PEAR - Special Committee

Pearson Airport Agreements (Special)

Past Session: Past Session:
35-1 35th Parliament, 1st Session (January 17, 1994 - February 2, 1996)
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Proceedings of the Special Senate Committee on the

Pearson Airport Agreements

Evidence

Ottawa, Thursday, August 3, 1995

[English]

The Special Senate Committee on the Pearson Airport Agreements met this day, at 9:00 a.m, to continue to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.

Senator Finlay MacDonald (Chairman) in the Chair.

The Chairman: Good morning, colleagues, Mr. Broadbent, ladies and gentlemen. This is the last day of the third week of our hearings and we are off next week. We are not having any hearings next week. We will be resuming a week from Tuesday.

I think it's appropriate at this time to make clear of our focus on these hearings. To carry out our mandate we are pursuing three main lines of inquiry. The first is: Was the Pearson privatization policy soundly based, given the circumstances and given the alternatives?

Secondly, was the process properly conducted? In other words, were the rules of the game adequate to protect the public interest and were they respected by all concerned?

Three, were the contracts which were signed by the government of the day and the developers financially and economically sound - that is, was the overall interests of Canadian tax payers properly served?

These three questions will, in the following weeks, inevitably lead to a fourth question: On what basis did Mr. Nixon recommend, and the present government agree, to cancel the contracts? That is the mandate of this committee of this committee.

Now, Mr. Broadbent has returned this morning and I will ask Mr. Nelligan to reintroduce him, if that's necessary.

Mr. John Nelligan, Q.C., Counsel to the Committee: I hardly think, senators it's necessary to re-introduce a man with whom we have been so familiarly acquainted during the last few hours. He is better known to us than he was yesterday, but he is a former deputy minister. He was the principle negotiator of the Pearson contract during a critical period of the time and he is now retired and doing some consulting work.

(Mr. David Broadbent, previously sworn:)

The Chairman: Mr. Broadbent, you are sworn. Would you care to make any opening statement or just take-

Mr. David Broadbent, (Retired) Chief Negotiator for Pearson Airport Agreements: I do not think so sir, no.

Senator LeBreton: Senator MacDonald, may I address a general point of order here before we start the questioning of the witness?

The Chairman: Certainly.

Senator LeBreton: Senator MacDonald, I'm putting this point now because I want to refer to this document later on in my questioning. But I refer back to the terms of reference and the orders of reference in the Senate with regard to this committee. And I'll read it, if you don't mind; it's very short. I'll quote out of the orders of reference. It was on Wednesday, May 31 to Thursday, June 8. It's page 1-3, Pearson Airports Agreements. And it was when this committee was set up. It says on the first page:

That the committee have power to send for persons, papers and records, to examine witnesses under oath, to report from time to time and to print such papers and evidence from day to day as may be ordered by the committee;

And then, Mr. Chairman, in your opening remarks - I guess it was our second week of hearings - on Tuesday July 25th, 1995, page 1500-2.

Senator Jessiman: Do it more slowly, please.

Senator LeBreton: 1500-2 - sorry.

Senator Jessiman: July 5th?

Senator LeBreton: July 25th. And I quote you, Mr. Chairman.

Sometimes the committee has been placed in the ludicrous position where some information withheld from us has been released to the public under access to information or the courts in the litigation process. I am told this has occurred because different officials handle different requests for information and obviously took different views as to the applicability of the confidentiality rule. I certainly accept that explanation.

So, I refer to a document that we received in this myriad of documents we have - we're being drowned by documents.

Senator Jessiman: Number?

Senator LeBreton: It's numbered 23555.

Senator Jessiman: Date?

Senator Jessiman: Dated May 13, and its a memorandum to the ADM (Airports) from our witness this morning, Mr. Broadbent.

Senator Jessiman: May 13, 1993?

Senator LeBreton: That's right, Senator Jessiman. And the subject is trigger points and stewardship. This is the document. It starts off: "Thank you for responding", and then there's a huge, obviously a huge section blocked out. Then it goes on. There's a line blocked out in the middle, and then the conclusion.

Now I'm simply asking, counsel, because yesterday we had an occasion, when Mr. Hession was a witness, of him challenging a whited out section. But there seems to be a lot of whited out documents and I want to know, counsel, whether you can ascertain what was said here, because I think it's relevant to what we were discussing this morning; and why was this blocked out? So I'm simply putting right at this moment -

Mr. Nelligan: May I have this particular document because they all have different notes on them, and rather than me get my own -

Senator LeBreton: Okay. Certainly. And I'd be happy to provide copies, but it's part of our documentation. So I'm simply asking you to ascertain, counsel, and then I want to be able to question Mr. Broadbent on that particular document because it's very relevant, I think, to the process.

Mr. Nelligan: May I explain what our problem is? So far as the legal authorities seem to indicate, this committee has very broad powers. Normally, those powers can only be exercised through the direction of the full Senate.

The procedure is that you ask a witness why the information is retained and you then consider whether his request for confidentiality is reasonable under the circumstances - and I admit I intervened yesterday because I felt we were coming to a question of personal reputation of people and that was not directly relevant to this hearing.

In the production of its documents, the Department of Justice has applied a broader rule and takes the preliminary position that anything that would be restricted under the Access to Information Act will not be made generally public. I'm suggesting to this committee that, if the time comes where you feel that information under various headings is necessary for this inquiry, you may then ask the witness why it is concealed. And I would suggest that you ask the witness only to reveal that portion of it or the substance of it in such a way that a minimum of damage can be done to people who are not here to protect themselves.

In this particular case the section, I believe, is section 19(1) of the Access to Information Act. And although I don't have it right in front of me, I suspect that that is the one that relates to personal information and it relates to matters where one person is commenting upon another. So that if, for instance, one civil servant said something scathing about another civil servant, it will normally be deleted if there's an application made by the press or anyone else to have it made available. And one can see where this, as a matter of public policy, would be embarrassing.

Yes, I've now got section 19(1) and it simply said that it's personal information, and under section 21(g) they delete the views or opinions of another individual about the individual.

It would appear to me that that particular deletion relates to that aspect of the matter. But I would not suggest to the committee that you are bound by that, but I would urge you first of all to make appropriate inquiries of the witness so that no one is unfairly dealt with. But all of these references in this document are to section 19, and that's all under the "Personal Information" heading.

Senator LeBreton: Even though - and I'm not a lawyer - this information is possibly filed with the courts unwhited out?

Mr. Nelligan: Oh well, look, this document that is censored is something that was given to us by the Department of Justice from their files.

Senator Jessiman: Without the white outs?

Mr. Nelligan: With the white outs.

Senator Jessiman: With the white outs?

Mr. Nelligan: With the white outs.

Senator Jessiman: But the senator, sir, was asking if this is available to the participants in the law suit - if it is-

Mr. Nelligan: Yes.

Senator Jessiman: -should it not surely -

Senator LeBreton: Be before this committee.

Senator Jessiman: - be present before us? Why would litigants in a law suit over the same particular matter-

Mr. Nelligan: Well, I go beyond you, senator. I say whether it was released to citizens, to people in the law suit or not, you're are entitled to it.

Senator Jessiman: Right. Well, I would like you to inquire-

Mr. Nelligan: And if it is in - I don't have to inquire. I think I know your answer. If this information is available through another source, you can have it. But I'm going beyond that. I'm saying that even if you didn't have it from another source, this witness could be asked. And if he has access to the information, he could be required to give it; or you could summon the proper person from the department to give it. Again, it's a matter of you deciding in your discretion whether it is appropriate under the circumstances. And I think perhaps if this witness could indicate even the gist of what was in there, then you can decide how many more particulars that you require.

Senator LeBreton: That's fine if we do that. I hear you and I will follow those guidelines.

It's because, as I mentioned, it happens to be very relevant because it's in the middle of Mr. Broadbent's work. And, so I take what you say.

Senator Tkachuk: I just have one little follow up question, counsel. You mentioned if there is something scathing about another public servant that may be a reason for it being whited out?

Mr. Nelligan: Yes.

Senator Tkachuk: Well, do they apply the same rules if someone writes something scathing about an individual outside the public service?

Senator Lynch-Staunton: You can quote Stevie Cameron but you can't quote a public servant!

Senator Tkachuk: So it's just one, something scathing about a citizen-

Mr. Nelligan: These rules don't apply to the public service as such. These are simply general rules put in to protect people looking for gossip in department files.

For instance, someone can write in complaining about his neighbour and it's on a government file. They don't like to have unsubstantiated accounts then published in the press gratuitously because it's there. That's why the rule is there. It is a general rule of confidentiality of personal information. And I have said at the beginning: It is a rule that applies to the public generally; it does not apply to this committee.

Senator LeBreton: Well, counsel, just on that, then - since we're into selective whiting out - why, then, yesterday would there be a document from a person by the name of Carole Swan to someone in Treasury Board about a meeting that we haven't even ascertained that took place, speculating on the attendees and then offering comments about timetable and everything? Why would that not be there? This is obviously this person's personal view of a situation. There's other parts of the document blocked out but this is not. This seems to be selective white out and I just think, you know, we're here to seek the truth.

Mr. Nelligan: Well, in regard to this particular document that we were looking at, most of it deals with the substance of a normal bureaucratic problem.

Senator LeBreton: Yeah. Well, isn't this a normal bureaucratic problem, this memo that I just referred to this morning?

Mr. Nelligan: Well, the memo that you referred to is discussing the preparation of a strategy paper in negotiations.

Senator LeBreton: And this is discussing a meeting that may not have taken place.

Mr. Nelligan: Now you're talking about a document I don't have in front of me.

Senator LeBreton: Sorry. It was one that was introduced yesterday. It's one from Carole Swan to Sid Gershberg.

Mr. Nelligan: May I see it, please? It's very difficult to remember them all.

Senator LeBreton: But, I mean, it's just that there's certain parts of that document whited out and there's certain parts-

Mr. Nelligan: Well, now, you see, this is a different rule. Now, a word of caution: The white out on page three of this particular briefing note is under section 69(1)(g), and that relates to cabinet confidences; and section 69(1)(g) refers to confidences of the Queen's Privy Council for Canada; and subsection (c) is agenda of counsel or records recording deliberation or decisions of counsel. And that is what they're talking about. Obviously, they are referring to some putting it on an agenda of the cabinet.

Now, the area relating to cabinet confidences is a much more delicate ground.

Senator LeBreton: Oh, I agree with that.

Mr. Nelligan: And that is why these were done. You might question whether or not agenda items are appropriately deleted, but I think in the normal course one does not ask for discussions in cabinet, and so on, and in the practice of the Senate this hasn't been done. Quite frankly, we have been discussing getting access to some of this material but the fact that they've followed section 69 even to agendas, it struck me it wasn't particularly important because when I read this document I read it and there's obviously a reference, "And we're going to have to submit it to Treasury Board", or something of that kind. I don't think it went to the substance of the matter, so I didn't make any comment on it. But you have to look at the handwritten note to tell you why it is done.

The section references are always to the Access to Information Act, which I have here and which you can look at it at any time. I would suggest I wouldn't get too upset about the section 69 ones unless it seems to be in the middle of a very important matter, or something, and then perhaps we can press it farther.

Senator LeBreton: No, I wasn't questioning the parts of it, I was just questioning the editorializing by public servants.

Mr. Nelligan: No. I'm quite satisfied that the people who are doing this are doing it on a mechanical, legalistic - I don't not mean to be critical, but they are doing it the way they would do it for any application from the press or from anyone and applying those rules without looking into what further material this committee can require.

So that if you come to some sections, for instance, personal confidences, then you may proceed under section 69. I suggest you proceed with more caution.

Senator Jessiman: Mr. Chairman, through you, sir, to counsel, the witness that we have before us under oath has said - and I'd like to read a paragraph - and he's talking to Madam Labelle, the deputy minister, "I have had to complain about the lack of responsiveness or obstruction from the airports group".

Mr. Nelligan: Yes.

Senator Jessiman: Now he also said that Mr. Barbeau - the person that got the memo - was the head of the airports group. Madam Labelle had on each occasion spoken to staff in an effort to correct the problem.

I said to the deputy that I felt I had been managing this file with one hand behind my back. She said she understood. Although Mme Labelle, Ministers, and the contenders wanted me to remain, I told the deputy that I could not stomach working under such conditions and wondering when I was next going to be blind-sided.

Mr. Nelligan: May I make a suggestion, senator?

Senator Jessiman: Yes.

Mr. Nelligan: If you want to relate that statement to this particular document with the thing-

Senator Jessiman: Right.

Mr. Nelligan: - without naming any names at all, it would be perfectly proper to say, "Did the paragraphs which were deleted relate to the problem which you set out in your brief?"

Senator LeBreton: Yes; exactly.

Mr. Nelligan: With respect, I suggest maybe that's as far as we have to go but it relates the one to the other.

Senator Jessiman: I don't know whether this is a fact, but if our counsel to this committee does have an unwhited out copy - and do I understand do you do have such a thing?

Mr. Nelligan: Yes.

Senator Jessiman: Okay. In the event that the witness does not have such a copy with him - and my guess is that he won't have - then can you, as counsel, show it to him?

Mr. Nelligan: Of course.

Senator Jessiman: And then we can ask him?

Mr. Nelligan: Yes.

Senator Jessiman: Thank you.

Senator Tkachuk: Let me ask one more little question here on that. So ministerial advice would almost be -

The Chairman: Ministerial advice or advice to the minister?

Senator Tkachuk: Advice to the minister would be taken with the same seriousness as cabinet advice, that is, something relating to Treasury Board, counsel? I'm just trying to get this straight because we've had this problem come up as well.

Mr. Nelligan: I'm sorry; I was reading the note.

Senator Tkachuk: If we had advice to the minister -

Mr. Nelligan: Yes?

Senator Tkachuk: - documents or white outs involving advice to the minister, the same thing would apply. I mean, the seriousness of that is the same as a cabinet-

Mr. Nelligan: No. I think it's a lower level.

Senator Tkachuk: You see, then, we have this Treasury Board document or this letter here with this white out.

Mr. Nelligan: Yes.

Senator Tkachuk: And then we had Mr. Swain here with a document that was clearly advice to the minister, which was a document that was criticizing the whole Department of Transport's process being fully given to us.

What I'm trying to get at, if that document that went up to Minister Wilson was - and it was clearly said by the deputy that it was - advice to the minister, and advice to the minister is what he said, then I want the same rules to apply that was applied to that document to all the documents.

Mr. Nelligan: All right.

Senator Tkachuk: Because that would make sense.

Senator LeBreton: That would be fair, is it not?

Mr. Nelligan: I'm just suggesting that reports to a minister are different than matters of the Queen's Privy Council, and there is a distinction between the two. And, I think if you want to go to questions involving what goes on in the Privy Council that you should hear from the legal experts from Privy Council before we press it. But reports-

Senator Tkachuk: No, but what I'm getting at -

Mr. Nelligan: I'm just distinguishing. A report which is prepared and is submitted to the minister - I have been told any such reports we will get. So that we're getting those. The distinction is where they start talking about Privy Council meetings.

The Chairman: We're straying from the point.

Senator Tkachuk: Okay. I understand. I'm just trying to get the information.

The Chairman: Your point of order, I gather, and the questions you want to pursue-

Senator LeBreton: Yes. I was just going summarize, then, Mr. Chairman.

The Chairman: Yes.

Senator LeBreton: And we'll get on with it.

The Chairman: And it had nothing to do with cabinet confidence?

Senator LeBreton: No, no. I'm simply referring to this document and I've already had my answer from counsel that, when I get around to questioning Mr. Broadbent later on, I have now had clear guidelines drawn by counsel and now I hear that he's got both documents.

The Chairman: All right. That point is taken.

Senator Lynch-Staunton: Mr. Chairman, I don't want to prolong the discussion but I'm a little confused as to how this act is being applied and to whom. I understand counsel has this in extenso and if there's a possibility that -

Senator Kirby: I'm sorry, what is that?

Senator Lynch-Staunton: Latin. In extenso? Totally, total. Sometimes I speak the language of education.

Senator Kirby: It sounded impressive, though.

Senator Lynch-Staunton: In toto - how's that.

Mr. Nelligan: Ab initio.

Senator Lynch-Staunton: And it has been suggested that this document, and others without white outs, are also before the courts in Toronto. It's been suggested that. So the question is: Why the document on that table? Why is it possible it's in the courts but why is it not available to senators who are involved in the inquiry? I just do not understand.

Mr. Nelligan: Let me just say, as a matter of courtesy, when I served these documents from the litigation process, I then advised the Department of Justice that I had them. I was aware that there are strictures under the Ontario court rules relating to the use of documents produced in the course of litigation for any other purpose. I took the position with the Department of Justice that, notwithstanding that restriction on ordinary litigants, I felt that the Senate would be entitled to precisely the same documents as the litigant in any event. And he asked me to send him a list of the documents I had received, which I've done. I was just advised, I think it was yesterday, that he had no problem with them but they hadn't been distributed yet. But I wanted to do that so that there was no problem with the litigation process because certain matters are sub judice.

Senator LeBreton: So are you saying, counsel, then, that you have these documents and they're about to be distributed so that when I-

Mr. Nelligan: I was about to distribute a list; I wasn't going to distribute the documents.

Senator LeBreton: Yes, a list. So that I could get from you the unwhited out copy of this before I question Mr. Broadbent?

Mr. Nelligan: I have it here.

Senator LeBreton: Oh, wonderful.

Senator Lynch-Staunton: Who put the augural on certain documents in the courts? Is it the Department of Justice requested that?

Mr. Nelligan: Oh no, no. Just so you'll understand, this is a matter of court procedure. There was an interesting case recently where a lady suing for wrongful dismissal got documents from her employer and proceeded to sue him for defamation on the basis of what was said in his confidential files. And that case went through to the Court of Appeal and they said, "You got it for your wrongful dismissal case and you can't do it the other way." And it was that technical rule that I was attempting to comply with. But I'd taken the position, notwithstanding that rule, that if they gave it to the litigant they should give it to us and he's now agreed, so that we will get them. But the documents whited out we'd received before we got the other ones.

Senator LeBreton: Just for clarification, when I get to my questioning, then, you say you've got the full, unwhited out version - I don't know the legal ease - and I have to be judicious and careful about this, but then I can ask the witness if he can elude to these without sort of-

Mr. Nelligan: Yes. I'm simply suggesting that as a courtesy we do not get into personalities where they're unnecessary.

Senator LeBreton: Okay. That's fine.

Senator Kirby: I'm just getting more confused, but that's okay.

Senator Jessiman: As I understand it, we have a number of documents - and we saw a number of them yesterday with - a great number of white outs.

Mr. Nelligan: Yes.

Senator Jessiman: Do I now understand that all documents that come from Justice over here will have no white outs?

Mr. Nelligan: Oh, no.

Senator Jessiman: All right, explain.

Mr. Nelligan: The same four people are whiting it all out like crazy because that's what their instruction was.

Senator Jessiman: Who are these four people? Do you know?

Mr. Nelligan: They're four solicitors whom I have not met.

Senator Jessiman: Do you know if they're part of Justice?

Mr. Nelligan: I thought I made that on the record yesterday, sir. They are all civil servants under their oath of office and they're attempting to apply the strictures of the Access to Information Act.

Senator Jessiman: This is rumour - and maybe you know the answer, and I'd like to know. Has the government engaged outside counsel in respect of this hearing?

Mr. Nelligan: Yes, they have. The firm of Scott and Aylen are independent counsel retained by the department to assist them on legal matters that might arise with respect to this kind of problem.

Senator Jessiman: Do we know how many persons are involved? Is there one or two?

Mr. Nelligan: Well, I've met the senior partner and another partner and they are very reputable. I'm happy to work with them. And it's quite understandable that they would have that service available to them.

Senator Jessiman: Do you know whether they've engaged anyone else other than lawyers?

Mr. Nelligan: Yes. They have a forensic accounting firm - and I think I mentioned this yesterday - who are in the process of attempting to coordinate and catalogue the documents.

The Chairman: And what is the name of that firm?

Mr. Nelligan: I think it's Lindquist and Avey. They're a well-known firm. I've dealt with them. I know who they are. They're very reputable.

Senator Jessiman: Do you know how many people they have involved in that?

Mr. Nelligan: I think they have offices in both places.

Senator Jessiman: No, how many people do they have involved there?

Mr. Nelligan: I have no idea.

Senator Lynch-Staunton: Just to get back to this. I'm sorry for delaying but it's essential, I think, for a better of understanding what this is all about. The documents which have been made available to the plaintiffs in Toronto will be made available to this committee, is that right?

Mr. Nelligan: Yes. I think as they're coming through. I don't know how many they've got but they are being made available to us as they appear, yes.

Senator LeBreton: Unwhited out?

Mr. Nelligan: Pardon?

Senator LeBreton: Unwhited out?

Mr. Nelligan: Well, they may have some whites out under the cabinet confidences, I don't know.

Senator Lynch-Staunton: As they're made available to the court, they'll be made available to the committee.

Mr. Nelligan: I have a list here, which will be distributed today, of all the ones I've received so far.

Senator Jessiman: And, Counsel, it's not limited to just what's in court. Whatever each side of the litigation - whether they've been presented to court or not, both sides - I'm talking about the Crown and the plaintiffs in Toronto - have certain documents. They may or may not be presented to the court in due course, but some of them may have been and some of them have been examined on discovery, I assume. But are we going to see the documents that are available to both sides of the law suit? Is this inquiry going to get those documents?

