Proceedings of the Special Senate Committee on the
Pearson Airport Agreements
Evidence
Ottawa, Tuesday, September 12, 1995
[English]
The Special Senate Committee on the Pearson Airport Agreements met this day, at 3:00 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.
Now we begin week six of our examination into public policy of the privatization of Canadian airports, and particularly the Pearson International Airport. The committee will now work straight through the month of September with the final witness being heard on or about September 28. Following that, the committee will meet in camera to consider its report.
During week five - that's ended August 24th - we heard some very interesting testimony but it was the lobbyists, the government relations consultants, who appeared to monopolize most of the media interest. This was not surprising. The activity of lobbyists was intensive. There was a large number of lobbyists representing both the Bronfman-Claridge group and the Matthews-Paxport group. We may only conclude that the main activity of lobbyists appeared to be in the area of information gathering not in the influencing of policy. Time and again we've heard the sworn witnesses that either they never met a lobbyist, or if they did their opinions remained unchanged.
Now, over the next three weeks we're going to hear from some very material witnesses providing testimony which will be essential to the conclusions we will reach.
Today, we will hear from the Bronfman-Claridge group; tomorrow, the Matthews-Paxport group. Together they are known as the T1T2 Limited Partnership with the Pearson Development Corporation being the managing general partner of each of the partnerships. They were awarded the contract to undertake the development of Pearson International airport on October 7, 1993, and which contract was cancelled on the 3rd of December '93.
We will also hear from Madam Jocelyne Bourgon, the Clerk of the Privy Council and for a short time the Deputy Minister of Transport. We shall also receive the Mayor of Mississauga, Her Worship Hazel McCallion, who has a strong interest in this matter considering the Pearson airport is located in her city.
A very important witness a week tomorrow will be the Honourable John Corbeil, who served as Minister of Transport from April '91 to November 3, '93 - a most important period when one considers the decisions that were taken during that time. We will also hear the testimony of two other lobbyists whose appearance appears to be a little out of sink with our schedule but we couldn't fit them in during week five.
Of particular interest to the committee will be the evidence of Mr. R. Thompson, Q.C. He is the Senior Assistant Deputy Minister of the Department of Justice. He's the person who's headed the bureaucratic management of the documents requested by this committee and who may dispel a great deal of the frustration experienced by committee members who have taken the view that members of the parliamentary committee are working under the presumption that the government should be in the position of providing information rather than withholding it.
Please note we will sit on Monday, September 25 at 9:00 a.m, the only Monday we will sit during September. We have asked two distinguished academics to discuss the constitutional limitations, if any, imposed on a Prime Minister during an election campaign. Then, at 1:00 p.m. the same day, Mr. Glen Shortliffe, the former Clerk of the Privy Council and the former Deputy Minister of Transport, will be with us again.
Our final witness will be Mr. Robert Nixon, who, on the 28th of October '93, was appointed to review the Pearson airport agreements and who recommended their cancellation on December 3rd '93.
Now, before we begin, I think Mr. Nelligan wants to make a clarifying statement.
John Nelligan, Q.C., Counsel to the Committee: Senators, you will recall there was some concern during the month of August about a remark made by Mr. Paul Stehelin about documents he had seen.
After we asked him questions on those documents, I attempted to get a copy of a draft Nixon report dated November the 30th, 1993 to him but, unfortunately, he had left for a fishing holiday before it got into his hands. There has been some difficulty in speaking to him since, but I have now had a full conversation with him yesterday. He has assured me that he has examined the draft report dated November 30th, which is already in your hands, and that he is satisfied that that is the report that he saw. He explained that when he said that it formed different conclusions he was referring to the fact that the findings in the one report do not precisely correspond with the other and it does not deal to the same length in the questions of the validity of the agreement itself. But, having reviewed it carefully, he is satisfied that the document that he saw was the one that is already in your hands.
Senator Lynch-Staunton: Mr. Chairman, we will all accept Mr. Stehelin's correction, although it is a bit away from what he testified here over two days. However, one's memory can be at fault and if the report that he claims is the second one is the one that we have as the second one, then so be it - although that does not resolve the issue of whether there may be more reports. But that question cannot be answered by Mr. Stehelin, it can only be answered by Mr. Nixon and, hopefully, he is following these proceedings with the care that he should and can tell us why his first report was dated November 30th and his second one dated November 29th, or vice versa. There's a great deal of confusion about exactly how many reports Mr. Nixon wrote; a great deal of confusion as to their authorship. But, again, this will be for Mr. Nixon to answer.
Meanwhile, Mr. Chairman, in July we did ask for the documentation that Mr. Nixon used in the preparation of his report or reports no matter how many there may or may not be. This is very essential to our appreciation of his efforts. And I would like to ask you, Mr. Chairman - or through you, Mr. Nelligan: Has the government complied with our request to have the material which was used by Mr. Nixon to prepare his report or reports? Has that been made available to our committee yet?
Mr. Nelligan: We have received some of the material at the beginning of this exercise, but the actual volumes relating to Mr. Nixon have not been received by us yet, although I was told by Mr. Hunter some weeks ago that they were voluminous. I think they were concentrating on getting these other witnesses' documents in first. But I have not yet got the Nixon volumes. We will be keeping pressure on Mr. Hunter to get those as fast as we can.
Senator Lynch-Staunton: Well, not only put the pressure on him, please, Mr. Chairman and counsel, but insist. Otherwise, we better look into our powers of subpoena. The whole purpose of our being here is the Nixon report. No Nixon report, no C-22. No C-22, no inquiry. Our whole purpose is the Nixon report or reports. It is essential that all the material that went into the preparation of that report or those reports be made available to us in good time before his appearance.
Now in this so-called second report or draft report - I don't care how they categorize it - Mr. Nixon talks about, "This chapter lists", is on page one. And on page five he talks about appendices - based on the information and opinions in the appendices. We have a right to get that information, Mr. Chairman. We have a right. And the government has an obligation to submit these documents to us. If they have any respect at all for the parliamentary system and the parliamentary right to investigate, these are essential documents to our appreciation of exactly why we're here.
So I insist, Mr. Chairman, that counsel - and whoever else has any influence on the government side - put as much weight and pressure as possible, even, I would suggest, fix a deadline for this documentation to be made a available to all of us. I mean, Mr. Nixon was appointed at the end of one month, given 30 days, and suddenly all the documentation was available to him within the span of 48 hours, so it appears.
We've been sitting here now for three months and the government has knowledge of our request for an inquiry for much longer than that and it is still unable to provide us with the documentation. Why should Mr. Nixon be so privileged and the Senate of Canada be so neglected?
Senator Kirby: Mr. Chairman, just for the record, I don't mind Senator Lynch-Staunton doing his rhetorical bit once in a while, but I think that we just ought to be clear for the record that what the staff of the committee has been doing has been providing senators on all sides with documentation in the order in which the witnesses have appeared and, given the vast volume of material, it was logical that what they did was focus on getting material available to us so that we would have it in time for a particular witness to appear. And I just think people ought to understand that since one could infer, as Senator Lynch-Staunton hopes the press will infer, that in fact Mr. Nixon's documents have been treated differently from anybody else's and it's my understanding that they haven't been. And since, as you read out the witness list yourself, Mr. Chairman, Mr. Nixon is to be the last witness - and, logically - the staff have been focusing on getting documents to us for witnesses that have been here already and are coming this week. So I just think we ought to understand that the process for Mr. Nixon's documents have been exactly the same as everybody else's - at least, that's my understanding.
The Chairman: I hope they haven't been the same as everybody else's, Senator Kirby, because we've been getting documents the night before the witness appears. I tend to agree with the point. I think you do, too, but I understand your point. I think Senator Lynch-Staunton's point is well taken.
Senator Lynch-Staunton: It's interesting that Senator Kirby knows exactly in what order that documentation asked by this committee will be revealed. Why should people be privileged to know that we will only get certain documentation at a certain time?
Senator Kirby: Senator Lynch-Staunton knows very well that -
Senator Lynch-Staunton: I thought that this was going to be recognized as an independent inquiry by the Senate of Canada and not a government-controlled release of documentation. And it's not the first time that we are finding out that documentation is only released at the whim of the government to suit their agenda. Laugh all you want.
Senator Kirby: I'm sorry. I shouldn't laugh. But the reality is I was simply summarizing; I wasn't saying anything in terms of the inside information 'cause I haven't talked to anybody about the Nixon documents.
Senator Lynch-Staunton: You don't have to. You got inside information in the middle of the night.
Senator Kirby: All I was doing was explaining the process we have followed since day one. That's all I was doing.
Senator Lynch-Staunton: The only documentation, Mr. Chairman, that we have asked for ahead of the ordinary release is a documentation which was made available to Mr. Nixon. We have never asked for any other privileges or any other release except in the ordinary course. But Mr. Nixon's documentation was given to him at the end of-
Senator Jessiman: Within hours.
Senator Lynch-Staunton: Within hours, he got it. So it's available. And we would like to see on what he based himself to come to his conclusion so we can get a better appreciation of them. And we were told by Senator Kirby, who obviously knows exactly how the government's deadlines operate, "You will get it on the eve of it."
Senator Kirby: All I was doing was explaining what the process was. You show up here periodically instead of following it on an ongoing basis, so I was simply explaining to you what the process was. That's all.
Senator Lynch-Staunton: We don't want to know what your process is, Senator Kirby.
Senator Kirby: I'm not talking about the -
Senator Lynch-Staunton: We wanted to know what the process of the Government of Canada is.
Senator Tkachuk: The committee's process too, Senator Kirby, to be fair -
Senator Kirby: That's a novel concept.
Senator Tkachuk: - is at the beginning of this inquiry I asked those same questions as to why the information was taking so long to get to us when it was fully made available to Mr. Nixon within a couple of days of his being appointed. And it's still, you know, kind of dibbing and drabbing away. And then when we do get a witness we not only get the documentation regarding that witness, we get all kinds of interesting, extraneous documentation as well. So, I think there's a strategy to this that the government's using - and that's fair enough. But Senator Lynch-Staunton makes an extremely valid point is that we will not - at least I will not; I won't speak for all members of the committee - stand for having that information from Mr. Nixon come to us even two or three days before because they have absolutely no excuse, Mr. Chairman, of not having that information in our hands right now when we're talking to these people. That would be extremely valuable to us because that's who he dealt with was these people.
Senator LeBreton: We think.
Senator Tkachuk: We think. But we don't have the information on what Mr. Nixon had.
So I think, whether you've got to send more letters or you've got to, you know - maybe we should do a sit in outside the minister's door or something, I don't know. This is getting ridiculous.
The Chairman: Well, we'll get Mr. Nelligan to rough them up a bit.
Senator Tkachuk: Okay.
The Chairman: Anyone else want to plough that furrow?
Senator Lynch-Staunton: No. I'll start tilling it now. I'd like to ask Mr. Nelligan whether he's received any answer to our request for this documentation. Has there been any reaction from the government?
Mr. Nelligan: Well, we simply keep getting advised from time to time that certain volumes are available and as they're available we've made them available to the committee. I must say I have not pressed them specifically for the Nixon documents over the last week. There is specific things we've been asking, but I will take that up with them at the break in the hearings today and I'll try to report when you may expect them.
Senator Lynch-Staunton: And if it's within your jurisdiction, have you spoken with Mr. Nixon and perhaps encourage him to submit to us documentation which would help us evaluate his report and reports rather judiciously.
Mr. Nelligan: My understanding is he's turned all of his documents over to Mr. Hunter and they are available to us through that source.
Senator Lynch-Staunton: From Mr. Hunter. Well, Mr. Chairman, I just want to say that we are here as a result of certain allegations made in the Nixon report. We are here to appreciate what the Nixon report has triggered, which is C-22, which is a court action and allegations which so far have been completely disproved. But we're here with an open mind and to better appreciate what Mr. Nixon has written not once but twice - and maybe three times in different versions as what's a background to those reports - and it is essential that we have that documentation long before he appears before us.
Mr. Nelligan: May I just -
Senator Lynch-Staunton: And if you may allow, and then I'll stop here because our witnesses are waiting. I'm not one who threatens but I'm one who gets frustrated. If we don't get that documentation within a reasonable period, then I would urge the chairman and our legal counsel to look at our powers to subpoena to be able to get them.
Mr. Nelligan: We did receive documents on June 16 from Mr. Edge, which were the documents which they felt at that time they could release to us. They excluded those that they felt were subject to solicitor-client privilege or were cabinet confidences. The extra documents that I have been referring to have been ones which apparently Mr. Hunter discovered when he went to speak to Mr. Nixon directly and found that Mr. Nixon had, to his surprise - because he thought they'd all been turned over - additional documents which were not in the government files. It is those documents which I understand they are now preparing for us to see.
Senator Kirby: Counsel, did I understand you to say that back in June we got the bulk of the Nixon documents?
Mr. Nelligan: I don't know whether it's the bulk or not but we got certain documents on June 16.
Senator Lynch-Staunton: Substantial but not complete.
Senator Jessiman: Can we get, Mr. Chairman -
Senator Lynch-Staunton: It's like whited out documents.
Senator Jessiman: Can we get, Mr. Chairman, from the government, a list of all the documents that were given to Mr. Nixon? If we get the list, we may find we do have some of them. But of those that we don't have, let's get them.
Mr. Nelligan: Well, we got the list.
Senator Jessiman: Of all the documents he received?
Mr. Nelligan: The list was censored but we know from reading it that -
Senator Jessiman: Can't we -
Mr. Nelligan: Wait until I finish. We know what the censored items were and so, to that extent, we know what he received. The cabinet confidences, and so on, we've been attempting to avoid any strictures in that regard by getting the documents through other sources, which are appendices to the official Treasury Board minutes. And that's been an ongoing process in which I have been discussing with Senator Lowell Murray to clear it from Mr. Mulroney's point of view, and so there has been some delay lay and difficulty in that regard as well.
Senator Jessiman: Do we know that those were censored for Mr. Nixon, or are we told they weren't censored for Mr. Nixon?
Mr. Nelligan: That's something you'll have to ask Mr. Nixon.
Senator Jessiman: Well, I think we should ask before we get the documents. We don't want to wait until we get 4,500 pages of documents and maybe 2,000 of them are whited out but he had them all.
Senator Tkachuk: It is possible he didn't use it.
Senator Jessiman: We don't want to know that then, we want to know it now. I ask through the chairman: Have you asked them?
Give us a list of the documents and we can look at the documents we have. We'll see which ones are missing and then let's ask for it. And if they have taken out things, we want to know why and we want to know: Were those things taken out when he had the documents?
The Chairman: Your point is taken.
Mr. Nelligan will now introduce the witnesses, please.
Mr. Nelligan: Yes. Senators we have today three representatives of what we have been referring to loosely as the Claridge group. Mr. Peter Coughlin is the president of a number of companies which he will identify but, basically, he ended up as President and Chairman of the Pearson Development Corporation. He's accompanied by Mr. Norman Spencer, the Senior Vice-President, Finance for Claridge Properties and is also a director of Pearson development; and Mr. Robert Vineberg, the gentlemen on my right, who is a partner in Goodman, Phillips & Vineberg and has acted throughout as senior counsel for Pearson Development Corporation. I understand that Mr. Coughlin has an opening statement to make.
The Chairman: Are you prepared to take the oath, gentlemen?
(Peter Coughlin, sworn:)
(Norman Spencer, sworn:)
(Robert Vineberg, sworn:)
The Chairman: We have received your opening statement, gentlemen. So, Mr. Coughlin, if you wish to proceed.
Mr. Peter Coughlin, President, Claridge Properties Ltd.: Senators, thank you for the opportunity to address your committee. I believe our investigation is both timely and necessary. The controversy surrounding the lease to develop and manage Terminals 1 and 2 and the subsequent cancellation of the lease has hurt many companies financially and has cast doubt on the motives and reputation of numerous individuals. I welcome the chance to set the record straight and I am prepared to assist you in any way I can.
I am here today to answer your questions in my capacity as president of T3LPCO, the controlling shareholder of Terminal 3; President of the Airport Terminals Development Group - the Claridge lead bidder for Terminals 1 and 2; and President and Chairman of Pearson Development Corporation, the entity which contracted with the government on October 7, 1993. I am accompanied today by Mr. Norman Spencer, Senior Vice- President of Finance for Claridge Properties and an officer and a director of Pearson Development Corporation; and by Mr. Robert Vineberg, a partner in Goodman, Phillips & Vineberg, and senior counsel for Pearson Development Corporation.
It is my firm belief, supported by my personal knowledge of events surrounding the negotiation of the lease, that both sides - the government and Pearson Development Corporation conducted themselves in accordance with accepted business practices and, in every respect, adhered to the strictest principles of ethical conduct.
Claridge became involved at Pearson in 1989 when we purchased a 37.5 per cent interest in Terminal 3. At that time, Terminal 3 was under construction and we actively participated over the next two years in its construction, financing and its eventual opening in February of 1991. In March of 1992, we purchased a controlling interest in Terminal 3. Our rationale for purchasing an interest in Terminal 3 was driven, to a large extent, by the government's announced intention to privatize Terminals 1 and 2. We did not want to operate just one piece of the pie. To us, operation of all three terminals was necessary in order to diversify our risk across the terminals; to produce significant operating and financial synergies; and to enhance our economic return.
Operation of all the terminals was the only way to protect against a significant shift in passenger traffic from Terminal 3 to Terminals 1 and 2 as a result of a financial failure of one of Terminal 3's carriers. It was for these reasons that we decided to proceed with a bid for Terminals 1 and 2.
Shortly after the issuance of the RFP, I was approached by Mr. Jim Bullock. Mr. Bullock had been asked by the then Ontario Minister of the Environment, Mrs. Ruth Grier, to head up the formation of a local airport authority and to see if we, at Claridge, would be interested in submitting a joint bid for Terminals 1 and 2. We agreed, and beginning in April we began to put together a team of highly qualified professionals whose goal was to produce a winning bid. Subsequently, Mr. Bullock advised me that his group would not be able to proceed since he had not been successful in getting the Toronto municipalities to agree on a structure.
Although we were set back by this decision, we nevertheless decided to make our own bid under the name of the Airport Terminals Development Group. On July 13th, 1992, we submitted our bid after getting an extension from the Department of Transport. Over the next four months, we had a number of meetings with ministers, their staff and senior bureaucrats in which we aggressively promoted the benefits of our bid. On December 7, 1992, the government announced that Paxport's bid was deemed best overall.
Following this announcement, Paxport's principal, Mr. Don Matthews, called Mr. Bronfman to express his congratulations on staging an outstanding competition. This was the first time that anyone on the Claridge side had spoken with Paxport. During this conversation, Mr. Bronfman raised the idea of a partnership with Mr. Matthews. It was our belief that since we were the losers of the bid the only way in which we could obtain an interest in operating Terminals 1 and 2 was to explore the idea of a partnership. Mr. Matthews suggested a meeting of the principals in Toronto and after that meeting Jack Matthews and I were asked to meet further to see if a partnership could be mutually structured. For the next four weeks, we worked hard to produce a 10-page binding agreement which was signed on January 14, 1993.
On January 17, three days later, Jack Matthews and I met with Transport Deputy Minister Huguette Labelle and Assistant Deputy Minister Victor Barbeau to inform the department of our partnership. We also released a press announcement which was carried in many of Canada's leading newspapers.
With Mr. David Broadbent assuming the role of chief negotiator for the government, negotiations began in March of 1993 and we were successful in working out most of the main issues by June. As you have heard from Mr. Broadbent, many issues were contested, many changes were made, and each side drove what it considered to be a hard and a fair bargain. In the end, the government gained as much as it gave up.
For example, the original Paxport bid had every stage of development dependent upon a specific passenger volume and a new lease with Air Canada. The final contract had Pearson Development Corporation spending $350 million over the first four years. This construction program was not dependent upon any conditions.
To help finance this construction programme, we asked the government to waive $11 million of ground rent until 1998, the point at which we could get a new Air Canada lease. The government refused and only agreed to defer $11 million of rent in years two, three and four. This deferral with interest at prime plus 27.5 per cent was to be repaid over the next ten years.
We believed our facility could handle 39 million passengers a year. The government refused to accept this and only agreed to accept a traffic volume of 33 million. In addition, the government could move 1.5 million passengers at any time. This allowed them the opportunity to develop both the Toronto Island and Buttonville airports.
Our original return on investment of 19 per cent had been reduced to 14 per cent.
By June, most of the major issues had been resolved and a deal was close. However, some time around the middle of June, Madam Labelle called and told us that the department had overlooked an important document which became known as the "Guiding Principles" that appeared to have give Air Canada a 40-year lease. From our perspective, this was devastating. Our entire business plan was based upon being able to negotiate a new Air Canada lease in 1997. This was why we accepted a three year partial rent deferral and why we agreed to undertake a $350 million development program with no conditions.
The only solution was to negotiate a new lease with Air Canada. This problem, referred to in the department as the "Air Canada Sandwich", fell directly into my lap. I commenced discussions immediately with Air Canada and, over the next month, was successful in arriving at a new lease agreement. I believe more than any other document, this lease is a testimony to the need for redevelopment at Pearson, and the willingness on the part of the airlines to pay a significant share of the cost of this development.
Although this problem delayed finalizing our deal until the beginning of August, a deal was completed and, as Mr. Broadbent and Mr. Rowat have testified, it was a good deal for all parties. The government got: A commitment to ensure the renewal and expansion of Pearson at no cost to the taxpayer; a revenue stream valued at approximately $850 million. This amount far exceeds what the department and its outside consultants concluded could be earned from operating Pearson itself. A solution to the Air Canada problem. A development scheme in which the airlines and retail tenants paid for the cost - there was no passenger facility charge; and the creation of 14,000 man years of employment.
For Pearson Development Corporation we obtained a business deal that provided a fair return for our investors and the opportunity to expand our airport expertise and create the opportunity of exporting this Canadian expertise around the world.
For Air Canada, the deal secured their tenancy at Pearson for 40 years; upgraded their facility to a world class standard; and kept their costs per passenger below that currently being paid at Terminal 3 and well below that at comparable facilities in the United States.
This transaction, which was agreed to in principle in June, finalized in August, took legal effect on October 7, 1993, a date selected by myself and John Desmarais some time in early July. The contract called for us to take over operation at Pearson on November 1, 1993. On October 27, 1993, two days after the election, Mr. Rowat called and asked if Pearson Development Corporation would be willing to extend the November 1 date until December 15 to allow the new government the opportunity to review the deal. I was assured that such a review would be fair and equitable and it was based upon this understanding that Pearson Development Corporation allowed the extension. It is a decision that I will regret for a long time.
Mr. Nixon was appointed some time around October 28, 1993. We met with Mr. Nixon on November 3, 1939. This meeting, which lasted approximately one hour, dealt only with general issues. We left that meeting believing that we would be spending many hours with Mr. Nixon and his financial advisers going through the more than 60 documents which had been executed. We were wrong. We were never asked to meet with them again.
Mr. Nixon's report dated November 29 is filled with a number of serious inaccuracies and imbalances. Our counsel, Mr. Robert Vineberg, wrote to Mr. Nixon's counsel, Mr. Stephen Goudge, setting forth 14 specific inaccuracies. No response was ever received from Mr. Nixon or Mr. Goudge. A copy of this document is available for distribution to you today.
