§ MR. WHATMAN
rose to call the attention of the House to the way in which money has been and is raised for Public Works in British North America, especially for railways in Canada, and to move, That it is desirable, in order to put an end to misunderstanding, to define clearly the responsibility attaching to such undertakings. The hon. Member said, he did not wish or intend to cast any doubt on the sincere intentions of the Canadians to carry out honestly and properly all their engagements with respect to these public works; but, looking to the great importance of these undertakings, the amount of capital involved, and, still more, considering what had happened as to one of these large undertakings, it did appear very desirable that we should ascertain what was the responsibility attaching to them. In 1849 the Canadian Legislature began to give great encouragements to the introduction of railroads, and enacted that capital might be provided by the Province to the extent of one-half of the cost, with Government Directors on the Boards of Management, in proportion to the amount of the provincial guarantee. Several lines of railway were thus made, and to consolidate some of the most important into one system, the Grand Trunk Railway of Canada was proposed in 1853, and was put forward as a great provincial work, much more than a local work. It was proposed and submitted to the Colonial Secretary in connection with what was then called the Intercolonial Railway. The object was to connect Canada with the Provinces of New Brunswick and Nova Scotia down to Halifax; and it was now proposed to carry the line from the Atlantic to the Pacific. It was to be commenced with a capital of about £9,000,000. About one-third was guaranteed by the Province, and most of the capital was raised in England. Notwithstanding the apparent certainty of carrying out the undertaking for the amount stated, in the course of the very next year, 1854, an Act was passed to allow an increase of capital, but the increase allowed was indefinite, and required the consent of each bondholder in writing; in 1855 another Act was passed adding to the contribution of the Pro- 1245 vince the sum of £900,000; and in the following year the Company appeared to be still more in want of assistance. Accordingly another Act was passed raising the contribution of the Province to £2,380,500. In 1856 another Act was passed for the further relief of the Company, and placing further funds at their disposal in this way. The Province gave up their mortgage upon the receipts of the Company to the extent of £2,000,000 of their bonds, and very speedily after that, in order to obtain extra capital, other bonds were issued by the Company in lieu of those bonds of the Province, so that the £2,000,000 which were released enabled them to raise £2,000,000 more. In the following year, 1857, another Act was passed, which dispensed with the Government directors in this line, leaving it entirely to the 12 elected directors. In 1858 another Act was passed, the effect of which was to give up the remaining fraction of the provincial guarantee, making the whole sum which the Province gave up for the benefit of this undertaking £3,111,500. A clause in the last-named Act required the assent of two-thirds of the directors to the increase of capital; but the clause did not as before require that that consent should be obtained in writing from those bondholders who would be hereafter prejudiced by such extension of capital, and they had no notice of any intention to seek such an important change in the law, although they were apprized in various ways of the earlier and other changes. All these things only showed how desirable it was that there should be in other countries some one who would discharge the functions which were performed in this country by Lord Redesdale, who would never have sanctioned the passing in England of such an Act as that last named, which placed the capital of the subscribers to the original undertaking at the discretion of the directors. After the passing of this Act various means were resorted to in order to raise further capital, but with very small success indeed in England. From the first the ordinary stock and shares afforded sufficient security for the interest becoming due on bonds and debentures; but soon after the passing of the Act of 1858 the directors offered to convert share capital into 7 per cent debentures, on condition of 1246 subscription for an equal amount of 7 per cent debentures in addition, thus increasing the mortgage or bond debt whilst diminishing the security for it. This appeared a very unusual proceeding. It appeared to be so very extraordinary that very shortly afterwards another circular, still further explaining this offer, and making it still more clear, was issued. Subsequent reports of the Company refer to this issue, to the cancelment of the original stock, and the substitution of preference stock for it in the shape of these debentures, and the operation is stated to have been perfectly successful. It did seem to be rather extraordinary that any directors should boast of such an operation as that being successful. He should think that it was one they ought not to be willing to boast of. In the spring of the following year, 1860, further money was required to carry on this undertaking, and another offer was made to raise £1,500,000 without "interfering with the existing preferential rights of the bondholders of all classes," and stating that the traffic receipts of the line were calculated to be sufficient to pay the working expenses and the interest on this new second preference capital as well as on the first preference. Now, these were important words. In the month of July it appeared to have been discovered that