Mr. Nelligan: Well, I hate to be buried under paper. I simply asked to send me the ones that were relevant to this inquiry because it is my understanding that the litigation itself is largely directed to other issues such as damages, and things of this kind. I don't think that we should become involved in that matter; it's sub judice. So it was only documents that I felt were relevant to this issue that I asked to look at. In fact, I must say that even at the beginning I suggested to the justice officials I didn't want all of the Department of Transport files, I only wanted relevant documents. And, of course, what is relevant is very hard to gauge, and that's one of our problems.

Senator Jessiman: Right. And at the moment whose determining it? Are the people in Justice?

Mr. Nelligan: In the first instance, it's the people in Justice.

Senator Jessiman: Right.

Mr. Nelligan: From time to time I will see a reference in a file which would make me think there might be another relevant document and I then ask if they can find that relevant document. This is what we asked for. We wrote to Mr. Edge on June 12. We wanted all documents given to Mr. Robert Nixon for the Pearson airport review. May I say in that regard that one of the problems we're still negotiating on is it would appear that some of those documents have been whited out on the basis of cabinet confidentiality. And we're still discussing getting access to those notwithstanding that bar.

Senator Jessiman: They're whited out now; were they whited out when Mr. Nixon got them?

Mr. Nelligan: That you'll have to ask Mr. Nixon, but it's my understanding they were not.

Senator Jessiman: They were not.

Mr. Nelligan: No. The second thing that we asked for was a list of documents in the possession of the government pertaining to the Pearson Airport Agreements not already listed in the litigation documents presently before the court because our understanding was we would have immediate access to those.

The reply we got on June 16 was as follows:

Further to your letter of June 12, 1995, officials have identified, to the best of their ability, the documents that were given by the government to Mr. Nixon in the preparation of his report. Of these documents, some were cabinet confidences and therefore have been excluded from the package of documents accompanying this letter. Certain others have been excluded because they are subject to solicitor-client privilege.

We have some question about that.

Others have been excluded in whole or in part because they contain confidential business information.

We've overcome that because we have received waivers from the private individuals involved.

Although not requested, the committee may also be interested in other documents, included in the accompanying package, relating to T1/T2 that have been disclosed under the Access to Information Act.

Well those, obviously, were all censored.

In some cases the documents have been exempted in whole or in part pursuant to various exemptions in the Act.

And then they said:

There does not appear to be a list of the documents in the possession of the government relating to the Pearson Airport Agreements other than those listed in the litigation documents. It is unlikely that such a list could be prepared within the timeframe useful to the committee.

And that, of course, has been our dilemma. There are literally hundreds of thousands of documents over there and the selection process, however fair, is going to be tedious and so that we've been getting them, as you know, rather slowly.

I had hoped at the outset that we would have immediately available all of the litigation documents but they were listed in such a way that it was difficult to identify what ones were relevant and what ones were not. And I know that there is in the government computer process a method of searching for those documents, which has not yet been made available to us. But in the mean time I am receiving from a number of sources the documents which have been put on the litigation record.

Senator Jessiman: But Mr. Chairman, again through you to Counsel, the Nixon documents. We've been given evidence somewhere along the way here that says that there are 4500 pages that he got. We were also told that what was going to be available to us to do a proper inquiry is 200,000 pages. Now, the fact that this government in 1993 provided those 4500 pages - I don't understand why right at the beginning of this hearing they couldn't have given us copies of those 4500 pages without white outs - if he got them without white outs.

Mr. Nelligan: Well, we will be speaking to the clerk of the Privy Council at the time in due course. That, I hope, can be explained to us at that time.

Senator Jessiman: Right. Because in his case, from the time that he was appointed until the time that he got the documents, reviewed them and made the decision was done in 30 days. We've been appointed now for several months and we still haven't got them.

The Chairman: Could I just ask one final question to the counsel? It's a pretty fundamental question.

I have read the material prepared by the legal counsel of the House of Commons - and everybody else has it, too - called "The Powers of a Parliamentary Committee". In summary, they're almost absolute. At the hearings of the Joint Committee on the Scrutiny of Regulations the author of this report, Ms Diane Davidson, in company with the Deputy Minister of Justice, were in total agreement with her paper. I say "in total agreement" almost. I mean, it was with certain caveats.

The Department of Justice then prepared a guide to public servants in answering questions before a parliamentary committee. The last one that was prepared was in 1990. This was updated. I sought to get the updated report from the Deputy Minister of Justice and I was refused because the Department of Justice said that their client was the Department of Transport and it was not available to us.

Could you follow that up?

Mr. Nelligan: I will follow it up.

The Chairman: You may then proceed.

Senator LeBreton: For clarification then, when we get around to my questioning of Mr. Broadbent, will he have the document that -

Mr. Nelligan: I think it's etched in his mind but, in any event, I'll see that he has a copy.

May I make another suggestion? Bearing in mine the delicacy of the matter, may I be given the opportunity of going through it once to lead the witness through it?

Senator LeBreton: Certainly.

Mr. Nelligan: Then, if you have to ask any further questions, you may, but I thought perhaps between Mr. Broadbent and I we would understand how far one should normally go.

Senator LeBreton: I have no problem.

Mr. Nelligan: That is just a suggestion.

The Chairman: The clerk has just drawn my attention to the Joint Committee for the Scrutiny of Regulations. Mr. Wappel of the House of Commons refers to the testimony of Ms Davidson in which she says:

What these grants of powers mean, of course, is that provided a committee's inquiry is related to a subject-matter within Parliament's competence and is also within the committee's own orders of reference, committees -

- parliamentary committees -

- have virtually unlimited powers to compel the attendance of witnesses and to order the production of documents.

Then he asks the Deputy Minister of Justice:

Do you agree or disagree with that statement?"

And Mr. Thompson replies:

I agree with that, as I have already indicated in my initial remarks. I have suggested that where it involves asking for information, either orally or in writing, which raises questions of the solicitor-client privilege, the committee consider how, and whether, that is required. I am acknowledging that the committee has those powers.

Now, I think we have ploughed this furrow long enough.

I think that yesterday Senator Kirby was questioning and the time had run out. It comes back to you now for further questions to Mr. Broadbent.

Senator Kirby: Thank you, Mr. Chairman. It is always fascinating, as a non-lawyer, to hear lawyers argue technical issues.

Again Mr. Chairman, consistent with what I was trying to do yesterday, to make it easier for the witness and members of the committee, I have four topics; I will do them in the sense of four issues that were involved in the negotiations and I'll do them one at a time so that we can deal with one and then if my time runs out we can go to somebody else and then it will come back to me for the others.

The first item I wanted to talk about is the passenger diversion guarantee and I'm going to use my documents numbered 8, 9 and 10, so I hope they're distributed.

Mr. Broadbent, while those documents are being distributed, can you just give us an understanding of what - or explain the concept of what the passenger diversion guarantee was all about?

Mr. Broadbent: Mr. Chairman, Senator Kirby, I'll certainly try and do that. This is indeed one of the very areas that I referred to in my opening statement that if you want to get in I need the help of experts. But let me give you my remembrance, my appreciation, of what the issue was about and how we went about resolving it.

If any corporation was going to spend a pile of money redeveloping the airport, they, I think not unnaturally from their viewpoint, wanted to be sure that the passenger volumes that had justified the spending of that money and that allowed provision to be made to handle that number of people were going to be maintained.

On the other hand, the Crown, and as chief negotiator for the Crown, I sought and I think succeeded in defending the Crown's interest, we couldn't tie the hands of future governments that might, for whatever reason, want to build another terminal in the infield, want to open up the green fields, you know, to the northeast of Toronto, or in any way tie its hands. So this is difficult; seemingly an impasse. How do you keep the hands of a future government free, allow it to be unimpeded in doing what it thinks is right to do and, at the same time, be fair to a developer so that if he spent money suddenly the whole situation doesn't change; point one.

Point two: You can't move passengers at the margin; you've got to move them in big numbers. You have to move whole airlines. So what you would be looking at if you were to move things is a big drop when you opened up another airport or another terminal or anything of that nature. So it made it tricky.

What we ended up with - and others can tell me if this was maintained but I think it was, and the product of some creative brains - was to say, "Okay, let's agree first of all on what is a reasonable passenger throughput if the whole thing were developed." And of course there was debate about that because quite clearly Pearson development would like it high and Transport Canada, not unnaturally, would like it comfortably low. So there was dispute over that.

But where it went from there - and I can speak as a beginner mathematician myself; I can speak Senator Kirby's language - we ended up with a potential of something like a saw-tooth curve. So that if the government of the day decided to move, do something, which would remove passenger volume from the terminals, that that would be recompensed by the government through Pearson Development Corporation. However, we put a caveat in it, and the caveat was that if passenger volumes had gone above the magic norm figure before this happened, that those would be considered money in the bank for the government of the day and would be subtracted from any future passenger volume that required reimbursement.

Now, that, I think, was the general approach, more or less.

Senator Kirby: I know the answer, but I'll ask the question. Did the RFP contemplate that there would be a guarantee of this kind; i.e., did the RFP require or suggest that there would be a guarantee against the diversion of traffic?

Mr. Broadbent: I don't believe it did.

Senator Kirby: Then obviously it was raised after people had submitted a bid, correct?

Mr. Broadbent: That is my assumption, sir.

Senator Kirby: Do you know who raised it or when it got raised or how it got raised?

Mr. Broadbent: Well, I think it got raised over the whole business of triggers, as I think I explained yesterday. I mean initially the development was to be a seamless go-ahead process and the airlines were going to pay for it together with lenders, and it was all going to go ahead. But, for the reasons I explained to do with no up-front hit on the airlines and like matters, common sense, I think, eventually directed us to a situation where there would be trigger points that would develop that would trigger, obviously, a next stage of development. So that Pearson wouldn't be required to do things - if passenger stagnation had remained, they would essentially have gone through a redevelopment process which concentrated on Terminal 1 and the problems you discussed so thoroughly yesterday and perhaps had gone into the trans-border area, but it would have depended then on what the experience was with passenger volumes; remembering all the time the testimony you got yesterday from my friend Ray Hession, who was on the other side of the table, that the best airports in the world plan ahead in anticipation of growth.

Senator Kirby: But the fact remains that people responded to the RFP and won a bid without asking for the diversion of traffic guarantees and then that became an issue later on.

By the way, just as an aside, do the operators of T3, when T3 was built, did they ask for a -

Mr. Broadbent: I don't know the answer.

Senator Kirby: Do you know who could tell us that answer?

Mr. Broadbent: I suspect there are people in this room who can.

Senator Kirby: Okay. It's my understanding, Mr. Chairman, the only reason I ask the question, that T3 went ahead and was built without asking for this kind of a guarantee. I stand to be corrected on my understanding, but that is -

Mr. Nelligan: The next group might have someone in it who can help you.

Senator Kirby: Thank you.

Can we to turn to document numbered 8. It's my numbering. It has a number at the bottom I understand our counsel always likes. It's 0020089, but it's my numbering 8 at the top.

Mr. Broadbent: I've got number 8 at the top. I haven't had a chance to look at it.

Senator Kirby: No, no, I understand.

Mr. Broadbent: I don't think I've seen it before.

Senator Kirby: Oh, because it came in one of the binders that was labelled your documents, but I don't know what "your" means.

Mr. Broadbent: Nor do I.

Senator Kirby: I understand that. It's labelled Annex D to - it's obviously an analysis of a variety of issues, is my reading of what it comes from.

Senator Jessiman: Do we know, Senator Kirby, whose document it is?

Senator Kirby: No. As a matter of fact, I'm glad you asked that. The answer is I don't. All I know is this is one of the documents that was in the binders that we get. This was in it, but do I know who wrote this? No, I don't.

Senator Jessiman: If he hasn't seen it, I guess I don't know how you can question him on some document if we don't know where it came from and he's never seen it.

Senator Kirby: Okay, then without asking you about the document, can I ask you the following question; this, I think, gets around the problem of the specific document.

Senator Tkachuk: This document 8, Senator Kirby, 002008, is it two documents?

Senator Kirby: All I can tell you is the way it came to me.

Senator Tkachuk: It seems like it's been kind of filled in because we've got like different typing on the fourth page.

Senator Kirby: Your knowledge is as good as mine and mine's not very good.

Senator Jessiman: And it's referred to as Annex A. Do we assume that that's something annexed to something else?

Senator Kirby: Okay, then let me not use the document. Let me just ask the question because I just got it out of the book. I don't know the background either.

Some people would argue that one of the difficulties, or one of the arguments against, if you want, a traffic or passenger diversion agreement is that what it in effect does is that it provides a threshold up to which the operator or the developer, as you called it, is free from competition and thereby - because, as you said, they would not have competition up to that threshold level - and thereby it removes any incentive they have to maintain good service and retain tenants.

What's your reaction to that argument; namely, taking the competitive forces out by guaranteeing a minimum threshold level in fact removes the incentive for somebody to operate well?

Mr. Broadbent: My brief answer, senator, would be nonsense. Would you like me to go ahead?

Senator Kirby: Why?

Mr. Broadbent: Well, because I think there's adequate - what you're seeking to do here is essentially to protect the developer against an act of bad faith or bad judgment on the part of the government; not this government, but a government 15, 20 years down the pike. If money has been spent in good faith to develop a facility so that it is capable of handling a certain number of passengers, and that facility has been maintained at world class standards through all the stewardship thing that I think I discussed with you yesterday, then if you put yourself in the developer's position, if something were to happen which removed a flow-through of 10 million passengers a year, I think you'd be inclined to say, "Hey, that's not very fair."

Senator Kirby: I hear you. I guess it's interesting to me that nobody seemed to think of that when they responded and offered a proposal that came up after the fact.

Can we just talk for a second about the number? Do you know what the threshold number was finally arrived at?

Mr. Broadbent: I'm sorry, I don't. There are numbers in these papers but I don't know what was - I know the rough area was somewhere in the low thirties.

Senator Kirby: I wonder, Mr. Chairman, if some future witness down the road can deal with that. I'll tell you why I ask the question, because the witness is right. In reading through these numbers, it appears that negotiations were held ranging from a low of a threshold level of 33 to a high of 39 million passengers per year, and yet the people who knew most about the airport, namely the people - in particular Mr. Chern Heed who was running Pearson airport, felt that the number should be only in the roughly 30 million passenger range. So in fact his view is, and the various documents suggest it, they quote him as saying that additional facilities will be needed long before we get to any number above 33 million, in other words, that everything will be congested. So I think its important for us to understand whether or not the threshold level was arrived at - first of all, whether or not the exact number that was arrived at was in fact sufficiently high that passengers would be extremely inconvenienced before that threshold was ever reached. And I totally accept Mr. Broadbent's view that that's not his area of expertise, but I would hope we could have someone deal with that issue down the road.

Mr. Nelligan: My understanding is Mr. Desmarais and Mr. Jolliffe were involved in the technical aspects of the negotiation both during this witness's tenure and Mr. Rowat's, so that I think if you defer your question to the next panel you might be able to get an answer.

Senator Kirby: Okay, thank you, Mr. Chairman.

The Chairman: These documents have just been provided to us and the man to whom you refer, Mr. Chern Heed, writes a memorandum to Mr. Barbeau which reflects on your squeaky clean process, Mr. Broadbent, because he says:

Apparently, Paxport -

This is May 12, 1993, 53118.

Senator Kirby: Which of my numbers are we using?

The Chairman: 53118 or, down below, 002013.

Senator Kirby: Thanks, I think it's my number 9. I just put the numbers.

The Chairman: This is written on May 12, 1993, and this is long after the merger has taken place. This is, you know, it's Pearson Development Corporation now. And he says - Mr. Heed says to Mr. Barbeau:

Apparently, Paxport have now raised with Broadbent and I am afraid he is sympathetic to giving Paxport some sort of comfort to protect them up to 39 million passengers.

And I'd like Mr. Broadbent to tell me why did he refer to Paxport and not to the Pearson Development Corporation, and did you give them some assurances of comfort to protect them up to 39 million passengers?

Mr. Broadbent: The answer to the first point is I don't know why he referred to Paxport because quite clearly it should have been Mergeco or Pearson Development Corporation. And I cannot think of anything that I ever did or said that would have indicated that we were going to go along and buy their proposal. I think that they'd done some financial planning based on 38 million throughput, and they were trying to push us to go along with that. But I mean we weren't born yesterday. I don't know how Chern Heed could possibly have got that idea, and I'll stop there.

Senator Kirby: Thank you, Mr. Chairman.

Just sticking with the principle of a passenger diversion guarantee rather than the exact numbers - we'll deal with the technical people on those -

Senator Jessiman: This is a memo to Barbeau and he is saying - Chern Heed is saying to Barbeau - oh, I see, he's talking about Broadbent. Okay, I've got it.

Mr. Broadbent: May I make an observation, Mr. Chairman? I don't really wish to enter into your document debate, but "raised with Broadbent and I'm afraid he is sympathetic". I wonder whether that falls under any criteria under the information act.

Senator LeBreton: Good question, Counsel.

Mr. Broadbent: If it had been they have raised with Huguette Labelle, Barbeau, whoever, and I'm afraid he is not sympathetic, would that have been whited out?

Senator LeBreton: Good question.

Senator Kirby: On the principle of a passenger diversion guarantee, did the inclusion of such a clause effectively tie the hands of the Crown or the government with respect to potential future developments at the Hamilton airport, which I think I was told the other day is called the Mount Hope airport, at potentially Buttonville, potentially Toronto Island or potentially Pickering? In other words, did the passenger diversion guarantee effectively prevent the development of either a new airport, as in Pickering, or the expansion of existing airports at places like Hamilton, Buttonville and Toronto Island? Did it do that?

Mr. Broadbent: My short answer is no. I mean my whole purpose here was to preserve the freedom of action for future governments to make sensible decisions and not have their hands tied because of this deal.

Senator Kirby: You said not have their hands tied once the threshold level was reached.

Mr. Broadbent: Oh no, no, no. They could do it at any time, but why would any government want to build a new airport in Pickering if you've got an airport in Pearson that's got 10 million unused capacity? You know, that's not real.

Senator Kirby: But depending on - and we better be very clear on what you mean by "passenger diversion guarantee". You say the government could have done without paying compensation.

Mr. Broadbent: No, I didn't say without compensation.

Senator Kirby: Okay, so to that extent they -

Mr. Broadbent: I'm sorry, senator, why would any government - I mean I know from time to time governments do silly things, but it's hard to believe that a government would be so farsighted as to build a new airport in Pickering if you've got 10 million unused capacity at Pearson.

Senator Kirby: Fine. Let me talk about two specific things, just if you prefer another illustrative example. Talk about expanding or increasing - just simply increasing traffic through Hamilton. Did this effectively say that unless they were prepared to pay compensation the government could not take action which would lead to an increase in traffic through, for example, the Hamilton airport unless the threshold was reached? Did it do that?

Mr. Broadbent: When you get to specifics like that I want to be very sure of my facts and I would really either like to turn to people who have got better memories or have refreshed their minds more than I have.

To the best of my knowledge, the intent was that the hands of future governments would not be tied. As far as your specific -

Senator Kirby: Except -

Mr. Broadbent: I've got to duck that one because I cannot say I'm absolutely sure.

Senator Kirby: I think for the record we have to be clear. When you say the hands of future governments would not be tied, you mean that they could do whatever they wanted to do provided that they paid an element of compensation. To me that is, while it doesn't 100 per cent prevent them, it sure is an element of tying their hands.

Mr. Broadbent: Let's -

Senator Kirby: Am I correct in saying that when you say their hands are not tied, you mean they could do certain things provided they paid compensation?

Mr. Broadbent: Yes.

Senator Kirby: Okay, then I don't want to argue about - we would have a different interpretation of what the phrase means, but I just want to make sure I understand what you're saying, that's all.

Mr. Broadbent: Okay.

Senator Kirby: Okay. Then the issue of what the exact number is becomes absolutely critical here because, to the extent that's it's a 39 million passengers number if the airport is congested at 30 million, then two things arise; either passengers totally get shafted or the government has to pay money by way of compensation, and therefore the negotiation of that number becomes absolutely critical. Is that right?

Mr. Broadbent: I agree with you.

Senator Kirby: And you're not the person to talk to about the number?

Mr. Broadbent: No. This was a very difficult issue to deal with; very difficult issue to deal with. Apart from my devoted colleagues from the Airports Group in Transport Canada, Mr. Paul Stehelin from Deloitte Touche, while this is not an accountancy issue, I mean he has been around. He played an exceptionally useful part in thinking this thing through and helping us arrive at an approach.

Senator Kirby: Okay, and he's coming subsequently in any event.

Mr. Broadbent: I'm glad to hear that.

Senator Kirby: Mr. Chairman, consistent with my trying to keep things organized, they are the only questions I had for the witness on the topic of the passenger diversion guarantee. I still have three other topics but would you prefer that I - I'd like to be able to do a topic in toto so I'm happy to switch to the other side, or whatever.

The Chairman: You still have 10 minutes.

Senator Kirby: I'd like document 13 distributed. By the way, you may wonder why I distributed some documents and didn't refer to them. As soon as the witness said he was not the expert on the exact numbers, I said fine, I wouldn't use them.

The issue by the way, Mr. Broadbent is the issue of the rent deferral of the $33 million. Again, just for the record, do you want to explain the concept of rent deferral to us? How did it arise? Again, it was not part of the original RFP and was not part of the original bid. Can you explain to us what the concept of the rent deferral guarantee is?