In the course of Mr. Nixon's review, he requested and we prepared a summary of the provisions of the agreements which protect the public interest. On November 9, 1993, we sent to him a booklet comprising 35 pages and enumerating approximately 157 specific provisions of 19 agreements between the parties which, in our view, constituted protection of the public interest and/or constraints upon Pearson Development Corporation. Not a single word of this booklet is found in Mr. Nixon's report. Not a single reference is found to provisions such as those in the Industrial Benefits Agreement, where Pearson Development Corporation would have been bound to provide direct and incremental benefits to Canada equal to 125 per cent of the total cost of the projects, or approximately $875 million. No reference is found in Mr. Nixon's report to the fact that the entire operation of the terminals by Pearson Development Corporation would have been subject to the constant supervision, direction and control of the Government of Canada, nor to the fact that Pearson Development Corporation would have posted a $50-million letter of credit as security for its obligations to the Government of Canada. No mention is made of the fact that, under the lease, Pearson Development Corporation would have been required to adhere to environmental standards with respect to the operation of the terminals which are much higher than those to which the Crown has been prepared to subject itself to date.
Mr. Nixon states that the revenue stream provided to the Government of Canada by this agreement is "far from overwhelming". This statement is difficult to reconcile with the fact that, over the first nine years of the lease, the Government of Canada would have received $411 million on account of rent while the partners of Pearson Development Corporation would have received no cash whatsoever.
I think there is only one question for Mr. Nixon, and that is: If all of the people involved in the transaction on behalf of the Government of Canada - Mr. Broadbent, Mr. Rowat, Mr. Desmarais and Mr. Joliffe, as well as the government's own financial advisers, Deloitte and Touche - told Mr. Nixon, as they have testified, that there was no political manipulation, or unusual lobbying, or undue rush, and that the deal was a good deal for Canadian taxpayers, what made him conclude otherwise? I hope, Mr. Chairman, that this will be the focus of your questions for Mr. Nixon.
For Pearson Development Corporation, what we find most disturbing is the fact that the Nixon report, with all of its inaccuracies, has been used to justify the introduction of Bill C-22.
Bill C-22 is a vile and destructive piece of legislation which allows the government the right to deny us a fair settlement and, further, by law, would allow their actions to be beyond judicial recourse. It has been severely criticized by the Canadian Bar Association and by the editorial boards of many of Canada's leading newspapers. It is a clear violation of NAFTA and would create a situation where our American partner, Lockheed Air Terminals, would have more rights than all of the Canadian companies in our consortium.
Mr. Chairman, it is my belief that the true purpose of this inquiry is to determine if there is sufficient justification for the introduction of Bill C-22. To this date, there has not been any factual evidence presented to this inquiry of misconduct on the part of Pearson Development Corporation. We have been faced with numerous vague innuendoes but, surely, that is not sufficient justification for the introduction of a bill which, if enacted into law, will represent, quite simply, an act of confiscation virtually without precedent in modern Canadian legal history, a breach of fundamental principles of justice, of fairness, of equity and of democracy.
In conclusion, Mr. Chairman, I believe that the contracts which were signed on October 7, 1992, followed normal government policy and were in the best interest of all Canadians. What we ask for is for Bill C-22 to be removed and to allow us to access to the courts in order to resolve our dispute. This is a fundamental right available to all who live in this country. Thank you.
The Chairman: Thank you, Mr. Coughlin. I have two curious senators now. Senator LeBreton and Senator Kirby. Senator LeBreton?
Senator LeBreton: The usual cast of suspects, right, Chairman?
Senator Kirby: Right.
Senator LeBreton: Thank you very much, Mr. Coughlin, for appearing today.
In your statement, on page three you discussed very briefly the telephone conversation between Mr. Matthews and Mr. Bronfman. But, just for clarification and also in view of testimony before this committee before, I have some specific questions that I would like to ask you dealing with the merger with Paxport. And the purpose of doing this is twofold. One, it has been raised in this committee - and only in this committee, I might add - that the deal might have arisen through collusion between the parties; and, secondly, it has been stated that this was an unusual state of affairs. So I wanted to clarify what happened.
I refer to a question by Senator Bryden on August 2, 1995, which is in issue No. 9, page 49. And it was when he was questioning Mr. Hession, and I quote him:
The question that comes to my mind is, when you look at the result...
And then he goes on:
...where you have the two competitors together, negotiating and making the final agreement that was called Mergeco...I would say it was a sole-source contract.
And then he went on - and I quote him:
...the "efficient competitive process"...may simply have been a sham to allow this to happen?
So my first question, Mr. Coughlin - or perhaps one of your colleagues would like to answer it - prior to December 7, 1992 which, of course, was the date of the announcement that Paxport was the winning bidder, did you or anyone who worked for your organization have any discussions with any of the Paxport principles about this merger?
Mr. Coughlin: No. We had no discussions with any member of the Paxport consortium.
Senator LeBreton: Okay.
Senator Jessiman: Or their agents.
Senator LeBreton: No, the principles I asked about. And the second question I asked was: Prior to December 1992, did anyone from the Prime Minister's office or the Privy Council Office bring pressure to bear to bring you together with Paxport?
Mr. Coughlin: No.
Senator LeBreton: Then, after December 7, 1992, you have already in your statement suggested that there was a telephone conversation from Mr. Matthews to Mr. Bronfman. Was there anything else you wanted to add to that?
Mr. Coughlin: Perhaps I can tell you why it was important from our perspective, the Claridge perspective.
I'm sure the senators can remember in the fall of 1992 there was a lot of turmoil in the Canadian airline industry. Air Canada and Canadian were in the midst of discussing mergers. Canadian Airline, our major tenant in Terminal 3, was attempting to get government support and there was grave concern on our part of the ability of Canadian Airlines to continue to pay us rent in Terminal 3. As I mentioned in my opening statement, if Canadian had in fact ran into financial difficulty and the 2 million passengers that currently use Terminal 3 would have gone to Terminal 2, it would have had severe financial consequences for us as owners of Terminal 3. The way to avoid that was to have an interest in operating all of the three terminals. That had always been our goal from the moment that we bought into Terminal 3.
Leading up to December 7th and the announcement of the government, internally we had discussed amongst ourselves: What happens if we don't win? We always thought we'd win, but what happens if we don't win? And it was surely in our interest that, if we were the losing bidder, that we would proceed with what I call my contingency plan - and it was presented as my contingency plan - to seek a partnership with Paxport in order to see if we could have an interest in operating Terminals 1, 2 and 3. That was a very important way for us to solidify our investment in Terminal 3. And that was the reason why Mr. Bronfman raised the issue with Mr. Matthews on his phone call.
Senator LeBreton: And without getting into a lot of detail at this point, could you briefly describe for us the details at that point in time of the merger? Like, what was the basis of their discussions at that point in time? Was it just as you just stated, or were there any other details that were discussed at the time?
Mr. Coughlin: Well, after the phone call and after Mr. Bronfman raised the idea of the partnership, that led to a meeting in Toronto where the principles just basically introduced themselves. It was the first time that we had met the Matthews side. We introduced ourselves. We talked generally of what advantages there were. Remember, Paxport had been deemed best overall, so I tried to do at least a job of convincing them why I thought a partnership would make sense. I tried to convince them that a partnership with the Claridge side would be receptive. They accepted that. That led, then, to a meeting then the next day between myself, Norman and Jack Matthews. That then led to a five- or six-week negotiation to form the partnership. In the partnership what we did was roll in together our various assets - what we brought to the table. What Claridge brought to the table was Terminal 3 and its other assets. That was valued. What Paxport brought to the table was the right to negotiate a contract for Terminals 1 and 2. They brought $61 million of cash and they also brought expertise in the retail, with construction - expertise that they had within that consortium.
Those two things were put together. We worked out a 50/50 partnership and we went for it on the basis of negotiating the Paxport proposal. It was always on the basis of negotiating the Paxport proposal. The letter was signed on January 14. The letter agreements basically said that we would have a period of two weeks to re view the Paxport proposal. It was the first time that I had ever seen the Paxport proposal. I had to satisfy myself that I wanted to be party to that Paxport proposal. We did that over the next two weeks. We had to solicit approval from our partner, Lockheed Air Terminals; we had to get the approval of bond holders of Terminal 3. So there was a number of things that we had to do between January 14 and eventually the date became February 8. On February 8 essentially, the partnership became solidified and it was a 50/50 partnership at that point, with the basis and the understanding that we would proceed to negotiate the Paxport proposal with the Government of Canada.
Senator LeBreton: And you've mentioned that you had to satisfy yourself that you were comfortable with the Paxport proposal. Was there anything about the Paxport proposal that ultimately you were not comfortable with or did you satisfy yourself completely that the Paxport proposal in fact would be the proposal that the bid would continue to be negotiated on?
Mr. Coughlin: Well, there was never any question that it would only be the Paxport proposal. The government had awarded Paxport the right to negotiate and there was no consideration at all that it would be the Airport Terminals Development Group's bid. So we looked at the economics of the Paxport bid; we looked at the construction program for the Paxport bid and their development plan; and we satisfied ourselves that it could be done and that we could eventually get a contract with the Government of Canada on that basis.
Senator LeBreton: You said it was 50/50, it later did not become 50/50 what, ultimately, did it end up being?
Mr. Coughlin: It eventually - at the end it was roughly 66, 63. We had 63 per cent of the partnership. No, it was 66/34.
Senator LeBreton: Sixty-six? I'm sure we've had it in testimony in the past, but what caused it to be other than 50/50?
Mr. Coughlin: Well, through the course of the negotiations beginning in January, Paxport was to bring $61 million to the partnership. Around the middle of, I'd say the beginning of March or the middle of March, we became aware of the fact that Ellis-Don was pulling out of the Paxport consortium. They had agreed to contribute $8 million. And Allders, who had agreed to contribute fifteen had decided to only invest ten. The other five was dependent upon getting a liquor license down the road. That left a shortfall of $13 million. During this period of time we were trying to prove to the government that we had the financial ability to go forward and so we agreed, Claridge agreed, to put in that $13 million. That brought our partnership interest at that point up to 60 per cent. Subsequently, I think in May, Wood Gundy pulled out. Wood Gundy didn't feel that the returns being offered by the transaction were sufficient to justify their investment. So they pulled out. That created a shortfall of $10 million. The Paxport group put two in and we put the other eight in. At that point the partnership ventures became 66/34.
Senator LeBreton: That's fine, because the other questions that I had he already asked about. I was going to ask what he brought to the table and what Paxport, but he already answered those, so.
The Chairman: Thank you very much.
Senator Lynch-Staunton: Can I have a supplementary before you move to another senator?
The Chairman: Yes. Sure.
Senator Lynch-Staunton: I think that what we have heard and what I hope that we will hear again is an answer to Senator Bryden's suggestion, if not accusation, that the whole process was a sham and that everything was cooked up to see that whoever the final bidders were, somebody had already agreed that they would get together. And, Senator Bryden:
It looks, in the end, like it was a sole-source contract...what I think, in a document I referred to you last night...the "efficient competitive process"...may simply have been a sham to allow this to happen.
In other words, there has been a serious charge made by one of our colleagues that this whole process was a fraud; that the Government of Canada at the time initiated something which in the end would favour the end result. And I would like you to, as categorically as you can, either confirm it or deny it but I want it on the record over and over again because this has been the police most charge made before this committee.
Until now every witness, whether he or she comes from the private sector or from the public sector, has been unable to find anything but the process being followed in the way that it was set out to be. And suddenly, not too long ago - well, on "not too long ago" on the 2nd of August we have this serious allegation, this charge that there was fraud involved in all of this, that it was a cook up, that it was all worked out in advance. And I will ask the same question with the same emotion and the same passion because, you know, my government, the whole process of the way we operate here, has been seriously questioned. And since you gentlemen and those who appear tomorrow, were involved in the process, I would like you to have a reaction to this charge that Senator Bryden has made.
Mr. Coughlin: Sir, there was no collusion. We'd never had any discussions with the Paxport group prior to the award of that bid. I was convinced 100 per cent that I would win that bid. And I put my group together; Paxport had their group and we staged a tough competition to the date of the awarding of that bid and there was never any discussion between the two parties on the idea of a partnership.
The Chairman: Senator Kirby.
Senator Kirby: Thank you, Mr. Chairman. I was going to begin with a different area, but let me just pick up on the questions that have been asked. By the way, Mr. Coughlin, thank you for the thorough opening statement; that was very helpful.
Since we're on to the issue of the creation of Mergeco, can I ask you a couple of questions? At the bottom paragraph of page three of your statement you say, "Following this announcement - Mr. Matthews called Mr. Bronfman." Can you tell us the exact date of that phone call?
Mr. Coughlin: Senator, I can't tell you exactly the date. I believe that it was the 10th or 11th of December. I believe December 7 was a Monday.
Senator Kirby: The end of that week?
Mr. Coughlin: Yes. Mr. Bronfman was in Florida. I believe it was the end of that week.
Senator Kirby: Okay. One of the questions I was going to ask Senator LeBreton asked and you explained it. You had been developing - I'll use the word a "fall back position". You didn't use that and I don't use "fall back" pejoratively.
Mr. Coughlin: Contingency.
Senator Kirby: Okay, fine; same idea. And you talked about having discussed that internally. Did you discuss it prior to the awarding of the contract with anybody at all outside of your own, the Claridge group?
Mr. Coughlin: I had no discussions with anyone outside of the Claridge group.
Senator Kirby: Did anybody associated with you at all have discussions with anybody outside of the Claridge group?
Mr. Coughlin: Not to my knowledge, senator.
Senator Kirby: So it's possible but you don't know that?
Mr. Coughlin: Not to my knowledge.
Senator Kirby: I'll come back on that point in a minute, but just as a matter of interest when, to the best of your knowledge, did anyone within your group initially say to the government or anyone in the government - either official, minister, Prime Minister or anybody - when was there an initial contact or discussion, information conveyed that the two of you might get together, the two companies might get together?
Mr. Coughlin: To my knowledge we had our first meeting on January 17, three days after we had signed the January letter. We met Madam Labelle in -
Senator Kirby: That was the first official information.
Mr. Coughlin: That is correct. Now I had informed my government advisers through December of what we were trying to do in the sense of the partnership.
Senator Kirby: Beginning when?
Mr. Coughlin: I'd say ten days in the middle of December. You know, because they were interested in what we were going to do and I told them that we had introduced the idea of a partnership with the Matthews and that we were having discussions.
Senator Kirby: And did they tell anybody - but this was at least ten days after the announcement of the deal?
Mr. Coughlin: That's correct.
Senator Kirby: And were they instructed to not tell anybody, any of their contacts in the government, or were they instructed to say it was okay? What do you know?
Mr. Coughlin: I told them just not to say anything, to wait to hear from me.
Senator Kirby: So any knowledge that anybody in government had about the fact that a merger was being worked on would not have come from your government relations consultants and didn't come from any of you three gentlemen, I presume?
Mr. Coughlin: Senator, not to my knowledge. I was working with Mr. Matthews to try to form or try to put a structure to this partnership.
Senator Kirby: Okay. I wonder, then, if I could refer you to a document which I'm going to give you because you don't have. It's a document one of the other witnesses had. It's a document numbered 002188, which - I've got a copy for you just to make it easy. This is a memorandum from Glen Shortliffe to the Prime Minister dated November 16, so it's dated some three weeks before the contract was announced. I wonder if you just might - you don't need to go through the details of it, I just want to draw your attention to the handwritten note by Mr. Shortliffe at the bottom of page 2. And I'll read it for you. It says:
Prime Minister: As the material indicates, there are few incentives for the bidders to get together.
And then it goes on to say, "As discussed last Thursday -"
But three weeks before the contract had been announced, there had been at least one discussion between Mr. Shortliffe and the Prime Minister on the subject of the bidders getting together. That, you tell me - since you told me a few minutes ago - to the best of your knowledge none of you gentlemen and no one else within your organization, to the best of your knowledge, had been involved in suggesting that idea within the government?
Mr. Coughlin: That's correct.
Senator Kirby: Do you have any knowledge whether or not Mr. Bronfman discussed it with anyone in the government?
Mr. Coughlin: I have no knowledge. I don't believe so.
Senator Kirby: Have you ever asked him that question?
Mr. Coughlin: No.
Senator Kirby: So you don't know if he talked to either Mr. Shortliffe or the Prime Minister about it in advance of the contract being awarded?
Mr. Coughlin: I don't know, no.
Senator Kirby: You may also be aware of the fact that, I think it was Mr. Hession who testified that some two or three days, a couple of days after the contract was awarded he had a call from someone in the government unnamed - he refused to name the source - who suggested that the two firms might get together. That, on the basis of your timing of Mr. Bronfman's call, the call to Mr. Hession occurred before Mr. Bronfman called Mr. Matthews, so that it didn't emanate from that source.
Do you have any idea as to why someone or by what means someone in the government would have gotten the idea of suggesting that the two firms ought to get together, since you people hadn't broached this and you tell me that prior to that call there had been no contact between the two sides?
Mr. Coughlin: Well, I can't speak for Mr. Shortliffe and I don't know what the government was thinking at the time. We certainly were not having any discussions with Paxport at that time.
Senator Kirby: Right.
Mr. Coughlin: I think there was some consensus within the department that a one operator of the facility, or at least an operator of all of the three terminals may make a lot of sense.
Senator Kirby: Sorry to interrupt you, I was just going to tell you for the record that government officials had told us that early on they in fact deliberately favoured an element of competition and that was between the two groups because they felt that competitive owners would produce a better airport.
Senator Lynch-Staunton: Who are you talking about?
Senator Kirby: Some government officials.
Senator Lynch-Staunton: Who are they now?
Senator Kirby: I'm happy to go back and check the record, Mr. Chairman.
Senator Lynch-Staunton: I think you should before you're throwing out anonymous names.
Senator Kirby: Mr. Chairman, all I'm asking you -
Senator Lynch-Staunton: Well no, but you are questioning the witness on allegations by government officials who wanted something. I'd like to know who they were.
Senator Kirby: Mr. Chairman, I'm not making an allegation, I'm just telling him what the witnesses said.
Mr. Coughlin: Senator, I can't speculate -
Senator Kirby: Okay. That's fine.
Mr. Coughlin: - what Mr. Shortliffe had in mind with this memo.
Senator Kirby: Okay.
Mr. Coughlin: All I can tell you - because I was there - is that there was no discussion with Paxport at all prior to December 7. I was confident that I was going to win the bid. I was confident that my bid was best over all. And on December 7, it was not a happy day in the Claridge offices. We thought we would win, okay? We didn't win. We were not deemed to be the best overall. I have told you why an interest in operating Terminals 1 and 2 was so important to us because of our ownership interest in three. I can't speculate what the government thought.
Senator Kirby: Okay. I wonder if I could then move on to the next part of your opening statement where you talk about your strategy. I understand, by the way, the business rationale for wanting an interest in Terminal 1 and 2.
Again, just to give you a document that actually one of your own consultants, Harry Near, tabled with us a couple of weeks ago, but I'll give you a copy if you don't have it already, it's numbered 00218.
This was a memorandum from Mr. Near to Mr. Shortliffe the day that the bid was announced in which it essentially summarizes a strategy which says that - a pretty logical strategy from your point of view - which says that, ideally, the government would put tough conditions which you suspected that Paxport couldn't meet - particularly given your timeframe a very smart strategy - in which case they would then come to negotiate with you. I understand that position 100 per cent.
My question to you is: If that was - by the way, Mr. Near, again, on the record, and if I had the excerpt I could give you the exact words - he was asked the question if that document had been cleared with you people. I will ask you: Did you know or did you know that - did you agree that this strategy was your strategy and suggested that Mr. Near give it to the government as of December 7th?
Mr. Coughlin: I can tell you leading up to December 7th there was a lot of rumours going around town about who was going to be the eventual winner of this transaction. I don't pay a lot of heed with rumours, but the consistency of the rumours was that the Paxport group was going to be the winner. In fact, if I - if my memory is correct I think there was an article in the Toronto Star the weekend before announcing that Paxport was going to be the winner. We weren't sure that that was correct. We weren't told at that point what the outcome was.
Contrary to the collusion theory, we were doing everything we could to win this bid 100 per cent. So, over the weekend, we put together, I guess, some framework of what we thought - we knew that there was some - the rumours were that there was going to be some conditions attached to the Paxport win. We weren't sure exactly what they were. We felt that financibility might be it and so we put this together.
The government eventually never submitted this or never made this, I think, a requirement of the eventual outline - or the bid. There were some financial rulings that they had to meet.
Senator Kirby: Right. I totally understand why you did it. My question, though, is: Given the powerfulness of that strategy, let me call it a strategy, why did you, within a week, abandon that strategy? Because, again, given all the stories that had been in the newspapers at the time, financibility obviously was going to be an issue, not a problem for you, clearly a problem for the other side, and your suggestion was that if in fact they couldn't meet - your strategy made sense, if you couldn't meet the financibility test, they would have to come and negotiate with the other bidder; and, yet, literally within a week, because you said it was four or five days later, at the end of that week, that Mr. Bronfman called Mr. Matthews -
Mr. Coughlin: No.
Senator Kirby: I am sorry, Mr. Bronfman raised the issue with Mr. Matthews. Why did you change strategies so fast?
Mr. Coughlin: No. Senator, let me go back and explain that when the - when Paxport was deemed best overall, it was required to be subject to financibility. At the time, we weren't clear what that financibility condition was. We looked at the Paxport consortium. We saw Mr. Matthews, but we saw some other outstanding Canadian corporate entities. We saw Bracknell. We saw Agra. We saw Allders. And I was convinced that they would have had the capacity to meet the financial test, whether they relied upon their own corporate covenants or if they, for example, went out and got another partner, went and got a pension fund as a partner, went and got a life insurance company for a partner.
If Paxport had been able to meet those financial requirements, we would have lost the opportunity to be a partner in Terminals 1 and 2. As I stated in my opening statement, and as I have stated many times, it was very important for us as owners of Terminal 3 to have an interest in operating Terminals 1 and 2.
The safest route was to approach Mr. Matthews with the idea of a partnership. We could not afford not to have the opportunity to own or to have an interest in operating Terminals 1 and 2.
So we made the business decision to approach the Matthews group with the partnership idea because the downside of not having an interest in Terminals 1 and 2 was devastating. Remember that the airlines were still struggling. We still had concerns about some of the carriers within Terminal 3.
The airline business is really a business of passengers - or, the terminal business is a business of passengers. We need passengers within our terminal. If Canadian was not successful, and the two and a half million passengers that currently use Terminal 3 went to Terminal 2, it would have been devastating.
We couldn't afford to take that risk so we went the partnership route, and we went at it as quickly as - I mean, the call from Mr. Matthews was out of the blue. But Mr. Bronfman took that opportunity to raise the partnership idea. It still took, senator, two months to solidify that partnership. It took two months to solidify it. It didn't happen a week later. We met; we talked; we worked extensively through Christmas on arriving at a partnership structure. It wasn't easy going. There was a lot of discussion on value. There was a lot of discussion on how partnerships work. And it wasn't really until the beginning of February, after we had our own partners Lockheed to agree to it, after we got our bondholders to agree to it, that that partnership was formed. So it is wrong to say that the partnership was formed a week -
Senator Kirby: I don't believe I said that. If I did, I apologize. What I said was that it was a change in strategy within a week which was designed to begin to put a partnership together. I am sorry -
Mr. Coughlin: The strategy was always to win the bid. The contingency was if we were not the winners of the bid, let's seek the partnership because we couldn't afford not to have an interest in operating 1 and 2.
Senator Kirby: So that was the contingency in spite of the fact that on the day the bid was awarded in fact the - your senior government relations person -
Senator Lynch-Staunton: The bid was not awarded, senator.