a very small amount of money had been advanced on these terms; that was to say, there was so little confidence in the undertaking at that time that capitalists were not inclined to risk more money; and therefore shortly after that—namely, on the 27th October, 1860, there was an extraordinary announcement in a report by the directors to the shareholders, that the London directors had recently received from Canada the accounts made up to 30th June, and availed themselves of this opportunity to make known to the shareholders and to the bondholders the exact state of the Company's finances, which proved the distressing fact of the impossibility of paying the interest on the second preference bonds, which became due on the 1st of October, notwithstanding the large amounts which had been made in the early part of that year. The report went on to state that, in order to save the Company from further loss, Messrs. Baring Brothers, and Messrs. Glyn, Mills, and Co. had ob- 1247 tained a judgment against the Company, and were consequently invested with the power of seizing the rolling stock. This measure, it was alleged, had been adopted for the benefit of all the present creditors, and for the protection of the Company's interests. At the time the accounts were rendered in October, 1860, a sum of about £2,000,000 was due to the financial agents alone of the Company in this country, which was a very considerable amount. And here he would remark that the financial agents were among the original directors who issued the prospectus, and they were also the financial agents of the Province. It was most unusual for the same persons to be connected with an undertaking of this kind in these different ways. He did not mention this circumstance, however, in order to disparage in any way these gentlemen, who were of high standing in the commercial world; but he simply stated the extraordinary fact, as it might, to a certain extent, account for so large a debt being due to the financial agents. The report showed that notwithstanding all the additional capital which had been raised the company was utterly insolvent, and consequently a Commission was appointed by the Government to inquire into the condition of its affairs. Various disclosures were made, and it was only fair to state that the directors themselves, in the same month, immediately suggested that some competent person should be sent out to inquire into the Company's affairs and the conduct of the undertaking. The gentleman selected to make the investigation in Canada was formerly a Member of that House, the present Sir Edward Watkin. Sir Edward succeeded, to a considerable extent, in ameliorating the condition of the Company. He was afterwards made Chairman of the Company in England, and continued in that office for some years. The Commission pointed out many defects in the accounts, and brought to light other faults; but, according to the Report, there must have been very grievous extravagance, for otherwise it would be almost impossible to account for the large increase of the capital beyond the limit originally proposed. It was true there had been some extensions in the line of railway, the original length being 1,112 miles, whereas it was now 1,377 miles; but the capital, which 1248 was originally limited to £9,500,000, was now advanced to £19,500,000. As there had been such an enormous increase by means of preference shares and debentures without any corresponding increase in the traffic, all the original capital might be regarded as completely lost. Shortly after this distressing year, 1860, another Act was brought into the Canadian House of Parliament and was passed, making an arrangement with the various descriptions of creditors for the term of 10 years. This Act was passed in 1862, and would expire next year. The prospects of those unfortunate subscribers, shareholders, and bondholders who trusted to the safety and security of this undertaking, would, according to all probability, be still further sacrificed; and he might mention as one result of what had been done in the way of issuing preferential securities, that the whole of the original bonds of the Company began in England, and were supposed to be well secured. In 1860, in consequence of the enormous increase of these obligations, it was discovered that there was no security at all. The consequence was that these bonds had ceased to be regarded as bonds, and instead of being bonds they were then called stock. During these 10 years nearly the whole of the demands had been paid in paper, a circumstance which would partly account for the rapid increase of the capital. Well, he now came to this point, which was the main object of his Motion—namely, to ask who was responsible for this undertaking. The scheme was put forward under the best auspices, and was offered to the public in the most favourable way, and yet, when either from neglect or some other cause the whole affair turned out a failure, no one appeared to be responsible for it. It was said that the sufferers by the undertaking had no legal remedy, because there was no one on whom legal liability could be fixed, and that the difficulty was increased because two Governments were concerned. This might be very true; but he would ask whether, in an undertaking of this kind, to which the public was asked to subscribe apparently on good security, it was right or politic that such a course should be pursued as that which had been taken in the present instance? He, for one, thought not, and he begged therefore to move 1249 his Resolution, and he wished, in conclusion, to ask the Government whether the first directors of the Grand Trunk Railway Company or the Canadian Government were responsible for the prospectus which had been issued in 1853.