Mr. Broadbent: May I just have a quick scan through this?

Senator Kirby: Sure.

Mr. Broadbent: I can be pretty certain - I'm not going to seek to duck your question, but this is not a document I've seen.

Senator Kirby: Okay, fine, I'm happy to ask you questions without the document. I want to deal with the concept, so don't worry about the document.

Mr. Broadbent: Let me offer something. I take you back to some things I said yesterday where the Crown wanted to minimize the upfront hit on the airlines, which the Paxport proposal - I mean I won't use the term "upfront hit" but the Paxport proposal had foreseen, in cooperation with major stakeholders in the airlines, their willingness to pay for redevelopment that was going to make the terminals comparable to the quality of service available in Terminal 3, in other words, world class standard. Because of the appalling situation of the airlines - very difficult situation at the time - the government didn't want to be party to do anything that was going to make life more difficult for them. And I mentioned, I think, that the aim was to seek to have Paxport as it was then, or it may have got into Mergeco at the time, to have them absorb the cost over the first three years and to, as it were, recharge or charge the airlines more later to make up for it.

Ultimately, in the final analysis - and you really need to turn to your experts here and it may be something that got changed again numerically - ultimately the Crown did agree to some deferral in the rent it would receive in order to get a deal.

Senator Kirby: Is it fair to describe - let me be clear. In the sense the Crown agreed that $11 million a year for three years, $33 million, would be deferred in order to, to use your words of a minute ago, in order to make a deal. Am I unreasonable when I look at that and I say that constitutes, effectively, a subsidy or, maybe a better way to describe it, a loan from the Crown?

Mr. Broadbent: To whom?

Senator Kirby: To the developers in order to get the project started?

Mr. Broadbent: I guess you can look at it various ways, senator. Yes, it's possible to look at it that way. It's also possible to look at it that it was a hidden subsidy to the airline industry. What you have to remember is that the Paxport proposal - and the guy who wrote it is still around I think sitting behind me - the Paxport proposal really tempted the Crown because it offered much more generous rent payments than Claridge was ever going to. It was one of the swingers, if you like.

Senator Kirby: And we understand how they were going to do that, but go ahead.

Mr. Broadbent: In other words, one was coming back from a pretty darn high level -

Senator Kirby: But -

Mr. Broadbent: Sorry, let me finish, if I may. When you look in the final analysis, I think even under this revised deal, the Crown was going to be getting more rent out of Pearson than it had been getting in the past. So from that very narrow viewpoint, and quite frankly, I'll give you a personal view, I'm not all that bothered how much money the Crown makes out of Pearson. I'm not so sure the Crown should be making a lot of money out of Pearson. I think it should be running a good airport. But it was important, in the scheme of things, that the amount of money that the Crown was going to be paid in rent was maximized. We had to cut back in order to make a deal, but it was still a better deal from that very narrow, in my judgment, somewhat suspect perspective than the money the Crown had been making before.

Senator Kirby: So in spite of the fact that, in responding to the RFP, the developers - whether we call them Paxport, Mergeco or whatever at this point doesn't really matter - the developers - I guess it was Paxport in response - had proposed a specific amount of money. In fact, in the agreement that was negotiated $33 million was knocked off that amount of money and that's in effect what happened.

Mr. Broadbent: I will put a different complexion on -

Senator Kirby: Am I factually correct in what I said?

Mr. Broadbent: Yeah. The different -

Senator Kirby: I am, okay.

Mr. Broadbent: The different complexion is that it was at the Crown's insistence, and my instructions for negotiation, that no additional burden be placed on the airlines in the short run. I mean here you had the effect of one policy stream on another policy stream, and you and I have seen a lot of those in the past.

Senator Kirby: You're saying that the Crown accepted a proposal in which it explicitly called for - in the response to the RFP explicitly called for a doubling of the Air Canada rents within the space of a year or so and ultimately a quadrupling of the rents to Air Canada. That was included in the proposal; that was accepted by the government. And then you're saying - that's a statement of fact. We've had evidence on that,

Mr. Broadbent: And more than that, I mean the government's acceptance of that was based on an evaluation which was then audited by outsiders.

Senator Kirby: Okay, but the government accepted. But you're also saying to me, simultaneously, that the government - and I'm not sure who we're talking about in this second case - that the government didn't want rents to airlines to increase. So they accept a proposal that calls for a doubling and a quadrupling on the one hand, and the minute the proposal is accepted they turn around and say, "Well, we won't increase the rents to the airlines and we will take it out of our take"; i.e., the government's take. Is that essentially what you're saying?

Mr. Broadbent: No, I think you're just slightly off, senator, in the latter part. There was considerable deferral absorbed by Pearson Development Corporation. I mean, the initial picture on Pearson from Mr. Bronfman, in particular, as you might expect, was, "Look, if the government wants to do this, protect the airlines, the government should pay." And what we ended up with was a sharing of the load to protect the airlines.

Now, the time gap between the issuance of the RFP and this confluence of impact of government policy on another, was suddenly the order of at least six months. And my recollection, and it's only a vague recollection, is that during that period of time the position of two major airlines in Canada had indeed worsened. So I mean situations change and I think any government would be silly to stick with something because, while it fitted at this point in time it doesn't fit in the future.

Senator Kirby: That's a fascinating comment, because we have already been told that when the government made the decision originally to get involved in the expansion of Pearson they were basing it on passenger forecasts made in '88-89 when it looked like the ramp was going to keep going up. By the time the RFP was accepted, in fact the ramp had not gone up anywhere near and it was pretty certain that Pearson - the evidence has shown that Pearson was not near the point where it needed expansion at that stage in the game. But in that case we've been told that the decision was made to go ahead and kind of proceed.

So in one case you're saying it's okay for the government to change its mind when the circumstances change. We've already been told that in spite of the fact that all the passenger forecasts changed that government couldn't change its mind. I mean it seems the government - there's a substantial inconsistency in that kind of positioning. Not on your part, by the way, I'm just saying on the part of evidence we've received.

Mr. Chairman, they're the only questions I have on that. I have two other topics and I'm happy to stop, because I'm sure my 30 minutes must be up, and come back to my other two topics.

Senator Jessiman: We're happy to let you finish.

Senator Kirby: Okay. The next document is document 15. This one actually is a letter written by you and I only want to ask you about one paragraph. Mr. Broadbent, if you go further into this document, five or six or seven pages back, you find a letter from you to Mr. Matthews and Mr. Coughlin dated May 20.

Mr. Broadbent: Yeah, I got it.

Senator Kirby: Okay. Before I ask you about the one specific thing in the letter, would you tell us what the "quick start option" is, explain the concept to us?

Mr. Broadbent: Mergeco had, as I recall, not in the first go around, but had proposed two quick start options. This, principally, was to get in and fix up Terminal 1 and the garage, take care of health and security things. As I recall, one option was worth about $47 million and the other was something like $90 odd million, and that would take you into the transborder area which, by all the information I had, was an area of great interest from Air Canada's viewpoint that they want to see improved. And you had testimony yesterday saying people having to wait half an hour and all the rest of it in 747s. So obviously the Crown wanted to get as much out of a quick start as it could, and my recollection is that the $47 million option was not enough and we wanted to push for more. Is that...?

Senator Kirby: Yeah, that's a perfect lead-in to the question I wanted to ask you.

Mr. Broadbent: Have I set myself up?

Senator Kirby: No, no, I haven't been setting you up at all. I've been actually trying to steer away from technical issues the minute you say that they're a problem.

If you look at your paragraph numbered 3 right at the bottom of the page -

Mr. Broadbent: It's what I just said, isn't it?

Senator Kirby: Your exact words in that first sentence of that paragraph are:

The position of the Crown is that the $47m `quickstart' is inadequate technically (because of transborder needs) -

As you just said -

- and politically.

Why was it inadequate politically? What does that statement, "and politically", mean?

Mr. Broadbent: I wonder what I meant. The "technically", it doesn't mean that their proposal was structurally unsound from an engineering viewpoint, it means that the transborder needs needed to be taken care of.

Politically - let me read a little bit further on to see if I get a clue as to what I meant at the time.

All I can be pretty certain of - I mean, I'm not sure - is that I didn't mean capital P politically. I didn't mean in a partisan sense. I meant for some...

Senator Kirby: I guess - okay.

Mr. Broadbent: I find it very embarrassing not to be able to tell you what I meant when I wrote that.

Senator Kirby: It stuck me as - I didn't understand it, frankly. I was just trying to understand exactly -

Mr. Broadbent: Oh, I'll tell you. Now it's coming back to me. I think it might well be political. I think it might well be. I mean obviously my memory is not 100 per cent on this, but it may well be - and others may be able to confirm or correct - but it may well be that when political masters heard of this they felt that it was so inadequate that politically it wouldn't be acceptable.

Senator Kirby: Just to finish off on the quick start option, as I understand it what was going to happen was that - forget whether it was $47 million or $96 million, there were a number of numbers bandied around - there would be a quick start option under way and after that future development would depend on passenger load. Is that essentially correct?

Mr. Broadbent: Yeah.

Senator Kirby: Am I correct then in saying that unless the passenger load levels were very carefully negotiated, it would in fact be possible for the developers to have had this 57-year lease and spent no money at all beyond their initial quick start option because the trigger points were not reached? Would that have been a possibility?

Mr. Broadbent: If either the negotiators for the Crown had been stupid and incompetent or passenger growth in Pearson had absolutely stagnated, yes.

Senator Kirby: Well I'm not interested in imputing levels of intelligence to various people. Am I correct in saying that if the passenger levels had relatively - they don't even have to have stagnated - if we just didn't reach the trigger points, and am I correct in saying the developers would not have had to spend more money?

Mr. Broadbent: You're quite correct, and development wouldn't have taken place and the negotiation of the trigger point, senator, was of fundamental importance.

Senator Kirby: Okay. And I realize you're not the expert on whether the trigger points are right.

Mr. Chairman, my last topic, and I assume it's okay - we've sort of lost the Chairman. That's okay.

The last topic I want to talk about is the passenger facility charge.

Mr. Broadbent: Yeah.

Senator Kirby: Again for the record, particularly because Mr. Hession commented on it at some length yesterday as to why he was adamantly against it, but can you tell me, again just for the record, explain the concept of a passenger facility charge?

Mr. Broadbent: A passenger facility charge is a charge made directly to the passenger. If you go through Vancouver, you buy a ticket, you turn it in. It is separate from the ticket you bought to get on the airplane.

Airlines, as you know, do pay rent for their use of terminals. Normally, their rent - I mean this is disguised within the ticket price. I mean ultimately the passenger pays.

I mean there are two ways of funding things; one is to make a deal with the airlines that rather than paying $2.38, as you have been doing in Air Canada in Terminal 2, it will now be $8.60, what Canadian is paying in Terminal 3; not overnight but we'll stagger it up. That's one way. And the other way, of course, is through some passenger facility charge and I think Mr. Hession pointed out yesterday some of the difficulties of doing that with the mixed operation of T3 and T1 and T2.

Senator Kirby: But nevertheless, in these negotiations you were negotiating a level of passenger facility charge; is that correct?

Mr. Broadbent: What I succeeded in doing in this - but this may well have changed later, and I'm not sure it didn't change during my time - but what I succeeded in doing at least in the first round on this was ensuring that there will be no request for a passenger facility charge before, I think it was, 1996.

Senator Kirby: Next year.

Mr. Broadbent: Well, next year now, but we're two years ago, senator, you know. This is 1993 we're talking about, so I mean it was going to be for three years, which was a critical period. They wouldn't be able to come to the government for a PFC and, of course, it could, by that stage, have been an LAA they'd be going to. So that was put off to the future.

Senator Kirby: Well, it isn't put off to the future in the sense that you gave them - sorry, I don't mean you personally in this sense, but the agreement gave them the authorization to have access to a passenger facility charge.

Mr. Broadbent: I'm speaking now, senator, of what I initially negotiated. I think the whole PFC business became changed and others -

Senator Kirby: I'm talking about when you were there.

Mr. Broadbent: The initial deal that I cut on this was that there would be no request for a PFC until 1996. Now, as I say, I think that got changed.

Senator Kirby: Am I correct in the following kind of analysis; when you say that there was to be a passenger diversion guarantee so that, in effect, passengers couldn't leave Pearson and go elsewhere, while simultaneously, beginning in '96, or whatever, they are allowed - "they" being the company - is allowed to charge a passenger facility charge, have you not essentially absolutely left the travelling public in an impossible situation? On the one hand, they can't go anywhere else because the government won't allow diversion of traffic and, on the other hand, these people have effectively the right to tax - I use that in quotes, it's not a formal tax - but the right to charge people. Where is the consideration for the consumer in all this?

Mr. Broadbent: You were making the point earlier, senator - and I speak to you as my good friend - that you weren't a lawyer, but it seems to me that is the sort of argument that I would expect to be presented by counsel for either prosecution or the defence. I mean let me try and put it in some more neutral and objective context -

Senator Kirby: By the way, being acquainted with a lawyer has always been considered a liability rather than an asset in my mind, you should understand. Go ahead, sorry.

Mr. Broadbent: The PFC has to be seen in some context, because even post '96, as I recall, the developers could only come to the government for a PFC if they have been turned down by the airlines. Now, why would the airlines be reluctant to go along if they agreed that an improvement was needed and renovation was done? So it was really a fall-back position to give the government the protection that, if they got into a similar box again, and the airlines said, "Oh no, gosh, times are tough", or whatever, but the government, for whatever reason, felt that more development should take place, that they be able to invoke this and say, "Look, come to us with a PFC because we will approve it. We know better, this should go ahead, but in normal circumstances."

Now, to put the thing in the broadest possible terms, if you've got a facility of world-class standards - and that's what Mr. Bronfman wanted to do, Mr. Charles Bronfman, and that's what we tried to build in to ensure they did - if the airlines are satisfied that their needs are being met, and their needs are being met when the travelling public is happy. I mean airlines don't win customers by treating them like cattle. I mean they used to, but they don't now. They will switch, and they can switch in Toronto. If you prefer Terminal 3, they will go to the use of Terminal 3. So it's not a question of -

Senator Kirby: Isn't that what market forces are all about? I mean I get the sense in all of this that the objective was to get market forces and competition out of the business. I mean why shouldn't passengers have another option other than Pearson? Why shouldn't passengers be able to avoid a passenger facility charge and why shouldn't they have an option of seeking better service rather than being stuck in a situation where somebody has a monopoly? I'm 100 per cent with Mr. Hession's view that the monopoly situation was absolutely alien to what is desirable for consumers. I'm with him completely.

Mr. Broadbent: Well, I mean passengers do have a choice. I don't know how many still do it, but you can drive down to Buffalo and get a cheapy.

Senator Kirby: But under this system you couldn't go to Hamilton, you couldn't go to Buttonville, because the government couldn't divert them to there, or couldn't take policy action which led to a diversion is perhaps a better way to describe it.

Mr. Broadbent: I don't wish to seem to be poking fun, but the thought of a 747 that's going to fly to Hong Kong leaving from Buttonville -

Senator Kirby: Hamilton may not be such a bad diversion for those of us that go into Newark periodically.

In your opening remarks you concluded with a comment that sort of intrigued me because I happen to agree with the comment, but there's something I don't understand. Your comment essentially was - I think I wrote it down - in any negotiation you have to give something here in order to get something there. Like you have negotiated agreements, I absolutely understand that.

As I've listened to you this morning and read the material, I get the impression that we gave on the passenger diversion guarantee to give them a monopoly to protect them; we gave on the rental deferral; we gave on the passenger facility charge. What did we get?

Mr. Broadbent: We got a development that was going to take place under certain conditions that was going to have a prompt start made to dealing with the most critical problems at Pearson, that was, to a considerable extent, going to move in anticipation of projected increased passenger volume, that was going to preclude the repetition of that dreadful period in the late eighties when Terminal 1 was handling some two or three times the volume that it should be. We got, as far as I'm concerned, a good deal. I'm talking content.

Senator Kirby: But we gave away things - presumably we could have had all of the things you mentioned by accepting the proposal. My point is that I understand in the negotiation you gave away a bunch of stuff following the receipt of the proposal, things which were clearly in the company's favour, the developer's favour. All the things you described as having gotten back were things we already had because they were in the proposal.

Mr. Broadbent: Well, with respect, senator, I think you've got to be fairly careful here. I mean this fell under the category, financially at any rate, of a major Crown project. You know, you may award a contract for new submarines or for new fighter aircraft or whatever based on a proposal, but when you get - if it was just a question of saying, "Great, thanks very much, convert it into legal language, where do I sign?" these things would be over very quickly. I would think it is unknown for the negotiating stage, following the acceptance of a proposal and declaration of a winner, for there not to be significant matters to be discussed in getting to the contractual stage. And that is indeed what happened here, and I don't find that surprising.

Senator Kirby: So that while we can point to specific changes which clearly went in the developer's direction, it's not possible to point to specific changes which went in the government's direction, is that...?

Mr. Broadbent: I appreciate what you're trying to do and I'd probably be doing the same if I was sitting where you are with your role. I think what we did was ending up with a balanced approach. The proposer didn't get - let me tell you - they didn't get everything they wanted.

Senator Kirby: I'm sure that's true.

Mr. Broadbent: We can itemize the difference between their starting positions and where they ended up. I mean, you've made your point, it seems to me, is that the contract eventually departed significantly from the Paxport proposal, and I said, "Yeah, it did", because two companies formed a consortium and the situation changed because the government wanted some changes made.

Senator Kirby: Just one last question on the Air Canada issue because I was curious about something you said yesterday. In your discussions with Mr. Shortliffe, either before you took the job or right at the beginning, did he ever mention the guiding principles from Air Canada, you know, the ones which were subsequently discovered?

Mr. Broadbent: They certainly came up.

Senator Kirby: At the very beginning?

Mr. Broadbent: No, because I don't know whether - I mean I don't know why. I presume that you know what the clerk's job is like.

Senator Kirby: Do you think he would have known about the guiding principles?

Mr. Broadbent: I'm sure he did, I'm sure he did. I mean they were signed on his behalf by the then associate deputy minister and he would certainly have seen them.

Senator Kirby: So that the guiding principles which were established when he was the deputy - Mr. Shortliffe was the deputy -

Mr. Broadbent: By the way, may I just take -

Senator Kirby: - nevertheless sort of got lost until Justice found them? Is that a fair - or I think you said Justice found them.

Mr. Broadbent: That's the way - what other conclusion could I draw? It was Justice counsel that brought it to me, not anybody in the department.

Senator Kirby: Indeed at that time even the Secretary to the cabinet, who was no longer in the department, actually knew about the guiding principles because he'd been deputy when they were signed.

Mr. Broadbent: Yeah, and indeed Madam Labelle told me that she'd seen them at some stage.

Senator Kirby: Thank you, Mr. Chairman, that's all I have.

Mr. Nelligan: Just a point of identification; in document 8 that you were given by Senator Kirby, there is a printed page inserted in the middle of the material which has D-1-35 on the bottom of it. I understand that that is an excerpt from the proposal made by Paxport. It has their name at the bottom.

Mr. Broadbent: It certainly looks like that to me.

Mr. Nelligan: And I assume that it was put in there because that set out one of the key assumptions which relates to the questions you were asked, which is the first paragraph.

Mr. Broadbent: Forgive me. You're well ahead of me.

Mr. Nelligan: If you can just look at it, sir.

Mr. Broadbent: This is 4.4 you want me to have a look at?

Mr. Nelligan: That's right, yes.

Mr. Broadbent: I can see why you'd wish to draw my attention to that and I'm most grateful, counsel.

Mr. Nelligan: Having read it, have you any comment? This is page 529676.

Mr. Broadbent: My comment is that if I misled the committee I would apologize. Quite clearly Paxport, in its proposal, had dealt with the question that Senator Kirby was addressing in terms of diversions and whatnot.

Mr. Nelligan: So that it was one of the key assumptions in their proposal?

Mr. Broadbent: That would certainly appear to be the case, yes. I guess...

Mr. Nelligan: Now. If I may, to assist the senators -

Mr. Broadbent: Excuse me. It seems to me that while you, I and Senator Kirby know what -

Mr. Nelligan: Yes. Would you read the paragraph please and explain -

Mr. Broadbent: Would you like to, Counsel? I mean I don't need to explain. I wouldn't mind a break just to look at some other papers.

Mr. Nelligan: Read the paragraph and then tell me what you think it means.

Mr. Broadbent: Oh, sorry, I thought you were going to read it into the record.

Mr. Nelligan: I was asking you. I'd be glad to.

Mr. Broadbent: It would give me a break.

Senator Tkachuk: I'll read it. Can somebody read the thing?

Senator Kirby: I'm not sure what paragraph we're reading.

Mr. Broadbent: 4.4.

Mr. Nelligan: It reads:

All projections are based on the assumption that Lester B. Pearson International Airport will for the term of the Ground Lease and any renewals thereof remain the principal international airport of Southern Ontario and until such time as the full capacity of all terminal buildings and runways is achieved the Government of Canada shall undertake not to take any action to divert air traffic from the Airport and when full capacity is reached will divert only excess traffic to other airports.

Mr. Broadbent: I really thank you for pointing that out. That was the basis. We negotiated around that, but the principle had been established in the proposal.

Mr. Nelligan: The other matter, if I can walk you through, is the memorandum to Madam Labelle, and I'm not quite sure what the document number is there, but it was the one that you sent her, I believe, rather late at night one night in May.