Mr. Coughlin: I believe that this was sent in the morning - I mean it is an indication that we still were attempting to win the bid. This was sent in the morning. I believe, if I can remember, there was a press conference in Toronto Monday afternoon in which Paxport was announced best overall. Up until the moment that that announcement was made, I was doing my best to win that bid.
Senator Kirby: Can I ask you a couple of questions about the nature of the agreement itself?
Mr. Coughlin: Sure.
Senator Kirby: Just a couple of things I don't quite understand. You explained in response to Senator LeBreton that you had begun as a 50/50 partnership and then, in fact, moved roughly two to one.
Mr. Coughlin: That is right.
Senator Kirby: Because you started out at 50/50 and then moved, I am puzzled by the pro-forma balance sheet which is contained in - I am sorry to have to always read the document, but the record requires that I read the number, 000748. I will give you a copy.
This is a document from a Mr. Shaw who is Vice-President and Controller of Trillium Terminal 3 to Cassels, Brock, to a Mr. Gordon Dickson at Cassels, Brock.
My question is - I am sorry, if there is some - if - have you got the document? It is letter "L", if you need it.
In the notes to the pro-forma balance sheet, I will read this to you and then you can check it; it is going to be passed to you in a minute, but it is one of your own documents. It says:
Allocation of income.
Under the terms of the Partnership Agreement and subject to certain profit and cash flow tests, the Paxport Group is entitled to income in excess of their proportionate share of partnership income up to a cumulative maximum of $15 million.
That is note D to the pro-forma balance sheet.
My question basically is: Given the fact that it was a 50/50 partnership, and given everything that you were putting in - you had contributed 41 million in Mergeco's capital; Paxport had only contributed 20 - why would you end up giving - making such a generous offer to your partners as to give them 15 million a year beyond the 50/50 split?
Mr. Coughlin: Senator, allow me to start and perhaps Mr. Spencer can add in some of the details.
First of all, it is the other way around. Paxport brought $40 million to the partnership and we put in 21. So they brought $40 million to the partnership.
Senator Kirby: The 40 was the reduced 61.
Mr. Coughlin: Yes, from the 61; and the 21 came from the fact that Ellis Don, they brought 40 million.
What you have to remember is that they brought the right to negotiate 1 and 2. The Paxport bid was the one deemed best overall. We never negotiated the Airport Terminals Development Group bid. They bought the right to negotiate 1 and 2. That had value, okay? How much value was an amount determined throughout the negotiations. What we agreed to is that it would be a 50/50 partnership. There is also a loan in place which represents what I would say the excess value of Terminal 3 over what Paxport brought to the partnership; and in the course of the negotiations, and in the course of arriving at a settlement, we agreed that Paxport would get a skew of the income once the income from all three terminals reached a certain amount, and I believe that amount was $33 million - $31 million.
Senator Kirby: And this extra payment was sort of part of the payment because Paxport had the right to negotiate the contract?
Mr. Coughlin: Back in December, that is right. This amount, this deal, was struck in over - between the period of December to February 8th, this provision whereby Paxport was given a skew of the income beyond a certain point once the income level in Terminals 1, 2 and 3. We negotiated that deal. It was a deal that we were happy to live with. It is a deal that - we honour our deals and we stuck with it.
In return for bringing money to the table, we got an increase ownership interest in the partnership going from 50 to 66. That is what we got in return for bringing the money to the partnership.
Mr. Norman Spencer, Senior Vice-President, Claridge Properties Ltd.: If I could just add, senator, the 15 million is a cumulative maximum. It is not $15 million a year, and that is what it says.
Senator Kirby: Did you - because this was all related to the value, I use value in quotes, of Paxport having been given the right to negotiate a contract, at the outset you must have done some calculations as to what the value of that right to negotiate was, I presume. You are very good businessmen.
Mr. Coughlin: Senator, again, as I said, we had never seen the Paxport proposal.
Senator Kirby: I am sorry, after -
Mr. Coughlin: During the period of reviewing, after the January 14th agreement, we looked at the Paxport proposal and were satisfied that it was a proposal upon which we could proceed.
Senator Kirby: I understand that. But what - that part I understand. I guess my question wasn't clear.
You stated that one of the things that Paxport brought to the table was - after December 7th and when you got into negotiation with them - was the right to negotiate a contract. What was that right worth? Obviously, you placed - you had a value. You went into negotiations presumably trying to give them as little value as possible. But, in the end, what was the value of that right to negotiate worth?
Mr. Spencer: Perhaps, before addressing that specifically, I can give you a flavour of the way in which the negotiations dealt with relative values.
Paxport brought to the table cash and the rights and had spent some cash getting to the point, some $5 million.
We brought to the table the equity in Terminal 3 and other related assets. If I can equate it to a set of scales, on the one hand there was Paxport and on the other hand there were our assets.
For a number of days Peter and I argued with Jack Matthews and Peter Kozicz about values.
Senator Kirby: Who is Peter Kozicz?
Mr. Spencer: A Vice-President of Paxport.
Senator Kirby: It is a name I hadn't heard before.
Mr. Spencer: We argued for a couple of days about the values of our relative assets. We concluded that our assets were worth more than the Paxport cash and the Paxport rights and that gave rise to a loan which we set aside owing to the partners of Terminal 3 and we said that we would continue 50/50 equity owners.
Clearly, we could have valued up here and they could have valued up here. In the end, we agreed on a 50/50 split and the amount of the loan, being the excess, was $80 million.
Senator Jessiman: In your favour?
Mr. Spencer: Yes.
Senator Kirby: Okay. But my question was: In the course of doing that valuation, you yourself said, you did exactly what I would have expected you to do.
Mr. Spencer: Let me continue.
At the end of the day, we concluded that Paxport would get value for $61 million of cash; I think $5.5 million of costs that they had incurred; $20 million notional value of goodwill, being the right to negotiate; and, in addition, the Paxport group earned the right to earn an additional $20 million of profit over and above their proportionate share in T1T2 if the combined income defined by the accountants exceeded $31 million, but that 20 million, the second 20 million, was a maximum amount, not an amount per annum.
Subsequently, the second 20 million was reduced to 15 and that is the 15 you see in the note.
Senator Kirby: So that, in a sense - not in a sense - you placed, at the end of the negotiations, a value on the right to negotiate the contract of $35 million, assuming that the profits were at the point where the extra 15 kicked in.
Mr. Coughlin: We put a value of 20 million, plus a future value of 15. There was no guarantee that that would ever happen and we had no idea when that would happen.
Senator Kirby: I understand. That is why I said if -
Mr. Coughlin: Senator, they won the right to bid. You know, I think they had a right.
Senator Kirby: I am not arguing with your valuation. I am just trying to understand the numbers. I thought I was very careful. I said 35, if the profit levels were such that the extra 5 kicked in. I thought I was quite precise.
Mr. Spencer: At that point, senator, it was 40. It became 35 later.
Senator Kirby: It became 35 farther down the road.
I wonder if I can just - Mr. Chairman, I think I am probably running short of time and I will come back on a second round. There is one other subject, just to finish off with.
You talked about not having had any contacts with the government, I guess formally, until your initial meeting with Madam Labelle on January 17th. Subsequent to that date, we have previous evidence, and I am happy to produce the document if it is necessary, of meetings which Mr. Bronfman and Mr. Matthews and some other people may have been at the meeting, but at least those two, had with Mr. Shortliffe. We had a previous memorandum of a meeting which took place on March 30th and so on.
I have got the document here if you need it. I don't want to ask you the details of the document. I am just telling you that that evidence is on the record.
My question basically is: How frequently and on what occurrence were there meetings between members of the Mergeco group and people from the Privy Council Office, including Mr. Shortliffe? Was that meeting on March 30th a one of or were there a number of discussions between the PCO and the company?
Mr. Coughlin: Between January 14th and October 7th, the course of the negotiations until closing, Mergeco, Mr. Bronfman and myself had two meetings with Mr. Shortliffe. We had one meeting arranged for March 19th with Mr. Shortliffe and Madam Labelle. The purpose of that meeting was simply that at that time the government was concerned about the financeability question. The government was concerned about the - was the partnership really a partnership; and Mr. Bronfman wanted to meet with both Madam Labelle and Glen Shortliffe to explain to him that we were committed to financing this transaction; that we were committed to undertaking this development.
I think, as Mr. Broadbent had testified earlier, that was the meeting when Mr. Bronfman stated his desire to build a world-class facility.
That was to happen on March 19th. We arrived in Ottawa the morning of March 19th and Mr. Shortliffe was sick. So we only met with Madam Labelle.
Mr. Shortliffe called Mr. Bronfman to apologize a week later. Mr. Bronfman took the opportunity to ask for another meeting. That meeting was March 30th in which, again, Mr. Bronfman just expressed to Mr. Shortliffe his commitment to undertaking this development and his commitment to have this deal completed.
We had one other meeting. That was in the middle of May. That was a point in which there were some issues that needed to be dealt with.
At the March 30th meeting with Mr. Shortliffe, he opened the door by saying that if we had - if there was any other need at any point during the course of the negotiations in which Mr. Bronfman would like to speak to him, please do that. Mr. Bronfman took that opportunity only once. That was in May. That was specifically to deal with some of the last minute outstanding issues, particularly the rent. I call it the rent waiver. I wanted to waive the rent. The government, obviously, just agreed to defer the rent. That was the only time that we had a meeting with Mr. Shortliffe.
All the other meetings were with senior bureaucrats of the Department of Transport.
Senator Kirby: Not with Mr. Rowat or anyone else?
Mr. Coughlin: No.
Senator Kirby: Sorry, when Mr. Rowat was in PCO. I understand he moved over.
Mr. Coughlin: But most of our negotiations were with Mr. Broadbent. When Mr. Broadbent left in the middle of June, I think Mr. Rowat came in and we negotiated with Mr. Rowat.
Senator Kirby: I want to come to the actual agreement in a minute. But I wonder if I could just ask you to help me clear up an issue that was raised with our last - in the last week we had hearings. It really has to do with a couple of the consultants' contracts.
In one of the documents you sent us, a document which is called, "Summary of the Clauses that Constrained T1T2 and/or Protect the Public Interest". It is a document that Mr. Vineberg sent to us. I believe you have it. I want to ask you a question about one piece of it.
On page - my staple is in the wrong place - actually, I don't know if it has pages, but I think it is page 8, paragraph 54.4.
Have you got that? It begins right at the bottom of page 8. It begins, "T1T2 LP" - by the way, as an absolute aside, the private sector needs to develop the government habit of having acronyms that are pronounceable.
Have you got 54.4?
Mr. Coughlin: Will you give us another chance?
Senator Kirby: That's a good line. I might well be willing to.
The paragraph reads:
T1T2 LP is, until the earlier of completion or the tenth anniversary of the commencement date, restricted from incurring any liability of a material nature not relating to the operation and development of Terminals 1 and 2 Complex, and the other airport lands in which it holds an interest. This effectively prohibits T1T2 LP from becoming involved in any other business during this period of time.
Can you explain to me what this prohibition actually means in sort of non-legal language? What was it really designed to prevent?
Mr. Robert Vineberg, Claridge Properties Ltd.: Perhaps, senator, I could try. The intention was to ensure from the government's perspective that T1T2 Limited Partnership would not engage in any business ventures unrelated to these terminals.
Senator Kirby: Would not engage and therefore presumably would not incur -
Mr. Vineberg: Any liabilities.
Senator Kirby: Right. And so costs incurred in doing business other than on T1T2 and the other airport lands were not costs which T1T2 LP would pay?
Mr. Vineberg: That is right. Now, there was an acknowledged exception to that in that T1T2 Limited Partnership did make an investment in an entity which was intended to cause the technology that was being developed in these terminals to be exported around the world.
This was an important part of the proposal that had been made and was hoped that there would be a major benefit to Canadian industry by having a worldwide market for some of the technology that was being developed through this process.
So that was - the parties acknowledged that there was an exception in that area.
Senator Kirby: What was that company called?
Mr. Vineberg: That company was called, as I recall, Paxport International, senator.
Senator Kirby: That was the only outside company which - whose liability, costs -
Mr. Vineberg: Well, in fact, it wasn't a liability. The reason it is worded that way is that it was acknowledged that would not have been a liability of this partnership. It was an investment that this partnership would make in that other entity. But the bottom line in simple terms is that this entity, T1T2 Limited Partnership, which was to operate these terminals, was to have no outside business interests.
Senator Kirby: Okay. Then, I wonder if I could draw your attention to - I will give you the document, although it has been previously introduced in evidence when Mr. Fred Doucet was a witness. It is a letter to you, Mr. Vineberg, dated April 6th signed by Gerry Doucet, actually, the Chief Executive Officer of the Government Business Consulting Group.
In that letter, and - have you got it?
Mr. Vineberg: I don't have it.
Senator Kirby: I will ask my assistant to give it to you.
If you look at the bottom paragraph on the first page it says:
The rights and obligations of Paxport International and Paxport Inc. -
You notice it is two companies; it is not just Paxport International but it is Paxport Inc.
- pursuant to these contracts were assigned by them in 1993 to T1T2 Limited Partnership and another party.
I will come back to that in a minute. I am curious to know who the other party is.
The Government Business Consulting Group -
- was so notified by both the assignors and the assignees and thereafter took instructions from the management of the assignees and represented their interest. In 1993, it was instructed to direct its invoices rendered pursuant to the contracts to the T1T2 Limited Partnership.
Given what you have described in 54.4, why did T1T2 LP take over these contracts?
Mr. Vineberg: It did not, senator. This assertion by the gentleman who wrote this letter is incorrect as a matter of law and of fact. T1T2 Limited Partnership never assumed these contracts.
Senator Kirby: So, in fact, you were never under any obligation to pay.
Mr. Vineberg: None whatsoever, senator.
Senator Kirby: Were any bills - was any money from T1T2 - I will give up on the LP -
Senator Lynch-Staunton: Keep on going. We are getting the truth.
Senator Kirby: Okay - T1T2 LP ever paid to Mr. Doucet?
Mr. Coughlin: No, sir.
Senator Kirby: So, in fact, the assertion that these rights had been assigned is not true?
Mr. Vineberg: That is correct, senator.
Senator Kirby: As you say, that is an issue that is under debate.
Did Mr. Doucet ever do any work for - I know he didn't work for you people before the merger. Did he ever do any work for T1T2 by itself?
Mr. Coughlin: No, senator.
Senator Kirby: As far as you are concerned, this letter is not a valid description of the obligations of T1T2?
Mr. Vineberg: That is correct.
Senator LeBreton: As a point of clarification on that, chairman. Are you responding in this letter, Mr. Vineberg, because it starts off, "As requested by your letter of March 30, 1994..." So was he responding to some inquiry that you made?
Mr. Vineberg: What happened, senator, was that we were requested by Mr. Robert Wright to advise him as to all parties that were making claims against T1T2 Limited Partnership. I wrote a letter to all parties of which I had knowledge had either indicated in writing or in any other manner that they intended to make claims against the partnership and said, "We have been requested by Mr. Robert Wright to furnish him with information as to any claim that you may have."
The background to this was we were discussing with Mr. Robert Wright at that point the possibility that the Crown may indemnify T1T2 Limited Partnership against these third party claims, of which there were many; and we had had notice that Government Business Consulting Group had alleged that it had a claim, so we wrote to them and asked them for advice, and this is the response that we received.
Senator Kirby: I am going to give you another letter which is a letter from a Mr. John Pitcher who was President of Pearson Development Corporation. This is at the end of 1993. It is a letter to -
Senator Lynch-Staunton: Do you have a copy of that?
Senator Kirby: Yes, I do.
Senator Lynch-Staunton: You are going to tire him out. Why don't you give him all the letters at the same time? He loves the drama; let's save time.
Senator Kirby: Speaking of drama, the master of ceremonies.
Senator Lynch-Staunton: How many more do you want shot down? You have done so poorly. I would quit if I were you.
Senator Kirby: I am sure you would love it if I quit.
This is a letter from John Pitcher, who is the President of Pearson Development Corporation, to Fred Doucet. I guess I am puzzled if, in fact, given what you just said, why is Pearson Development Corporation telling Mr. Doucet - and I am quoting from the letter - to "refrain from undertaking any further work on behalf of Pearson Development Corporation with respect to the Terminal 1 and Terminal 2 Complex."
Mr. Coughlin: Senator, this was just a standard letter that we sent to a long list of companies that - after the date.
Senator Kirby: Why would you send it to somebody who wasn't doing any work for you?
Mr. Coughlin: He sent an invoice to us asking for payment. We wrote him back and told him we weren't going to pay him and we followed that up simply with this letter which was a standard letter. But we never, senator, agreed to be obligated by that contract. I think that is what Mr. Doucet testified as well.
Mr. Vineberg: If I could just add, senator, if you notice the date, December 3, 1993. That was, from our perspective, disaster day. That was when the government announced that the contract was being cancelled. Mr. Pitcher was instructed to cancel everything, to stop all further commitments of every kind. He didn't have time to assess: Is this a letter I should send? Is this not a letter I should send? He sent this letter to everyone who had ever appeared anywhere; and one of them went to Government Business Consultants.
Senator Kirby: I wonder if I could turn - Mr. Chairman, I would like to switch topics, so if is there another senator who wants to question - I don't know where I am on my time.
The Chairman: I have been pretty generous.
Senator Kirby: I understand. I am voluntarily saying I have other questions on another topic, but if my time is up I am happy to -
The Chairman: We have an hour. I think Senator Tkachuk was waiting. So do you want to come back on another round?
Senator Kirby: That is fine, Mr. Chairman. I am happy to do that.
Senator Tkachuk: Thank you for your presentation, gentlemen. I just want to recheck this. In your opening statement you said you spent about an hour with Mr. Nixon.
Mr. Coughlin: That is all we spent was one hour.
Senator Tkachuk: So about the same time we just - actually, we have kind of overdone your time right now.
Mr. Coughlin: We have been here longer than we were with Mr. Nixon.
Senator Tkachuk: Did some of the questions that Mr. Kirby asked you, did you get those questions from Mr. Nixon?
Mr. Coughlin: We didn't get any questions from Mr. Nixon after our first meeting.
Senator Tkachuk: I am going to ask you some questions on some of the things that Mr. Nixon talked about in his report and the deal itself. It will be with some detail, so just bear with me and we will try and get through it.
Mr. Nixon stated that the return on investments to T1T2 LP could well be viewed as excessive. Mr. Stehelin and the Department of Finance found that the return was reasonable given the risks.
Could you give me your view on the risks and the returns?
Mr. Coughlin: Well, senator, I think Mr. Nixon was wrong. I think that the 14 per cent return was a reasonable rate of return. I think if you look at the only comparables that are out there that would be British Airport Authorities. The British Airport Authorities are allowed to earn a 16 per cent return; and, in fact, if they are going to take new development like this was they are entitled to an 18 per cent return. So those are much higher than our 14 per cent.
The terminal business is a risky business. There are no guarantees that the construction of this terminal that was estimated to cost in the vicinity of 700 million would not have cost 800 or 850 million. If that had happened, that would have been our responsibility to fund it, not the government.
There are no guarantees that the retail tenants that exist within the terminal are capable of paying the rents that we forecasted. There is no guarantee that the passenger traffic will be what we forecasted, which is to a large extent the basis for income from a terminal.
I think it is interesting to see that Wood Gundy, who probably were the most - or certainly were in the financial field and certainly had an in-depth knowledge of what business was all about refused to enter this transaction because they did not feel that 14 per cent was a sufficient return.
I don't think it was excessive. I think, like Deloitte & Touche and even like the Department of Transport that the 14 per cent represented a fair return on this investment.
Senator Tkachuk: Did Mr. Nixon or any of his people talk to you or any of your people about this matter?
Mr. Coughlin: No, senator.
Senator Tkachuk: What was the projected return of T1T2 LP in the first 10 years?
Mr. Coughlin: In the first 10 years of this development we did not receive any cash whatsoever. This was during the development period. This was during the time in which we were investing money, roughly $700 million. During the first 10 years we did not receive any cash from this project whereas the government would receive $411 million on account of rent.
What the government really did in this transaction was they said to us, "Take our airport. Lease our airport from us for 57 years. Pay me more money than I could have made from operating it myself. Spend $700 million. Keep it is as a world-class facility for 57 years and at the end of 57 years give me back the keys." I don't think that is such a bad transaction for the Government of Canada.
Senator Tkachuk: Did Mr. Nixon or any of his people talk to you or any of your people on projected return?
Mr. Coughlin: No, senator.
Senator Tkachuk: I am going to ask you that after every question. I hate to be boring about this but I am going to do that. I just want to make this point so I am going to make it. I am going to overdo it a little bit.
Mr. Nixon stated that the return to the Crown was far from overwhelming. Do you think this is a fair statement?
Mr. Coughlin: As I said earlier, I think the return to the Crown was overwhelming. I think when you look at the testimony of the people that were involved in the transaction on the part of the government, Mr. Broadbent, Mr. Rowat, Mr. Desmarais and Mr. Joliffe felt that the return to the government was acceptable.
Deloitte & Touche, the government's own financial advisors, reviewed the transaction and felt that the return to the government was acceptable.
Price Waterhouse had done an analysis of the transaction and had determined that if the government operated itself it could probably earn approximately $600 million. We had agreed to pay the government a revenue stream valued at $850 million.
Senator, what I find really puzzling is that today in a Toronto courtroom the Government of Canada is defending a lawsuit on the basis - and their argument today is that we wouldn't have made any money any ways and that we are not entitled to any damages, because in reality we wouldn't have made any money. So how, on one hand, can the government argue in the face of a court that we would not make any money, yet, on the other hand, Mr. Nixon concludes that our revenue stream - or the government's revenue stream was far from overwhelming?
I believe, as I said before, it was a wonderful transaction for the government. They were paid more money than if they could operate it themselves. We brought it up to a world-class facility.
Let's not forget we didn't buy the terminal. All we did was lease the terminal. Ownership always remained in the hands of the people of Canada and at the end of 57 years it went back to the Canadian public.
Senator Tkachuk: You make reference to a court case. Is the Crown lawyer making that argument or do they have a witness testifying to that argument?
Mr. Coughlin: Mr. Desmarais is testifying - or in his deposition he has stated that in his opinion we would not have made any money. This was the individual who spoke to Mr. Nixon during his review.
Senator Tkachuk: I am going to ask you again: Did Mr. Nixon or any of his people talk to you or any of your people about the returns to the Crown and his statement "far from overwhelming" and did he discuss this issue with you at all?
Mr. Coughlin: No, senator.
Senator Tkachuk: Mr. Nixon stated that the rental stream contemplated by T1T2 LP was dependent on "aggressive pricing conducted essentially without government control and at the risk of making Pearson uncompetitive with comparative airports in Canada and the United States." Do you agree with that statement?
Mr. Coughlin: I do not agree. First of all, as part of the request for proposal, and certainly as part of a condition for closing, we had to submit our business plan to the Competition Bureau, which we did. That document was in excess of a hundred pages and that document generated for us an advance ruling certificate from the Competition Bureau that competition, in fact, existed.
Within the management and operations agreement that we signed with the Government of Canada, every pricing - every means of pricing is regulated by the government. The airline revenue is regulated on what we can charge. The retail leases are determined - are regulated through that management and operations agreement; and what we can charge for parking is regulated under that management and operations agreement.
Air Canada, which was the major tenant in this facility, which was going to pay 60 to 70 per cent of the revenue stream through the form of their lease agreed to that and signed a long-term lease. So if the major tenant, Air Canada, agreed to the pricing formula and agreed to the development scheme, how could Mr. Nixon conclude that the prices were going to be excessive when the tenants that were going to pay them thought they were appropriate?
