are they insolvent as contractors? Where is the statement of their liabilities and assets? Reports say that they have $50,000,000 at least of assets. If so, let them pay their debts and build the road as contractors. I put this proposition before you, Sir, and this House, as a legal proposition: Either there is a contract to build this road or there is not. If there is a contract 2361

let us call upon the contractors to finish their work and if they cannot finish their work let us take an assignment of their assets as security for the money we shall advance. Let us put this position squarely: John Smith contracts to build your house. After construction has proceeded a certain distance, John Smith comes to you and says: I cannot finish my contract.

John Smith goes to the bank and says: I cannot finish my contract; but I have a lot of assets that will come into value very shortly, a very large number of assets; I do not know exactly where I am at, but I must have some money. The banker says: Assign me your contract, assign me your assets, and I will see what I can do to find money to finish your contract. Is not that what would happen ? But what we are doing is handing out to these men money, true under certain restrictions and reservations, but without inquiry as to their ability to fulfil their contract. I say with all deference, how are you going to get away from that ? Either these men are contractors or they are not contractors. They are spoken of as contractors, and I want to emphasize this: If they are contractors we must have evidence why they are not finishing their work; and if they are unable to finish their work, we as bankers should demand an assignment of every security they have before we give them a dollar. Is not that a banker's business ? Take the other horn of the dilemma. Say that the company is building its own road and is insolvent. What follows ? If the road is insolvent, it must go into the hands of a receiver. But, for reasons mentioned by the Prime Minister, and with which I agree; for reasons mentioned also, by the leader of the Opposition, and with which I also agree, this country cannot afford to let the road get into the hands of a receiver. If so, then let us act the part of a receiver. That is all I ask. Why should we depart from well known legal principles, from well known legal rights, from well known legal positions, merely to please two promoters ? I leave that to the House. Let us get on. The Government says: We propose to grant $45,000,000 to these men at four per cent on certain well defined principles, and they lay them down. My friend the Solicitor General says: Here is the mortgage we are going to take; and the mortgage has certain constituents and factors that constitute the security that is to be given. I agree with that; it is perfectly clear that he has taken all the

[DOT]security he could get, except the security of the men who are responsible for this disaster. That security has not been

taken, I ask that it should. Surely my hon. friend was wrong when he said that first of all, on entering into this matter, he reduced the capital stock of this company. If he will turn to page 34 of the blue book he will find that he has not reduced the capital stock of the Canadian Northern in any way, shape or form. We find on page 34 that there is vested in the Canadian Northern Railway Company or in persons who hold it for them in trust, $45,000,000, and $45,000,000 subtracted from $145,000,000 leaves $100,000,000 of stock of the Canadian Northern railway and constituent companies that is now to be represented by the capital of the Canadian Northern. You are exchanging that for $100,000,000 of water in the proprietory companies. You forget to recognize that the Canadian Northern already owns part of this stock and that $8,000,000 of it belongs to other people whom we cannot get at. So that on page 34 of the blue book you find the facts stated as follows :

Issued capital stock of the Canadian Northern Railway System, $145,778,500.

Issued Canadian Northern Railway stock $77,000,000.

The stock of the Subsidiary Companies is the difference between these two sums, viz., $68,778,500.

From the third column you will observe that $45,000,000 of the $68,778,500 is already held by or in trust for the Canadian Northern Railway, so, that when that company acquires $23,000,000 more stock in the subsidiary companies, it will own all the capital stock of the subsidiary companies. The purchase price for this $23,000,000 of stock in the subsidiary companies is to be $23,000,000 of Canadian Northern Railway stock, whose capital will then be increased from $77,000,000 to $100,000,000. Instead of a reduction of capital stock, there has been an increase; instead of taking water from it, you have put water into it.

But that is not all, Mr. Speaker; let me proceed a step further. I want hon. gentlemen to turn to the schedule of the resolution itself, and to examine closely the kind of stock we are getting. The first company mentioned is the Bay of Quinte Railway Company. One would think that is a rather valuable company. Let us refer to Poor's Railway Manual, page 1657, and see what we are getting. I find that instead of getting an asset, we are get-

[Mr. R. B. Bennett 1

ting a liability. This manual says that since 1908 the road has had a deficit. Here are the figures:

Capital account and income, Bay of Quints railway. Mileage, 86 miles. Deficit for the year 1913, $32,000; 1912, $10,000; 1911, $5,000 ; 1910, $27,000; 1909, $36,000; 1908, $38,000.