Mr. Broadbent: I'm sorry, I don't have any copies of this.

Senator Kirby: And I don't know what we're talking about either.

Mr. Nelligan: It's the one we talked about yesterday.

Senator Kirby: That doesn't help because only Marjory had it. I just don't know what it is.

Mr. Nelligan: It's already been in. It's, I believe, page 23554 in sequence.

Mr. Broadbent: Could the clerk please...

Mr. Nelligan: Could you send your copy up. I'm not going to read the document into the record.

Senator Kirby: I understand.

Senator LeBreton: I have extra copies.

Mr. Broadbent: I'm a little confused here. Here I have in my hands a document that came through normal Justice channels to the committee.

Mr. Nelligan: Yes.

Mr. Broadbent: You have in your hands, Counsel, an unexpurged version of that.

Mr. Nelligan: That's right, which I thought was just provided to you.

Mr. Broadbent: No, I've got the expurged version.

Mr. Nelligan: Would you please give the witness the -

Senator LeBreton: I'm very interested in what's missing.

Mr. Broadbent: Counsel, before you begin - I see, so this has also got a document number on it. Might I ask the source?

Mr. Nelligan: That came from the litigation proceedings, sir.

Mr. Broadbent: This came from the litigation proceedings?

Mr. Nelligan: Yes, and this came through the Department of Justice.

Mr. Broadbent: Thank you. I'm with you sir.

Mr. Nelligan: They appear to be the same document subject to certain brackets.

Mr. Broadbent: Yes.

Mr. Nelligan: All I want to ask you, sir, is if you can look at the original copy and ask us whether the expurgated parts referred in some way to the frustrations that you described to the committee yesterday.

Mr. Broadbent: I'm going to let you lead me through this without comment, Counsel. The answer is yes.

Mr. Nelligan: Yes. And that you sent a copy of that memo to Dr. Labelle?

Mr. Broadbent: No.

Mr. Nelligan: You didn't send it to Dr. Labelle?

Mr. Broadbent: No.

Mr. Nelligan: If you look at the covering - look at the covering sheet, sir.

Senator Jessiman: See, "copy to Huguette Labelle, Deputy Minister".

Mr. Broadbent: What I did is this is a memorandum I composed at home about 11 o'clock one night. I went in to see Madam Labelle first thing the next morning and I showed it to her and let her read it. And I said, "Huguette, I'm not going to send that but them's my feelings." She said, "Thank you, David, I understand", and that was the end of it. Obviously it ended on file, so - everything ends on file. It's a very uncomfortable experience. You let me through without commentary, but you try to manage something like this and then suddenly you find yourself in a goldfish bowl.

Mr. Nelligan: All I'm asking you, sir, is when did you have this conversation with Ms Labelle?

Mr. Broadbent: The following morning.

Mr. Nelligan: Which would have been May 14th?

Mr. Broadbent: Somewhere around then. I can't be precise.

Mr. Nelligan: Did you subsequently discuss the subject matter of that report with anyone else?

Mr. Broadbent: Of this report?

Mr. Nelligan: Yes, the frustrations you mentioned in the report.

Mr. Broadbent: I'm sorry, are you talking about this document, Counsel?

Mr. Nelligan: Yes.

Mr. Broadbent: Undoubtedly my staff, in the little team I had, would have seen this, but, you know, there are photocopies. I don't know what happens.

Mr. Nelligan: In any event, the frustrations which are referred to in the report, did you ever discuss them with anyone at a higher level?

Mr. Broadbent: Obviously, I mean I discussed them with Madam Labelle.

Mr. Nelligan: Anyone else?

Mr. Broadbent: I wasn't in any level. Madam Labelle was in my client.

Mr. Nelligan: I'm sorry. I'll be direct. Did you discuss it with Mr. Shortliffe?

Mr. Broadbent: Yes.

Mr. Nelligan: How much longer after the time you discussed it with Ms Labelle?

Mr. Broadbent: Oh, I couldn't tell you. I mean, quite frankly, I'm not even sure - wait a sec. Yeah, I'll tell you what I did because I have some of my own files here. This is a cover. "For Bill Rowat from David Broadbent" - this is in my hand - "Bill, for your info and at your discretion that of Ian and Glen, 12 pages including this one." And this was one of the documents that I sent to Mr. Rowat and Mr. Rowat was then the senior official in PCO who was carrying this file.

Mr. Nelligan: All right, fine.

Mr. Broadbent: So I don't know whether Mr. Shortliffe saw this or not, but what I wanted to do was to let PCO know the kind of problems and conditions that we were dealing with; not on a personal basis but the things that had to be resolved.

Mr. Nelligan: Exactly. And when was it sent in relation to the transfer of Mr. Barbeau from the department?

Mr. Broadbent: I really don't remember. I mean Mr. Barbeau, I think you were told, was sent on gardening leave.

Mr. Nelligan: Yes.

Mr. Broadbent: That was incidental, as far as I was concerned.

Mr. Nelligan: Those are all my questions.

Senator LeBreton: When I get around to my questioning, are you saying then I can question Mr. Broadbent on this?

Mr. Nelligan: All I'm saying is that you know enough already, you don't have to ask any more questions.

Senator LeBreton: I didn't have a chance, from delivering the document from you down to Mr. Broadbent, I don't have this.

Mr. Broadbent: I don't want to make life exceptionally difficult for people, but the blotting out of whole paragraphs - and I can well understand - perhaps there is a Justice rule - no, there can't be because they left my thank you in. Within the middle of that first paragraph - just to put this on the record - a parenthetical comment, "Indeed, my understanding with the Deputy Minister, from the acceptance of this assignment, was that special arrangements would be needed to ensure that the staff system provided exceptionally fast support", end of parenthesis, end of quote.

Now, I don't think that is anything to do with any individual.

Senator LeBreton: That's right.

Mr. Broadbent: You've read this, counsel.

Mr. Nelligan: All I'm asking you, sir, if you think there's anything else that is not personal, or would you like to refer to it now?

Mr. Broadbent: No, I don't think I would, because I'm going to be equally cautious, counsel. You yourself, or you have available to you, experts in the Freedom of Information Act, protection of privacy and all that good stuff, and I know the les pièges, the minefield you can walk into there. So seeing you have from one source, namely the litigation section, this document, and you have from another source the expurged version, surely the committee can go to somebody who is independent and knowledgeable - I mean another member of the Royal Ottawa Golf Club, Bruce Phillips, if you want, someone - and say, "Hey, does this pass? Is it legitimate to have excluded this on the grounds of protecting personal information?"

Senator LeBreton: That was my question this morning.

Mr. Broadbent: I will quickly add that there is a concluding sentence in this that could be construed as personal criticism from me of Mr. Barbeau. And that I think would meet the test, but not the earlier stuff in that paragraph, in my humble judgment.

Mr. Nelligan: Carry on.

The Chairman: Senator Kirby, your assistant left this document. It's May 18, '93. It says 13 at the top. Will that help you; 828. Have you referred to that?

Senator Kirby: It got into a technical issue on numbers that the witness said he couldn't use. So I in fact had distributed a couple of documents and then didn't refer to them specifically because they dealt with issues that the witness had said - I don't know what 13 is, I'll have to look and see what 13 is, but I did not refer to all -

The Chairman: Mr. Broadbent, you mean?

Senator Kirby: Yes.

The Chairman: Here we are, s. 23, as I understand it -

Senator Kirby: I see. If your question is did I use it, I didn't use it.

The Chairman: I was waiting for you to bring it up because I was going to say we're not going to even receive it. It's all whited out; every second paragraph is whited out under section 23, which I understand is solicitor-client privilege. Would you give us an explanation of that?

Mr. Nelligan: I can't give any explanation, but I can seek one from the department.

The Chairman: This is - all right.

Senator Kirby: The answer is I hadn't referred to it.

The Chairman: Senator Tkachuk.

Senator Tkachuk: Okay, Mr. Broadbent, I just want to ask a number of questions on the time period that you were there, and I'm trying to put this thing in a bit of a perspective of what has transpired today. You're an important witness to us. We have this process that we've been dealing with and I want to sort of go through it a little bit before I start.

In 1985 we have the deregulation of transport industries, which is a policy paper of the federal government. We had the beginning of the, shall I say, the use of the private developers in airport policy with the request for expressions of interest in Terminal 3. We had the newer airport policy in 1987. We had the government announced that they were going to seek private sector involvement in 1990, October. We had the request for proposals in March of 1992, seventeen months after. We had the announcement in December of 1992 that Paxport had submitted the best proposal, subject to certain conditions.

I'm repeating this for my own reason, as well as others, to show that this was an evolving process, that it wasn't that someone got up in the morning and said, "I'm going to do this", and that's why we're all here.

So we ended up in December, and then we had Mr. Hession and yourself to talk about - Mr. Hession to talk about Paxport, yourself to talk about the contract, which is a very, very important part of this process; the negotiation with the winner, shall we say, or whoever was left over.

And you told us yesterday that the deal that you and your team negotiated to the time you were there was clean - squeaky clean I think your words were - was a good deal for the people of Canada, and you said it with some emotion, and that the only delay was due to the critical information being withheld by Transport Canada officials, and that no politician or lobbyist was sort of hanging around you influencing your decision. I think from my own point of view, and my own prejudiced point of view, that's what you said.

Mr. Broadbent: With one correction. I think it's broadly correct, but the correction is, senator - and I think you'll readily recognize it - that the problem created by the document promising the lease of 40 years was a thing that caused difficulties.

Senator Tkachuk: That's what I was referring to.

Mr. Broadbent: There were other problems, but I could handle those, but that induced delay because that had to be sorted out.

Senator Tkachuk: Okay. I understand you're a mathematician and Senator Kirby is a mathematician. I'm not a mathematician, so I'm going to try and sort through some of these issues here that were discussed.

I want to bring up one more thing before we start so we're all clear. The inquiry was partly as a result that politics were involved. You know, 35 per cent of the Paxport group was made up of Matthews Group, and then there were a number of others; Allders, CIBC, Wood Gundy, Ellis-Don, Bracknell, AGRA, NORR and Sunquest Vacations. I don't know what their politics are, but I do know - and I don't have to tell anybody here - what the politics of Claridge are and, gee whiz, I notice that when we're negotiating this thing we have Claridge and we have Matthews Group being, I think, 17.6 per cent as part of the partnership of the new Pearson Development Corporation, T1T2, with Claridge holding the majority partnership. And there seemed to be no resistance from the government in having them as part of the consortium. As a matter of fact there have been allegations made in the paper that maybe the government had something to do with bringing them in.

You can't have it both ways; you can't prejudge a contract to someone who is of your own political party but then not prejudge a contract - why would they give to one and then why would they not say, "Oh no, we don't want these other people involved because they're Liberals." If you're going to play this game, I think you have to play it with some consistency.

So I just wanted to point a few of those things out and I'm going to get to a few things here. I know I made a long sort of little prelude here, and this is unusual for me, but I'm trying to sum up because we're into another stage. We're into the contract being given out on concern conditions and we now have the negotiation of that contract - or the proposal being won, and now we have negotiation of the contract, which is not an unusual - this is what normally happens, is it not, after a call for proposal? It's yes?

Mr. Broadbent: Yes, sorry, yes.

Senator Tkachuk: Okay. I want to get to the deferral of rent because it was almost implied that this - I think you were clear as to why this deferral took place. The government wanted immediate construction; they wanted these problems solved right now, outside of the timeframe that was originally contemplated, and they wanted to protect the airlines. But let's make it clear; the deferral of rent was simply a deferral of rent. The development corporation had to pay the government back, did it not?

Mr. Broadbent: Yeah.

Senator Tkachuk: So it wasn't a giveaway, it was more - well, it was what you say in business, you defer the rent for a while. It's like when someone moves into a building they say, "Well, we'll defer the rent for the first three months and we'll charge you more later on." Is that not correct; is that not what happened here?

Mr. Broadbent: I think the analogy is as reasonably accurate as analogies usually are, senator.

Senator Tkachuk: For a non-mathematician it's pretty darn good.

And there was interest on that deferral, was there not?

Mr. Broadbent: I believe there was.

Senator Tkachuk: Do you know what that interest was?

Mr. Broadbent: No, I don't, but you will have technical people who can cover that.

Senator Tkachuk: Okay. So I wanted to make that clear that this was not a subsidy, this was a deferral for a later time for that money to be paid back.

I wanted to talk a little bit about competition and the fee, the passenger fee. The contract with Pearson Development Corporation and the government is based on certain assumptions, is it not; the assumption that there will be planes flying, for example?

Mr. Broadbent: Yes.

Senator Tkachuk: And the assumptions are usually given out in the request for proposal?

Mr. Broadbent: That is the case.

Senator Tkachuk: So they're leasing here. So when the winner of the lease wants to - it's pretty hard, for a 37- or 50-year period to make - you don't even know what's going to happen two years from now let alone 50 years from now. But the passenger fee is an issue that was discussed earlier by Senator Kirby. It was given on the basis of what; in case Air Canada went broke or nobody showed up?

Mr. Broadbent: To the best of my recollection - I think I'm repeating myself here - at this stage of the negotiations, and this is a matter that I'm pretty sure would have changed somewhat afterwards, but in terms of principles, we felt we had to guard against the situation where, for whatever reason - I don't think it would be unlikely - the airlines said, "No, we can't not afford to pay," in other words, to pass through our ticket system for this next stage of development, at which stage Pearson would have had the option to come to the government for the approval of a PFC. So the government of the day would have had the right to say "yea" or "nay" at that stage.

Now, I stress this is, you know, kind of a fall-back position because under normal circumstances there should be an affinity of views between the operator-manager of the terminals and the airlines. You know, if you're talking good business practice, they both want to serve the travelling public well. They have good conditions for them to make them want to use their terminal, their airline. So if improvements are needed, you know, there is the basis there for cooperation. You normally wouldn't expect to see problems. You have problems in this case because there are all kinds of extraneous factors involved around the Air Canada situation.

Senator Tkachuk: What you try and do in a contract, of course, is try and get as much as you can on the table so you're not in a big pig fight later on 10 years down the road. You try to organize your life for the next 30 years, or 40 years, or whatever it is.

Mr. Broadbent: To put provisions in so that things are going to stay on track, yes.

Senator Tkachuk: Could Pearson Development charge a passenger fee on their own? Could they just get up tomorrow morning if they had been there and say, "Gee, we're going to charge every passenger ten bucks." Could they have done that?

Mr. Broadbent: No they could not have done, senator.

Senator Tkachuk: What did they have to do?

Mr. Broadbent: I stress again, though, I think the whole approach in subsequent negotiations on this issue changed. But that would have never been contemplated by me and would never have been acceptable in Transport Canada or within government. A PFC policy was still up in the air.

Senator Tkachuk: What about Vancouver airport?

Mr. Broadbent: Well, Vancouver airport was a bit different because you had an LAA controlling it.

Senator Tkachuk: So all the other LA - all these acronyms - local airport authorities could just charge it, right? They don't need to ask permission of the government.

Mr. Broadbent: Well, sure. The beauty of the LAA from a government's viewpoint is, once you've transferred it to an LAA, if things go wrong there it's not the federal government that takes the heat, it's the local one.

Senator Tkachuk: It's the local politicians.

Mr. Broadbent: Yeah.

Senator Tkachuk: So, by having to the permission of the government to impose a passenger fee, what they were trying to do was sort of political responsibility. If they gave permission at some later time down the road, they would pay the political consequences if people didn't like it.

Mr. Broadbent: Remembering all the time, senator, that this was just a fall-back position.

Senator Tkachuk: Right.

Mr. Broadbent: And under normal circumstances you'd expect the interest and needs of the airlines and Pearson to coincide.

Senator Tkachuk: So on the passenger, I think Counsel covered that passenger diversion problem, but I'm just going to ask a couple of questions on that.

My understanding from the proposal made by the private companies is that they felt they could get 38 million people in through Pearson, although there was some discussion with the government later on that that wasn't possible. But the government did have some right, did it not, to divert traffic?

Mr. Broadbent: Yes. Let me start by saying I think, you know, 30 million or so was their opening position. I mean, you're not dealing here with neophytes, you know.

Senator Tkachuk: I understand.

Mr. Broadbent: They don't put that bottom line on the table to begin with, nor did we.

Senator Tkachuk: Back to my original point. The Government of Canada could divert traffic, could it not, without even asking their permission, no guarantees or nothing?

Mr. Broadbent: In all fairness to Senator Kirby, under certain circumstances there it would be at a cost to the Crown.

Senator Tkachuk: My understanding, though, was that they could move something in the area of 1 million or 1.5 million without any cost to the Crown.

Mr. Broadbent: Well, I think it would be as well to save that for when my good friend and colleague Bill Rowat is here because he has the final deal.

Senator Tkachuk: I see, all right. Well, I'll ask Mr. Rowat that.

Now, when someone leases something and they're required by the owner to do certain things, usually in most commercial leases there are some guarantees. The only guarantee we have here of some kind of revenue flow is that there's like passengers rolling in. For example, if you have Pearson Development Corporation and you tie these people to a lease and then the government gets up the next day and says, "Oh, I think we'll develop Pickering," or, "Gee, we're going to turn Hamilton into the new hub and make it, you know, a major player", how would they finance themselves without those protections? Would they be able to get any money from the bank? Would the deal even happen?

Mr. Broadbent: I think it's a rhetorical question, senator, isn't it? I mean, it would be very difficult.

Senator Tkachuk: Yes. You couldn't do a deal.

Mr. Broadbent: Well, I suppose you could. Theoretically you could do a deal, but whether any sensible person like - I'm sure people working for Charles Bronfman ain't stupid; they wouldn't do that.

Senator Tkachuk: Or the Royal Bank, or any lending institution.

Mr. Broadbent: I would think there would be obviously extreme difficulty.

Senator Tkachuk: This is no different than local airports authorities have. Don't they have a protected radius?

Mr. Broadbent: No. They have an area of jurisdiction as far as I know. I mean, I'm not an expert - I was going to say on local airport authorities but - really on matters with most other things to do on airports.

Senator Tkachuk: Well, I would say if the local airport authority in Vancouver needs to borrow money, I'm sure the bank would be asking the same questions. But I don't know that for sure. I should have asked him. Gee, I had that opportunity, but I didn't know all this stuff was coming up.

Mr. Broadbent: I think logic points the correctness.

Senator Kirby: Senator Tkachuk, can I give you a point for clarification? I think you're probably right in Vancouver, but in the case that's a closer analogy, which is Edmonton where there are two airports - in Vancouver there's only one anyway - in fact, explicitly the LAA did not have jurisdiction over the Edmonton Municipal Airport. In fact, they were kept separate initially.

Senator Tkachuk: But that was the deal done. That was the deal done.

Senator Kirby: Right.

Senator Tkachuk: I mean, one was owned by the municipal authorities, one was owned by the federal government.

Senator Kirby: All I'm saying was that the monopoly doesn't necessarily exist everywhere else where they've created the LAA. That's all I was saying.

Mr. Broadbent: And if I understand correctly, a similar sort of problem is that to do with the island airport in Toronto.

Senator Tkachuk: Yes. That's right. I'm sure that even in Edmonton they can't build another airport outside of the two that exist.

Senator Tkachuk: I'm sure of that.

I want to just spend a minute here on your organization of the contract that you're doing. You mentioned you put a team together; you mentioned you set up certain tables and they organized themselves and they went through the whole process of the contract. What got finished when you were there?

Mr. Broadbent: Perhaps its a matter I should have covered in my opening statement and, if so, I apologize for not doing so. It's a matter I can only speak about generically because it involves cabinet.

Senator Tkachuk: Yes; that's fine.

Mr. Broadbent: Because essentially on the 10th of June we took to cabinet what was labelled an agreement in principle that did spell out what had been agreed to, although not converted into legal form; and what remained to be done, in very generous terms. This is, if you like, a progress report.

Senator Tkachuk: And you mentioned you solved- The personnel issue, was that done by the time you were done?

Mr. Broadbent: Well, you heard Ray Hession say he was on the other side of the table and you heard me laud the praises of the officials from Transport Canada. That was the one group that not only met its schedule but produced their work ahead of schedule and got a good deal for the employees of Transport Canada, let me tell you.

Senator Tkachuk: There was a question here , if you'd just give me a minute to look it up - if you'd just talk here a bit, Mr. Chairman.

Mr. Broadbent: Yes.

The Chairman: While they're owe chatting, I would like to give you an idea.

We are breaking at 11:30 and Senator Jessiman and Senator LeBreton want some short questions and Mr. Nelligan wants to end up. And then we've recalled Mr. Hession to clarify one matter of yesterday in answer to a question from Mr. Nelligan and only on that matter, no other matter, which Mr. Hession assures me will only be five minutes.

Senator Jessiman: I don't need to ask anything.

Senator Tkachuk: I'll wrap this up right away. The word was "stewardship". You mentioned "stewardship". What were you talking about there?

Mr. Broadbent: What I was talking about - and I tried to describe it a little bit in my opening statement - you'll recall that I told that Charles Bronfman spoke about his grandchildren, pride, and all that. He won't live forever, nor will we around there table, and this is a long deal. Therefore, we wanted something that would give some guarantee to the Crown that that commitment so eloquently expressed by Mr. Bronfman would hold into the future. And what we tried to do was build in something, the development of standards, the ordering of standards and the updating of standards so that there would be as good a guarantee as we could get - you know, human beings are capable of producing procedurally - a guarantee that world class standards would be attained and maintained.