The problem here isn't that Toronto is going to become uncompetitive because of pricing; the problem is that if Pearson isn't fixed up, the entire airport is going to become uncompetitive compared to Pittsburgh, Chicago, compared to the new airports; and I believe that is what the executives from Air Canada testified to this inquiry.
Senator Tkachuk: Did Mr. Nixon talk to you or any of his people talk to you and any of your people regarding aggressive pricing and the problems that would be concurrent with that?
Mr. Coughlin: No, senator.
Senator Tkachuk: In his report he was highly critical of the so-called monopoly that Pearson Development Corporation would have at Pearson.
Senator Kirby: Which report?
Senator Tkachuk: In the Nixon report.
Senator Lynch-Staunton: Version one or version two?
Senator Tkachuk: The official version.
Were there any constraints imposed on T1T2 LP's ability to charge airlines and other users?
Mr. Coughlin: Absolutely, senator. As I testified earlier, in the management and operations agreement that we signed with the Government of Canada the entire pricing policy had been laid out for the government's approval and they had accepted it. Any change to that pricing policy would have required the consent of the Government of Canada, as well as, I believe, the Competition Bureau. So the entire pricing structure for our transaction had been laid out, had been accepted by the tenants and also was constantly under the supervision and direction of the Government of Canada.
Senator Tkachuk: Did Mr. Nixon or any of his people talk to your corporation, any of your people, about the problems, potential problems with a monopoly at Pearson Development Corporation?
Mr. Coughlin: No, senator.
Senator Tkachuk: Were there any advantages to common ownership?
Mr. Coughlin: In my opinion, there were major advantages to common ownership. There are tremendous synergies. There are operating synergies. For example, there is no need to have two snow clearing contracts. There is no need to have two window cleaning contracts. If you have the ability to negotiate one contract for the entire operation, it produces significant cost savings. Those cost savings flow directly to the tenants, to the airlines.
There is tremendous financial synergies. To be able to use the entire airport as a way of raising money, of financing, is a very important synergy and one that common ownership gives.
But the most important advantage of common ownership is your ability to deal with your tenants. For example, as we know, in the airline industry today, every major airline is forming alliances. Air Canada is forming alliances with Air France. They are forming alliances with United Airlines. The airport has to be able to accommodate those alliances.
Today, United Airlines is a tenant in Terminal 3. Air Canada is in Terminal 2. United can't move to Terminal 2 because of its lease in Terminal 3.
That is a major hindrance and major restriction on the ability of Toronto as an airport to function. Common ownership would allow that to happen and it would allow us to accommodate the movements in the airport industry and allow us to make this airport a world-class facility that could meet the needs of its tenants and can allow it to grow.
Mr. Vineberg: I should add that very late in the negotiation process, in anticipation of taking over Terminals 1 and 2, we as owners of Terminal 3 allowed Air France, at the request of Air France and Air Canada, to move to Terminal 2, at considerable cost to Terminal 3. Air France is today in Terminal 2 paying rent to the Crown.
The Chairman: Could I have a supplementary?
Senator Tkachuk: Sure.
The Chairman: With the new airport authority in Toronto, and what lies ahead of them by way of a challenge, and because of persistent rumours, and because of the synergies which you have just described in common ownership, have there been any advances made to you to sell Terminal 3 to the local airport authority in Toronto?
Mr. Coughlin: I had a meeting with Mr. Sid Battle, who was, prior to last week, the chairman of the local airport authority. We have had discussion but we have had no serious discussions about the sale of Terminal 3.
The Chairman: But it's ongoing?
Mr. Coughlin: No, sir, there are no discussions.
The Chairman: But it makes sense, doesn't it.
Mr. Coughlin: There are no discussions. I think the LAA has a bigger hurdle in front of them. I think they have to address the question of where are they going to raise the $700 million. A local airport authority does not have equity; it doesn't have money. It's either going to have to get a government guarantee or it's going to have to find a way to finance that transaction.
Unlike our proposal, which I don't believe passes any cost on to the travelling public, I would suspect a passenger facility charge in the range of $10 to $15 would not be out of the question in Toronto in order for them to undertake a $700 million to $800 million development.
But, senator, we have had no serious discussions on the sale of Terminal 3.
The Chairman: Thank you, Dave.
Senator Tkachuk: Mr. Nixon was also critical of rent deferral in years two, three and four. In particular, he stated that as a result of the deferral the rent to the government would be substantially less than that currently received. Do you believe that's fair?
Mr. Coughlin: No, sir. No, senator. I think it's important that we put this in perspective.
Senator Tkachuk: I'm trying.
Mr. Coughlin: The Paxport proposal, like our proposal, said - the government came out initially and said we want to earn as much money as we're earning now. So both the Paxport proposal took all of the existing cash flow that existed within the terminals and turned that over in the form of ground rent to the Government of Canada. The only way that anyone could justify a $700 million or an $800 million was to get additional revenue stream from the airlines. Air Canada was not in a position at that time to pay increased rent. The reason for that is it was 1992; they were having their own financial difficulties. They were struggling and it was a hard time.
So what we were trying to do is balance the fact that Air Canada could not afford to pay increased rent at that time; the need, on the other hand, to commence construction immediately so that the airport would be in a position to deal with increased traffic down the road. And the government came to us and they changed the Paxport proposal. We didn't change it. They changed the Paxport proposal by saying, "All right, you have to spend $340 million without a new Air Canada lease." We said, like I think any business person would say, "We need a return on that." I asked for an $11 million waive. I didn't want to pay. I wanted to reduce the ground rent in order to justify a $340 million development. The government eventually came and said, "No, we're not going to waive it, we're going to defer it and you're going to have to pay us back over the next ten years at interest at prime plus 2.5." That's the most interest I've ever paid in my position.
So the government's revenue stream, whether you account for it on accrual basis, it didn't diminish; it remained the same. In fact, we could argue that because of the interest it even grew.
But senator, I think the point is that if the government had spent the $100 million, if the government had spent the $340 million, their revenue stream wouldn't be what it was today, what they are earning today from the terminals. Terminals 1 and 2 today earn about $24 million to $25 million. If the government undertook a $100 million or a $200 million development plan, their revenue stream would shrink to zero because they would be using that cash flow to finance a development. Under our plan, we paid them $28 million a year and did the development. So the revenue stream to the government did not diminish by the deferral. We paid it back over the next ten years at interest at prime plus 2.5.
Mr. Vineberg: Peter suggested that this question of rent deferral be put into a sense of perspective. We've heard numbers kicked around like $850 million, $900 million, all of which are present value, which is an easy thing for an accountant to think of. But in terms of real dollars, let me read to you the ground rent that would have been payable to the Crown in the first ten years, bearing in mind that they're making today probably $25 million out of Terminals 1 and 2: $28 million, $18 million, $19 million, $20 million. They're the first four years during which Air Canada would not have paid any additional rent. Now the rent goes up to the airlines, and listen to how the ground rent goes up: $39 million, $58 million, $63 million, $80 million, $86 million, $98 million - real dollars, not present value. So at the end of ten years the Crown would have received $510 million; not present value, real dollars.
Senator Lynch-Staunton: At the end of ten years?
Mr. Vineberg: Yes. And during that time - and I believe that Mr. Stehelin testified to this effect - it is likely that the shareholders of PDC and partners of T1T2 LP probably would not have received any dividends, (a) because of the constraints put on us to retain cash in the partnership and, (b) probably because of covenants required by lenders. I think this is a great return for the Crown.
Mr. Coughlin: Senator, as far as a deferral, the Vancouver LAA has a six-year, $40 million rent deferral, and I believe that the Montreal local airport authority has a rent deferral as well. Why do they have a deferral? Because they had to spend millions of dollars to do a development. So all we were asking for was something that I think in a business sense was reasonable. The government took a very hard stand on it. They refused to reduce our ground rent and what we ended up with was simply a three-year deferral paid back over the next ten years at interest plus prime plus 2.5.
Senator Tkachuk: And did Mr. Nixon or anybody in the inquiry discuss the matter of ground rent with you - the matter of the rent deferral with you and any of your people?
Mr. Coughlin: No, senator. I think when we first had our meeting during that hour, I think during that hour we had a brief discussion on the rent deferral issue; during that one-hour meeting, but after that we had no intense discussions at all about this rent deferral.
Senator Tkachuk: Well, we found one. That's good.
Mr. Nixon was also very critical of the fact that the government precluded itself from developing other airports within a 75 kilometre of T1T2 until passenger volume reached 31.5 million people. Could you tell me how this number was arrived at and why did you insist on the clause? Or did the government insist on the clause?
Mr. Coughlin: Again, that number was part of the Paxport proposal. The original Paxport proposal that the government accepted had a passenger threshold of 38 million to 39 million passengers. The government would not accept that. It was their belief that our facility could not handle that number of passengers. We felt it could, but in negotiations that number came down to 33 million passengers.
Why we needed it, senator, is similar to the local airport authorities who, I must point out, have the same provisions in their lease. All the local airport authorities have the same provisions in their lease. And what we needed it for primarily was to finance the transaction. We were having constant discussions with our lenders. We were seeking their approval, I guess, on the terms that we were negotiating because we needed to finance this transaction. And they were as concerned as we were that the government, once allowing us to spend the $700 million in developing Pearson, wouldn't turn around and start their own airport and develop their own airport.
Remember, the government always kept control of where the planes could land. We had no control over where the planes could land. The Government of Canada had in their capacity the right to develop Pickering, for example, and say to Air Canada, "You have to fly to Pickering." That was a problem from a financial point of view, and so we needed some protection from our lenders, as well as for ourselves, that if we were going to go out and spend $700 million to $800 million plus, I must tell you, other millions of dollars to keep the facility at a world class facility, we wanted to ensure that passengers were there using the facility.
I think it will be the same, if I could - if someone is going to buy Canadian National Railroads, I wouldn't be surprised if the people that buy Canadian National Railroads is going to ask for some sort of commitment that the government doesn't go back into the railroad business and start subsidizing rates. It's the same thing. It's the same comfort that would allow us to go out and finance this transaction and for us to earn a reasonable return.
Senator Tkachuk: Did Mr. Nixon talk to you or any of your people about the issue of the 75 kilometre radius restriction?
Mr. Coughlin: Senator, this again was one of the things he mentioned in the one-hour meeting, but we had no intense discussions about it after that.
Senator Tkachuk: So what did he say, like, "What do you think?", or what did he say?
Mr. Coughlin: He asked the same question as you, senator, why did we want it. We gave him the same answer.
Senator Tkachuk: I've got quite a bit here, so when I got half an hour, let me know, or whatever, or at least as much time as the other people had.
Mr. Nixon was critical of the transaction in that he stated that the lease does not restrict the freedom of T1T2 - maybe we took this question up, but I'll ask it again - to carry out other undertakings and, as a result, could be adversely affected by other ventures. You've already answered that question.
Mr. Coughlin: I think Mr. Vineberg answered the question. It was Senator Kirby's question. Basically, what the government wanted to make sure was that T1 or T2 or Pearson Development Corporation, during the first ten years, didn't get into another line of business, didn't incur additional liabilities outside of the airport and jeopardize the assets, so we agreed with that.
Senator Tkachuk: Did Mr. Nixon talk to you or your people about this issue?
Mr. Coughlin: No, senator.
Senator Tkachuk: Mr. Nixon was also critical of the transaction in that he said the agreement provides only modest constraints against self dealing. Can you comment on - what does this mean?
Mr. Coughlin: I think what it was meant -
Senator Tkachuk: Or what did he mean?
Mr. Coughlin: I think what he meant, and I can't speculate -
Senator Tkachuk: Well what do you think he meant?
Mr. Coughlin: I think what he meant was that there would be arrangements within partnership which would not reflect market conditions or be at market terms. We, I think in the letter around November 25th of '93, agreed that all contracts that would be undertaken on behalf of Pearson Development Corporation would be on market terms and on market conditions. I must tell you, I had no intention not to have contracts that were on market terms and market conditions, even within the agreement. I think the agreement for gross revenues provided that even if there was an agreement that was deemed to be not market, it would be considered market for gross revenue purposes so that the government could earn their share of that revenue stream. But there was no contracts or never any intention to have a contract that would not be on market conditions.
Senator Tkachuk: And did Mr. Nixon bring up the point of self dealing with you in your conversation with him?
Mr. Coughlin: Again, I think Mr. Nixon mentioned to me - under the Paxport proposal there was some associations with Allders, a lease with Allders. There was an agreement with Bracknell to provide services. I assured Mr. Nixon that those contracts would be on market terms.
Mr. Vineberg: Could I just interject, senator, because there is another point in relation to the question that you just asked. What Mr. Nixon said, and just to quote, is that the agreement provides no ability to modify contracts in existence before October 7. The fact is that the government had the right to approve, and did approve, every single contract we entered into before October 7. The reason the contract doesn't provide for it is that it was already done and there was no need to foresee what they might have to do in the future.
Senator Tkachuk: T1T2 development agreement obligated T1T2 LP to operate Terminal 1 until 1999, and Mr. Nixon was critical of the fact that the government was obliged itself to pay one-third of any excess over $15 million in keeping the terminal open. How did this clause come about?
Mr. Coughlin: Well, senator, in the request for proposal there was no requirement to keep Terminal 1 open. Both proponents - but we were only dealing with Paxport at that time, the Paxport proposal basically was going to shut down Terminal 1, or at least not invest money in it because in the long term Terminal 1 was going to be replaced with a brand new facility. So it didn't make a lot of business sense to pump in a lot of money into a facility that you were going to demolish the next year or the year after.
The government changed that. They required us to keep Terminal 1 open. We made that argument to them that we did not want to have to invest a lot of money into a facility that we were going to tear down eventually. The government would not agree to that and we arrived at a compromise whereby we would spend $15 million to keep it open and operated. I think, as Mr. Desmarais has testified, in their own estimates they only felt that $10 million or $11 million was necessary, so the government protected themselves that they would never have to go into their pocket, but if in fact it did go over $15 million, they would have to pay a proportion of that.
What I think is important is that the big money in Terminal 1 is not in the facility; it's in the garage, and the government took that out and they made the garage our responsibility, and that's where the big money was. So the government relieved themselves of the obligation to fix the garage at Terminal 1 and obligated us to pay $15 million to keep the facility open which was - I didn't know at the time, but through Mr. Desmarais' testimony, $4 million or $5 million more than what they estimated the cost would be.
Senator Tkachuk: And did Mr. Nixon discuss this issue with you?
Mr. Coughlin: No, senator.
Senator Tkachuk: The $15 million issue?
Mr. Coughlin: No, senator.
Senator Tkachuk: Under what circumstances could T1T2 LP charge a passenger facility charge?
Mr. Coughlin: In my opinion, there was no condition where we could charge a passenger facility charge. There is a scenario developed within the proposal whereby if the lead tenant, or if Air Canada - remember Air Canada being the major tenant paying 60 to 70 per cent of the cost - was bankrupt and was not able to pay us rent, and the government wanted us to continue to build, then we would have the right to request a passenger facility charge. The reason we wanted it simply was if we were going to spend $100 million or $200 million, and if the airlines weren't going to pay us rent, we would need something to justify it. But common sense has to dictate. If Air Canada has gone bankrupt, if Air Canada is not in a position to pay rent on that facility, it's hard to imagine why anyone would want to go in and spend more money. So the likelihood of a PFC, to me, is quite remote and, under our development scheme, I could never see that possibility at all.
Senator Tkachuk: But you'd still have to ask the government permission to do that, right?
Mr. Coughlin: We never had a right to impose, unlike the local airport authorities that can simply impose a passenger facility charge, have no rights to impose a passenger facility charge. We would have to request it from the government. There was a time period allowed in the documents where they would review it and then they would come back. And under that scenario, senator, the passenger facility charge would only be for the new development, so if I had spent $400 million and Air Canada was paying rent to me to justify the $400 million and Air Canada went bankrupt and the government said, "Go ahead and spend another $200 million and I'll give you a passenger facility charge", that passenger facility charge was only for the $200 million. I still would have been out of pocket, or at least I wouldn't be getting a return on my $400 million.
Senator Tkachuk: Did Mr. Nixon discuss passenger facility charge with you?
Mr. Coughlin: No, sir.
Senator Tkachuk: Mr. Nixon was critical of the deal and stated that the cost to the airlines would rise very substantially by comparison with today.
Mr. Coughlin: Well, again I disagree with Mr. Nixon. I don't know what he had in mind, but certainly the entity that was going to pay the largest share of that increase, being Air Canada, agreed to a long-term lease in which they accepted the fact that their rent would increase. Today, Air Canada pays in rent roughly $2.50 a passenger compared to the airlines in Terminal 3 that pay roughly $7 a passenger. So Air Canada's rent is well below Terminal 3. It's well below what market rents would be in North America - comparable market rents in North America. I don't know how Mr. Nixon could make that statement when the lead tenant who was going to pay that cost signed a long-term lease accepting that rent increase. And it certainly, as Air Canada has testified, would not make Pearson non-competitive. Not developing Pearson and leaving it in the state that it's in today is going to make it non-competitive.
Mr. Spencer: I might add, and I don't know if it's obvious, that for the first four years of the development Air Canada would continue to pay under its existing lease, and therefore there would be no increase to Air Canada. And then the increases would come in over a stepped period until, by the end of year nine or year ten they'd be paying about $7. It's not as if they'd be paying $7 in year one, two, three. They'll go two, two, two, three, four, five.
Senator Tkachuk: And they'd be paying about the same as Canadian is paying over in Terminal 3?
Mr. Spencer: They'd be paying about the same, yeah.
Mr. Coughlin: Ten years from now they would have been paying what Canadian pays today in Terminal 3, and what Air Canada pays today at O'Hare and in other airports in North America.
Senator Tkachuk: Mr. Nixon also was very critical of the transaction, stating that charges by retailers to the travelling public would be excessive.
I'm asking you all these questions because I'm going to go through the Nixon report. So I'm asking you to comment on each one or, if I ask you a specific question, I'll ask it specific. But in this case I want you to comment on that.
Mr. Coughlin: Again I disagree with Mr. Nixon, and I don't know exactly what he had in mind when he wrote that, but first of all in the management and operations agreement, what the retailers could charge to the public was limited, and that was an agreement that we reached with the Government of Canada. But an airport is not, what I'll say a monopoly. Just because you sell things in an airport doesn't mean that you can immediately pass that on. An airport retail section is quite competitive with any other retail section and if retailers in the airport tend to charge too much, people won't buy.
I can tell you from my Terminal 3 experience that in the beginning the retailers in Terminal 3, their prices were high, they tried to pass those prices on, but the consumer is not an unsophisticated consumer. He's sophisticated; he doesn't buy. And the result of that is that we had to redo most of the leases in Terminal 3 to bring them down to a market rent because the retailers had to charge market conditions.
I don't know what Mr. Nixon had in mind. We were constricted under the management and operations agreement and I think there exists strong market conditions within the economy to keep the retail in line with market conditions.
It's just like parking. We have very expensive competition with off-site parking. Off-site parking is a major competitor to airport marking, and if our parking rates are too high, we lose a significant amount of traffic and of income to off-site parking. So to think that an airport is a monopoly where you simply just send the bill out and they pay is far from the truth. It's a very competitive environment. The airport competes against other airports and it also competes against other dynamics; off-site parking and other retail in the area.
Senator Tkachuk: Did Mr. Nixon discuss the question of the cost to the airlines and the charge and the fact that retailers would be charging consumers too much with you?
Mr. Coughlin: No, senator.
Senator Tkachuk: The transaction has been criticized for not containing a cancellation clause. Was that ever discussed; cancellation clause?
Mr. Coughlin: No, senator, it was never discussed.
Senator Tkachuk: Was it discussed when you were doing the agreement? I'm not talking about Nixon.
Mr. Coughlin: No.
Senator Tkachuk: Was it discussed with Nixon?
Mr. Coughlin: It was never discussed with the Government of Canada or with Mr. Nixon.
Senator Tkachuk: Mr. Nixon in his report was critical of the definition of gross revenue on which rent would be based, stating that the deductions from gross revenue were unusual. Could you explain to us what this clause is all about and why the deductions were unusual, or were they unusual?
Mr. Coughlin: Well let me just tell you in a layman's term and then perhaps Mr. Spencer could elaborate on that. In a general sense there were two principles of the exclusions of items from gross revenues and those two principles were that we did not pay to the government a percentage of revenue on money that we collected for other individuals. For example, taxes; if we collected taxes and paid them out to the government, we did not pay the government a percentage of that as gross revenue, and if they were one-time unique payments, payments that didn't happen every year, we did not pay gross revenue.
Senator Tkachuk: What would be an example of one-time unique payments?
Mr. Spencer: Insurance. But I think there were about ten examples in the ground lease. I won't go through the whole ten because I'll bore the pants off you, but examples such as bad debts. Revenue for the purpose of ground rent was reduced by bad debts. It was also reduced to the extent that, according to the definition of gross revenue in the ground rent, it included what accountants refer to as extraordinary items or exceptional items. These items are generally not included in the definition of revenue according to generally accepted accounting principles and I was satisfied, during our review, and during lengthy discussions with Transport Canada's financial people and advisors, that the final definition of gross revenue was appropriate. Not only did we discuss it with Transport Canada and their outside advisors, I think there were financial representatives from other government agencies who were asked to look at the specific deductions. They're not unusual and I stand by that, and I was very surprised to read that in the report.
Senator Tkachuk: Did Mr. Nixon discuss that issue with any of you?
Mr. Coughlin: No, senator.
Senator Tkachuk: More important, did his accounting group that he hired, his consulting accounting group?
Mr. Spencer: We never met Crosbie and Company.
Senator Tkachuk: They never talked to you?
Mr. Coughlin: We never met with Crosbie.
Senator Tkachuk: They never said, "How come you got this"?
Mr. Coughlin: We never met with them.
Senator Tkachuk: You never met them.
Mr. Nixon in his report was critical of the 57-year term saying it was too long. How was the 57 years arrived at? That includes the option, right, the 57 years?
Mr. Coughlin: The RFP really had a 60-year term in it, and I think, as individuals from the Treasury Board, and I think from Transport, have testified, that that was a standard provision in most government leases. From my perspective, I can tell you it's very important to be able to finance. To be able to finance this transaction you have to have a sufficient period of time to be able to generate revenue to pay back the person who has lent you that money. So the 60 years, I think, allows us to finance the transaction. It's in line with government policy. It became 57 years only so that it coincided with the Terminal 3 lease because, remember, we weren't buying the terminals, we were just leasing the terminals. We just lease the land. The government owns the land; we lease the terminals. So at the end of 57 years the government wanted to get back not only Terminals 1 and 2 but Terminal 3, so that's why it became a 57-year lease.
Senator Tkachuk: Really the financial institutions needed this to be based on revenue rather than asset value.
Mr. Coughlin: That's correct. And as Mr. Stehelin I think testified, the difficulties that he was having with, I believe, it was - was it Scotia Plaza or Scotia Tower in Toronto on a land lease? A land lease is something that lenders are very nervous about because they don't own the land and at some point the building and everything that's on top of it goes back to the owner of the land. So the 60 years was something that I believe the government felt, on their own right, was a term that would allow the developer to finance this transaction.
Senator Tkachuk: Did Mr. Nixon talk to you about the 57-year lease?
Mr. Coughlin: No, senator.
Senator Tkachuk: Mr. Nixon, in his report, criticized the maintenance and upgrade obligations imposed upon T1T2 LP and his criticisms were twofold; first, because the clauses imposing these obligations were general and, second, such obligations were dependent, at least according to Mr. Nixon, upon T1T2 LP recovering its costs from users.