Rather a good thing to exchange the stock of a company worth nothing for stock in the Canadian Northern, is it not? The Bay of Quinte railway, the first company mentioned of the Canadian Northern Railway system, has had a deficit-could not pay its fixed charges-since 1908. According to the returns published in Poor's Manual, that stock is valueless. There is something else I am going to point out further on in the agreement which this has an effect upon, because this company is in default before you start to sign the agreement. Is it not a beautiful thing to say that you have the right to exercise the power of foreclosure and take control when the very documents you sign show default before you sign them. That is perfectly absurd. But that is not all; let us go a step further.

Not only is it a fact that the Bay of Quinte railway has had a deficit all these years, Ibut if hon. gentlemen will be good enough to look up the figures, which may be found in sessional paper No. 269c, they will find a statement of the floating liabilities of the railway companies embraced in the Canadian Northern Railway system and that the floating liability of this small company amounts to $173,114.58. That is, the floating liability of that road really represents accumulated deficits. The capital stock of the Bay of Quinte Railway Company, $1,395,000-and it is not worth anything-is converted into Canadian Northern stock of the par value of $1,000,000 and over. Surely the Government docs not intend to do that. The Prime Minister was good enough yesterday to say that he would listen to any suggestions that might be made. The first suggestion I have to make is that the Bay of Quinte railway stock be wiped out of this transaction as quickly as possible because you are being asked to take over the stock of a road which is already in arrears in its Interest charges, on which there is a deficit, and the stock of which, amounting to $1,395,000, is being exchanged for over $1,000.000 of Canadian Northern stock. Speaking as a man from the West, I do say this: The constituency which I represent will object to their freight rates being based

upon the payment of any dividends upon that $1,000,000 of Canadian Northern stock.

Let us now take the next road, the Canadian Northern railway. I have here the annual reports of the Canadian Northern system since it became such, and turning to the last report, what do I find? I find ever the signature of Mr. Hanna and Sir William Mackenzie a statement of the financial position of the road. I find that on June 30, 1913, they had a cash surplus of $6,778,384.65 and a land account surplus of $16,930,835.01, a total alleged surplus of $23,709,000. Where is it, Mr. Speaker, that is what I want to know? Before I vote for this measure I want to know where that surplus is. Perhaps some of my friends will be able to tell me now; it will afford me much, gratification and pleasure and make it easier for me to know just where it is.

Mr. MJS1GHEN; If the hon. member had listened to me last night he would have heard me say that this money was drawn on equipment trust, practically a payment on capital expenditure.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

I am going to deal with that. Unfortunately, that is the story they tell, but it is not true. The difficulty with my hon. friend is that he is taking the statements of these men as facts, when I know they are not facts, as I am going to show before I finish. I want to ask this question here and now. Last year we were told that the $15,000,000 which we were giving to the Canadian Northern would finish the road. It has not done so. We have been told that continuously, year after year, and this is the question I ask the Solicitor General: Since when did a fraudulent representation constitute a basis or foundation for an application for further aid? Since when did bogus surpluses and false accounts constitute a groundwork and foundation upon which to lay a claim for the use of the collective credit of the people of this country?

The floating liabilities of the Canadian Northern Railway Company are said to be $6,565,652.61. After paying the floating liabilities, there will still be a surplus of over $100,000, outside of the land grant surplus of $17,000,000. Are they insolvent or solvent? If they have a surplus of $23,000,000, obviously they are not insolvent. If they have floating liabilities of $6,500,000, obviously they are insolvent. ' You pays your money and you takes your choice,' as they say at auction sales. There is their annual report sent to investors

in England. HeTe is the report made to the Parliament of Canada. Here is the report you make to those you get money from; here is the report to those you want money from. Here is the mendicant, there is the promoter. What are you going to do about it? I want to know what this House is going to do about it? There, stripped of everything, is- the story. I am going to deal with this notorious and nefarious Equipment Trust in a moment, because I should like to remind the Solicitor General that, this surplus of railway operations is not for one year but is the accumulated surplus of the system, and there are ten reports showing that the surplus was carried forward from year to year and had reached the amount of $6,778,384.65, after paying eveTy equipment trust bond that was due. Let that sink into my friend's mind. I direct the attention of the Solicitor General to the fact that of the fixed charges that were paid by that company as set out on page 14 of this statement, they paid equipment trust securities in full and still had a surplus left according to that. How does he make that out?