Senator Tkachuk: That was difficult to do?

Mr. Broadbent: I think I know what you have been reading, senator.

Senator Tkachuk: No, difficult to do with the contractors, the developers.

Mr. Broadbent: Oh, no. I think I told you yesterday that initially Peter Coughlin for Claridge was a bit scared of it because it was obviously going to cost money, but Jack Matthews fairly quickly saw that while it was going to cost money that it would be very useful for Paxport International who, as Mr. Hession told you, were going to be in the business of developing airports over seas. If you can say "Hey, we have this system which not only says 'developed by an independent group what international world class standards are', but we've an audit system and we've a method of updating it", you obviously enhance your marketing position.

Senator Tkachuk: The people at Transport Canada must have been jumping up and down with joy with this.

The Chairman: I think you used the expression "it was a precursor to expertise which could be exported".

Mr. Broadbent: Yes.

Senator Tkachuk: Well, the people at Transport Canada must have been jumping up and down with joy over this. I'm trying to maintain a very positive - you can tell I'm being very positive here, Mr. Broadbent, today.

Mr. Broadbent: Well, yes, certain of us thought it was a very good idea.

Senator Tkachuk: But was there officials who didn't like this idea?

Mr. Broadbent: There were officials who poured cold water over it.

Senator Tkachuk: Why would they do that?

Mr. Broadbent: Because it had not been done. I mean, what I heard was that there had been efforts to do this. This is anecdotal evidence, okay?

Senator Tkachuk: It wouldn't be one of those slap on the heads and say, "Gee, I didn't get that at Vancouver Airport and at Montreal."

Mr. Broadbent: Well, have a look at what the provisions are in the LAA agreements. I understand, yes, there is a call for audit by Transport Canada but I understand there are no criterion, you know, which is okay. It's like a battalion commander with his white gloves, I suppose. You go around and smell the roses and see if everything is okay. We were trying to develop criteria.

I had heard that Transport Canada had indeed tried to do this themselves, but the evidence may be hypocotyl but I was told was that when they saw the sort of standards they'd have to meet that they could see that this would just be giving a run to the auditor general for their own back because they wouldn't be meeting them. And the idea faded.

Senator Tkachuk: I think to allow for other questions I'll pass right now. I don't know if I'll come back because it may be covered by other people, but thanks very much, Mr. Chairman.

The Chairman: Senator LeBreton.

Senator LeBreton: Thanks, Mr. Chairman. Thanks Mr. Broadbent and good morning again.

Just before I ask mine - and I've only got a couple of very brief clarification questions - I would just like to say a few brief words.

At the beginning of your statement yesterday, you used the "I have to look at myself in the mirror analogy." Well, I went through this little exercise myself this morning and I said: "Self, stick to the facts. Stick to the truth. Ignore the unsubstantiated attacks on my former colleagues. Ignore the props and the grandstanding. Let others grab the headlines by making allegations that bear no resemblance to the truth. Ask questions arising out of the evidence presented and statements made by witnesses", because I actually believe that seeking the truth is our common goal. How naive of me, I suppose. But I will plod on with that objective in mind. I must say that I find it passing strange that people's reputations and integrity are introduced into these proceedings on the basis of a reporter or columnist's opinions, yet when questions are raised as a result of ample evidence before this committee on the role of certain public servants, I am interrupted.

Make all the scurrilous attacks on the people who the evidence show have no more than the usual involvement in the matter but ask questions about a key public servant in charge of the files - horror and blasphemy!

May I say at the outset that I have the utmost respect for public servants and you, Mr. Broadbent, are right at the top of the list. I worked with you and many in the Privy Council Office. You are hard working, competent people and as a group do not deserve the slings and arrows that you are regularly subjected to.

What I was simply trying to do yesterday was get to the truth of the working relationship between you and the ADM (Airports). Indeed, other witnesses have also addressed the matter. But, as a result of the discussion this morning, unless you have further comments to make about this particular memo, I believe we have established the relevant facts. I believe you agreed that the whited out section did not warrant such action, but I will await advice from counsel as to whether we can eventually read this section into the record.

So, I just have a very few questions, Mr. Broadbent. And in answer to questions yesterday from Senator Kirby when he was asking you to speculate about the period of time you were given to complete your work, I have one specific question and then I'm going into get into your reply. Was your contract for a specific three months? Like, was your contract from March to June, or was that not the case?

Mr. Broadbent: No. Madam Labelle has been around a while and she very wisely and prudently, I think, asked her contractual people to put in the submission to Treasury Board to cover both a sum of money and a period of time much greater and longer than I had believed. So the contract that was approved by Treasury Board, I think, ran through technically until the end of September.

Senator LeBreton: So that in effect you had that period of time to complete your work. Other events may have intervened, but that was in your contract?

Mr. Broadbent: Theoretically, yes.

Senator LeBreton: In response to that question - and I'm glad we've clarified this about the time period of the contract. I don't have the exact transcript - I actually had it. I hope your transcripts are good, Edison, because I'm relying on the quotes in Edison's report this morning. It seemed clear Mr. Mulroney wanted to finish a bit of business before leaving. Those were your words, correct, yesterday?

Mr. Broadbent: Yes, I think so.

Senator LeBreton: Then you said Mr. Shortliffe said the Prime Minister had a live interest in this file and frequently asked how it was going. Mr. Shortliffe's words, correct?

Mr. Broadbent: Well, I mean, it's indirect speech rather direct citation, but that was the sentiment.

Senator LeBreton: Yes. That's right. Then you also indicated that there was no political interference and continued "There wasn't any question in my mind" - using your words -"of producing a deal at any cost." And then you went on to say, "It had to be a good deal or there would be no deal at all". And that, of course, is as it should be, correct?

So is it unusual for a prime minister to have a live interest in files before his government - and this is not a statement that can be made with regard to all prime ministers of whatever political stripe on all policies of their government.

Mr. Broadbent: I mean, I'm inclined to give a simple answer of "yes", but the circumstances and the lead up to a change of leadership and, indeed, an election make it different. However, in my experience it is not unusual even under those circumstances for the Prime Minister of the day to have a live interest in those things that he or she wants to see completed before certain other things happen.

Senator LeBreton: That's right, yes.

Mr. Broadbent: That's life.

Senator LeBreton: Absolutely. And just for the record, I'll just put on the record some other policies that the Prime Minister had a live interest in: NAFTA, which was passed on the 27th of May and given Royal Assent on the 23rd of June; one that he put a lot of pressure on me for, and others, An Act to amend the Criminal Code and the Young Offenders Act and the stalking legislation, which was passed on June 10th and given Royal Assent on June 23rd; and the two acts to establish the territory of Nunavit and then the whole land claims issue of Nunavit, which was passed on June 4th and given Royal Assent June 10th, all before he left office. The live interest in this file, of course, would be natural and, of course, it was still very much alive after he left office.

I just wanted to put that on the record, Mr. Broadbent.

Senator Tkachuk: And still is.

Senator LeBreton: And still is live, witness our - I just wanted, from your long experience as an outstanding career public servant, for any Prime Minister to have an interest in the files and the policies of his own government is not unusual.

Mr. Broadbent: No, it's a rhetorical question. It's not unusual.

Senator LeBreton: Thank you.

The Chairman: Mr. Nelligan.

Mr. Nelligan: If I can just clarify this terminal proceeding, Mr. Broadbent. You have told us-

Senator Bryden: Well said, this "terminal proceeding".

Mr. Nelligan: I was referring to your termination rather than that. Unfortunately, we're not terminating this at all.

You've said you had this contract which was for a longer period of time. And could you tell us, please, when you ceased working on the file?

Mr. Broadbent: Only because I could look at my last sort of invoice date, and that was June 17th.

Mr. Nelligan: All right. And can you tell me, please, when Mr. Rowat was appointed as ADM?

Mr. Broadbent: I believe June 15th. That's confirmed.

Mr. Nelligan: Yes. So that he was there just as you left.

Mr. Broadbent: We had a sort of hand over, yes.

Mr. Nelligan: Thank you. Is there anything else you want to comment on that?

Mr. Broadbent: No.

Mr. Nelligan: No? Thank you very much. That was all.

The Chairman: Thank you very much, Mr. Broadbent.

Mr. Broadbent: Am I through?

The Chairman: You've been very helpful.

Mr. Broadbent: Thank you very much. I wish the committee every success in serving Canada.

The Chairman: Thank you. Mr. Hession, would you please?

(Raymond Hession, previously sworn:)

Mr. Hession: Thank you, Mr. Chairman. May I begin?

Mr. Nelligan: May I just explain to senators?

Mr. Hession: Indeed.

Mr. Nelligan: Mr. Hession has asked the committee to reappear relating to the paragraph which you'll recall I read into the record at the end of his evidence, which had apparently been deleted in the original Justice documents, and he feels that in reading that in retrospect there are some comments he'd like to make with regard to the significance of the paragraph.

Senator Kirby: May I just say, though, Mr. Chairman, again for the record, as you know this side has no objections to that. But the chairman and you and I did have a conversation which said that, in fairness to other witnesses, Mr. Hession would deal with this issue only and not get into any other issue.

Mr. Nelligan: That has been explained to him and he understands.

Senator Kirby: Okay. That's fine. For the record, we understood why he was only dealing with one subject.

The Chairman: Okay, Mr. Hession.

Mr. Raymond Hession, Hession, Neville & Associates: Thank you, Mr. Chairman. This is unusual. I do appreciate that the chairman and the committee would do me the courtesy, presumably in the interests of fairness and equitable handling, to allow me to respond to what was a transaction that occurred at the very end of my giving of evidence yesterday when counsel responded to my complaint. The complaint in particular, you'll recall yesterday morning when I made the fundamental point, which I continue to believe is fundamental to the efficacy of this inquiry, that all evidence tabled by me, in terms of the documents in my hands, was unexpurgated in the interest of openness and transparency. And it has been tabled in that spirit. I was complaining that I was being given very large volumes of documents that were notable for the degree of expurgation of paragraphs in them.

I pointed out one particular document. I'd like to say it was done randomly, but it wasn't. I pointed at it because it dealt with a central concern of the committee. It had to do with the meeting on December 15th, 1992, eight days after the award, on the subject of the letter sent to me announcing our success, in which was recited a condition, and the condition was "financeability". I asked at that meeting explicitly of the assistant deputy minister (Airports), "What is it you would have us do to give you the comfort you seek with respect to that - understanding, as all members here understand, that we had just come through one of the most rigorous evaluations of our capability to perform this project,including its "financeability" not two months before with Richardson Greenshields having applied itself to that particular issue.

The assistant deputy minister (Airports), in answer to my question, said "I will not tell you. Instead, we're hiring a financial adviser in due course whose opinions we will rely upon with respect to the unspecified concerns regarding "financeability."

Counsel - and I thank him for this - pursued my concern with respect to the specific memorandum that I had identified. He read into the record at the end of yesterday's meeting - and frankly, Mr. Chairman, I was no nonplussed at that point, the meeting having effectively ended, that I went back and reflected on what was said in terms of the expurgated paragraph. And it was for that reason that I asked to address you here today.

Let me remind senators what it was that was expurgated and now read into the record. This is from a document with respect to the meeting of December 15th, so they are the minutes of the meeting effectively. Mr. Barbeau noted that - now this is the paragraph that was expurgated:

Ministers were concerned about the "financeability" of the project in light of the current uncertainties in the airline sector, hence the need for Paxport Inc. to demonstrate "financeability".

I want to point out the explicit, precise reference to "the current uncertainties in the airline industry" because if we took the time - which, if the Senate wishes, I'm happy to do - in terms of doing the background research here, through the entire period of the proposal call, the run up to it, the call itself, the response, the evaluation, there was running in this country a deep concern about the structure of the airline industry, Air Canada and Canadian. Canadian, in particular, was notable for its apparent financial difficulties and the issues around its potential relationship with American Airlines.

There was, we all know, a dip, a very temporary dip, I might add, in the amount of passenger traffic flying in and out of Pearson and in the aviation industry as a whole. Ministers and senior officials, through that entire period - separate and apart from the T-1, T-2 exercise size, the proposal call - were seized with the airline issue. That was the reason, the only reason. There was no other reason that "financeability" became an issue. It didn't have to do with the financial condition of any of the partners in Paxport or the aggregate capability of the Paxport shareholders and their very substantial aggregate treasuries to meet this requirement.

Had I known that that was the limit of the issue, just the question of the current uncertainties in the airline industry; and had I known that that guiding principle's document that we've heard about ad nauseam in this committee was in fact out there influencing fundamentally the point of view of Air Canada in so far as the "financeability" issue was concerned, it would have been quite a different serious of experiences and activities following the December 15th meeting. And I think - and this is what I would say to senators and challenge you to deal with this issue fairly - had you known that expurgated paragraph, my belief is some of you wouldn't be concluding that that there was some sort of skullduggery going on between the parties who ultimately formed Mergeco.

That's what I don't like about expurgated documents. And I ask the question of this committee: If we're going to get to the truth, how many other documents, how much other covered up information will we uncover if we challenge every single paragraph that we find expurgated in these voluminous documents? Fairness, honesty and truth is what we on our side seek and I must say, expurgating that particular paragraph so that the senators and the public couldn't understand why there was the "financeability" issue, that's why: It was because the airlines in this country were experiencing difficulty.

Finally, Mr. Chairman, yesterday I was asked, as a consequence of this whole issue of "financeability": Did I think that there might have been something going on in the background that I was not aware of? I answered that question. I said there was nothing going on. I read in the paper today that there's some sort of conspiratorial belief, a sham that was going on. I must say that is nothing short of political trash.

Senator Bryden: Mr. Chairman, do you-

Mr. Hession: I must say that is nothing short of political trash and that political trash is unacceptable to us Canadian businessmen who are responsibly responding to this requirement. Thank you, Mr. Chairman.

Mr. Nelligan: Does any one want to ask any questions arising out of that?

Senator Jessiman: No, he said enough here.

The Chairman: Thank you very much, Mr. Hession.

Mr. Hession: Thank you, Mr. Chairman.

The committee adjourned until 12:30.

Ottawa, Thursday, August 3, 1995

The Special Senate Committee on the Pearson Airport Agreements met this day at 12:30 p.m. to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.

Senator Finlay MacDonald (Chairman) in the Chair.

The Chairman: Come to order, please.

I hope that you all had a nice, long, leisurely lunch.

We have some very important witnesses before us this afternoon, so important, in fact, that because of the moving ahead and some delays we had this week, we trust that our witnesses are going to be available to us for the entire day of Tuesday, August 15th, next week being a break.

I don't know if you have been notified of that, but you will understand the problem we had this week because of things moving ahead. Your testimony is too important to the committee to be wedged in this afternoon, this being an afternoon which adjourns at 3 p.m., so that I hope that you will find it convenient to join us on the 15th of August for the entire day.

Mr. John Desmarais, Senior Advisor to the Assistant Deputy Minister, Airports Group, Transport Canada: I have one problem with the 15th of August. As I told counsel earlier, I'm on discovery on the litigation between T1T2 Limited Partnership and the Crown on that date. I will try and make arrangements, but it will take some cooperation with the other side.

Senator Jessiman: Any chance it might be settled before then?

Mr. Desmarais: No comment.

The Chairman: All right. Mr. Nelligan will introduce our witness.

Mr. John Nelligan, Q.C., Counsel to the Committee: Senators, we have a team to deal with the negotiating process today. The leader of that team is Mr. William Rowat, who is presently Deputy Minister, Fisheries and Oceans and is more concerned these days with salmon and cod than he is with airports. He was, as you heard this morning, put into the special job of associate deputy minister in June of 1993 and supervised the final negotiations.

With him is Mr. Desmarais, who was at that time the chief negotiator with Transport Canada and has been, since March 1992 until now, the Senior Advisor (Airports) in the office of the Assistant Deputy Minister.

Senator Jessiman: What is Desmarais' first name?

Mr. Nelligan: I'm sorry, Mr. John Desmarais.

Then we have Mr. Keith Jolliffe, who at the critical time was Director of Cooperate Planning and Special Projects in the Airports Group and has been financial advisor on the air navigation system commercialization project - when I've had the honour of meeting him in that capacity - for the company that is going it have its first official meeting tomorrow morning.

They will be able to discuss not only the negotiations from the middle of June until October, but Mr. Desmarais and Mr. Jolliffe will be able to assist us in the earlier phases because they had some experience, I understand, with all aspects of the process right through to its conclusion.

I understand after being sworn that Mr. Rowat will have a brief introductory statement.

(Mr. William Rowat, sworn:)

(Mr. John Desmarais, sworn:)

(Mr. Keith Jolliffe, sworn:)

The Chairman: Please proceed, Mr. Rowat.

Mr. William Rowat, Deputy Minister, Fisheries and Oceans: Okay, thank you, Mr. Chairman.

As the chairman has referred to, my name is Bill Rowat, currently Deputy Minister of Fisheries and Oceans. I have been a federal civil servant for 22 years.

With respect to the Pearson airport redevelopment, the relevant positions that I held were, first, Assistant Secretary, Economic and Regional Development Policy Group at the Privy Council Office, January '91 to June 15th, 1993; secondly, Associate Deputy Minister, Transport Canada, June 15th, 1993 to May 9th, 1994.

At PCO, my staff and I monitored Pearson redevelopment during this period, amongst many other files. I periodically briefed the clerk whenever there was an event of significance. I took part in discussions with other senior officials at various stages. I made arrangements for review by ministers at appropriate times.

When I was assigned to Transport Canada as Associate Deputy Minister on June 15th, one of my immediate tasks was to take over as the senior negotiator on the Pearson Terminal 1/Terminal 2 file. I inherited Mr. Broadbent's very capable team, two of the members of which are sitting on my right and left. John Desmarais, Keith Jolliffe and Wayne Power were the key individuals that supported me during the set of negotiations over the months that I was on the file.

Equally supportive as part of the team, Maralee McLaren, Don Dickson, who was our financial advisor internally, Chern Heed, the airport manager at Pearson, Judy Boulay, who assisted us in many respects. On the Justice side, we had Bob Greene, departmental counsel, along with Jacques Pigeon.

Outside, we had Gordon Dickson from Cassels Brock and Paul Stehelin as financial advice from Deloitte Touche.

Under the direction of the minister and with the assistance of this foregoing group - and I should mention with the support of the Airports Group at Transport Canada - and in consultation with central agencies, I proceeded throughout the summer of 1993 to negotiate the agreement with Pearson Development Corporation.

When I inherited the file from Mr. Broadbent, the main elements of the agreement had been negotiated or were close to resolution. Of the outstanding items, the arrangement with Air Canada was the most difficult, but it was subsequently resolved.

An agreement in principle with Pearson Development Corporation was announced on August 30th, 1993. The drafting of the final documents took another month to complete. The documents were signed by representatives of Pearson Development Corporation on Sunday, October 3rd, 1993, and by Jean Corbeil on behalf of the Government of Canada on Monday, October 4th, 1993, and then put into escrow until October 7th.

On October 7th, I signed, in the presence of Pearson Development Corporation officials and legal staff of Cassels Brock, amongst others, the release of these documents from escrow, having confirmed and witnessed that certain conditions precedent had been met.

Following the election of the new government on October 25th, Mr. Nixon was appointed to review the Pearson Airport Agreements. My team and I cooperated fully with he and his team in their review.

That is my very brief opening statement, Mr. Chairman.

The Chairman: Thank you.

Senator Bryden.

Senator Bryden: Thank you.

Your opening statement has covered a lot of my preliminary questions. I only have one left, and it relates to the meetings of deputy ministers. Were there meetings of deputy ministers from various interested departments and agencies on this file from time to time?

Mr. Rowat: Over what - over a number of years?

Senator Bryden: Covering the period when you were still with PCO.

Mr. Rowat: When I was with PCO, yes, there were a number of meetings over the two and some years when I was with Privy Council.

Senator Bryden: Normally, what departments would be - what deputy ministers would attend those meetings?

Mr. Rowat: Usually the deputy ministers of the central agencies because this was primarily - the issue at stake was a financial one which would involve Finance and Treasury Board. Normally the Privy Council office would be involved or, in many cases, actually call the meeting on behalf or at the request of the Deputy Minister of Transport.

Senator Bryden: Who would normally chair those meetings?

Mr. Rowat: On different occasions it would be the Deputy Minister of Transport, depending on the level of officials. At other occasions it could be the clerk, Glen Shortliffe in this case.

Senator Bryden: Did you attend all or some of these meetings?

Mr. Rowat: Certainly in 1993 I attended most, if not all, of those meetings.

Senator Bryden: I'm going to go through a number of documents, all of which have the government number on it.

I will go through as quickly as I reasonably can to cover the points that I feel are important. I can control the length of my questions, but the length of your answers are entirely up to you.

Senator Jessiman: Mr. Chairman, is the senator going to do as his fellow senator did this morning, provide us with documents?

Senator Bryden: I wish I could. I didn't get them ready until - but I can give you references. They are all in the binders. In order to make it so that it's as fair as possible, rather than ask the - Mr. Rowat, I think you prefer, rather than Rowat?

Mr. Rowat: Rowat.

Senator Bryden: I told somebody that now that he's in fish, Rowat would be better. Anyway, that's the only theatrics for today.

The Chairman: That's a real knee slapper.

Senator Bryden: It got more laughs than you got this morning.

I refer to document 001105, if my photocopier is -

Senator Jessiman: What date?