So could you help us through that and describe the maintenance and upgrade obligations imposed on T1T2 LP and tell us whether you agree with Mr. Nixon? Obviously you don't, but tell us why.
Mr. Coughlin: I disagree with Mr. Nixon. I think, as Mr. Broadbent testified earlier, we had a lot of discussions about what Mr. Broadbent referred to as the stewardship provisions, and that was a provision that was put into the agreement that basically established standards for a world class facility. What the government wanted to ensure was that Pearson Development Corporation would always maintain this airport as a world class facility. And so we set up a mechanism where I believe every three years an audit would be undertaken by an independent body, and if that body determined that things had to be done to that terminal, Pearson Development Corporation was obligated to do it. It was a requirement under the agreements. If we failed to do it, we would have been in breach of our agreements and we would have lost not only Terminals 1, 2 and 3.
So that stewardship provision is much more stringent than what the government does with their own airports today. And the government is not bound by what I would call a third party independent auditor. So I believe that the government built, within this contract, excellent safeguards to ensure that Pearson Development Corporation maintained that facility.
We did that with no additional revenue. That was the existing structure, that's the existing - after we spent $700 million we had to keep that facility at a world class facility. We had to put in new elevators. We had to put in new walkways. We had to put in new windows. We had to put in anything that third party auditor said we would have to do. The only incident where we would have been able to earn money, or at least ask for money, was if we had to expand the facility; if we had to go out and build a whole new section of the terminal, a brand new pier at a cost of $200 million or $300 million. That was dependent upon generating revenue. But it was only new additions that required additional revenue stream. Maintaining the existing, or at least the finished product, the $700 million, $800 million finished product was not subject to any additional revenues and was a firm obligation on the part of Pearson Development Corporation.
I must say, those costs are not part of the projection that generates the 14 per cent return. And as Mr. Stehelin testified, and as I believe, those costs are going to be there and the end result is that they were going to diminish the 14 per cent. They were going to make it less than 14 per cent because it's hard to imagine - there isn't anything that you can maintain or run for 57 years that doesn't require some money being expended.
That was an obligation. I don't know how Mr. Nixon could have concluded that that wasn't sufficient.
Senator Tkachuk: Where did he get the world "general" from? Did it come from a contract? Was there something that said "general maintenance and upkeep" like in a janitorial contract, or did he just sort of make it up?
Mr. Coughlin: I can't speculate what Mr. Nixon thought. As Mr. Broadbent testified -
Senator Tkachuk: So this word "general" was a conclusion?
Mr. Vineberg: Yes it was, senator.
Senator Tkachuk: Did he discuss this issue of maintenance and upgrading with you?
Mr. Coughlin: No, senator.
Mr. Vineberg: Senator, can I just add, it may be of interest for you to know that I believe that this clause in the contracts for T1T2 Limited Partnership is far more stringent upon the developer and far more beneficial to the government than that exists in the lease with any of the LAAs for any of the other airports in Canada.
Senator Tkachuk: And Mr. Nixon was also critical of a provision in the contract that allowed for a tax saving of 10 million bucks. I found this unusual, but can you explain this just for the benefit of all of us - the 10 million bucks that he talks about, he's critical of it - and comment on it?
Mr. Spencer: Finance guys have a responsibility to try to save tax and -
Senator Tkachuk: I would hope so.
Mr. Spencer: In consultation with external and internal tax advisors, the structure of the ownership of T1T2 took into account a number of tax planning opportunities, one of which was to save an amount of land transfer tax. I think there's a good argument that we would have been lacking in our responsibilities had we not tried to save taxes for the benefit of the shareholders of PDC, some of whom are public companies. What I haven't seen written about anywhere is the amount of tax that would accrue to the Crown as a result of profits from PDC from this contract. Estimates vary internally in the order of $200 million present value or $1 billion over the life of the scheme; very, very substantial flows of tax revenue to the Crown which I don't believe are included in the figure of $843 million which has been bandied about as the value of this project to the Crown. The $843 million is the present value of the ground rent payable by the tenant, less some adjustments.
Senator Tkachuk: I believe Mr. Stehelin made reference to the fact that there were accrued taxes.
Mr. Spencer: So yes, there were taxes saved by the partners on the establishment, but once this project was up and running, after the development period, and taxable income started to be earned in the partnership, there would have been a very substantial flow of both federal and provincial tax to the authorities.
Senator Tkachuk: So this was like a municipal tax of ten million bucks?
Mr. Spencer: Provincial tax.
Senator Tkachuk: So there wasn't anything sort of untoward or illegal?
Mr. Coughlin: Senator, there was nothing illegal about this.
Senator Tkachuk: This is just sort of something you do in business, right?
Mr. Coughlin: There's nothing illegal about this and it's nothing different than what any Canadian corporation or, I'll even slash individuals, might do in trying to be as tax effective as possible.
Senator Tkachuk: Did Mr. Nixon talk to you about this at any time?
Mr. Coughlin: No, senator.
Senator Tkachuk: He didn't phone you?
Mr. Coughlin: No, senator.
Senator Tkachuk: About this ten million bucks you should be paying in taxes?
Mr. Coughlin: No, senator.
Senator Tkachuk: Mr. Nixon was critical that the LAA concept was not being used in Toronto. Did the T1T2 contracts contemplate an LAA?
Mr. Coughlin: The contracts contemplated the situation where the local airport authority would take over the role of the Government of Canada under our lease. So they would become our landlord. They would be the ones that we would be seeking approvals from. They would essentially take over the role of the government and be the one to which we would have to report to on a daily basis to gain approval on any type of action or activity that we wanted to pursue at those terminals.
Senator Tkachuk: So now comes to the big question: What did you talk about with Mr. Nixon, outside of those, I think two items, maybe it was three, of all the questions that were asked where you said he kind of brought it up - three areas. What did you talk to him about? What did he ask you in the hour you had? Who was all there?
Mr. Coughlin: Mr. Vineberg, Mr. Spencer, myself, Mr. Nixon and his lawyer, Mr. Goudge. And there was one other individual.
Senator Tkachuk: Mr. Goudge, that's a hell of a name for a lawyer. How do you put that in your phone book, in the Yellow Pages?
Mr. Coughlin: Mr. Nixon had an assistant who was there as well.
Senator LeBreton: Brad Wilson?
Mr. Coughlin: It may have been Brad Wilson.
Senator Tkachuk: Was there notes being taken during this? Anyway, let's first go through the first question. We found out who was there. What did you talk about?
Mr. Coughlin: We spent basically an hour talking about, I would call it three specific things. Mr. Nixon was interested in the role of government advisors, who we had engaged, who our partner or Paxport had engaged, what did they do for us.
Senator Tkachuk: Lobbyists you're talking about?
Mr. Coughlin: Lobbyists.
Senator Tkachuk: Right to the point he got, eh?
Mr. Coughlin: What was and what could be the role of a local airport authority under the contracts; was there room for a local airport authority under our contracts. We expressed to him our willingness on the part of Pearson Development Corporation to work with a local airport authority. I informed him how in fact a local airport authority was going to be my partner in Claridge's bid and how that local airport authority couldn't get together in time to submit a bid. And he asked questions about the partnership; how did we get together, how did Paxport and Claridge come together, did we speak before the awarding of the bid.
Senator Tkachuk: He asked you that?
Mr. Coughlin: I believe he did, senator, yes. And then he briefly touched on what I would call the issues that had been raised in the paper; the 75-mile radius, the passenger facility charge, the financability, but just on a - rent deferral; the issues that I guess had been highlighted in the newspapers. And we tried to answer him as we've answered you and gave him the explanations of why they were there. But he was more concerned about those first three issues than I think he was of the latter.
Senator Tkachuk: Was more concerned about the lobbyists?
Mr. Coughlin: About the role of the lobbyists, about how the partnership got together, and what possible role could a local airport authority play at Pearson.
Senator Tkachuk: So after the one hour and you all left the room, how did you feel; the sky was falling or pretty good or what?
Mr. Coughlin: Well, senator, as I said in my opening statement, I was assured that this review would be fair and equitable, and it was on that basis that we allowed the extension. We were confident that if it was given a fair and equitable hearing, that the transaction would go through. When I left that meeting I really thought that it was just a preliminary meeting. I really thought that I would be in Toronto for the next two to three weeks taking Mr. Nixon and Crosbie and company through the 60 various documents trying to explain to them why the provisions were what they were. And I just anticipated that we would have a number of meetings. I must tell you, two or three weeks into the process when I had not heard from Mr. Nixon, I became very concerned.
Senator Tkachuk: Was there notes taken, well first I'll ask, by your group at that meeting? Were you taking notes or someone taking notes at that meeting?
Mr. Coughlin: Yes, senator.
Senator Tkachuk: Was someone taking notes in Mr. Nixon's group?
Mr. Coughlin: My recollection is that Mr. Wilson - if it was Mr. Brad Wilson - he was taking notes.
The Chairman: Senator Tkachuk, you had a pretty good roll.
Senator Tkachuk: Yeah, I did. Just one more question here.
Did you get any questions in that one hour about Mr. Matthews?
Mr. Coughlin: I guess when Mr. Nixon was talking about the partnership and the formation of the partnership we certainly had discussions about Mr. Matthews, but Mr. Matthews - Don Matthews really did not play much of a role in the negotiation process. That was left really to Jack Matthews, myself and Mr. Spencer. But he did ask some questions about Mr. Matthews, but I can't -
Senator Tkachuk: Which Mr. Matthews; Don Matthews?
Mr. Coughlin: Mostly Don Matthews.
Senator Tkachuk: What did he ask?
Mr. Coughlin: He asked how involved was he through the negotiations, did he participate in the negotiations, how did the partnership come about.
Mr. Spencer: I think he asked also whether he and Jack Matthews were directors of PDC.
Mr. Coughlin: Whether they were directors. He asked about Matthews Contracting and the role of that.
Senator Tkachuk: Maybe we'll ask Jack when he gets here.
Okay, I think I've had, as you say, a pretty good roll. Thank you very much for this, Mr. Chairman.
The Chairman: I hope I'll be as generous to Senator Stewart and to Senator Jessiman, but we'll adjourn now for seven o'clock. Gentlemen, if you'll return. Thank you very much.
The committee recessed until seven o'clock p.m.
Ottawa, Tuesday, September 12, 1995
The Special Senate Committee on the Pearson Airport Agreements met this day, at 7:00 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: All right, come to order, please.
Before we begin the questioning tonight - we finish at 9:30. Before we begin tonight - is there anything that you wish to add to your testimony this afternoon before we start the questioning? Is there any additional -
Mr. Peter Coughlin, President, Claridge Properties Ltd.: No, senator.
The Chairman: All right. I think that Senator Stewart, then -
Senator Stewart: Thank you, chairman.
Chairman, I think my questioning will not take a great deal of time. I want to encourage you.
First, let me ask, what lobbyists were employed by or on behalf of the Airport Terminal Development Group?
Mr. Coughlin: Senator, we had four firms employed. We had Earnscliffe; we had Capital Hill Group; we had Government Policy Consultants; and we had Government Consultants International.
Senator Stewart: Now in each of those, whom would you regard as your point person?
Mr. Coughlin: For Earnscliffe, we had discussions with Harry Near and Bill Fox. At the Capital Hill Group, I guess Herb Metcalfe; at Government Policy Consultants, Pat Ross; and at Government Consultants International, Ramsay Withers.
The Chairman: Could I ask a supplementary, Senator Stewart?
Senator Stewart: Sure.
The Chairman: We have Mr. Pat Ross coming before us, Government Policy Consultants. That's Jon Jonsen's firm.
Mr. Coughlin: That's correct, senator.
The Chairman: Were they involved in anything with respect to T1T2, or were they involved in the original Terminal 3?
Mr. Coughlin: They were involved in the original Terminal 3. They were also involved in - I'll call it the Airport Terminal Development Group's bid for Terminals 1 and 2.
The Chairman: But not involved in -
Mr. Coughlin: And they were involved with our group up to October 7th. Beyond October 7th, they were not involved.
Senator Stewart: October 7th was -
Mr. Coughlin: The closing of 1993.
Senator Stewart: Could you give us the time bracket in which you employed - I'm not asking for specific dates, but give us the time bracket in which you thought it was worthwhile to employ these lobbyists.
Mr. Coughlin: Most of these lobbyists, except for the Capital Hill Group, were part of the Huang & Danczkay organization. When we bought into Terminal 3, we bought in to the Huang & Danczkay organization. Those lobbyists had contracts with that organization.
When our partnership divided, when we separated from Huang & Danczkay, we kept those contracts in relation to Terminal 3. Terminal 3 is a significant asset for us, a significant monetary value. It is significantly influenced by government policy, both in the sense that the government is our landlord, as well as that the tenants, our major tenants being the airlines, are significantly influenced by government policy. So we kept those firms on contract.
Senator Stewart: Now, in the period during which the government was preparing its Request for Proposals, did you or your counsel or anyone - your lobbyists or anyone on your behalf - make an effort to persuade the government to have financial criteria included among the criteria to be used in evaluating the proposals?
Mr. Coughlin: What period would this be, senator?
Senator Stewart: As I say, when the government was preparing its Request for Proposals, did you think that financial criteria were relevant and, if so, did you one way or another put your case before the government that financial criteria should be considered?
Mr. Coughlin: Senator, leading up to the RFP, I guess it would have been the latter part of 1991, the early part of 1992. We had just opened Terminal 3. We had opened it in the middle of a recession, in the middle of - certainly we opened it at the commencement of the war in passenger traffic. What we had in Terminal 3 was far below what we had anticipated and what we had forecasted. We were presenting to the government the option of closing Terminal 1 and allocating that traffic to Terminal 3 and Terminal 2. The reason for that was simply that we wanted the unused capacity that existed in Terminal 3 used up before the issuance of the RFP.
Senator Stewart: Yes, but quite aside from that factor, do you think that financial criteria are relevant in evaluating a proposal of this kind, a proposal of the kind that was being sought by the government?
Mr. Coughlin: Senator, yes, and I think, as we've heard from Mr. Desmarais and as I've heard from a number of government people, that the way the financeability was handled in this bid was very similar to the way financeability was handled in a number of government bids. I know, for example, that I think the PEI bridge was handled in the same way. There was a bidding process, and once that was over, each of the bidders then had to prove financeability. So when Paxport was awarded or at least deemed best overall subject to financeability, I thought that was very much in line with what other government bids had been.
Senator Stewart: Yes. So you did not think that finance criteria should have been included?
Mr. Coughlin: Well, I mean, I think it really was. I mean, I think there was obviously a requirement to prove financeability. It's a question, I guess, if it was one step or two steps. Certainly the Paxport bid, the government deemed Paxport to be the best overall, but subject to financeability.
Senator Stewart: Here's my problem. I don't know whether I should sympathize with you or not. Tell me if I shouldn't. Here's my problem.
You are confronted with a request for a proposal. You will of course make a proposal which you think is appropriate to the needs, but you will also have to consider employment and other things that would be attractive to the government. You have financial competence.
If your proposal is found the best overall acceptable proposal, you are virtually in the position of having to deliver. You can't say, "But I don't have the money." Paxport, on the other hand, can come in with a very attractive proposal, but it isn't necessarily on the hook as you are.
Am I wasting my sympathy when I sympathize with you?
Mr. Coughlin: Senator, I mean all I can say is that within the RFP and within the bid, there was a section of the bid called the "Business Plan". Both of us had to present a business plan, both of us had to lay out our pricing schedules, and both of us had to lay out how we were going to finance this transaction, that being a combination of both equity and debt. Paxport did that. That business plan was deemed better than our plan. It was better for the government. It gave the government far more revenue than our plan did, and they were awarded that day. They had to prove - I mean, I think it's only natural that the government said, "Prior to closing this transaction, you will have to prove that you have that equity," and that was the next step that Paxport went through, to prove to the government that it was able to finance its transactions.
Senator Stewart: And are you saying that it did prove that it could.
Mr. Coughlin: This transaction closed, yes, senator.
Senator Stewart: No, but could they prove that before the merger?
Mr. Coughlin: Senator, I can't speculate what Paxport could do. I will tell you, as I testified earlier, in my opinion, I believe Paxport could have found the money required to do this transaction.
Senator Stewart: On December the 7th of 1992, the government announced that Paxport had submitted the best overall acceptable proposal. You know, you wanted this. In what respect was your proposal inferior to that of Paxport? Where did you slip up?
Mr. Coughlin: Well I think - again, senator, I was not privy to the entire results of the evaluation committee. Mr. Spencer and I had a meeting - I believe it was two weeks after that, around the 21st of December - with Mr. Lane, who was the head of the evaluation committee, who came to see us, and who told us that we had lost four out of the five categories.
Senator Stewart: Pretty dismal.
Mr. Coughlin: I mean this evaluation committee was done - there were over 100 people involved in this evaluation committee. They had outside consultants involved in this evaluation committee. They were sequestered in a hotel room in Toronto. I just took Mr. Lane for his word that there were aspects of the Paxport proposal that was far superior to ours.
Senator Stewart: But they told you what the five categories were, and they told you the four on which you had failed.
Mr. Coughlin: Yes, senator.
Senator Stewart: Which ones were they?
Mr. Coughlin: I know that we won the employee transfer condition.
Senator Stewart: Yes.
Mr. Coughlin: We lost on the development plan. I shouldn't say "we lost". We didn't score as high on the development plan. We didn't score as high on the business plan. We did not score as high, I believe, on the management and operations agreement. I think the last one was the - I believe it was the industrial benefits package.
Senator Stewart: I see.
Now I'm trying to recall what you said this afternoon. At one point, I believe you told us that you were very disappointed when the announcement was made on December the 7th; is that correct?
Mr. Coughlin: That's correct, senator.
Senator Stewart: But at another point, you seemed to indicate that you weren't surprised. I'm not suggesting there's any contradiction, but you said that there were rumours and so on. Is that correct?
Mr. Coughlin: As I testified earlier, leading up to December 7th, there was I guess a lot of rumours coming out of Ottawa on who the successful bidder was. There was a consistency to those rumours, that being that Paxport was the successful bidder. In fact, again, I don't know if it was the Saturday or the Sunday prior to the announcement, the Toronto Star published a report saying that Paxport was the winner of the bid. So it was hard not to sort of, in the face of all of that, feel confident that we were going to be the successful bidder.
Senator Stewart: So you were disappointed, but not surprised.
Mr. Coughlin: We were terribly disappointed, senator.
Senator Stewart: But you still had some hope, as expressed by Mr. Near in the document to which reference was made earlier, a fax to Mr. Glen Shortliffe from Harry Near on December the 7th.
Mr. Coughlin: The 7th.
Senator Stewart: The last point, and I take it that this is a statement of, you know, an attempt to describe the situation accurately:
If the successful proponent is unable to meet the conditions of the Government's offer, the government intends to commence immediate negotiations with the other bidder.
That would be your group. The other bidder would be your group; is that correct?
Mr. Coughlin: That's correct, senator.
Senator Stewart: So although you were disappointed, there was a little bit of hope there. There was ground for some hope.
Mr. Coughlin: Senator, this was in the morning prior to the announcement of the bid. Until I got the phone call the afternoon of Monday, December 7th, I always held out hope that we would be the successful bidder, as I held out hope that the contracts wouldn't be cancelled on December 3rd. I mean, that was the nature of our competition. We were in a very fierce fight with Paxport. We were obviously promoting what I considered to be our strength, which was obviously our financial strength. They were, I think, promoting their strength, being their development plan and their management and operation agreement. So it was a fierce competition leading up to December 7th, the Monday afternoon, when they were announced the best overall.
Senator Stewart: Now in the memorandum for the Prime Minister dated November 16, 1992, in other words, about three weeks before the announcement as to the so-called winner - probably an inaccurate expression, but it's perhaps one that we understand - we read that:
...there are few incentives for the bidders to get together. As discussed last Thursday...
At that time, indeed before December 7th when you were to be disappointed, was there any reason why you should have got together with Paxport?
Mr. Coughlin: No, senator.
Senator Stewart: No?
Mr. Coughlin: No. I was confident that I would win the bid. I wanted to win the bid. I wanted to operate Terminals 1, 2, and 3, and I wanted to operate them as a 100 per cent owner.
Senator Stewart: So the eventual getting together would not have taken place if Paxport had not been declared the winner, if I can use that language.
Mr. Coughlin: I don't know, but I must tell you that if we had won the bid, we would have proceeded to do our bid as the Airport Terminal Development Group bid, and we would have owned - or have had 100 per cent interest in operating Terminals 1, 2 and 3. I can't speculate what would have happened after the fact if we were awarded the bid, but as I testified earlier, winning the bid or having an interest in operating all three terminals was very important as owners of Terminal 3. It protected our investment in Terminal 3, and it diversified our risk across all three terminals. It was very, very important to our business, our long-term business objective to have that ownership or that interest in operating all three terminals.
Senator Stewart: But I'm talking about the period before the adjudication on the proposals had been announced. At that point, before Paxport, as someone said, had been given the right to negotiate, there was no reason, of which you are aware, why your consortium or company would have wanted to get together with Paxport; is that correct?
Mr. Coughlin: That's correct, senator, because I thought we would win the bid.
Senator Tkachuk: On this document, which is 002188 that you're using, it's got a little note "Prime Minister" at the bottom that you indicated, senator. Just so the record is clear, do we have any indication as to who wrote that note?
Mr. John Nelligan, Q.C., Counsel to the Committee: The handwritten note was written by Mr. Shortliffe. It has been brought to his attention. He points out that there is a missing line at the bottom. You will notice that there is a comma, and it would appear that in the faxing of this document, the last line was not copied.
I brought this to Mr. Hunter's attention, and he apparently has delivered a full copy to Mr. Shortliffe, but I don't have a copy.
Senator Tkachuk: Did this come from Transport or Justice?
Mr. Nelligan: This was one of the productions. Oddly enough, I found it in the Air Canada material. I don't know how it got there, but that's where I found it.
Senator Tkachuk: So this would have gone through the same process that all the other documents would have gone through.
Mr. Nelligan: You'll notice that there are some paragraphs deleted under section 21 and section 69.
Senator Tkachuk: So would this be considered advice to the Prime Minister?
Mr. Nelligan: In Mr. Shortliffe's opinion it is. However, now that it has been published, he, I gather, intends to deal with it.
Senator Lynch-Staunton: But it's an incomplete document and shouldn't be quoted.
Senator Tkachuk: And also considering the great trouble they go through under "Comment", I notice "s.21(1)(a)", "s.69(1)(g) re(a)", and right underneath it they don't say, "Oh, I think that's advice to the minister."
Senator Lynch-Staunton: "And let's cut it off at the bottom."
Senator Tkachuk: Yeah. I don't mind this because there had to be cabinet discussions about this and all the rest of it before the announcement is made on the 7th of December. I got no problem with the document. Again, as you know, I got a bug in my burr - or a burr in my butt, I think, is what I got about what is meant by "ministerial advice" and what is not meant by "ministerial advice", and how certain documents that we get clearly have "ministerial advice" and other documents don't. So I just want to bring that to the attention of the chairman, again, to find out why this would have been left in.
Senator Stewart: Senator Tkachuk, this is very unkind of you, because you will recall that when this inquiry was being established, I argued in the Senate that there would be all kinds of problems as to obligations, which obligation would prevail, and so on. The chairman refused to listen to me; he dismissed me.
Senator Tkachuk: This has nothing to do with you, Senator Stewart.