Motion made, and Question proposed,
That it is desirable, in order to put an end to misunderstanding, to define clearly the responsibility attaching to such undertakings as Railways and Public Works in British North America."—(Mr. Whatman.)
§ MR. KNATCHBULL - HUGESSEN
had seen with some regret the Motion which his hon. Friend (Mr. Whatman) had put upon the Paper. If his hon. Friend had confined himself to a general statement he should have told him that abstract Resolutions, unless they pointed to some definite course, were not of much practical value, but he should have agreed with him in the opinion that it was desirable to prevent misunderstandings wherever it was possible to do so. But the hon. Gentleman had gone into a history of the Grand Trunk Railway of Canada, and asked who was responsible for certain undertakings which, not having been so successful as the projectors thought they would be, had involved those who embarked in them in pecuniary misfortune. The proper person to answer that question was the hon. Gentleman's legal adviser. If promises were held out by directors with a fraudulent intent, or if there was a wilful concealment of facts in the prospectus, the persons who had been guilty of such conduct would be liable at law for the consequences whether the undertaking was in Canada or in this country. But there was a great difference between a statement made with intent to deceive and a statement made bonâ fide, but which might deceive a certain portion of the public, and by which the promoters themselves might be deceived. Here was an undertaking which commenced well, in which everyone believed, and which probably would be of great importance in developing the resources of Canada, but which was perhaps undertaken too soon and too expensively. The commotion that took place in Europe and the Civil War which desolated America after its establishment exercised upon it a deleterious effect, but the Go- 1250 vernment were not in any way responsible, either for its existence or for its misfortunes. In a matter exclusively affecting local interests, the Colonial Secretary could not interfere, and Lord Elgin's despatch, which had been referred to as showing that blame attached to the Canadian Government, and which was printed in the prospectus, was not written with reference to this undertaking, but was a general review of the circumstances and condition of Canada, written by Lord Elgin to his official superior at home. Lord Elgin was a very sanguine man, and had formed a high opinion of the future of Canada, and in the despatch he incidentally alluded to certain great public works, including this railway; but in this very despatch he strictly defined the responsibility of the Canadian Government in regard to it, stating that they were to advance one-half of the capital, and that the whole resources of the Company were to be pledged to them for the redemption of the loan with interest; and the Canadian Government had kept perfect faith. They had acted not only up to the spirit of their undertaking, but had gone a great deal further; for when the Company got into difficulties, they first postponed their claim upon the railway, and ultimately remitted practically the whole of it. In principal and interest they had contributed no less than from £5,000,000 to £6,000,000 sterling, according to the published accounts of the Dominion; and therefore it was, he thought, hardly fair to cast any reproach on the good faith of the Canadian Government, who had, in his opinion, and he had read all the papers, carefully done all that they could do in reference to the undertaking. Canada was a young country, very jealous of her good faith being questioned, and he could not hear her good faith even inferentially called in question, without giving to any such statement a prompt and explicit contradiction. [Mr. WHATMAN said, he had guarded himself carefully against making any charge of bad faith against Canada.] The hon. Gentleman's manner of acquitting Canada reminded him of the Chairman of Quarter Sessions, who found a prisoner not guilty, but warned him not to do it again. He now came to the directors, to whom his hon. Friend also imputed blame in connection with the transaction, and who, he would ask 1251 were they? Why, men like the Messrs. Baring, Glyn, and Kirkman Hodgson, whose names stood so high in the commercial world, and who had done everything in their power for the undertaking in the most honest and honourable manner. Taking up the history of the railway where his hon. Friend had left off—that was to say, in 1862, he found that so far from the reduction of interest and other things complained of having been forced down the throat of the shareholders, the fact was that the Company then petitioned