Senator Bryden: May the 10th, 1993. It's a memo from Carole Swan to Sid Gershberg with copies to Mr. Clark and Mr. Cappe, who I think are Treasury Board officials. It's the minutes of a meeting. It says in this document that the attendees - there's a list, which I won't read, but that you attended that meeting.

I want to refer to, first of all, the meeting. At the bottom of the page, it says:

Mr. Broadbent will likely circulate a deck or Aide-Mémoire outlining the status of various issues. It remains very difficult for us to stay on top of this file since Mr. Broadbent is dealing bilaterally with senior officials at PCO. As well, information is limited and the people at Transport working with Mr. Broadbent are not in a position to discuss issues.

Can you shed light on that statement? This is a Treasury Board minute. I realize that.

Mr. Rowat: That's right. I think you would be better served to ask Treasury Board officials on a document that was sourced there.

This is a document that was prepared for either Sid or Mel Cappe - to Sid Gershberg or Mel Cappe, I assume, to attend an upcoming meeting.

Senator Bryden: Yes.

Mr. Rowat: I'm assuming that it was an officer that was preparing the kind of briefing and raising the kinds of questions. It sounds as though she was having some difficulty, in her own words, getting information from Mr. Broadbent's staff. I really can't comment on what kind of difficulty she had.

Senator Bryden: Not having your diary here, you probably don't know for sure. Do you know if you attended the meeting?

Mr. Rowat: I don't have my diary here, but I expect that I did because I know I was in Ottawa during that period.

Senator Bryden: It indicates that:

There are three areas that will likely be discussed at the meeting:

- Mergeco (now called Pearson Development Corporation);

- Personnel issues

- The Redevelopment Proposal/Related Business Issues.

I'm not concerned at all with the personnel issues.

The second last bullet on that page, on page 2, I would just like to read it, and maybe you can recall if it was discussed at the meeting.

- The partnership agreement calls for the Claridge proposal to be withdrawn prior to the government announcing that formal negotiations have commenced. We understand (unofficially) that Transport did indeed receive a letter this week from Claridge withdrawing its original bid. This reduces one element of risk identified earlier by TBS legal counsel to avoid a possible legal suit.

At the time that this meeting was held on May the 10th, Claridge's original proposal was just then being withdrawn off the table.

Mr. Rowat: Yes, I think that was the case.

Senator Bryden: So that was probably discussed at the meeting as well.

One of the other items that was to be discussed was the redevelopment proposal and related business issues.

I'm reading from page 4. I don't want to go too fast. It's number 3:

- The most significant issue may be the degree of difference between what is being proposed now for the redevelopment of T1 and T2 and the original Paxport proposal (over $600 million). Currently two options are be considered, an immediate investment of:

1. $47 million - primarily an extension of the Rapadair facilities in T2, an improvement sought by Air Canada. The intention is also to do minimal essential work in T1 and close it after 2 years; or

2. $96 million - same as option 1 but includes further work to Transborder facilities in T2, again improvements sought by Air Canada. Option 2 also includes the closure of T1 after 2 years, and the immediate payment by the carriers of $1 per passenger fee.

Do you recall that being discussed at the meeting?

Mr. Rowat: I don't recall the particulars of that meeting, but I know over this period there were at least two if not three deputy minister's meetings where the issue of the $96 million option and the rent deferral were discussed. So, in all likelihood, this was the preparation for the Treasury Board for attending that meeting, and in all likelihood, yes, that discussion took place.

Senator Bryden: Since you continued with this file right into Transport, how was it finally resolved? Was it the 47 million resolution or the 96?

Mr. Rowat: No, it was the $96 million resolution and the rent deferral, as came up this morning. The rent deferral was for $11 million per year over the second, third and fourth year, and the payback period was the subsequent 10 years at an interest rate of prime plus 2.5.

Senator Bryden: In the brackets on this memo, it says that the original Paxport proposal was for an expenditure of over 600 million. As I recall the reply to the RFP, that is a dramatic drop to $96 million from $600 million. How did that occur?

Mr. Rowat: I don't know if that 600 million number is correct. The 96 million, of course, was only the first stage of the development.

Senator Bryden: In the proposal from Paxport, was it proposed to be a staged development?

Mr. Rowat: I should call on Mr. Desmarais to respond on the staging. In fact, we may have a useful document which we will talk to the chairman about passing out, but I would ask him to explain the staging in the original proposal and how this relates to it.

Mr. Desmarais: First of all, senator, in the original proposal, Paxport had made the offer of a $47 million quickstart with no construction guarantees beyond that. Then they had given us a second proposal for a full $686 million staged development subject to passenger triggers and airline agreements. So that was in their proposal.

What we ended up with at the $96 million was making sure that the first phase was done, started quickly at a $96 million level, and that there was no passenger trigger on that and so on. Then we got into the passenger triggers for stages 2, 3 and 4.

Senator Bryden: The final agreement, what was the total expenditure, then, on all stages?

Mr. Desmarais: All stages? $686 million in constant dollars, and I believe it was about 740 million and change in current dollars.

Senator Bryden: Okay. Thank you for that.

I wish to refer to a document that carries the identification 001107. This, once again, is -

Senator Jessiman: What date?

Senator Bryden: It's May 19th, 1993. The subject is deputy ministers meeting on Terminals 1 and 2, Wednesday, May 19th.

Once again, it indicates that you were in attendance at that meeting. It refers in that memo to the decisions that were taken at the last meeting, which had been the May 10th meeting. It says:

At the last meeting of DMs, a bottom line negotiating position on major financial issues was generally agreed to that included requesting Mergeco to:

1) proceed with the $96M quickstart option... to be undertaken as Stage 1 -

which Mr. Desmarais just explained -

2) assume full funding risk for the $96M option with no passenger facilitation charge of $1 per passenger...;

3) agree to keep Terminal 1 open until Stage 3 of the redevelopment is about to begin to ensure the availability of... gates;

Now, were all of those accomplished? I know the 96 million was. We just had that explained.

Mr. Rowat: This again is authored by Treasury Board?

Senator Bryden: It's from Sid Gershberg to Mel Cappe. I'm hoping that they can come on. I just want your involvement.

Mr. Rowat: No, as I said before, the issues that we discussed in this period of deputy minister meetings over the two or three meetings that were held over that period, that this was one of the issues discussed. Therefore, I would assume that the Treasury Board official drafting this was recording what they felt to be the decision of the previous meeting.

The $96 million, I assume that at that point the DMs had come to a conclusion that that was an appropriate way to go.

"Assume full funding risk". I'm not sure what they mean by that, whether that's the $11 million over 10 years plus at an interest rate of prime plus 2.5. I'm not sure what they mean by that.

Senator Bryden: Once again I don't know who has the best answer, so pass it around, but one of the proposals from the developer, from Mergeco, was that if they were going to do the $96 million one, they needed a $1 passenger fee. What you ended up with was no dollar passenger fee, but deferral of $11 million of rent for years two, three and four to then be repaid starting when?

Mr. Rowat: In the fourth year, running for 10 years.

Senator Bryden: So you took -

Mr. Rowat: Sorry, the fifth year.

Senator Bryden: - 33 million off the rent in the beginning.

Mr. Rowat: Right.

Senator Bryden: Deferred the payment to start in five years at prime plus whatever it was.

Mr. Rowat: Right.

Senator Tkachuk: Two and a half.

Senator Bryden: Two and a half, to be paid over that 10-year period.

Mr. Rowat: That's correct.

Senator Bryden: Would it be fair to say that that was the trade-off instead of the dollar passenger fee?

Mr. Rowat: I think so.

John, was that - there was no passenger facilitation charge.

Senator Bryden: I know there was no passenger facilitation.

Mr. Desmarais: One of the problems, senator, is that in the Paxport proposal, which was the proposal we were negotiating, they assumed in year one renegotiating a lease from Air Canada. The other requirement of the RFP was that they had to honour all leases, which they didn't do particularly in the proposal when they said they wanted to renegotiate that up front. We wanted to hold to honouring those leases to '97 so they couldn't renegotiate the leases with Air Canada to get their cash flow. The $1 PFC was a trade-off for that, and when that didn't happen, it fell back to the rent deferral.

Senator Bryden: Even if you would not hold them to the leases, Air Canada's lease to '97, there's no indication that they would have been able to renegotiate that lease in any event, is there?

Mr. Desmarais: They could have attempted it, sir.

Senator Bryden: They could have attempted it. Wasn't it based on at least doubling Air Canada's lease in their proposal?

Mr. Desmarais: I'm not sure exactly how much money they were proposing to get out of Air Canada at that time, sir. Maybe Keith could handle that one.

Mr. Keith Jolliffe, Past Director of Corporate Planning and Special Projects, Airports Group, Transport Canada: Yes, they would have intended to have double the Air Canada fees in the first year. That was their attempt in the proposal.

Senator Bryden: Then in their business plan, that rental rate was to go up or their fee was to go up?

Mr. Jolliffe: That's correct.

Senator Bryden: Do you remember to how much, Mr. Jolliffe?

Mr. Jolliffe: I don't remember how much, no.

Senator Bryden: Okay.

Being mindful of the clock, I refer to a document 00266. It's a letter dated May 20th, 1993, to Mr. Jack Matthews, Paxport, and Mr. Peter Coughlin, T3LPCO Investment Inc. It is signed by David Broadbent. The reason that I'm asking you about it, you were copied on it. It says blind carbon copies - I take it that's what B.C.C. means - to Glen Shortliffe, PCO; Ian Bennett, PCO; Bill Rowat; Sid Gershberg, Treasury Board; Gordon Dickson, Cassels, Brock, Blackwell; Bob Greene, Justice; Michele Lelay, Transport; C. Bernier, Acting DM; Victor Barbeau; Chern Heed; Paul Gauvin; Rhoda Barrett; David Wightmen; and Shirley Wight. This is a letter, and I refer to the bottom of the first page in item 3:

Funding "Quickstart". The position of the Crown is that the 47m "quickstart" is inadequate technically... and politically. Very careful attention has been paid to the -

proposal. So this is the letter in which it was formally rejected, the 47 million, and you went to the 96. Is that correct?

Mr. Rowat: That seems to reflect the conclusion of deputies.

I should say, I didn't in those days and don't in these days read every document that is copied to me, and certainly -

Senator Bryden: I can't understand that.

Mr. Rowat: - I would refer those documents to an officer and ask them to alert me to what the key elements were.

Senator Bryden: I'm doing it more to just get this document - I'm trying to create a paper trail here, as accountants would say.

The next document is a document that is number 00832, and it's dated June the 18th, 1993. It's addressed to Her Majesty the Queen in the Right of Canada, represented by the Minister of Transport. We have a new player. It's signed for Pearson Development Corporation on behalf of T1T2 by Jack Matthews and accepted and agreed by Dr. Labelle, Deputy Minister of Transport. What it appears to be - you would be familiar with it in any event - is a letter agreement that we've got a deal. Are you familiar with the document?

Mr. Rowat: I'm familiar with the document, yes.

Senator Bryden: There are so little specifics, I guess is my concern, in this document. There's no specifics in relation to where the funds are going to come from to finance the project, where the cash flow is going to come from to pay the lease, and how the development proposal is going to go ahead. There's some reference in here to the process. I'm curious what is the purpose of this document. It certainly is not a binding agreement, and there was already an acceptance of proposals. What was the purpose of this document?

Mr. Rowat: It had probably an interesting genesis on both sides, and that is, at this point in time there was going to be clearly a change in the leadership and a new leader appointed and a new cabinet appointed. So there was a great deal of -

Senator Bryden: A change in the Prime Minister's Office.

Mr. Rowat: - uncertainty in terms of this period in June.

In essence, what this document was was to, I guess, lay down at a point in time what was the status of negotiations and to get an agreed view on both sides that at this point in time here is where we are.

The other uncertainty, of course, was that the chief negotiator, Mr. Broadbent, had just decided to leave the file. So it was an attempt on two sides, given the change in the ministry.

You will recall that when a new Prime Minister comes in, it also means that the Minister of Transport could change. In this case it didn't. Mr. Corbeil was reappointed.

So this in essence was to record where we were in terms of the negotiations at a point in time and what the intentions were of the groups on both sides as to what the next steps would be from thereon in.

I think in the letter it indicates what the intended procedures were from that point forward, but it also said very clearly, as I recall, on the very last page, in fact the very last sentence, that this "does not constitute a legally binding agreement between the parties" because in effect when a new Prime Minister takes over, it is in effect a new government.

Senator Bryden: Yes. Some of the things that were left, and I just want to refer to three - it says final documents subject to certain conditions can be signed at a certain time, including the following: funds on closing and public release.

The T1 T2 parties will have provided to the Minister on a timely basis so as to allow consultations a document called "Structure and Rules".

And the capital account:

The T1 T2 Parties shall provide evidence satisfactory to the Minister that there is on deposit with a financial institution an amount of $61 million at least two weeks before the Closing Date...

So this was a condition, a precedent. This was a condition before you would close. I take it that happened.

Mr. Rowat: These were the conditions precedent that had been agreed up to that point.

Senator Bryden: Up to that point.

Mr. Rowat: There may have been others before the final agreement, but, yes, I think in the final analysis, that condition of precedent carried through, that $61 million.

Mr. Desmarais: The 61 million carried through, although the two-week period beforehand didn't. It was to be shown and proved to us on the day before closing.

Senator Bryden: Okay.

Now once again this is a report of a meeting to the distribution list. Now, I don't know - yes, there is a distribution list. It's basically the same officials. The positions are probably the same, but the players may have changed, as I read it. It looks like Treasury Board, Justice, everybody who is anybody was there, but it is a meeting that was called - oh, I should give you - 001711, dated June 22nd, 1993. It's the notes of a meeting, I think, and the title is "Status of T1/T2 Negotiations". The first line says:

Bill Rowat called a meeting to update Central Agencies on T1/T2 project.

So this was your meeting.

Mr. Rowat: Right. I had taken over as the negotiator at that point.

Senator Bryden: And you covered recent events. The usual, what would be an update, occurred.

Then on page 2 of that, it's a little bit blocked out, but I'm sure the word is "funding issues".

Term sheets are finished for the most part; however, several issues remain outstanding:

The heading reads:

a PFC -

which is a Passenger Facility Charge -

- is inevitable:

And the bullet says:

- Mergeco has the option of introducing a PFC in 2 years, yet AC -

which I take it is Air Canada -

- has been assured that current lease will be honoured until 1997;

What is the policy for the PFC implementation?

- What controls will be established to ensure PFCs only fund construction, not rent deferral repayments, O&M costs, etc.?

And the next subpoint is:

- Has anyone thought through the issues (e.g. impact on T3...)?

Then there's one more on that - no.

Could you just give me your recollections of the discussion on those issues and their resolution?

Mr. Rowat: I'm assuming that was another Treasury Board document.

Senator Bryden: No, it's - well, it's from D.G. Dickson.

Mr. Rowat: Don Dickson.

Senator Bryden: Who is he? Who is Don Dickson at that time, and what was he doing?

Mr. Rowat: Don Dickson was working for me as part of the Transport Canada team on the T1T2 file as financial advisor.

Senator Bryden: So this would be somebody under your direction, providing this to the distribution list?

Mr. Rowat: If you can just give me one second to have a look at it.

Senator Bryden: Sure.

Mr. Rowat: His memorandum seems to be July 5th, saying that:

...the annexes included in the binders provided to you on June 25, 1993. These include comments received to June 29, 1993.

You see, I'm a bit confused in terms of whether this document dated June 22nd is in fact Don's document. I know the one on July 5th is because he signed it.

Senator Bryden: Okay. So you don't know whether the distribution list that's on the back - I guess it was combined when I got it out of the book.

Mr. Rowat: I think there may be some confusion over how these documents were put in the book.

This document from Don Dickson strikes me - let me back up and tell you about the process that I entered into, just to clarify the background.

When I assumed this file, I asked that what we called eventually the "black book" be put together. What this black book was made up of was a background negotiating strategy and bottom line on each of the issues that I had inherited from Broadbent and where we were in the state of negotiations, and so on, to give me a good handle on where I was going, number one; number two, so that we could enter into discussions with the rest of the central agencies and other departments as relevant in Ottawa to get their concurrence and sign off on what the bottom lines were for the various negotiating issues.

This may seem a little overly complicated to you, but my view as a negotiator was when I went in to negotiate any of these elements, I wanted to make sure that I not only had my own team and my own minister behind me, but I wanted to make sure that I had the rest of the town behind me as well. So I took these black books, and we held meetings with central agencies and basically said, "There's our view as the negotiating team on each of the outstanding items. Speak now or forever hold your peace." I encouraged them to raise their concerns at that point and to get back to us.

I think this may be the source of Don's document of July 5th.

Attached are updates to several of the annexes -

in this black book -

- in the binders provided to you on June 25, 1993. These include comments received to June 29, 1993.

Should you have any additional comments or questions -

please contact Keith or Don.

Now, I don't -

Senator Bryden: That would explain the discrepancy, then, between the date of the cover -

Mr. Rowat: Right.

Senator Bryden: - because this is a June 22nd report.

Mr. Rowat: That's right.

Senator Bryden: At June 22nd, if I go on, page 3 of the document, the report, is a heading that says "risk/return profile of deal still not well understood".

Our suspicion is that developer bears little risk, but earns a high return:

- government guarantee on volumes

- comfortable development triggers

- automatic PFCs

- joint and several covenants from airlines in leases (?)

How will government defend this deal if Air Canada and/or the passengers push their case?

Now this is on June the 22nd, 1993, and I think preliminary approvals were given to the contract by August.

Mr. Rowat: Yes.

Senator Bryden: Can you tell me how each of these risk/return profile items were addressed?

Mr. Rowat: Okay, I will with the help of my colleagues. Can I just go back and explain the process as I see it?

I think this document was prepared in one of the central agencies as a result of the meeting that I had called on the 22nd. You can see exactly why I arranged to have the black book prepared and provided to all of the other central agencies so that, indeed, if you had concerns like this, raise them with us. We put them into the book and modify our bottom lines accordingly and negotiate on that basis. That's the way that we proceeded.

To my knowledge, after we nailed down the black books, there was no further doubts - not drawn to my attention in any event - by my colleagues in the central agencies. In essence, we were negotiating on behalf of the Government of Canada and officials of the Government of Canada with the full knowledge and support of all my central agency colleagues. So these kinds of concerns were incorporated into the process and taken care of.

Senator Bryden: Yes.

Mr. Rowat: I'm not sure what he means in terms of some of these items. If I would start with "automatic PFCs", there was no automatic PFC negotiated.

Senator Bryden: It didn't end up being in the contract?

Mr. Rowat: No, not an automatic PFC.

A PFC could be applied for by Pearson Development, but only under certain circumstances. Those circumstances were the virtual bankruptcy of the major client, who was Air Canada. They took up roughly 70 to 75 per cent of T1T2. That was the only circumstance, and that was very restrictive. I think that's probably why Mr. Broadbent had some trouble with the question this morning. It was far more restrictive the way that we negotiated it as a result of some of my colleague's - or with the assistance, I should say, of some of my colleagues. It was more restrictive than I think Mr. Broadbent had originally set it out.

The other elements, John, maybe you can assist me there too. I'm not sure what he means by "comfortable development triggers". It is the definition of the word "comfortable", I suppose.

Mr. Desmarais: I'm not sure what they mean by "comfortable" either.

The development triggers were relatively tight. You were running out of capacity as you hit that trigger, and you had to do something at that point.

Senator Hervieux-Payette: A point of clarification.

From what I gather from what you just said, you were probably more restrictive and demanding more than the previous negotiator. From whom were you getting these instructions? I mean, I referred yesterday to some kind of usual labour relations negotiation when you get a mandate from the management. So when you were saying this is the highest and this is the lowest and we have to negotiate within that, were all these items or these minimums or maximums given to you by the minister, by the Treasury Board? I mean who was giving you the bottom line items to go into the deal?

Mr. Rowat: The minister is the person who gives direction to the chief negotiator. Upon preparing the black book and the issues involved before I entered into the set of negotiations with Pearson Development Corporation or any other party for that matter, I sought direction from the minister and received it.

Senator Hervieux-Payette: And you were not going through Madam Labelle. You were talking directly to the minister.

Mr. Rowat: The black book was prepared after Madam Labelle's departure. The new deputy minister was Jocelyne Bourgon.

Yes, I worked with the deputy, but as an associate deputy minister. These are somewhat arcane terms. There is a difference between an assistant deputy minister and an associate deputy minister. The associate, in essence, is a deputy minister assigned as the second in command in a department. It's not unusual. There had been one or two, I think, in this department previously, and there usually were in very large departments. Transport had 20,000 employees, so it was considered a very large department, very complex, with many issues.

I would brief the minister on a number of issues, but normally in the presence of the deputy minister. Normally, the working relationship that we had, we would discuss these items before I discussed them with the minister, but I had a very free hand in terms of how I developed the portfolio, the file.

Senator Hervieux-Payette: So you were going step by step.

Mr. Rowat: That's right.

Senator Hervieux-Payette: Each item, everything that you reviewed from the previous negotiating team. The questions that were asked, you were seeking new guidance and new direction for each and every item that was not agreed upon.

Mr. Rowat: That's correct. In fact, at that point, there were issues that I felt required - there were issues that I thought we could probably see if we could get something more from the other side.

Senator Hervieux-Payette: Okay, thank you.

Sorry to interrupt.

Senator Bryden: I want to move now to a memo that you signed where it says "Signed by" - it looks like "Rowat". It's document number 00294. It has in handwritten - and I didn't do this, it was in the book - "Memo to Minister 30/6/93".