Senator Stewart: No, but it raises the problem which I anticipated. Really, I think you shouldn't, you know, rub the chairman's nose in it.
Senator Tkachuk: I'm not rubbing the chairman's nose in it. I'm trying to find out what the - I always ask this question so that counsel can send another letter and say, "Why are you doing this? Senator Tkachuk is concerned about this matter." I am just going to continue to raise it until the end of the inquiry.
The Chairman: On a point of order, Senator Stewart is being unfair. To say that I dismissed him summarily is something he knows that I have never, ever done. What I did was simply pass him the document of Ms Diane Davidson called "The Rights of a Parliamentary Committee". I suggest that you refresh your memory on some of these things.
Senator Stewart: It turns out that my memory was accurate, but, of course, no one listened.
Senator Tkachuk: I'm sorry, but go ahead.
Senator Stewart: The committee was told, chairman, that very soon after December the 7th, a senior official from Transport Canada approached the Paxport group and recommended that the bidders get together. Was there any such approach by Transport Canada, the Privy Council Office, the PMO to your group proposing that you get together with Paxport?
Mr. Coughlin: No, senator.
Senator Stewart: So the communication, if we believe the record of the committee, was from the government to Paxport and not to you?
Senator Lynch-Staunton: Who was that?
Senator Jessiman: Hession.
Senator Lynch-Staunton: Hession reported that somebody from Transport had gotten to him?
Senator Stewart: Right.
Senator Lynch-Staunton: Do we know who at Transport?
Senator Kirby: No. This was two or three days -
Senator Lynch-Staunton: He wouldn't say. That was one of those "I can't tell you about it." That's pretty reliable, isn't it!
Mr. Coughlin: Senator, all I can tell you at this time is that we were 100 per cent convinced or at least 100 per cent confident that we would win the bid, but like every business, we prepared for the contingency. Having an interest in operating 1 and 2 was important. As I testified earlier, if in fact we did lose the bid, we had discussed internally the possibility of a partnership with Paxport. That was the way that we could see getting an interest in operating Terminals 1, 2, and 3. If I had won the bid, there would have been no need to form a partnership with Paxport.
Senator Stewart: Right.
Mr. Coughlin: As I testified earlier, senator, Mr. Bronfman raised the question of the partnership with Mr. Matthews, because it was very important for our side to have an interest in operating 1, 2 and 3. We couldn't take the risk, or at least it was - I'll call it the high-risk option of waiting to see if Paxport could finance it or not finance it. As I testified earlier, it was in our business judgment that Paxport could have financed this transaction.
Senator Stewart: Well the word "could" is a difficult word, isn't it?
Senator Jessiman: Not necessarily. They had something to sell.
Senator Stewart: Of course. After December they sure did.
Senator Jessiman: It's all a question of financing.
The Chairman: Direct your questions to the witness, please.
Senator Stewart: Chairman, I want to go back to the record. It was Senator Bryden talking with Mr. Hession.
Mr. Bryden: Who approached who? Did Paxport approach Claridge, or did Claridge approach Paxport?
Mr. Hession: No. Neither. Neither. A senior official from Transport Canada approached me and suggested that we should explore the synergies with the Terminal 3 owners.
That's from the transcript of Wednesday, August the 2nd of this year.
And the question was then from Mr. Bryden:
Mr. Bryden: About when did that happen?
Mr. Hession: Oh, within two or three days of the announcement of the award.
I think later that week is my recollection.
So very soon after December the 7th, Paxport, according to this testimony, was being coached by a senior official in Transport to get together with your group.
Senator Lynch-Staunton: Coached?
Senator Stewart: Well, you can -
Senator Lynch-Staunton: That's not the word in the transcript, senator.
Senator Stewart: Let's see what the transcript said.
A senior official from Transport Canada approached me -
Senator Lynch-Staunton: "Approached" and "suggested".
Senator Stewart: All right, "suggested". If you find the word "coached" - if you are sensitive to the word, as evidently you are, I'll use "suggested".
Senator Tkachuk: Only as sensitive as "could".
Senator Lynch-Staunton: I'm sensitive to hearsay being accepted as useful arguments.
Senator Stewart: No. The reason, chairman, is we had in an earlier document reference to the groups getting together three weeks before the announcement. This group says that that was not in their mind. They had no reason -
Senator Lynch-Staunton: And the other group will come tomorrow and give us their reason.
Senator Stewart: They had no reason to want to get together with the other group. Nevertheless, almost immediately, Paxport has been entrenched, shall I say. Transport Canada suggests that they approach Paxport - that they approach the Claridge Group.
The Chairman: Would you finish your reading, senator. You stopped at the word "suggested".
Senator Stewart: I stopped there because it was the word "coached" which was found offensive. I'll start again.
Mr. Hession: No. Neither. Neither.
That is, neither Paxport nor Claridge.
A senior official from Transport Canada approached me and suggested that we should explore the synergies with the Terminal 3 owners.
That was, as I said before, the transcript for Wednesday, August the 2nd, 1995.
And then Senator Bryden asked later on, after another exchange, he says, "someone in the government"?
The answer is:
A senior official in Transport Canada is what I said.
That's Mr. Hession's response.
Senator Bryden: And about when did that happen?
Mr. Hession: Oh, within two or three days of the announcement of the award.
I think later that week is my recollection.
So very soon it was appreciated -
Senator Jessiman: That's wrong.
Senator Stewart: Pardon?
Senator Lynch-Staunton: Carry on. I'm not interrupting you, senator. I just didn't want to talk over you.
Senator Stewart: Now, we've been told that there was no such approach by a senior official in Transport Canada or indeed by any official of the Government of Canada and no politician to your group suggesting that you go to Paxport. If we can believe the testimony we have, it was Paxport who received a suggestion from a senior official in Transport Canada.
Now, you told us this afternoon, and I'll quote - you've made reference to it before and done so quite accurately, but just to refresh all our minds, you told us this afternoon, and I quote now:
Following this announcement -
that is, the announcement of December the 7th, 1992, that the Paxport bid was deemed best overall, and now I continue with the quotation -
- Paxport's principal, Mr. Don Matthews, called Mr. Bronfman to express his congratulations on staging an outstanding competition. This was the first time that anyone on the Claridge side had spoken with Paxport. During this conversation, Mr. Bronfman raised the idea of a partnership with Mr. Matthews. It was our belief that since we were the losers of the bid the only way in which we could obtain an interest -
Your text said "ownership interest", but I believe perhaps inadvertently or perhaps deliberately, you -
Mr. Coughlin: We don't own terminals.
Senator Stewart: Pardon?
Mr. Coughlin: We would never own terminals. We would operate them.
Senator Stewart: Okay, so you took out the word "ownership"?
Mr. Coughlin: That's right.
Mr. Stewart: The quote continues:
- we could obtain an interest in operating Terminals 1 and 2 was to explore the idea of a partnership. Mr. Matthews suggested a meeting of the principals in Toronto...
So here we have it. A senior official from Toronto says to Paxport, "Explore the synergies." Mr. Matthews calls Mr. Bronfman to express his congratulations. Of course, Mr. Bronfman takes advantage of this opportunity to do what he can to advance the interests, the legitimate interests of the Claridge group. Is that a fair statement?
I see a nod.
Mr. Coughlin: Senator, again, these are, I think, some of the innuendoes that we have been faced with for many months. This partnership came about because we initiated the partnership, because we wanted to be partners with Paxport because we had lost the bid. I can't speculate what the Department of Transport wanted to do. We wanted to be partners. We raised the issue with Mr. Matthews.
Senator, let me tell you, through the course of the next two months, there was no indication from Paxport that this was just a slam dunk. We had to convince Paxport that a partnership made sense. We had to give to Paxport what they wanted. We had to make it work for both sides, and the risk was always that if it didn't work, Paxport would go on and complete this deal with the Government of Canada. As I testified earlier, I believe they could have accomplished it, and this partnership came about because we wanted to have a right, an interest in operating Terminals 1, 2 and 3, and we had been the losing bidder.
Senator Stewart: Yes. So I have sympathy before the proposals are evaluated because your strength, which was financial, was not put at the same level as certain other considerations. Then I have -
Mr. Coughlin: Excuse me, senator, it was. The business plan, or being able to prove financeability in the evaluation process, carried as much weight as the development plan, as the industrial benefits. So in the evaluation process, the business plan, being the financeability of the project, carried weight. The government simply, and I think correctly, asked the proponent or Paxport to prove the financeability. That's all. Just like I must tell you, we had to prove, during the negotiations, the development plan. We had to prove to the government that we could build what Paxport said we could build. That took many days of discussion. We had to prove the industrial benefits plan. Everything that was said in the bid had to be ratified and had to be proven to the Government of Canada before they were going to enter into a contract. That's why Deloitte & Touche was hired. That's why they hired their own engineering consultants to prove or use their own in-house expertise to prove - I mean that's why we got onto the question of whether it was 39 million passengers or 33 million passengers. Everything else required - the government wanted to make sure that every aspect of the Paxport proposal could be met. We met all of those proposals, and the contract was signed on October the 7th. Financeability was just one aspect.
Senator Stewart: Oh, yes, but you are jumping months ahead of the period to which I am addressing my attention. Are you now telling us that financial criteria were included as essential - the satisfaction of financial criteria were included as essential when the proposals were being evaluated?
Senator Jessiman: Yes.
Mr. Coughlin: Senator, when the proposals were being evaluated, a financial plan had to be laid out. The Paxport financial plan had in it $61 million of cash and debt to finance the transaction. When they were awarded or at least deemed best overall, the government hired Deloitte & Touche to confirm to the government that in fact that debt structure could be met and that this deal could be financed.
As Mr. Stehelin has testified, he convinced the government that the Paxport proposal as presented in its original bid could be financed and that this transaction could be completed.
Senator Stewart: So your bid was no better on financial grounds, that is, in terms of financial feasibility, than the Paxport bid?
Mr. Coughlin: Our business plan was weaker than the Paxport plan, because our ground rent to the Government of Canada was in excess of 200 or $300 million less than to the Government of Canada. Is that correct?
Mr. Norman Spencer, Senior Vice-President, Finance, Claridge Properties Ltd.: It was significantly more. The Paxport bid had a present value of ground rent of approximately $1.2 billion. Our bid had some 600 million ground rent.
Mr. Coughlin says our bid was weaker. One could argue that our bid was stronger because it was more conservative. It was more conservative because the airline rents in the early years were lower than those in the Paxport bid.
Senator Stewart: Are you using the word "conservative" to mean "realistic"?
Mr. Spencer: No, conservative.
Senator Stewart: I'm not quite sure what - I don't want to dispute your meaning of the word, but tell me what it is. How do you distinguish between "realistic" and "conservative"?
Mr. Spencer: Well, I think "realistic" can only be proved in time, either looking forward or backwards. Our assumptions were more conservative. Our assumptions with respect to the rent payable by the airlines were more conservative than those used by Paxport. That gave rise to lower airline rental revenue over the first 10 years and therefore a significantly lower amount of ground rent, therefore a significantly lower present value of ground rent.
In terms of return to the Crown, looking at it from the Crown's viewpoint, ours was a weaker, i.e., a poorer bid. The return was less than Paxport. The issue of financeability dealt with the question could the Paxport bid be financed and therefore achieved.
Senator Stewart: And your conclusion is that it could have been.
Mr. Spencer: I think the end conclusion speaks for itself. That is, that after some ten months of negotiations, the deal closed, after a review by Deloitte & Touche, and after a report by them in I think August to the effect that the deal was financable.
Senator Stewart: Which deal are we talking about, the Paxport deal without your participation?
Mr. Spencer: Well, the deal which closed in October, 1993, was the Paxport bid.
Senator Stewart: With some new players on the team.
Mr. Spencer: Yes.
Senator Stewart: You're telling us - if I'm wrong, correct me - that as a result of Paxport being named the winner, if I can use that expression, and I think we used it previously today, you were under business pressure to get together with Paxport, starting after December 7. You were under business pressures. I don't mean political pressure.
Mr. Coughlin: I wouldn't say business pressure. As I testified earlier -
Senator Stewart: Economic pressure, whatever you like.
Mr. Coughlin: We're in the airport business. We have a variety of - or at least I try to have a variety of strategies to deal with certain situations so that we are - we can react to situations.
I have testified earlier, and I think everyone can appreciate how an ownership or interest in operating 1, 2 and 3 was important to us. It was only natural. What do we do if we are not the successful bidders? I mean, we had two options: we could either pursue a partnership route, or we could wait and see if Paxport could finance this on their own. If Paxport had been able to finance this on their own, which I believe they could have, we would have lost the opportunity forever of owning or having an interest in operating 1, 2 and 3.
Because of the significant investment that had been made by us in Terminal 3, because of the risk that we were facing with our airlines in Terminal 3 and the possibility of them having financial difficulty, the possibility of a large number of passengers in Terminal 3 going to Terminal 2, from my perspective, and I convinced Mr. Bronfman that it made a lot of sense to pursue the partnership interest.
It was not our first choice. We wanted to win. We never - it was only - the partnership only came about because we lost. If we had won that bid, we would have gone forward on our own and completed that transaction. But because we had lost or were not deemed best overall, we pursued the best alternative available, and that was the partnership.
And it was Mr. Bronfman who raised that issue with Mr. Matthews, and it took roughly two months to negotiate this partnership agreement. It didn't happen overnight. We had to deal with values. We had to deal with what they thought they were bringing to the table, what was the value of what they were bringing to the table. It took many weeks to negotiate this. And it was a transaction that, in the end, both of us were happy, but it was a partnership that was initiated by us because we had lost the bid for Terminals 1 and 2.
Senator Stewart: Now you know, because you stated it yourself, what I meant by "business pressure".
Mr. Coughlin: I guess Mr. Bronfman doesn't - I guess you could say it's pressure, but I think anyone in our position would have pursued the same course of action.
Senator Stewart: Right. I'm sympathizing with you.
At this phase of the operation, as I did the earlier phase, I want to turn to another matter, chairman. I'm looking at an exhibit. It's 534900. It's a memo, I guess, or a statement, a document, to Matthews Investments - it looks like 4 Inc.
Mr. Coughlin: I don't have a copy.
Senator Stewart: It's 534900.
Senator Kirby: Letter H.
Senator Stewart: This is a document dated October 4, 1993, T1T2 Limited Partnership, signed by Peter Coughlin and Norman Spencer, to Matthews Investments Inc.
Mr. Coughlin: Matthews Investments 4.
Senator Stewart: Matthews Investments 4 Inc. That's the letter 4, not "F-O-U-R" or "F-O-R".
The undersigned hereby agrees to pay to you a consulting fee of $350,000 per annum for ten (10) years (payable monthly) commencing with the first payment on October 31, 1993.
This contract may not be terminated for any reason and is assignable and may be assigned by you.
Could you explain what this is about?
Mr. Coughlin: Sure. Senator, in the Paxport bid, there was a company set up called PAMI, Paxport Airport Management Inc., that was going to manage Terminals 1 and 2 on behalf of the Paxport consortium. So you had the Paxport ownership structure, and then you had a management company down below who was going to manage the day-to-day operations of the terminal. That entity was controlled by the Matthews group.
Through the course of the negotiations, we Claridge wanted to buy a controlling interest in the management group. If we were going to have a controlling interest at the partnership level, we wanted to have a controlling interest of the property manager, of the entity that was managing the terminal.
We negotiated a contract with Mr. Matthews to buy a controlling interest. That contract included an up-front payment, a payment over the next two years, and it also included a ten-year consulting agreement at $350,000 a year. It was for his ownership interest in the management company. I felt that Mr. Matthews could be of assistance to this partnership during the development phase. He had developed many properties through his career, and I felt that he could be very valuable to the partnership. And as a means of structuring the buy-out of his PAMI interest, this agreement came about.
Senator Stewart: Just so I feel comfortable with it: you're saying this was to be a payment to be made by the partnership, T1T2 Limited Partnership, to Matthews Investments 4 Inc., and, in return for $350,000 per year for ten years, the partnership was to have the benefit of the advice from Mr. Matthews in an area in which he had experience and expertise. Is that correct?
Mr. Coughlin: That's correct.
The Chairman: All right. Thank you very much, chairman.
Senator Jessiman: Mr. Coughlin, I'm going to go back a bit, if I may, and just ask you some questions about the process.
In October of 1990, the Government of Canada announced it was interested in the private sector redevelopment of Terminals 1 and 2. I understand that Claridge initially opposed the redevelopment of these terminals, and from two documents - and I have copies, if someone could hand them out, please. One is numbered I think 00137 and 001142. I'm handing them out now.
You can see from those documents that you were active in voicing that opposition. Pick on one of the first documents. It's really a resolution by one. I assume maybe that was passed on to the government as well. But below that is the letter itself.
Could you tell us why Claridge opposed the development of Terminals 1 and 2? And I'm going to ask a second question. Tell us why you were opposed. And the second question, why did you eventually change your mind?
Mr. Coughlin: Well, senator, let me state that I was never - we were never opposed to the RFP because, as I said in my opening statement, we really only bought into Terminal 3 because of the government's announced intention of privatizing Terminals 1 and 2, and we always wanted to have an interest in operating 1, 2 and 3. We did not want to operate just one piece of the pie.
In 1991, if you can remember, we were in the midst of a recession. The war had started, and passenger traffic and airline traffic had plummeted. And in Toronto, passenger traffic in Toronto in 1991 was equal to I think what it had been in 1988 or '87.
What we tried to do, what we wanted to do, we took a very short-term perspective, I guess, but what we wanted to do was see if we could convince the Government of Canada to close Terminal 1 and to move a large portion of that traffic into Terminal 3. That would have solidified or at least used up the capacity that existed in Terminal 3.
It would have been a tremendous benefit to Canadian Airlines because the way the Terminal 3 rent formula works is that all the airlines pay one rent to us. Whether there is two airlines or three airlines, they all pay the same rent. They just divide it amongst themselves, depending on how many passengers. So the more passengers or the more other airlines that come into Terminal 3, the more of the pie to pass around.
That would have been a tremendous benefit to Canadian Airlines, and of course it would have been a tremendous benefit to our retailers to have more people using the terminal, et cetera. It was a short-term perspective. It certain enhanced the economic viability of Terminal 3, and that's the reason why we tried to convince the government.
The government took a much longer term perspective. They saw that, in the long-term, development was needed at Pearson, and I think you can see from the testimony that was given by Air Canada that they were probably right. Development was needed.
As soon as the RFP came out or was issued, we began to put our bid together, because we always intended to make a bid. But I guess what we were trying to do prior to the issuance of the RFP is get as many passengers into Terminal 3 as we could before the government issued the RFP.
Senator Jessiman: I see. When did Claridge decide to bid on redevelopment? Soon as they made that announcement?
Mr. Coughlin: Again, I think it's been said, it was in 1990, or at least 17 months leading up to the issuance of the RFP. There was a lot of talk about the RFP. We were aware that the RFP was coming. So we were aware of the RFP. You know, our engineers that we had as part of our bidding process were aware of it. And I mean, I guess beginning the date the RFP came out, we began to work extensively on putting together our bid. But we certainly had knowledge that it was coming, and we were certainly prepared.
As I testified earlier, I was approached by Mr. Bullock. Mr. Bullock on behalf - at least I was told - of the Ontario government was trying to put together a local airport authority. He asked if we would make a joint bid with the local airport authority. We agreed to do that. We began together to put together a bid.
Sometime around the middle of - the end of May, the beginning of June of that year, Mr. Bullock informed me that he could not proceed with a bid, that he was not able to get the five Toronto municipalities to agree on a structure. And so we took over the bid.
And it was really for that reason, because we at that point had to step in and really take over I would call the day-to-day management of the bid, that we requested an extension from the government. The government gave it, and we submitted that bid in July 13.
Senator Jessiman: That group that you were initially going to bid with, was that the same group that was represented by Mr. Vandene? Do you know?
Mr. Coughlin: Senator, I do not know. It was called the Southern Ontario Airport Authority. I was dealing only with Mr. Bullock, and I'm not sure if it was the same group. I certainly was aware of a competing group. I was aware of another group trying to prove that they were the legitimate local airport authority. These were the problems that Mr. Bullock was confronting behind the scenes and I think to an large extent the reason why he had to pull out of the bid.
Senator Jessiman: Fine. I want to go to part of Mr. Nixon's criticism.
Senator Tkachuk: Did you just hand these documents out, Senator Jessiman?
Senator Jessiman: Yes.
Senator Tkachuk: Could I just ask a supplementary on this? Senator Kolber is mentioned here in a letter by you, Mr. Spencer. Just what is Mr. Kolber's role in Claridge?
Mr. Coughlin: At that time, Senator Kolber I think was chairman of Claridge.
Senator Tkachuk: Chairman.
Mr. Coughlin: I think at this time he was -
Mr. Robert Vineberg, Claridge Properties Ltd.: By 1991, I'm not sure whether he was still chairman, but he had previously certainly been chairman of Claridge, senator.
Senator Tkachuk: Okay. And when you met with Mr. Nixon, did he ask any questions about Senator Kolber's involvement?
Mr. Coughlin: I don't believe so.
Senator Tkachuk: That's all I wanted to know.
Senator Jessiman: Okay. Just five or six more questions, I think.
The Chairman: Just following up on that -
Senator Tkachuk: I didn't wake you up, did I, chairman?
The Chairman: I was just nodding off. Senator Leo Kolber, former chairman of Claridge Inc., resigned September 1, '93, one day after the announcement of merger between Paxport and Claridge to run Terminals 1 and 2. Does that seem to be correct?
Mr. Coughlin: September? No.
The Chairman: Yes. Resigned September 1, '93.
Mr. Vineberg: That date may be accurate, senator, but that is certainly not in relation to - the announcement of the merger between the Paxport and Claridge interests took place in January of '93.
The Chairman: Yes. That puzzled me too. It quotes The Ottawa Citizen of June 13, '94. So that's obviously -
Mr. Vineberg: There is the source.
The Chairman: He resigned the 1st of September, '93. All right. That's fine. Go ahead.
Senator Jessiman: Mr. Nixon was highly critical of the fact that the RFP used a one-step process rather than a two-step process as was used in Terminal 3. As a losing proponent, what is your view as to the necessity of a two-step process in this particular case?
Mr. Coughlin: I never believed that there really was a need for a two-step proposal. I think if you go back to Terminal 3, Terminal 3 was sort of a new venture, and I think the government had no idea if there was really anyone out there willing to build and finance and operate a terminal. From that bid came I believe four or five proposals.
Senator Jessiman: Eight to start with.
Mr. Coughlin: Most of those came from major real estate companies in Canada. By 1992, a lot of those real estate companies were experiencing their own difficulties. But I think more importantly, the government knew at that time who was out there, who was able to finance or to do this transaction, and I didn't really ever see any need to do a two-step step. The way the government handled it was fine. They always made the statement that extensions were available. We took advantage of that, and we asked for an extension. And I mean, we submitted our bid within the time period.
Senator Jessiman: Do you think other real estate developers might have shown any interest in the T1T2 project had there been a two-step?
Mr. Coughlin: I mean, I can only speculate.
Senator Jessiman: That's what I'm asking for.
Mr. Coughlin: I don't believe so, senator. If you look at who bid on Terminal 3, there was Cadillac Fairview, there was Bramalea, there was Trizec. I think there was some other Toronto real estate companies. By 1992, they had other issues to deal with, and I don't think they would have been interested in bidding. My own opinion is that if we had had 120 days, I think you would have got the same number of bidders.
Senator Jessiman: We're really not talking about the number of days. The one or two steps, the initial -
Mr. Coughlin: I don't see - if you had two steps, I don't think it would have changed the number of bidders.