the Canadian Parliament for an Arrangement Bill, which was passed at their request. Their petition was made subject to the approval of the shareholders, and at a special meeting in August of that year it was accepted by a vote of 1,311 proprietors against 19, the former representing £3,788,600 and the latter only £48,485. His hon. Friend spoke of the directors holding certain debts, but the directors never concealed the condition of the Company in 1860–2, and moreover they held ample security which they could have realized and paid themselves. They, however, preferred the interest of the undertaking to their own, and actually gave up those securities in order that the Company might be in a position to obtain money on them to complete its works. This was not only honest conduct, it was disinterested and magnanimous, and that it was so considered would appear from a Resolution carried by acclamation at a special meeting of the shareholders on the 11th of June, 1863—That the cordial acknowledgment of the bond and shareholders of the Grand Trunk Railway Company of Canada be offered to Messrs. Baring Brothers, Messrs. Glyn, Mills, and Co., and Mr. Kirkman D. Hodgson, and other English secured creditors for their liberality in giving up to the Company securities of the nominal value of £500,000, which they might have sold for their own benefit prior to the Arrangement Act, but which are now available to meet the further outlay on capital account, thereby relieving the net revenue from undue pressure, and materially assisting the restoration of the credit and stability of the whole undertaking.Now, he had no wish to say anything unkind of his hon. Friend, but he could not help regarding him as being in the position of a man who happened to have made an unfortunate investment, and who, not unnaturally, looked about for a scapegoat. He regretted the investment had not turned out to be a good 1252 one; but the fact was that everybody connected with it had suffered as well as his hon. Friend to whom, perhaps, what had occurred would be a lesson to be more cautious in future, and might thus, in the end, redound to his pecuniary advantage. When a man made an investment and it turned out well he congratulated himself on his sagacity, but when his investment proved unfortunate he was likely to look around to see whom to blame. At one time everyone believed in the success of this undertaking, but all parties concerned had suffered, and he advised his hon. Friend to console himself by the belief that the dealings of the Company had been characterized by honour and honesty. His hon. Friend wished to know whether the present directors were responsible, or who was responsible, but he (Mr. Knatchbull-Hugessen) could not undertake to define clearly anyone's responsibility in this matter. He did not think it was possible to show any mala fides. He did not think that this was a matter for the Colonial Office, for the House, or for the Government. He did not think the Motion would be attended by any practical result, and he could not give his hon. Friend any hope that where persons had subscribed to unsuccessful undertakings Parliament could apply a remedy.
§ MR. KIRKMAN HODGSON
observed, that if the affairs of the Grand Trunk Railway had been mismanaged, complaint might be made to the shareholders, and if there was anything more than mismanagement, the matter could be brought before a jury in a Court of Justice. The hon. Gentleman had been challenged to take either of those courses. Whether it was a justifiable use of the privilege of the House to bring private matters of this description under its consideration must be left to the judgment of the House. About five years ago the hon. Gentleman had brought forward this question, and was answered by his hon. Friend the Member for Huntingdon (Mr. T. Baring.) The hon. Gentleman was biting against a file, and would find the result the same as in the case of the first who tried that experiment.
§ MR. WHATMAN
, in reply, disclaimed all wish to impute anything like fraudulent intention to the directors who signed the prospectus, or to throw any doubt on the good faith of the Canadian 1253 Government, who had, he thought, behaved very handsomely in giving up the £3,000,000 which formed a first charge on the undertaking. He complained principally of acts that had taken place since. Owing to the two bodies who directed the affairs of the Company, there was no possibility of getting redress at law, and it was useless to bring the question before the shareholders on account of the large proportion of the capital held by preference bondholders. After the discussion which had taken place, he would, with the permission of the House, withdraw his Motion.
§ Motion, by leave, withdrawn.