Mr. Rowat: I find these books difficult to work with.

Senator Bryden: I was working with them at midnight.

Anyway, do you recognize that?

Mr. Rowat: Yes, I think this was - it looks as though it was dated the 30th of June, '93.

Senator Bryden: Yes. Once again, I'm trying to get some paper on the record here.

It refers to "T1T2 Redevelopment Project". I draw your attention to the last paragraph on the first page:

Air Canada does not share our optimism for growth in air traffic. They feel that their needs for additional terminal redevelopment are no longer urgent and they can afford to wait until the economy picks up more steam, in their opinion post 1997.

I will read this and then if you have a comment, make it all at one time. The third paragraph on the next page says:

Mergeco presented the financial implications of their proposal (without detailed pro-forma's) -

and this is June the 30th, 1993 -

- to Air Canada and the bottom line of this meeting was that Air Canada felt that Mergeco was loading too much cost on the backs of the air carriers.

Not the next paragraph, but the next short one:

The real bottom line is that Air Canada sees the ground rent proposed to be paid to the government in the Mergeco proposal as being too rich.

The final paragraph says: "You will want to meet with your cabinet colleagues at the first opportunity to give them an update on this project and review the status of the LAA to clarify the basis for continued negotiations."

Would you like to comment an that?

Mr. Rowat: First, the document that I have - the very last paragraph that you read is blanked out on the one that I have.

Senator Jessiman: Welcome to the club.

Senator Bryden: I must be getting brown envelopes for sure. Do you want to see it?

Mr. Rowat: Moreover, this looks like advice to a minister, to me.

Senator Bryden: Please, let's not get into harping on the documents again.

Senator Jessiman: Could you just - is this document "T1/T2 Redevelopment Project 30/6/93"?

Senator Bryden: Yes.

Senator Jessiman: And the first few words on front page read, "The purpose of this memorandum is..."

Senator Bryden: "...to provide you with a brief..."

Senator Jessiman: My back page looks like the same as the front. We've got the same on our back page. We have the first page repeated.

Senator Hervieux-Payette: Well, you know how we proceed. We send our staff to make the photocopies at the library. So there might be some errors from your people or our people.

Senator Tkachuk: Let's just check our original document.

Senator Jessiman: We tried to follow, but we couldn't follow. The front page seems to be correct, and the back page is the front page over again.

Senator Bryden: You might as well see your whole memo.

Mr. Rowat: Well, I'm not convinced that it is my memo.

Mr. Nelligan: In the book binders, it would appear that page 1 of the June 30th memo is repeated on page 2. Senator Bryden has the appropriate page 2. I can see where that's a duplicating problem.

The witness has a copy of the official binder, and he was given page 2, but he had the familiar deletion because the last paragraph in his copy is shown as deleted pursuant to section 69 of the Access to Information Act. So the question is, you apparently have got your document from a different source.

Senator Hervieux-Payette: From you.

Senator Jessiman: Senator Bryden, tell us where you got your copy?

Senator Hervieux-Payette: From your library.

Senator Bryden: I got it from my assistant, who I assume got it from the library, but I can't swear to that.

Mr. Nelligan: The library copy has it properly censured.

Senator Bryden: I would ask counsel, please, to investigate that.

Mr. Nelligan: I will look into that to see just what happened because I think, as the witness testified, the paragraph comes under the strictures for section 69. I don't think in this particular case it's a particularly revealing or dramatic paragraph, but for some reason there seem to be two sources of documents coming in that we'll have to straighten out.

Senator Tkachuk: Mr. Chairman, we had this thing come up with a book that we had discussed in the first week or the second week or something. I've always been of the suspicion that it's possible that the Department of Transport or someone in the department, maybe, or the PCO is sending out documents that we don't receive. I don't know if this is the case here. I'm sure the assistant got it somewhere, but if he didn't get it from the council's office, it's not very difficult for you to ask your assistant, Mr. Bryden - where is he - where he got it from.

Senator Bryden: Can I ask, the numbers that are on these documents, counsel, how do those numbers get on there?

Mr. Nelligan: They are apparently stamped by the document people over at the Department of Justice, and then they are delivered to us in these binders, and then copies were made available to all of the senators.

Senator Bryden: Can I just finish?

So the numbers that are on here is a numbering series that is set up for documents filed with this committee.

Mr. Nelligan: That's right. I think that the document is stamped before the committee gets it and before there is any review for access to information. So the number would be there whether it was on a blanked out copy or not.

Senator Bryden: What I can do, because I didn't realize the confusion, I will not refer to that document.

Senator Tkachuk: No, no, it's more important than that, Senator Bryden and Mr. Chairman, because if there is one, there are others. If there's one, there are others - hundreds, thousands, boxes, expurgated versions and non-expurgated versions. So if we want to all sing from the same hymn book, I want his assistant to tell us - I mean, is he around here?

Senator Bryden: No.

Senator Tkachuk: If he is not, could you get him? Just ask him where he got it from, and then maybe we could proceed.

Senator Hervieux-Payette: I'm sorry. I gave my document - it is exactly the same. My assistant is doing the same work. He is giving me a table of contents. He got it from the central library.

The question you should ask is where Mr. Rowat got his own copy because ours is the copy from the Ministry of Justice. We take it from the library. For me, there's no confusion as to where these documents are coming from, but maybe Mr. Rowat has his own documents coming from elsewhere.

Senator Tkachuk: Let's check with the clerk's office, then.

Mr. Rowat: One clarifying comment.

This was the copy that you handed me that has the part excluded at the bottom, which is different from your colleague's.

Senator Bryden: Anyway, I in no way meant to have a document that's not available to everybody else. I would ask counsel - you are welcome to have this document in order to see how this happened. Because there's some question whether ministerial comment is here and there is confusion, I will not refer to this document any further.

Mr. Nelligan: We now have the original, official set. I think, first of all, there was an error when Senator Jessiman got his copy. I think some copyist inadvertently duplicated the first page on the back rather than the second page.

The second page that was received from the Department of Justice is the page you have in the same form as the witness received it with the final paragraph having been deleted pursuant to section 69(1)(g)re(a), which is a cabinet confidence section. So apparently yours came from a different source.

Senator Bryden: I will assist counsel in trying to find out how that happened.

Mr. Nelligan: This is something the clerk has just pointed out to me.

Senator Tkachuk: Can you pick them up at The Bay? I mean, you can't get these documents in too many places. I mean, I would like to just go down there and get it at the same place.

Mr. Nelligan: All right. I'll give you the name. That's what I was about to do.

The index on the front of the official binders listed by witness - Mr. Rowat is listed at the top of this index. I assume that's what he has. It was in binder 2 of 2. There are numbers on the side. They are all LA documents, and then there are numbers. LA, I would suggest, represents Lindquist Avey, who are the accountants charged with the preparation of the documents. Apparently, these numbers were put on by the Lindquist Avey group.

Senator Bryden: I apologize that I seem to have a piece of paper that is not the same as everyone's.

Senator Jessiman: Are these the forensic accountants we're talking about?

Mr. Nelligan: Yes.

Senator Jessiman: And we get half a document.

Senator Hervieux-Payette: We mentioned that sometimes in books one, two, three, four, five, six, the same document comes back because more than one person is related to the document. We've seen them in more than one book, the same document.

Mr. Nelligan: My confusion is that I have been assured that all of these documents are censured before Lindquist Avey gets them. So once Lindquist Avey puts their number on this page, I'm assuming that it should be in a pristine state as we get it. I can't explain the discrepancy here.

Senator Bryden: I say investigate it. All I know is I was proceeding as I thought was fair.

Mr. Nelligan: Of course.

Senator Bryden: Anyway, before the chairman says "Okay, Mr. Bryden, you were quiet all morning, but that doesn't allow you have the whole afternoon," I'm going to go to one last document. The reason is that I believe that, as I understand the chairman's indication -

Mr. Rowat: Senator, if I could interrupt you, I have no problem answering the question that you posed before. I won't do it on the basis of that memo because it doesn't even have my signature on it. I don't know whether it went to the minister. I don't know whether I authored it, or I don't know whether somebody drafted it on my behalf.

The fact was that at the end of June, while I could call myself relatively new as the negotiator, I did meet - I think it was the 28th, 29th of June - Air Canada and Mergeco both in the same room, as an observer. I think Madam Labelle made reference to this the other day.

Having gone through those discussions, there were certain conclusions that I came away from that meeting with. I don't think that they are well reflected in that particular piece of paper.

Air Canada, from my perspective, having met bilaterally with them, did question the forecasts that Transport Canada was using. At that meeting, I had Chern Heed with me who had prepared, with his staff, those forecasts. They raised concerns, given the financial situation of the airline industry and particularly their own circumstances, that they could not afford an increase in fees, particularly over the remainder of their lease to 1997. They raised concerns over the high costs after 1997, as one would expect that they would under a circumstance like this. They raised concerns over the high cost of T1T2 - potential high costs of T1T2 on a per passenger basis compared to other airlines and other competitors who used other terminals. They raised the issue of the local airport authority and the fact that they, I think at that point, expected to meet the local airport authority or had a meeting lined up.

That is what I recall from those discussions on a bilateral basis, and that is what I would have reflected as a report to the minister, not an opinion, but a report of the facts.

Senator Bryden: Is the time frame relatively correct, around the end of June?

Mr. Rowat: Around the end of June, that's correct.

Senator Bryden: Mr. Chairman, I should have been paying closer attention to you, as I almost always do, but when you started today, did you say that these three witnesses will come back for a full day?

The Chairman: For a full day on August 15th.

Senator Bryden: Well, then, I'm not going to go through that big document because I can do that later. There's a lot of detail in it.

I want to go to the signing of the contract after the negotiations on October the 7th. There is a document that is numbered 00092. It's a fax to B. Rowat, Associate Deputy Minister of Transport. We'll see if you have it.

Senator Jessiman: October 7, 1993?

Senator Bryden: 1993.

Do you have it?

Mr. Rowat: Just a moment. 00092, yes.

Senator Bryden: It's faxed to you from J. Bourgon, who is the deputy minister, and it's copied to Mr. Shortliffe, Mr. Tait and the Honourable J. Corbeil. It reads as follows:

1) The Prime Minister, the Right Honourable Kim Campbell, has instructed Mr. Glen Shortliffe to proceed with the signature of the remaining legal documents concerning the transfer of T1/T2 this afternoon at 1400 hours.

2) The Minister, the Honourable Jean Corbeil, has been informed of this decision and is in agreement.

3) You are therefore authorized to sign the relevant documents on behalf of the Crown.

4) The above has been reviewed by Mr. Shortliffe and he has confirmed that these are the explicit instructions received from the Prime Minister.

You received that fax.

Mr. Rowat: Yes, I did.

Senator Bryden: Is it normal for the Prime Minister to direct a contract to be signed?

Mr. Rowat: These were not normal circumstances. So under normal circumstances, no, it would not.

Senator Bryden: What was different about these circumstances?

Mr. Rowat: There was an election under way, and this was a particularly contentious issue. So in speaking to the deputy minister, Jocelyne Bourgon, she had drawn the conclusion, as had I, that if I were to sign these documents as a senior civil servant at this point in time, I should have very explicit instructions. It was to her and I suppose Glen Shortliffe to sort out exactly how and who should provide those instructions.

Senator Bryden: And, believe me, I think I understand the situation that you were in and I don't want to press too far. But, normally, would not explicit instructions from your minister be sufficient?

Mr. Rowat: I raised that with the deputy minister and left that with her, and I think that you would be best served to question her on that when she meets before you.

Senator Bryden: And Mr. Shortliffe is referred to both in the body of the memo, I think, and is copied and he's going to appear before us as well.

Thank you, Mr. Chairman, that's all I have at this time, but I may have to, when they reappear, come back and fill in the in-between, if you don't mind. Thank you.

The Chairman: Senator Jessiman.

Senator Jessiman: You told us earlier you took over - was it near the end of June 1993?

Mr. Rowat: June 15th.

Senator Jessiman: June 15th. Could you describe what the state of the negotiations were at the time you took over and have you got a list of things that still had to be negotiated, generally?

Mr. Rowat: Sure. In fact -

Senator Jessiman: While you are looking at that, did you have any familiarity at all with this file at the time you took over?

Mr. Rowat: Yes, I did. I had been working in the Privy Council Office, and this was one of the files that fell into my bailiwick. The job I had in Privy Council Office was as assistant secretary for economic policy, and I had, at that time and normally, a very large number of files that fell into my area, and this was clearly one of them. So I did have a familiarity with it.

I was going to refer you to a document in the book, but I can't find it.

Senator Jessiman: No different than the rest of us.

Mr. Rowat: The status of negotiations were that the issue this morning, as described by David Broadbent - the quick-start $96 million rent deferral; the diversion threshold; T1, when it should open and what the financial circumstances were - those were largely settled. And when I say -

Senator Jessiman: At the time you -

Mr. Rowat: At the time I assumed the file. And in fact, the government had a position on those particular issues at that point in time.

Other issues were very well advanced, if not completely concluded. That included issues like: the environmental clauses, as to what the federal government would be responsible for versus what Mergeco would be responsible for in an eventual agreement; tenant equity; the passenger facility charge issue. The personnel contract was nailed down.

Senator Jessiman: Was nailed down?

Mr. Rowat: Was nailed down, for all intents and purposes.

Those in that grouping required some further negotiation, but for the most part they'd been brought to near closure, if I can put it that way.

The one outstanding item that my predecessor, I think, clearly defined for you, was the arrangement with Air Canada. And that one fell very clearly to me to deal with, as well as the other ones.

Senator Jessiman: That brings me to my second question. So it was up to you as the chief negotiator on behalf of the government to try and solve that issue?

Mr. Rowat: That's correct.

Senator Jessiman: Were you satisfied with the solution that you arrived at, that you negotiated?

Mr. Rowat: On Air Canada?

Senator Jessiman: Yes.

Mr. Rowat: I provided - let me put it this way. I provide advice to the minister on these issues. The arrangement that we arrived at with Air Canada met the criteria that we had set for ourselves, and that is that, in the eventual agreement - if that's what you're asking?

Senator Jessiman: Yes.

Mr. Rowat: - in the eventual agreement, that the arrangement arrived at with Air Canada left the government in the position the returns to the federal government were better than the next best alternative; that the overall rate of return that Pearson Development Corporation had originally sought had been reduced; that Pearson Development Corporation - as part of this arrangement, Pearson Development Corporation also agreed to reduce the capitalization rate to the airlines, which was also a major concession on their part.

And I've forgotten some of the other elements of it, but those were certainly the key components of the eventual arrangement.

I would categorize it that, in essence, everybody put a bit of water in their wine in order to conclude the final arrangement.

Senator Jessiman: Could you discuss the arrangement of deferral of ground rents? Why was that done and was it an integral part of the negotiated settlement?

Mr. Rowat: The deferral of ground rent?

Senator Jessiman: Yes.

Mr. Rowat: The original $11 million over the three-year period?

Senator Jessiman: Right.

Mr. Rowat: Was it an integral part? It was felt by the government to be an integral part. This was a major policy file of the government. And in weighing out the various factors that come to play on an issue like this, it was the government's position that it, for a number of reasons, was an integral part of the agreement.

Senator Jessiman: Thank you. Now, the original letter - and I've got copies for all of the necessary people, one, two or three up front, the other senators and our senators please.

I hope Senator Bryden notices that I did go to the trouble to make copies.

Mr. Rowat: Can I back up for a second?

Senator Jessiman: Surely.

Mr. Rowat: The other element of the water-in-the-wine solution that I was talking about was that Pearson Development Corporation also agreed that they would provide 10 per cent of their net concession revenues to the airlines. I think that's the correct way of putting it. So that was another major element that John reminded me of.

Senator Jessiman: Thank you. I would just like to, for the record - this is dated, I know it is before your time, but there were things here that you had to deal with in your negotiations. And it is to Paxport, December 7, 1992, for the attention of Ray Hession, president:

Dear Sir:

We want to thank you for the Proposal you submitted pursuant to the Request for Proposals regarding the Terminal Redevelopment Project at Lester B. Pearson International Airport.

It has been determined by the Evaluation Committee that your Proposal is the "best overall acceptable response" to the objectives and requirements set out in the Request for Proposals.

Your Proposal, however, contains provisions which concern the government and cannot be accepted in whole or in part; the following are examples of some of these provisions:

1. the early start option;

2. the restrictions with respect to the diversion of traffic;

3. the allocation of landing rights and gate privileges;

4. the funding mechanism with respect to the employee transfer plan;

5. the terms to be incorporated in the various agreements.

Moreover, the changing financial realities within the airline industry are impressing the government with a number of additional concerns, particularly the financeability of your Proposal.

We are prepared to enter into negotiations to reach an agreement within the framework of the Request for Proposals...

And he underlines these next two words.

...provided that

1) certain requirements required by the Minister are made to your Proposal in order to accommodate the government's concerns; and

2) you demonstrate to the satisfaction of the government by February 15, 1993 that your Proposal in the circumstances is financeable.

Your confirmation that you agree with the above provisos must be received by the Department of Transport on or before 5 p.m. EST Thursday, December 10, 1992.

Yours truly, Victor W. Barbeau.

Now, you note that the issue of financeability referred directly to the difficulties of the airlines.

Could you describe for us how each of these options or these conditions were dealt with in the final contract? How did they meet the government's concerns at that time?

Mr. Rowat: Okay, I'll start with page 1 on number 1, the early-start option.

I don't recall what the exact nature of their early-start option was; maybe John can help me on that. But the government of the day took the position that the $96-million early-start option with the appropriate rent deferral of 11-11-11 to be repaid over the 10 -

Senator Jessiman: To be repayable over, with interest at prime plus two?

Mr. Rowat: - with interest at prime plus two and a half, was an appropriate approach. That was the government position.

Number two, the restrictions with respect to the diversion of traffic. I'm not quite sure what Victor meant by that at the time.

Mr. Desmarais: At the time, their proposal said, as you recall from reading it this morning, that they wanted a guarantee of traffic, no movement of traffic out of Pearson until a certain level was reached. That level was 36 million passengers, not 39 million as mentioned this morning. And that was unacceptable to the government.

Senator Hervieux-Payette: Just as a point of clarification, because you are referring to a document of December 7, to which maybe Mr. Desmarais was part of the drafting of that with Mr. Barbeau, because Mr. Rowat was not in the department yet. So, I guess, if we want to see the sequence, we should know why you put that into the document and then, afterwards, how it was being dealt with. Because, I mean -

Senator Jessiman: I don't know on December 7. On December 7, this witness has another part -

Senator Hervieux-Payette: Yes. Mr. Desmarais was part of the financial analysis or business plan -

Mr. Desmarais: Mr. Jolliffe was part of the business plan evaluation group and I was part of the development plan.

Senator Hervieux-Payette: So both of you know about these restrictions and these things, and I think we should deal with what is in your letter first, and then what happened after, so that we have at least the sequence, if you don't mind.

Senator Jessiman: I have no objection. I thought we were going to deal with this witness as best we can. I didn't think they were here as a team.

Senator Hervieux-Payette: Yeah, they are a panel.

Senator Jessiman: Oh. I have no objection.

Mr. Rowat: In fact, senator, to follow up on your suggestion, John can probably - knowing both sides of it, I'm quite willing to let John describe all of those elements. He's very intimately versed in each one of them.

Mr. Desmarais: Except I can't remember some of them, senator.

The early-start option, as I indicated earlier, was a $47 million early-start option that they had proposed. And what I believe they - if I'm recalling now, what they proposed was that they would take over the terminals completely, do $47 million of work and at some stage maybe do some construction. And that was unacceptable as an early-start option. That was an option to their plan - their proposal, if you like - of roughly $686 million. That option we didn't want on the table.

Senator Jessiman: And that was settled. That was settled to the satisfaction -

Mr. Desmarais: That was settled in negotiation where we ended up with a $96 million quick-start option as a first phase of development.

The second one was they requested no diversion of traffic out of Pearson at all until after 39 million, and then they indicated that only passengers above 39 million could be diverted. And I believe you'll recall Mr. Hession yesterday saying you can't do that. It is very lumpy when you divert passengers; you have to take airlines out.

We didn't agree with the 39 million, and we didn't agree with just incremental passengers being transferred. So there was problems with that part of their proposal.

Senator Jessiman: And how was that settled?

Mr. Desmarais: That was settled basically when we came down to the 33-million-dollar [sic] passenger-diversion option, which we can get into in much more detail later.

Senator Jessiman: Now that I know you're a panel - I wasn't going to ask this question, but - I understand you're familiar with T3 as well as -

Mr. Desmarais: I'm familiar with T3, but not as familiar as with T1T2. I did some early work on T3 but was not involved directly.

Senator Jessiman: And there was a point made this morning that they didn't get that kind of a provision in their contract.

Mr. Desmarais: In T3? The only provision in the T3 lease was that the airport would continue to be an international airport.

Senator Jessiman: Didn't they also have a guarantee of one-third of the traffic?

Mr. Desmarais: No, sir. There was a gentleman's agreement but no agreement.

Senator Jessiman: What about a $70-million loan guarantee?

Mr. Desmarais: There was a $70-million provision that they could draw against if their cash flow was low to a maximum of $8 million a year at any one time, to a maximum of $70 million.

Senator Jessiman: I see. Is there any loan guarantee to the developers of T1 and T2 in this particular contract?

Mr. Desmarais: No, sir.