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

All right.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

How do you make it

out? There is the story written broad upon the face of that report and I say-

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

That is just what I said. I did not contradict that. That is absolutely true.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

Then my hon. friend

contradicts himself.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

No, I contradict you.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

This is a matter which might as well be threshed out now. The Canadian Northern Railway Company issued its eleventh annual report on October, 1913. In its statement of income for -the year ending 30th of June, 1913, it shows its total revenues and expenditures to have been upwards of $30,000,000. It shows that the company carried forward from the previous year a surplus on operating account, leaving a credit balance of $5,986,553.29 on the 30th of June, 1912. It says it met every equipment obligation that year. It shows that after paying all these epuipment, trust and other charges the company had left a surplus on operating account of nearly $1,000,000 which they carried forward, making a total surplus at the end of the year, after paying all equipment trust and other obligations of $6,778,384.65. Is that true or false?

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

It is true.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

If it is true, then how could the payment of equipment bonds have exhausted the surplus which they had in June last?

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

You have only the interest there. * .

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

That was all the payments that were made.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

Oh, no, that is where

you fall down.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

I shall turn up the report and read it in order that there may be no misunderstanding about it. I have been too long at this business to be fooled with that story. Here is the report:

Deduct fixed charges as per statement on page 17.

And you will. find there a complete statement of all the payments for fixed charges and equipment securities. The fixed charges are stated upon the mortgage securities, the consolidated debenture stock, the Qu'Appelle, Long Lake mortgage securities, and the land grant securities. My friend knows better than I that equipment trust securities are payable annually out of the income of the Company and that this method of acquiring equipment is one largely adopted by railways in all parts of the world.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

It meant the fixed

charges as it says. Does my hon. friend think that the fixed charges include payment of capital?

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON
CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

That is not what the

book says at all, that is what my hon. friend says.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

I shall read from the

book.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Arthur Meighen (Solicitor General of Canada)

Conservative (1867-1942)

Mr. MEIGHEN:

The book does not say -I do not wish to be obnoxious to the hon. gentleman and would not interrupt him had he not invited me to do so-the book does not say at all that payments on equipment trust are in lieu of depreciation. They are payments on capital.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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CON

Richard Bedford Bennett

Conservative (1867-1942)

Mr. BENNETT:

They are not payments on capital. I am going to argue this matter as if I were in a court. This is the high court of Parliament. There are three ways in which equipment is purchased. Equipment, comprising railway locomotives and cars, is bought outright, sometimes charged against capital when capital can be obtained cheaply and sometimes not. Then, second, you have equipment purchased on what is called the lease system. Any member of the House who goes to Montreal tomorrow on the Grand Trunk, if he walks up to the locomotive will find a strip of brass on that locomotive reading. ' The property of Blair and Company.' If you go on the Wabash to Chicago and look at a locomotive you will find a tag of the same character. On cars you will find tags indicating that a car trust has been established or that the property has been leased. The provisions of the lease ensure the payment of an adequate rental over a period of years; the upkeep of the equipment, its insurance, and at the expiration of the lease the property usually passes to the Railway Company, but in the meantime it is of course owned by the lessor. Then there is the system by which equipment trust bonds are issued secured by a mortgage on the equipment. This differs from the lease system in that in the one case the equipment is the property of the lessors, in the other case it is the property of the railway company subject to the equipment trust mortgage. After the initial payment on account is made the balance is usually paid over a period of years representing the lifetime of the equipment I shall now turn

to what the Imperial Railway Stock Company itself says.

Topic:   QUESTIONS.
Subtopic:   CANADIAN NORTHERN RAILWAY AGREEMENT.
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May 14, 1914