Senator Jessiman: My next question was going to deal with the 90 days. Let me ask it so you can answer it.
Mr. Nixon was very critical of the 90-day period of response to the RFPs. Can you tell us in your view whether 90 days was too short as well? We know that extensions were offered and that in fact you've said Claridge asked for one and got an extension. Could you tell us about the circumstances of that extension, but first answer the question as to the 90 days?
Mr. Coughlin: I thought the 90 days was reasonable. I mean, we did it. We met that, and -
Senator Jessiman: Although you got an extension.
Mr. Coughlin: The reason why we had to get an extension was that when we formed our association with the, I'll call it the local airport authority, most of the day-to-day work was being done out of the offices, their offices, or Mr. Bullock's offices in Toronto. He was handling, I would call it, or at least leading the bid, and we were taking a more secondary role.
When he stepped out of the process, that required Mr. Spencer and myself to get actively involved. This was a three - I mean, I think it was 3,000 pages, our submission, and so there was a lot of information that I just needed to be brought up-to-date on, and that's the reason that I requested the extension. If it hadn't been granted, we would have submitted the bid.
Senator Jessiman: Thank you. My next question, he was also very critical of section 1.2. It goes on for quite length. It's the last paragraph. Section 1.2 on page 3 of the request to proposals. I'll read it:
The Government is providing the Developer with a considerable degree of latitude to propose the form, extent and timing of development, as well as the management strategies and pricing policies that will determine the operational and financial viability of the Project. The full extent of the development and commercial opportunities will be determined by the experience, creativity and initiative of the Developer.
Now, by reading Mr. Nixon's report, he thought the government should set out and tell you exactly how you should go about building this. So for an RFP, is that unusual to ask the proponents that are going to bid to use their initiative?
Mr. Coughlin: Well, I don't think so. I think there was a similar clause in the Terminal 3 as far as creativity and build a world-class facility and be creative about it, create as much retail opportunity as possible, create an environment which is as I'll call friendly user - user-friendly as possibly. I thought that was one of the strengths of the RFP, to rely upon the private sector to come up with imaginative ideas, to come up in ways that could generate more revenue.
Because remember, under the rent formula, for every dollar that we received, the government earned three. That's how it worked under the rent formula, because they participated to 30 and a half per cent of gross revenue up to 125 million, and over 125 million the government got 45 per cent of all gross revenues. So it just made sense to be as creative as possible, create as many opportunities to generate as much revenue as possible, because the government benefited as well.
Mr. Spencer: If I could just add, I don't think that paragraph should be read with the interpretation that the developer could do what he wanted. I think you've seen from testimony today about the way the ground lease and the development agreement were negotiated, there were very very strict guidelines and controls built into the documentation during the negotiation of the ground lease and the development agreement.
Mr. Coughlin: But the government isn't in the retail business. I mean, we have had experience as real estate developers in the retail business. I think we could create a better environment. We could create a lot more opportunities for retail. We could make that airport a really world-class facility with a lot of opportunities.
Senator Jessiman: Another one of I guess three or four more questions. Mr. Nixon in his report stated that Paxport was given a tremendous advantage because of their unsolicited proposal. We now know there was five unsolicited proposals, including one by your predecessors. How much did you rely upon Huang and Danczkay's proposal in making your own bid? That's my first question. And in your view, did the fact that you and others had gone through these steps give you a significant advantage?
Mr. Coughlin: Go ahead, Mr. Spencer.
Mr. Spencer: I don't think that the so-called unsolicited proposals from Huang and Danczkay had any bearing on our bid. I had the opportunity to speak to Mr. Huang of Huang and Danczkay about the substance of the proposal which he and Mr. Danczkay presented. When it was presented, we were partners with them. They were the operators, the managers and the managing partner. We were investors in the partnership. Mr. Danczkay characterized that proposal as one which perhaps took ten hours of engineering consultants' work and very little time. It had little or no bearing on the proposal which we ultimately submitted.
Mr. Coughlin: I do think some of the people, the consultants involved in that unsolicited bid, were the same consultants that we used in our bid. So I think they probably gathered some insight to the Terminal 1 and the Terminal 2 situation.
Mr. Spencer: It was not an environment in which the light went on one day and an RFP was issued and people decided whether to get involved or not. I think those who wanted to get involved knew about it and had taken steps to be prepared.
Senator Jessiman: Okay.
Mr. Coughlin: In the RFP, the government had given us, both proponents, just a specific amount of land, and the requirement - one of the requirements was to generate a certain number of gates. There was only really a certain amount of what you could do on that land. And in some ways, both proponents were very similar in the development scheme. We both were going to extend it and demolish Terminal 1 and build out. So it gave us I guess to some extent some advantage, but certainly I think that was maybe four or five pages compared to a document of 3,000 pages, the eventual bid.
Senator Jessiman: There is much being made of the so-called Air Canada sandwich. Some of the witnesses have testified that the disclosure of the so-called guiding principles delayed the negotiating process for a number of months. There is also some confusion as to the role of the government in the negotiations between Air Canada and the T1T2 Limited Partnership. Could you tell us what happened?
Mr. Coughlin: Senator, in the RFP, the RFP specifically stated that the Air Canada lease expired in 1997. We entered our bid on that basis. During the course of the initial negotiations with the Government of Canada, when they changed the Paxport proposal and insisted upon us doing $340 million of work, we agreed to do that on the basis that (a), we would get some form of rent deferral, which we did, but more importantly, that the lease would expire in 1997, the Air Canada lease, and that we would be able to do a new lease with Air Canada that would allow us to earn a return on the money that we had already spent and also on the money that we were going to spend. So that's why we agreed to spend 340-odd million dollars with no conditions and why we only accepted a small rent deferral, meanwhile paying to the government ground rent in the vicinity of 30, $30 million.
When we were confronted with the Air Canada sandwich and the reality that this lease could go on not until 1997 but for the next 40 years, it threw everything out of whack. What that meant was we had committed ourselves to spend 340 million, also only to have to pay the government ground rent in the vicinity of $30 million, which was equal to the current income stream from Terminals 1 and 2, and it was a disaster for us because there was no means at that point to get a new Air Canada lease and to get the revenue stream that we needed to justify the $700 million development.
Senator Jessiman: What did the government do in regards to helping you with Air Canada, or did they?
Mr. Coughlin: The government simply said to us, "You have to do a new lease with Air Canada." This exists - I was told in the middle of June by Madam Labelle - she called. She asked Jack Matthews and I to come to her office. We arrived there, and she presented us with these guiding principles. This was the first time that I was made aware of this document, and this is after three months of negotiations, and I got to tell you intense negotiations about Air Canada.
Because the whole thing really depended upon Air Canada. The proposals, the Paxport proposal basically said that they would not have to undertake any development work until an Air Canada lease was signed. I think the government assumed that Air Canada would be willing to sign a new lease once the RFP was issued. Unfortunately, the situation had deteriorated. Air Canada wasn't prepared to do that. And so the government was confronted with the problem that they had accepted a bid that said no development until a new Air Canada lease.
They came to us and said they were not going to live with that, we would have to do the development now. We would have to spend 340 million. And, "You go work out the problem with Air Canada." The government did not help us in that process.
As I said in my opening statement, Mr. Spencer and I spent a good part of a month dealing with Air Canada, and we were successful in coming to terms with Air Canada on a new long-term lease. And senator, I must tell you more than anything, that document reflects how viable this transaction was, because once that Air Canada lease was put in place, it set together the framework to finance the transaction, it set the framework for the cash flow for the government's revenue, and it made the transaction viable.
Senator Jessiman: You said Jack Matthews was there at the time. Was he as surprised as you when he heard what she had to tell you?
Mr. Coughlin: Yes, senator, he was.
Senator Jessiman: Okay. Now, there is public perception that negotiations were rushed and that the deal was hastily put together just prior to the election. We've already seen correspondence from Paxport complaining that the process was too slow. Can you give us your views as to the process and, in particular, could you take us through the different stages of the negotiations in this summary form?
Mr. Coughlin: There were a lot.
Senator Jessiman: I understand that.
Mr. Coughlin: I'll start, and perhaps Mr. Spencer or Mr. Vineberg, because they were certainly there throughout this.
After December 7, when Paxport was deemed best overall, we spent probably the next month and a half forming our own partnership. At that time, the Government of Canada was telling us that they were going to bring somebody on board to lead the negotiation from the government side.
During that period, Jack Matthews was having a number of discussions with the Government of Canada. Most of the discussions were centering on the financeability question and the Air Canada question. Is Air Canada ready to go forward and sign a new lease. I think that transpired between December and March.
Meanwhile, during that period, the government had not identified a key person to negotiate this transaction. Mr. Quail left, I think, sometime in February. And Mr. Broadbent was brought on in the middle of March.
Between the middle of March and I would say the middle of April, we worked hard to prove what I would call the financeability issue. We dealt with the financeability issue, and we dealt with the Air Canada situation of what happens if Air Canada doesn't form a lease.
By the middle of June, beginning in April, we started I think weekly meetings in Ottawa. We met every week in Ottawa from April to the middle of June. We had negotiated by that time most of the issues. When I say most of the issues, the government had come back and asked us to accept many of the things that were not clearly stated in the Paxport proposal. They were changing the Paxport proposal. We weren't. They changed it by saying, "I don't care if Air Canada is not going to sign a new lease. You spend $340 million doing a new development."
That led to discussions on rent. Again, I wanted the rent to be waived. We had discussions about that. We had a lot of discussions on the 38 versus the $33 million. We had a lot of passenger counts. Meanwhile, there were discussions going on on the industrial benefits agreement, on the management and operations agreement, what is the pricing strategy, what is the pricing policies. All of that transpired between I would say the first of April and the middle of June.
By the middle of June, most of the major issues had been resolved. It became clear around the end of May that Mr. Broadbent was going to leave, and Mr. Broadbent has testified to you why he was going to leave. We were quite concerned about that. You know, we had spent tens of thousands of dollars on legal fees. We were expending that on a daily basis. We wanted some assurance, like I think any business person would, that there was a deal possible.
That led to what became known as the June 18 letter. It was a letter that Mr. Rowat, who took over from Mr. Broadbent, requested. All that letter did was really summarize where we were at in the form - in the state of the negotiations. By that time, most of the major issues had been resolved. We still had some issues we had to deal with, the first being Air Canada, because it was at that time that I was confronted with the Air Canada sandwich and solving the Air Canada problem. We also at that time were still dealing with the rent waiver, the rent deferral. By the middle of July, the deal was completed. It was finalized.
It was in the early part of July that I believe I and John Desmarais agreed what closing date did we have, and it was agreed to October 7. Why we wanted a closing date, or at least why I wanted it, was that I have found in my experience that if you don't set a date, things can tend to go on and on and lawyers can go on and on and on. So I asked Mr. Desmarais what he thought was a reasonable perspective from what the government needed, I knew what we needed, and we picked October 7. This was in the early part of July.
By the middle of July, things had been resolved, and we really then waited for the government to get their approval from the Department of Finance and Treasury Board. We really were not that actively involved at that point. The lawyers were working on I guess finalizing some of the dealings, but most of the work was completed by the middle of July. We waited until I think it was the end of August when Treasury Board approval was given, and then we worked to a closing on October 7.
Senator Jessiman: Okay.
Senator Jessiman: I assume from what you've said you don't think that this was rushed.
Mr. Spencer: Senator, with respect, if you had been in any of the early meetings in March and April and you'd seen the speed of the negotiations, or the lack of negotiations, you would not characterize it as a rush. They were slow, but they were also very tough. Very very tough. And there were major issues to be dealt with, and the issues were taken very seriously by both sides. It was not rushed. It took ten months.
Senator Jessiman: Two more questions.
Mr. Vineberg: I just wanted to add, from a lawyer's perspective, senator, that the negotiations were very deliberate. The government would meet with us, and then they would have to recess to discuss the issues, and it was really very much a stop-and-go process.
If I can just relate this to other very large commercial transactions we know about, I mean, some very large transactions that have occurred in the last few months have been done in a period of two or three months, which are much larger in dollar magnitude than this airport. So you consider that this is a negotiation process which started really in January and ended in October. That's an extremely long period of time for any deal, and rushed is certainly not the appropriate term.
Mr. Coughlin: I think what is important to remember is this wasn't the first time that the government dealt with privatizing a terminal. They had done it through Terminal 3, so we had the framework of a ground lease. We had the framework of a development agreement. We had the framework of a management and operations agreement. Most of the agreements that exist in Terminals 1 and 2 were there in Terminal 3. So they became the framework for negotiating the ones for 1 and 2, which saved I mean a significant amount of time.
Mr. Vineberg: Senator, if I can just add, most of the time was spent when the government said we want to improve all these areas that we'd already agreed to for Terminal 3. We want to make it better from the government's point of view for Terminals 1 and 2. And that took a very long period of time, but that is why it took so long. It was not rushed.
Senator Jessiman: Thank you. Two more questions. Mr. Nixon was critical that the members of T1T2 Limited Partnership were never publicly disclosed and therefore the process was not transparent. Could you tell us who are the members of the T1T2 Limited Partnership and when was their identity made public?
Mr. Coughlin: I wish I had a chart. I guess we do have a chart. I must tell you -
Senator Jessiman: When was it done?
Mr. Coughlin: I must tell you that throughout the negotiations, the government was fully aware of who the partners of this deal were going to be. We had many meetings leading up to the closing where we had to lay out the ownership structure. The government was not going to close this transaction until they knew who the partners were.
Senator Jessiman: He seemed to complain it wasn't on the front page or something of the papers.
Mr. Vineberg: The government asked us, as part of the closing, to disclose the ownership of each of the partners, and we did so. We disclosed.
Senator Jessiman: You complied with whatever the government asked?
Mr. Vineberg: Absolutely. That's correct, senator.
Senator Jessiman: One last question. Clearly the closing occurred during a political fire-storm. The Leader of the Opposition had publicly stated that the contracts were to be reviewed. Why didn't you simply postpone the closing date until after the election?
Mr. Coughlin: Senator, we did postpone it. We didn't do it at that time. Okay? We felt confident that the deal was a good deal. The government felt it was a good deal. And the government wanted to close on October 7, and we closed on October 7. In retrospect, senator, we did allow that review. We didn't have to, but we allowed it when Mr. Rowat called and asked if I would allow an extension of the date from November 1 to November 15, to December 15. We were confident that the review would be fair and it would be equitable, and we were confident that the deal that we negotiated - I mean, just like Mr. Rowat and Mr. Broadbent and Mr. Desmarais have testified - would withstand any test in any fair review. And so we didn't extend it on October 7. We closed because the government wanted to close and because we wanted to close, but we did extend it on October 27.
Senator Tkachuk: Did Mr. Rowat indicate to you who asked them to make the phone call?
Mr. Coughlin: The Prime Minister.
Senator Tkachuk: The Prime Minister designate?
Mr. Coughlin: The Prime Minister designate asked Pearson Development Corporation if we would give the new government a period of time to review this transaction.
Mr. Coughlin: We agreed with that and we accepted - at least I did because I related to my partners that that review would be done in a fair and equitable way.
Senator LeBreton: How wrong you were.
Senator Stewart: Just make sure you don't adjourn before I -
The Chairman: Senator Lynch-Staunton, Senator Kirby and Senator Stewart.
Senator Lynch-Staunton: Thank you, chairman. I just hope that the nitpicking which we are getting from the other side, which I think arises out of desperation out of lack of solid arguments, will not detract from one of the purposes of this inquiry which is to assess whether the final contracts, known as the Pearson agreements, which were cancelled by the Government of Canada were or were not in the public interest. That is one of the reasons we are here.
What we have heard so far is a challenge to the privatization process, a challenge to the LAA, an argumentation regarding carrying on with public management of public assets, but we have yet to hear that the process which resulted from - I am sorry, I take that back - the process which was followed after the decision was taken to commercialize T1 and T2, that that process was flawed or not followed properly and that the end result was not in the public interest of taxpayers. So far we have not heard any arguments challenging the propriety of the process, the way it was carried out by anyone involved in it, public servants and today one of the major partners. And tomorrow we will hear from the others.
So it is very important that we get back to one of the basic purposes of this inquiry and that is to assess the validity of the contracts which have been cancelled, validity in the sense of benefits to the taxpayers and to the region of the Toronto area, and of course, to the airport itself, and how those contracts were arrived at. The adequacy as well. Thank you chairman.
So, here we are now faced with what to date was a disastrous decision taken by the Government of Canada. And what I should like to know, Mr. Coughlin, is had those contracts been allowed to be executed, what would be happening today at Pearson? What would be going on in terms of renovations or rebuilding or whatever? How many people would be at work? How much money would have been committed so far had these contracts been allowed to be pursued following the 7th of October when they were given their release from escrow?
Mr. Coughlin: Senator, the development program over nine years was divided into four stages. The first stage was an expenditure of $100 million. The second stage was an expenditure of $254 million. The third stage was an expenditure of about I think $150 million, and the last stage was $200 million. By this point we would have completed the first stage, $100 million. We would have corrected all the life and safety deficiencies that currently exist in Terminal 1. We would have built for Air Canada a new rapid air facility, which is hard to explain, but what we would call the Mod Q, but at a different location than where it is now. They would have had a new rapid air facility and the existing rapid air facility would have been converted to a transborder facility which is Air Canada's greatest requirement. That would have been completed at a cost of approximately $100 million, and we would have commenced stage two being a construction program of $254 million. That was essentially to begin to build a new pier going down to the new administration office and sort of working its way out to where existing Terminal 1 is today.
That also would have been obviously money spent on the new road system, et cetera, to accommodate that development. I would say at this point we would have had probably about 7,000 man years of employment out there.
Senator Lynch-Staunton: So instead what we are faced with is minimum band-aid type investments by the government and cost of cancellation of the contracts yet to be determined by the courts which could run to the hundreds of millions of dollars and eventually a decision by the government or the LAA, whoever they decide is responsible, to spend at least what you were committing on the private side if not more of taxpayer's dollars or self-generated plus taxpayer's dollars. The more we get into this, the more tragic the story becomes.
My other question is to try to clarify the significance of the October 7 decision. It was very cleverly identified or interpreted by the opposition at the time as indicating that the October 7 decision to do something was a final signature of a desperate government to favour its friends to have their last trip to the trough.
Now, that worked well during the election, but now we are away from that and we can look at it a little more detached, and it turns out that that date, from the testimony we have heard, had nothing to do with the signatures to the contract. It was a legal requirement that following certain conditions being met, following the signature of the contract, a legal requirement that the document be released from escrow. Is that a correct interpretation?
Mr. Coughlin: That is correct.
Senator Lynch-Staunton: In your text you say that you believe the contracts which were signed on October 7 - now is that accurate? The contracts were not signed on October 7, were they?
Mr. Coughlin: Technically the documents were signed on October 3rd and 4th, and at that point they became legally binding.
Senator Lynch-Staunton: Right.
Mr. Coughlin: I believe they became legally binding. We had to meet certain conditions for those contracts to come out of escrow. For example, we had to prove the $61 million. We had to do a number of things which we did by October the 7th, and on October 7th the documents came out of escrow and became an agreement. But legally the documents were binding on the 3rd and 4th of October.
Senator Lynch-Staunton: Mr. Nixon - and I do not know whether it is version one or two, you will certainly clarify this for us and maybe another version we have not seen - says the contracts signed on October 7 leasing Pearson Airport, Terminals 1 and 2 focus attention. That is erroneous. The contracts were not signed on October 7.
Mr. Coughlin: The contracts were signed on the 3rd and 4th of October.
Senator Lynch-Staunton: In the other version, subject to more versions coming, he says October 7, 1993, therefore the legal agreement to privatize and redevelop Terminals 1 and 2 was made. That is erroneous to say the least?
Mr. Coughlin: Legally, the documents became binding on the 3rd and 4th. If we had met the conditions I think on the 6th they would have come out of escrow. It took us two days to bring them out of escrow which was the 7th.
Senator Lynch-Staunton: But you did say in discussing the chronology of events that in July you felt you had a binding agreement?
Mr. Coughlin: I think -
Senator Lynch-Staunton: I am just looking for my notes here. I think it is July. In July we had a deal.
Mr. Coughlin: When we had resolved the Air Canada situation, that was the last, I will call it, major blocker. At that point a deal was finalized. At that point the government or at least the Department of Transport began to prepare the documentation necessary to present to whatever level of government, especially the Treasury Board.
So in my opinion, and I believe Mr. Desmarais and Mr. Rowat have testified to the same thing, that was when a deal was finalized.
Senator Lynch-Staunton: In July both parties - even though final signatures and the final technicalities and the final T's had not been crossed and the final I's had not been dotted - felt they were both committed and they could only look ahead. There was no looking back.
Mr. Vineberg: What happened as far as dates, the government told us their schedule was to go to Treasury Board at the beginning of August. In order to do that, they had to have the principle agreements of which there were five in virtually final form somewhat before that. So we spent the month of July putting those agreements in virtually final form.
The business deal which was embodied in those agreements was reached by the beginning of July and then the lawyers did what they had to do to refine the agreement so they could go to Treasury Board at the beginning of August. The Treasury Board ultimately did approve them, as we know, and that approval was finalized towards the latter part of August. We then spent - and I think I could say to you at that point there was a deal in every sense that the parties had agreed on all major business terms of each of the important agreements.
There were, as you know, a total of I believe 60 agreements which the parties ended up signing, and a lot of them very small agreements but again took time, consultations et cetera, and essentially the next month or so was spent tidying up those agreements, finalizing them and getting everything in shape for what everyone knew was going to be the closing on October the 7th. But certainly by the end of August the deal was done from every point of view.
Senator Lynch-Staunton: So in July the parties are so far advanced that they realize they have a deal. Treasury Board, cabinet, formal approvals are given by the end of August.
Mr. Vineberg: Correct. We were told by the government by the Department of Transport that this deal was conditional upon Treasury Board. So we would do everything we could, but you had to go before Treasury Board and have Treasury Board approval. That is what we were waiting for. Once that came down, we had our deal.
Senator Lynch-Staunton: So August 27 I think is the date, the Order in Council, Treasury Board, cabinet, all the formal governmental approvals are confirmed and that can be interpreted as being the official confirmation of the deal even though - and I am asking the question, I am making the statement - there was still some signatures and some lose ends and some conditions to be met?
Mr. Vineberg: The remaining documents had to be prepared, and I should be clear, on August 27th there were no documents signed. The form of documents was agreed to of the five major agreements and the lawyers were continuing to work on the balance.
Senator Lynch-Staunton: The minister was given authorization once the documentation followed the approvals of Treasury Board and cabinet that he could sign, not have to go back for additional -
Mr. Vineberg: That is correct. We were told by the Department of Transport that they had been instructed by Treasury Board that the remaining agreements were ancillary and did not require Treasury Board approval. So once those five agreements were approved by Treasury Board and they had signed off on the deal, those agreements could not be changed. We were also told that. Once Treasury Board had approved them there were to be no changes of any consequences to those five agreements.
Senator LeBreton: Just on that, Mr. Desmarais testified that in effect the Minister of Transport could at that point and time have signed over the ground leases. And to use his words, that would have been it, and then the other documents - so in effect the minister could have, after the Order in Council was issued and at the time of the announcement on August 30 could have in effect signed over the ground leases.
Mr. Vineberg: So I understand, senator.