Senator Jessiman: Okay, I'm sorry. I just interrupted because you're the one that is answering this and it came up.

Mr. Desmarais: The allocation of landing rights and gate privileges, I'm not sure what that refers to in the proposal. Obviously, I think they were looking at some allocation of landing rights to airlines that might sign up with their terminals, and they would have gate privileges at their terminals. That was not something that was in the cards. The government allocates landing rights at Pearson through bilaterals, or whatever other way, and retains the right to direct traffic to either Terminal 1/2 or Terminal 3.

Senator Jessiman: So this was, in effect, eliminated?

Mr. Desmarais: That's correct.

Senator Jessiman: Number four?

Mr. Desmarais: The funding mechanism with respect to the employee transfer plan - I'm not sure.

Keith, do you remember that one?

Mr. Jolliffe: No, I don't remember that one.

Mr. Desmarais: I can't recall. These were taken off the list of the evaluation committee report problems -

Senator Jessiman: Mr. Barbeau is going to come back. Is he the likely one to ask, or is there someone else that you suggest we ask about this?

Mr. Rowat: I think the issue there was the employee transfer plan and who would pay for it. And, originally, they took the position that the federal government should pay for the employee transfer plan. In final agreement, they ended up paying for the employee transfer plan if it involves the management plan, if that's what the issue was.

Senator Jessiman: Well, they did pretty well on behalf of the government.

Five, the terms to be incorporated in the various agreements.

Mr. Desmarais: That covers a whole list of -

Senator Jessiman: Yeah, I understand that. I want get to that, if I may. I want to talk about agreements later so we can skip that.

What about these other two things, provided that certain changes required by the minister are made to your proposal in order to accommodate the government's concerns? I assume, because you ended up with the contract, I assume that has happened.

Mr. Rowat: Correct.

Senator Jessiman: And what about: You demonstrate to the satisfaction of the government by February 15, 1993, that your proposal is financeable.

I understand that was extended. There was a period of time that they were extending to sometime in March?

Mr. Desmarais: Basically, they were given an extension to February 28. They provided data on February 28.

Mr. Stehelin, who you will be hearing from later, had questions at that point that they provided answers to, and I believe the issue was resolved around mid-March.

Senator Jessiman: That deals with that document. Thank you very much. Now I want to refer you to another document, and I also have copies for each of the senators and for counsel and for the witness.

I appear to have two copies - I got a little worried. The first one I looked at was all in French. I'd love to be able to speak the language but unfortunately I can't.

What I am having passed out here is a Privy Council - an Order in Council, and this is certified to be a true copy. And I want to read it into the record.

And this has reference number 5700-1.35/P1-13, below, 1-1-#0092, P.C. 1993-1761, 27 August, 1993 (T.B. Rec. 820536).

HIS EXCELLENCY THE GOVERNOR GENERAL IN COUNCIL, on the recommendation of the Minister of Transport and the Treasury Board, is pleased hereby:

(a) pursuant to subsection 16(1) of the Federal Real Property Act, to authorize the Minister of Transport, on behalf of Her Majesty in right of Canada, to enter into a Lease with T1T2 Limited Partnership;

(b) pursuant to subsection 16(1) of the Federal Real Property Act, to authorize the Minister of Transport, on behalf of Her Majesty in right of Canada, to enter into an Option to Lease with 2922797 Canada Inc.;

(c) pursuant to section 61 of the Financial Administration Act, to authorize the Minister of Transport, on behalf of Her Majesty -

For some reason, they don't put the "the" in there, but it says:

- in right of Canada, to enter into a Bill of Sale with T1T2 Limited Partnership for the sale of the movable properties referred to in Schedule "A" to that Bill of Sale; and

(d) to authorize the Minister of Transport, on behalf of Her Majesty in right of Canada, to enter into a Management and Services Agreement with T1T2 Limited Partnership.

And it is certified a true copy under the seal of the Clerk of the Privy Council. I'm sure you are familiar with this.

Mr. Rowat: Yes.

Senator Jessiman: And these documents, these five documents referred to, are these the main documents that you were negotiating? I understand there are - what, a couple of hundred documents?

Mr. Desmarais: There are approximately 65 legal documents, I believe, covering something like 2,000 pages.

Senator Jessiman: I see. But these ones here were authorized on August 27.

Mr. Desmarais: That's correct.

Senator Jessiman: And Mr. Rowat, you were the one that negotiated this, right?

Mr. Rowat: That's correct.

Senator Jessiman: Meaning those documents. And is it also true that you said to the negotiators on the other side that, if, between the time when you negotiated the form of these documents - if there were going to be any changes that were going to be material, that you would be obliged to come back and get another Treasury - from the Treasury Board?

Mr. Rowat: Sorry that I had said?

Senator Jessiman: I understood, during the negotiations, after this was signed, and that people on the other side, in talking with you - and they were talking about maybe some amendments or whether they were amended or talking about amendments - that you said to them, that if you asked for any amendments that you consider are material, that would compel you to go back and get another - something more from Treasury Board.

Mr. Rowat: That is correct.

Senator Jessiman: And you didn't have to go back to Treasury Board?

Mr. Rowat: No.

Senator Jessiman: Is that correct?

Mr. Rowat: That is correct.

Senator Jessiman: So there were no amendments of a material nature between August 27 and when they were actually signed - some of which were signed before October 7. The final signing was October 7 by the final parties.

Mr. Rowat: There were changes. But, in the view of my colleagues in other central agencies and on my team, we felt that they were not material such that they required that kind of action.

Senator Jessiman: And the other documents - these are five, and you said 65, sir?

Mr. Desmarais: Yes, sir, I did.

Senator Jessiman: So there would be another 60. I am also informed that those are pretty boilerplate - if I might use the expression - documents? Fairly well? And that, as far as they were concerned, that they just went through - I mean, you knew what they were going to say about this time.

Mr. Desmarais: No, sir. We knew what the main conditions were of them about that time. But they were not boilerplate documents, sir. We had the development agreement, management and operations agreement, and two or three others that were major agreements, although they did not impact on the lease document which required this type of approval.

Senator Jessiman: And these are the kind of approval that you don't need Treasury Board approval? The other documents, the other 60? They didn't need -

Mr. Rowat: No. You're correct. The minister had the authority to proceed on the basis of the approvals that he had had at that point.

Senator Hervieux-Payette: Mr. Chairman, there is no number on the document you are using. I don't want to be picky. Since you are sometimes questioning the origin of a document, and your document has no number -

Senator Jessiman: I will ask where it was received.

Mr. Nelligan: I think it is a matter of public record.

Senator Jessiman: I'm sorry, in the French, it does have a number. If you look at the other side - 523589. And I apologize because, as soon as I saw -

Senator Hervieux-Payette: We have the same problem. One document was having this, and the other - and here we have one page that has it, and the other one that doesn't. I am just saying that, in terms of the mechanics we have, you are susceptible to have errors and we are.

Senator LeBreton: We don't have missing paragraphs.

Senator Jessiman: Or missing pages, or pages that no one has got. I mean, surely -

The Chairman: Okay, okay.

Senator Jessiman: - when one of the senators has a document, a complete document, and no one, not on this side, not our counsel, not the witnesses, and he is the only one that has, this is quite a different thing.

Senator LeBreton: This is an Order in Council, too. An Order in Council is a public document.

Senator Jessiman: Anyway, I've read it and I've used it.

Mr. Rowat, are you familiar with the financial figures as to the equity situation, the debt situation? And I want to compare the Claridge Lockheed transaction with the Mergeco transaction. Are you familiar with those?

Mr. Rowat: I should say I was familiar with it.

Senator Jessiman: If I read them out to you, would you -

Mr. Rowat: I will rely very much on these two gentlemen.

Senator Jessiman: If you're in doubt, I'm sure you can check. I understand, from the documents that I have, when Claridge first made its proposal, it was going to put in equity, into their company, of $227.5 million, and they were going to have debt of $530.7 million, for a total package of $758.2 million.

Now, I'm told that Mergeco had equity of $258 million, debt of $484 million, for a total of $742 million. So that the equity - what was put in here was $30.5 million more equity and $46.7 million less debt.

Does that sound about right to those that are knowledgeable?

Mr. Jolliffe: Yes, senator, that sounds about right.

Senator Jessiman: And for the return to the Crown, on the Claridge first offer was $642 million, and the return to the Crown on the Mergeco deal was $843 million; so that this was a better offer than the Claridge offer, on these numbers, by $201 million. Is that correct?

Mr. Jolliffe: That is also correct.

Senator Jessiman: I have no further questions.

The Chairman: Senator Tkachuk.

Senator Tkachuk: Witnesses, I'm going to try to keep away from too much of the financial stuff. I know that's what it's really all about, anyway, at this stage of the game. But again, I am interested in process, as I sort of always am and that's kind of why we're here.

If we have - when you took over your position from Mr. Broadbent, how did you organize yourself? How did you set - you know, did you have, like, issue division on the contract or -

Mr. Rowat: At that point I inherited Mr. Broadbent's team. And I used the - it was a very small team and it was already divided, in essence, into legal, financial and then, in essence, negotiators.

Unlike Mr. Broadbent, at that point, I did not feel that it was necessary to break it down into tables that would report into a broad table. I felt that we were so close to closure on most of the issues that we would be one team and support me in the negotiations. So in essence, I didn't name - as I recall, I did not name any one individual as my right-hand person. The team was convened almost on a daily basis, if not on a daily basis, as a team. And we discussed things in common because we were moving very quickly, and I felt it important that everyone be up to speed on all of the issues.

Senator Tkachuk: At the risk of not upsetting someone that you may know, who were sort of your key players?

Mr. Rowat: In my opening statement, I mentioned the team, and if I could just draw on that again, my key players were these two gentlemen, Wayne Power, Maralee MacLaren -

Senator Tkachuk: What would Wayne Power be in charge of?

Mr. Rowat: Wayne was in charge of many things and assigned to many different things, as were these two gentlemen, depending on the nature of whatever came up.

If it was loading gates, Wayne, being from the airport itself, was probably the most knowledgeable person who could tackle that and provide advice on that. The diversion clause, there's a lot of experience that others had had.

So that I drew on those people who had the most experience on each one of those issues. But they, in turn, debated and used the rest of the group to draw on, in terms of developing our positions.

Senator Tkachuk: So it was a team thing rather than everybody having a, sort of, specific role.

Mr. Rowat: Exactly. With the exception of the legal people and the finance people.

Senator Tkachuk: Who was in charge of your financial team?

Mr. Rowat: Don Dickson was the chief financial person that we had on our financial team, departmental. And we drew on Paul Stehelin at Deloitte & Touche.

Senator Tkachuk: And legal? Did you have an official from the government or -

Mr. Rowat: Yes, we had the Transport Canada-Justice departmental counsel. Justice assigns their counsel to departments and they reside in the various departments. Our justice counsel was Bob Green supported by Jacques Pigeon; and, in fact, it was Jacques who did the main body of the work during the final stages.

Senator Tkachuk: He was part of the department or outside?

Mr. Rowat: Part of the department. He was a justice counsel at Transport. And outside assistance was Gordon Dixon, Cassels, Brock.

Senator Tkachuk: You mentioned that you didn't have too many outstanding issues to be dealt with at this time. In your mind and in your team's mind at the time, when you had your first meeting or whatever, when you first got appointed, what were the key issues that you felt had to be dealt with over the next couple of months to get the agreement done?

Mr. Rowat: The one I mentioned previously, first and foremost, was the Air Canada situation. The ones that required closure, although they were close, as I mentioned, were probably the environmental clauses, the tenant equity, the facilitation charge - the passenger facilitation charge, situation with Allders, a situation with a leasing problem with Bitove. The personnel contract, as I said, was largely completed at that point.

Even though the government positions were on the table in terms of rent deferral, as well as the diversion threshold, I wanted to revisit those to the extent that we could look for some improvements on them. But the big issue, just to come back to it, was the Air Canada situation.

Senator Tkachuk: Which they were dealing with kind of on their own? Was Pearson Development Corporation dealing directly with Air Canada, or how were you involved?

Mr. Rowat: At the point I took over, the situation was, if I can describe it well, was that the federal government, up until then or up until just preceding that, had taken the position: That was your responsibility, PDC, or Mergeco, to deal with Air Canada and develop the necessary agreements with them as the major client in the airport.

When I took - sorry, if I can complete it?

Senator Tkachuk: Go ahead, finish.

Mr. Rowat: When I took over the file, I think, as you may recall Madam Labelle's comments the other day, there was a great deal of confusion and concern over the issue of the extension of the Air Canada lease. Did it in fact extend 20 to 40 years or not? And both sides, Air Canada and Mergeco, had developed positions which seemed inimical to arriving at an agreement.

So at that point, when I was coming in, we agreed that it would be appropriate for us to try to pull the parties together - that's probably too strong a term. For us at least to be in the room.

In fact, I indicated, after discussions with Madam Labelle, that I would attend the meeting between the two parties as an observer. And that's what I did on June 28. And it was a meeting between those two parties with no participation by myself, no active participation by myself.

Senator Tkachuk: And how were they doing?

Mr. Rowat: It was a frank and open discussion on a number of the relevant issues. And it ended amicably with an agreement to follow up on a number of the items.

Senator Tkachuk: When the deal was done with Air Canada, were you satisfied with the solution?

Mr. Rowat: Those are questions you put to ministers. They are ministers' choices. The ministry and the government was satisfied with the outcome.

The outcome, as I mentioned earlier, clearly offered the government a better return to the government than any of the other alternatives that we compared it to.

And as well, as I mentioned before, the rate of return to Pearson Development had been reduced. Pearson Development had also agreed to share their revenues from commercial - sorry, to share their revenues from commercial revenues, 10 per cent. And I've forgotten what the other one was.

Senator Tkachuk: You mentioned, in earlier questioning, your access to the minister, as an associate deputy.

Mr. Rowat: Correct.

Senator Tkachuk: You received - the government gave you a - like, what was the approved principles that you worked from that the government wanted you to hold to, when you were doing your negotiations?

Mr. Rowat: Well, the primary perspective - the primary principle was that the government should be no worse off financially than under other alternatives, like operating itself, and so on. So that - and the final rent reflected that, the final rent to government.

A second principle would be that the airport itself remain competitive, particularly in the North American continent and, I suppose, internationally. But that relates to the cost per passenger of running an airport. And then, thirdly, that imposition on airlines and passengers - I suppose, if you see reflected, the airlines pay more or less, then that ultimately walks through to the passengers - that they not be subjected to an onerous burden.

Senator Tkachuk: At this time, even though Air Canada was complaining a little bit about their lease, I'd asked Mr. Hession about their - you know, they paid about $1.50 a passenger, or $2. He didn't know for sure. And my understanding is you didn't know. You were asked that earlier. Do any of you know what they were paying at the time?

Mr. Desmarais: I believe it was $2.84.

Senator Tkachuk: Pardon?

Mr. Desmarais: Two dollars and eighty-four cents per passenger, I believe, is the correct figure.

Senator Tkachuk: Is that when it was finally resolved, or was that -

Mr. Desmarais: No, that is what Air Canada was paying on their existing lease.

Senator Tkachuk: On their lease. And what did they end up paying?

Mr. Desmarais: Seven dollars and sixty cents, I believe, over time.

Senator Tkachuk: Yeah. Over time. That was sort of gradually built in. And what was Canadian paying, do you know, in Terminal 3?

Mr. Desmarais: I don't have it with me but I could find out. It was roughly - the figure for Air Canada was supposed to be comparable to the Terminal 3 figure of Canadian, so it would be comparable, within a couple of cents.

Senator Tkachuk: A level paying field.

Mr. Desmarais: That's correct.

Mr. Rowat: If you took it at its 20th year, I think, the relevant numbers would be roughly $8 for Terminal 3, maybe slightly less, and probably closer to $9 for Terminal 1 and Terminal 2. So within a range, as well as you can ever predict or forecast these matters.

Senator Tkachuk: When you were negotiating the contract, I have a - I'm not used to documents here. But I had one here on the Vancouver - this is the one, 001704.

We have a letter to Peter Coughlin from Bill Rowat, July 13,1993. I will just quote.

Thank you for your letter of July 12, 1993. As I mentioned to you in our meeting, the leasehold mortgage provisions we wish to see in the ground lease should track fairly closely to the Vancouver LAA document.

What you are trying to say there is that you have a precedent to work from in your negotiations with the Pearson Development Group.

Mr. Rowat: Correct. The issue was they - at this point, the Pearson Development Group included Claridge who were involved in Terminal 3.

Terminal 3 had provisions that they found very attractive from their perspective. Since Terminal 3 had been developed, I think, we had entered into the LAA at Vancouver on a different set of principles. So, in essence, we were trying to make sure that we stayed as closely to the new set of principles as we could, recognizing that there were certain features in the T3 agreement that we would probably have to bend a little on. So I think that's the substance of what I was getting at there.

Senator Tkachuk: In the second paragraph, it reads:

Ministers are very concerned that we not stray from the LAA principles in this regard, therefore my opportunities for creative problem solving are fairly limited. I would hope that you can direct your legal representatives to be mindful of these circumstances.

So what was the concern? They wanted to have it the same as -

Mr. Desmarais: They wanted the same provisions as in the Terminal 3 lease.

Senator Tkachuk: And the LAA?

Mr. Desmarais: And we said that we would like the provisions as per the LAA lease because the situation had changed from the time we built or entered into the agreements in Terminal 3 to this agreement. I mean, we had LAA agreements in place at this point with new leasehold provisions - or sorry, mortgage provisions. And we wanted to track those as closely as we could, not the T3 model.

Senator Tkachuk: Where am I here? Some of these items have been covered by other senators, so just give me a minute here to just check, Chairman, just so we don't cover old ground here.

Let's go to the Deloitte & Touche study which is document 00278. On August 5, I believe, '95, you received a study by this organization.

Now, I know they are going to be coming into the picture. I understand there are going to be witnesses from their organization here, but I just want to ask you if you were satisfied with the methodology that was used in this study, directed to your attention by Deloitte & Touche?

Mr. Rowat: I was, and so was my departmental advisor - departmental financial advisor. This documentation was also provided to central agencies.

Senator Tkachuk: And did you receive objections from them?

Mr. Rowat: No.

Senator Tkachuk: And when you say central agencies, you mean -

Mr. Rowat: Treasury Board, Finance and Privy Council Office.

Senator Tkachuk: It seems -

Mr. Rowat: If I just might interrupt to explain also.

Senator Tkachuk: Sure.

Mr. Rowat: Our own financial officer on the file did - made his own advice to me, which was very much along the same lines. And he, in turn, had consulted with central agencies analysts at Finance and Treasury Board throughout the process. From my perspective, on these kinds of arrangements, it is important to have a third party from outside corroborate the analysis internally.

Senator Tkachuk: Okay. If we just go back, you've established the issues when you got there. You've organized your team. And in July and August, you negotiated the deal.

Did you have any major problems here that would be - like, it seemed that things went rather smoothly. I may be understating it, I am not sure. Like, we don't - all of a sudden, we don't have, like, memos of distraction appearing in the documents that we seem to have previous to this time?

Mr. Rowat: I always ask "smoothly" as compared to what. In terms of the workings of the group of people that were working directly with me, yes, things went very smoothly, and I was supported extraordinarily well. And as I mentioned earlier on, to the extent and occasions where we had to draw directly on the airports branch, they too provided the kind of information that we required.

That was largely done by John acting as liaison-intermediary, but we were well served there, too. John, of course, at that point, came directly from that group.

Senator Tkachuk: Chairman, I want to come back but this is as much as I've got prepared. This is a lot more complicated then I thought it would be. So I'm done for today, but knowing that they're coming back on Tuesday, it will give me a few more days.

The Chairman: Senator Kirby?

Senator Kirby: Mr. Chairman, Senator Hervieux-Payette can ask questions, but picking up on Senator Tkachuk's point and recognizing that we have these witnesses for the 15th, and recognizing that it's been a long and stressful week, I am quite happy to adjourn at this point, since we have the same panel back on the 15th in any event.

The Chairman: Mr. Nelligan will want to ask, I think, some questions.

Senator Kirby: Otherwise we will get into a couple of issues and we'll have the same gentlemen back, and I'm essentially, having worried about the witnesses up until now, I would prefer to -

Mr. Nelligan: May I give you a word of caution about one of the witnesses who will not be with us next time - or rather, he is only available for one day. So that in dealing with Mr. Desmarais, try to direct your questions, in the event that we should ever go over, and I hope we won't next day, but Mr. Desmarais is only available on that day and then has to go.

Senator Kirby: I understand that. That's fine.

Senator Hervieux-Payette: I have a few questions for Mr. Desmarais, so perhaps - two questions to ask to him today.

Senator Kirby: He will be here on the 15th anyway.

Mr. Nelligan: But he is only there that day.

Senator Hervieux-Payette: Okay. Fine.

The Chairman: I guess we have an early adjournment.

Senator Bryden: You may want to put this to a vote. You may find that this is one of the few times when you might get a unanimous vote.

The Chairman: I have no problem. There is one last item. I thought that because of some of the confusion, irritation and frustration that we are clearly having, I wonder if you would be kind enough, if you have a common research department or individual researchers, would you be kind enough to have the researcher who provided you with that document write a letter to Mr. Nelligan before we meet again on the 15th and tell us where he or she got that document?

Senator Kirby: Absolutely.

Senator Bryden: No problem at all.

The Chairman: Thank you.

The committee adjourned.