Senator Lynch-Staunton: So August 27 the deal is confirmed subject to whatever - well, final signatures, but in effect the deal is done, it is confirmed. What is known in July is ratified subject to signatures. The signatures, as I understand, were put on the documents by your group I think on one day and by the minister on the next day? I think the Monday, Tuesday, the Sunday or the Monday, the 3rd and 4th? And then the documents are put in escrow because there are certain conditions to be met including confirmation there is $61 million somewhere and a few other things all along knowing that the October 7 date had been determined as early as June or July. This wasn't just because it was three days after the signature, it was a date which had been decided on months before, is that correct?
Mr. Coughlin: As I testified, it was determined in the first part of July with Mr. Desmarais and myself.
Senator Lynch-Staunton: I want this to be repeated as often as I can to dispel the myth which is still being perpetuated that the 7th of October was a date of desperation by a desperate government wanting to favour its friends 16 days before an election. Election or no election, the 7th of October had already been predetermined.
Mr. Coughlin: Everyone was aware that the closing date was October 7th, that we were working for October 7th. Even in the press and during that month of September when the press was being - and the articles were written in the newspaper, everyone knew the closing was October 7th. It was a date established in July and it was a date that we just felt we could work towards.
Senator Lynch-Staunton: Now, with all respect to the senior bureaucrats involved, they got a little nervous during the campaign and rather than release the documents, they got in contact with the Prime Minister who, according to a memo we have seen, authorized the release of the documents.
My question is - well, we will ask Mrs. Bourgon when she comes whether it was necessary even to ask the Prime Minister, but if it was a move of caution, I will certainly respect that. But what if someone had refused to release the documents on the 7th of October? Would all the conditions have been met? For whatever reason, the Prime Minister had instructed or the Minister of Transport had instructed or Mr. Rowat had said, no this is - for whatever reason, no, don't release them?
Mr. Vineberg: Senator, I believe at that point the government would have been in breach of its agreement. It was legally obliged to release them. The contracts did not give the government the option of walking away from the deal. That was not part of the deal. The deal was that once these conditions were fulfilled, they would be released from escrow.
Senator Lynch-Staunton: So, there was no need for the Prime Minister or the minister or the bureaucrat to get permission from anyone? Once the conditions were met there was no choice?
Mr. Vineberg: From a legal point of view, that is correct, senator.
Senator Tkachuk: I just want to follow up.
The Chairman: They say that the definition of a good deputy minister is knowing the difference between what is politically partisan and politically sensitive, and it was quite clear that Mr. Rowat and Ms Bourgon funked. They had come to the conclusion that this was a political hot potato and they sought the advice of Mr. Shortliffe, the clerk of the Privy Council and said you ask the Prime Minister to release the documents. Is that not your recollection of the way it happened or is that fair?
Mr. Coughlin: I am not sure what -
Mr. Vineberg: It would be speculation for us, senator because we were not involved in any of those discussions.
Mr. Coughlin: I was trying to meet the conditions to make the contract -
The Chairman: It came from the testimony.
Mr. Coughlin: - to bring the documents out of escrow. I am not familiar with how Mr. Rowat felt.
Senator Lynch-Staunton: I have two final comments. I know Senator Kirby wants to jump in.
Senator Kirby: Can I ask for a translation of the word "funked"? I do not know if it is Cape Breton or not.
Mr. Nelligan: Like all Cape Bretoners, he knows a lot of Latin.
Senator Kirby: Cape Bretoners and lawyers. They are both equally unintelligible.
Senator Lynch-Staunton: In closing, I want to quote from Mr. Hession who had selective quotes given to us on a particular phone call. I think more important on this question of collusion - and I am sorry that Senator Bryden isn't here because he did make a serious accusation that the whole thing is a sham and that the merger had been cooked up a long time ago.
Mr. Hession said,
There was no possibility in my mind that there was any discussions of any kind between the competitive forces at work. We were determined absolutely as a team to win on our merits fair and square against the proposal call document that we were given.
So here we have confirmation of the aggressive competition between the two parties. That they came together after is subject of another discussion. But to suggest that the whole thing had been connived and subject to the sham process is really, to say the least, irresponsible.
Finally Mr. Chairman, I should like to ask one question, the Paxport proposal has been criticized over and over again because it lacked in its assessment by the government one of the major factors, and that is financial ability or financeability or financial capacity, but it did win in four out of five categories.
Will you confirm that the final deal with the Government of Canada included in it the whole Paxport proposal insofar as its operational business and design and overall concept of the airport went, that there was very little if anything from your side that went into the business side of the agreement? That you really brought - I hate to answer my own question - that you brought expertise of T3, and of course T3, you brought financial ability, but Paxport brought the expertise that they were ready to devote to T1 and T2?
Mr. Coughlin: We brought Terminal 3, but the deal was the Paxport proposal and it was the Paxport deal. Our bid - in fact, we pulled our bid off the table at a certain point so the only bid being discussed was the Paxport bid, and the final deal reflects the Paxport proposal.
Senator Lynch-Staunton: So in effect, Canadians ended up with the best of both submissions, one on the business side and the other which lacked the financial - which would not prove financial capability and the other one with both expertise and financial capability?
Mr. Coughlin: Certainly the Government of Canada got the greatest revenue stream. I think it got an excellent development plan, a plan that Air Canada was quite content with being the major tenant.
Again, I believe Paxport could have financed this proposal without our involvement. It was our initiative to form this partnership.
Senator Lynch-Staunton: Are there any comanaged airports in North America where you have one administrator with one part of the assets of the airport and another administrator running the other part of the airport which would have happened at Pearson?
Mr. Coughlin: To my knowledge, there is not an airport in the world that has different ownership of terminals.
Senator Lynch-Staunton: You can have airlines owning their own terminals, but you have the overall administration -
Mr. Coughlin: The terminals are under similar ownership or similar operation. I believe it is very helpful to the airport. As I said before, it produces significant operating synergies, significant financial synergies. Those synergies or those cost savings flow right through to the airlines. It helps the airlines in their sense. It provides more importantly tremendous opportunities to allow airlines to form alliances and allows the airport to be flexible enough to deal with the changing realities that we face every day in this airline industry.
Senator Lynch-Staunton: I close by saying it is deplorable if not tragic that we are missing out on 7,000 man-years of work, $100 million investment which never took place and on the verge of one worth $200 million plus and Pearson is still falling apart. Thank you, Mr. Chairman.
Senator Kirby: I only have a couple questions because I just want to kind of get a couple of details on issues that have just sort of been introduced by other witnesses. This will be brief.
Briefly, in connection with Mr. Stehelin's Deloitte Touche report, we talked about the 14 per cent. I can give you a copy of the report. I will read you a short excerpt that I am curious about. It says:
This internal rate of return is based upon after tax dividends only and does not consider the following in the calculation.
And it goes on to say:
Certain construction management fees to the Matthews group during the development and other consulting fees for various services to other members of the group are not included in the internal rate of return calculation of 14 per cent. We are ascertaining the total of these amounts on a pretext basis and will comment on them under separate cover.
Mr. Stehelin went on to tell us that in fact he never did that analysis, the value of the various other management contracts. He said that never got done.
Do you people have any sense of what that additional return is? Was that done internally by the company?
Mr. Spencer: Just before I answer senator, maybe I can understand specifically what you are looking for. Are you looking for the value of the management contract?
Senator Kirby: What Mr. Stehelin was essentially saying is he had looked at - and he said this in his testimony and you have referred to the 14 per cent today. I am not arguing the 14 per cent. Mr. Stehelin went on to say in his report that there were a number of contracts which - each of the partners had other contracts and that the benefit to the partners of those contracts was not included in his internal rate of return calculation.
He then had said in his report that he intended to do a separate comment on those which in fact he never did. So my question essentially is -
Mr. Coughlin: Senator, I know in the Crosbie and Company report that was part of the Nixon submission, they in fact looked at the income including the management contract, and they concluded that the internal rate of return, instead of being 14 per cent, would be 14.2 per cent. So they concluded correctly that there really was not a significant increase in the internal rate of return if you put the management contract in place.
Senator Kirby: Mr. Stehelin was talking I think about the contracts sort of beyond the management contracts. In fact, maybe I can simplify things here. I am just trying to fill in a gap that I didn't understand before. I am going to give you a document. It is letter G. That is just for my assistant's purpose to hand it out for you. For the record it is document 532695 which is a letter to Mr. Coughlin from Paxport.
I just want to ask you a question about the schedule. Sort of a strange letter. I guess there is a page missing because it is not signed by anyone. I do not know who signed it, but in any event what I really wanted to ask you was just a schedule. That schedule as I understand it lists various partners on the left hand column and the various contracts they would have had with TPL, T3 LPCO or Paxport. Am I correct that that is in effect what that schedule is? It lists various partners on the left and the various ways they would have been involved in the development of Pearson is listed on the right?
Mr. Vineberg: This is a draft letter which was never signed and there was no agreement.
Senator Kirby: It does not say draft, I did not know that.
Mr. Vineberg: Schedule A was never a part -
Senator Kirby: I am sorry?
Mr. Vineberg: It was not signed.
Senator Tkachuk: We have lots of those unsigned letters from that side.
Senator Kirby: It was the one place I could easily lay my hands on the schedule of partners and the various things that they would be doing in terms of the development. Is that an accurate list of the various pieces of work for Pearson Development Corporation that each of the partners would be doing?
Mr. Vineberg: No, it is not senator, for several reasons. At closing and by the time the contract was cancelled, only two of the contracts here were actually signed as between the parties and that is a contract between Bracknell and T1, T2 Limited Partnership and between T1, T2 Limited Partnership and Allders International Canada. The terms of the other agreements were still under discussion and therefore there has never been any computation of what Mr. Stehelin and you were referring to as to any benefits that partners may have accrued or income that may have accrued to them from the contracts because in fact in most cases those contracts were never executed.
Senator Kirby: But the intent had been to negotiate contracts. Had the deal gone ahead the intent had been to negotiate contracts with the partners in the general area?
Mr. Vineberg: With some of the partners on terms that reflected fair market value. The clear mandate in our agreements with the government - and this was an important part of the government's discussions with us - that when you do contracts with partners, they must reflect fair market value terms and for that purpose, they obtain comfort frankly that it would be the Claridge folks who would be negotiating the contracts because the Claridge folks did not have an interest with any of these parties because these parties were part of the Paxport group.
Senator Kirby: Even though Paxport was now part of the overall, the assumption was that Claridge would be tough on its subpartners?
Mr. Vineberg: And the government retained the right to review those contracts to ensure they were at fair market value.
Senator Kirby: When you say that the partners of the Pearson development - your opening statement and you said in one of the documents you have given us - that the partners of the Pearson Development Corporation would have received no cash whatsoever, the beginning part of your sentence was I guess over the first nine years of the lease, you are not referring to the fact - when you say the partners would not have received anything, that excludes profit that the partners would or money that the partners would have received under various contracts such as those listed here, is that right?
Mr. Spencer: The biggest partner was Claridge at 53 per cent was not listed here, and after that Lockheed was 12 and a half per cent are not listed here.
Senator Kirby: Go ahead. But Matthews would have received some for example, correct?
Mr. Spencer: As Mr. Vineberg said, at this stage Matthews had not signed a contract with the partnership.
Senator Kirby: You had a consulting contract with them that I think Senator Stewart introduced.
Mr. Spencer: That is not what was referred to.
Senator Kirby: The statement that while the partners would have received no cash, you mean the partners under the contracts that had been signed as of the date it is cancelled would have received no -
Mr. Spencer: There would have been no return on the investment of $700 million.
Senator Kirby: On the basis of the contracts that had been signed up until the date of cancellation.
Mr. Spencer: As investors in the partnership, as equity investors in the partnership. Claridge is a 53 per cent investor would have had no dividend probably for nine years.
Mr. Coughlin: These companies were going to provide services to the consortium that other companies you know may have - I mean NORR and AGRA are outstanding engineering companies. They are familiar with the airport business, and they were going to provide a service to the partnership. That service was going to be provided at fair market rates.
I always said that, and we made that commitment to the Government of Canada that we would not make any contract with anyone unless it was at fair market rates.
Senator Kirby: Could I ask you just one question which really has to do with some of the documentation you provided to us? And I refer specifically to a letter which Wayne Power wrote Mr. Coughlin on September 14th, 1993. There were several documents kind of attached together. It is a fairly lengthy letter to which Mr. Carnahoff then replied?
Mr. Coughlin: I remember the letter.
Senator Kirby: Just for the record, on the top page of the letter it says September 14th, 1992. Every other page September 14th, 1993. It is obviously 1993, that is just a typo on the front page.
Mr. Coughlin: That is correct.
Senator Kirby: I understand that. That was just for the record purposes. This is essentially a letter to you from Wayne Power while he was director of terminal redevelopment project and just a couple of things it said in it kind of puzzled me. Under terminal capacity for example, Mr. Power says and I will just quote from it:
Public statements have created the perception of a major capacity increase.. .the redeveloped terminals will have essentially the same number of bridged aircraft gates as currently exist.
My essential question is we have been told and indeed it is obvious from this documentation that you provided us, that the Department of Transport understood that a significant reason or part of the T1,T2 development would include a significant capacity increase in the number of gates, and yet in Mr. Carnahoff's reply, it seems to suggest that there would not have been a significant increase in the number of gates. Can you explain that to us?
Indeed, the rest of the documentation you gave us makes it fairly clear that MOT officials were kind of puzzled by this too?
Mr. Coughlin: Well senator, I quite honestly don't remember the specifics of that letter.
Senator Kirby: I will give it to you. I thought my assistant had given it to you.
Mr. Coughlin: All I can say is that Mr. Power wrote a letter to me. I gave that letter to Mr. Carnahoff who was really the - I will call it the chief engineer on the file. He responded I believe to Mr. Power's request and by the time we closed, all of those issues had been resolved.
Senator Kirby: Even though this was September 22, the fact is that -
Senator Jessiman: This is 1993, is it?
Senator Kirby: This is 1993, yes, I am sorry. This is documents that Claridge was kind enough to provide us with.
Sort of a week before, 10 days before the October 3rd/4th date, there were still obviously some fairly significant questions from senior officials in MOT.
Mr. Coughlin: Senator, I don't think - you know, this development process and this development proposal was not one that was easily set in stone. It was a flexible proposal. It was designed to accomodate the needs of the Department of Transport, as well as the need of the airlines. Within the documentation, there was specific time periods where we had to propose a game plan or at least a design and construction brief in relation to that development plan.
There were a lot of questions in terms of details, actual down-to-the-nitty-gritty details in order to start a $100 million development. Remember, the contract called for us to commence a $100 million construction program on December 1st. So beginning in September, because we all were convinced that the deal was there and that a deal was possible and that we were going to close, we were already beginning to work on a lot of the details in relation to the first phase of the development being a $100-million development. A lot of correspondence was occurring between Mr. Power on behalf of the Department of Transport and Mr. Carnahoff who was working on our behalf.
What this document clearly indicates is, as we stated earlier, that correct the Government of Canada had complete control, supervision, over this development process. We needed to get their consent on a variety - on all of the issues, and this document is just one of many that was transpiring at the time, in anticipation of a $100-million development program that was going to commence in December of that year.
Mr. Spencer: I think, also, senator, you can read into this clearly the amount of detail which, at this point, the technical experts were getting into in preparation for putting the soil in and ground-breaking.
The development agreement which dealt with the conceptual approach had been settled. The development agreement was the agreement between the parties which dealt with what was going to be built, when it would be built, how and what it would cost.
Senator Kirby: But it did not sort of handle the detail -
Mr. Spencer: Well, it did to a certain extent obviously.
Mr. Coughlin: But, for example, the Air Canada lease had a provision in it that would allow them to have some input into the design process. I mean, we weren't going to go and start to build or spend $340 million on Air Canada's space without asking them what they thought about it. They were going to pay for it. So there was going to be a constant consultation process between us as landlord, Air Canada as the tenant and the government of Canada as the eventual owner of the land. So all of this was an ongoing process - and the provisions for that were built into the development process, and this was just an indication of the detail that was going on at the time, in anticipation of a development program to commence in December.
Senator Kirby: Two quick last questions. In response to the document which Senator Stewart put forth which was the $350,000-a-year ten-year consulting contract - when Senator Stewart said to you, why the contract, you said you were buying Mr. Matthews' experience and expertise. Can you enlarge on that because I didn't know that he had either experience or expertise in anything to do with airports. So can you tell me, what was the experience and expertise you were buying.
Mr. Coughlin: Mr. Matthews was a builder, had been a builder in Mississauga, had built many projects in Mississauga. And he certainly had a lot of expertise when it came to building projects. And that's what we were doing, we were building a project.
Mr. Vineberg: Senator, this is not building an airport. This building a building which will serve as a terminal.
Mr. Coughlin: It has a lot of characteristics of an office building. It has air conditioning, it has ventilation, it has concrete, it has shopping, a large component of shopping which Mr. Matthews had built. Again, the main purpose of that was our acquisition of his interest in PAMI. It was our decision to structure that -
Senator Kirby: Sir, just for the record - I know what PAMI is, but for the record, that's Pearson Airport Management Inc. I'm sorry.
Mr. Coughlin: Management Inc. And it was really our desire to structure that purchase and to allow us the opportunity to draw upon Mr. Matthews' expertise during the development period.
Senator Kirby: Expertise not to do with airports but expertise as a -
Mr. Coughlin: Construction.
Senator Kirby: One last questions since Mr. Vineberg happens to be the first lawyer we have had here appearing as a lawyer. Just as a matter of curiosity, am I right, Mr. Gordon Baker is named as your counterpart with your -
Mr. Vineberg: That's correct.
Senator Kirby: In sort of getting ready for this, did you and Mr. Baker have discussions as to how the two partners would handle the testimony?
Mr. Vineberg: No.
Senator Kirby: Did you have any conversations with Mr. Baker about any of this stuff?
Mr. Vineberg: I have not.
Senator Kirby: Thank you very much, Mr. Chairman. That's all I wanted.
Senator Tkachuk: I have a couple of questions.
Senator Kirby: I think Senator Stewart is -
Senator Stewart: You go ahead, please.
Senator Tkachuk: I am being killed with kindness here, chairman.
The Chairman: Let me see. I have Senator Tkachuk and Senator Stewart. Is there anybody else?
Senator Tkachuk: I have a couple towards the end there as a result -
Senator Kirby: And we have Mr. Nelligan as usual at the end.
The Chairman: I don't think - Mr. Nelligan has been struck silent.
Senator Kirby: I am glad you didn't say struck dumb, Mr. Chairman.
Mr. Nelligan: The words have been taken out of my mouth.
Senator Tkachuk: I just want to go back to the phone call. Just so we get this time period down on - you got the call on October 27, '93, two days after the election. And Mr. Rowat called you, and it was four days before you were going to take over, right? You were taking over on November 1?
Mr. Coughlin: The contract called for us to take over operation of the terminals on November 1st.
Senator Tkachuk: So that's four days.
Mr. Coughlin: Four days, that's right.
Senator Tkachuk: Thirty days has September - that's the way I do it. Four days.
Mr. Coughlin: I must tell you, we had hired people. We had engaged - remember, the contract called for us to start work December 1st. So we had employed a number of people. We had signed contracts with a number of companies to commence that construction work.
Senator Tkachuk: And he is calling you four days before, and he is calling you, you said earlier, on behalf of the Prime Minister? Or on behalf of Mr. Chrétien?
Mr. Coughlin: That's correct.
Senator Tkachuk: Did he, like, say that? Did he say, "I'm calling on behalf of Mr. Chrétien"? Did he say, like, the Big Guy? What did he say? The top banana? The new guy in town?
Mr. Coughlin: I can't recall specifically, but I believe what he said is that the Prime Minister-Elect would like the opportunity, as he had stated during the campaign, to have an opportunity to review these contracts.
I spoke to my partners. Mr. Rowat assured me that it would be a fair and equitable review. And on that basis, I called Mr. Rowat back - in fact, we had a press conference that afternoon in Toronto where we announced that we would allow the government-elect to review the contracts over that period of time.
Senator Tkachuk: And was it your impression that the fair and equitable review - I mean, you believed that - you believed Mr. Rowat because you believed that the future Prime Minister would want a fair and equitable review? Would that be fair enough? I mean, he wasn't calling you on behalf of some transition guy. He is calling you on behalf of -
Mr. Coughlin: No.
Senator Tkachuk: Would that have given you comfort?
Mr. Coughlin: Yes. I believed that we would be given a fair and equitable hearing on these contracts. I mean, we certainly believed that they were in the best interests of all parties. I know that Mister - as he has testified, I believe Mr. Rowat felt that they were in the best interests of all the parties. And I was confident that we would get a fair and equitable review.
Senator Tkachuk: If he had been calling you on behalf Mr. Nunziata, that may not have beenn - you probably would have said, no, no way, I'm not going.
Mr. Coughlin: We weren't talking, myself and Mr. Nunziata.
Senator Tkachuk: What do you mean border? I'm asking questions. I can answer questions here, Senator Stewart. You haven't been here when Miss Hervieux-Payette is here making half-hour speeches. I'm making a little comment about -
Senator Stewart: I'm just trying to defend the House of Commons.
Senator Tkachuk: He said this outside the house.
Now, on November 3rd, there is no minister appointed yet of transport? Because swearing-in is on the 4th.
Mr. Coughlin: That's correct, yes.
Senator Tkachuk: So this is the day before.
Mr. Coughlin: Yes.
Senator Tkachuk: So the government is still operating under, like, a transition team, I would think?
Mr. Coughlin: I believe that to be true.
Senator Tkachuk: Where did you meet with Mr. Nixon?
Mr. Coughlin: We met in the government offices in Toronto. The government has ministerial offices in Toronto. They are downtown. I forget the building. I think they are on King Street.
Senator Tkachuk: On King Street.
Mr. Coughlin: I believe so.
Senator Tkachuk: So then Mr. Nixon, when he met with you, this would be real quick. Like, is he - on October 27, did you know that Mr. Nixon was going to be appointed? Did Mr. Rowat tell you that?
Mr. Coughlin: No, at the time, Mr. Rowat was not aware of who was going to do the review. That was a Wednesday. I think we became aware or Mr. Nixon was appointed, I believe, the Friday of that week.
Senator Tkachuk: The 29th.
Mr. Coughlin: The 29th, I believe, the 28th or 29th. But at the time we were asked for the request -
Senator Tkachuk: The next day, the 28th.
Mr. Coughlin: - Mr. Rowat, I don't think, knew who the appointee was going to be.
Senator Tkachuk: Boy, talk about - they are in a hurry.
So you mentioned who was there. Were there any other people who were in that King Street office who were also there, outside of the group that you met with?
Mr. Coughlin: No, senator, there were just the six of us.
Senator Tkachuk: It was empty except for -
Mr. Vineberg: No, there were some secretaries there, senator, a receptionist.
Senator Tkachuk: And that was it.
Mr. Coughlin: That was it.
Senator Tkachuk: I think that's all I want to know.
I just wanted to know - that's all I wanted to know.
The Chairman: Senator Stewart?
Senator Stewart: Mr. Chair, earlier I was trying to discover how much of my sympathy ought to be directed towards these gentlemen. And one of the questions I asked concerned the request for proposals process, in trying to discover if, in their viewpoint, it was entirely satisfactory.
I asked concerning the criteria to be used in evaluating the proposals, and I mentioned finance, financial ability. Well, the answers are on the record, the answers given today.
I wanted to ask about the testimony of Mr. Harry Near of the Earnscliffe Strategy Group, which we were told earlier today, was engaged by these gentlemen. Let me quote.
He divides the work that was done into four phases, time phases, and phase 2 is the spring, summer and fall of 1992.
And I quote now:
In phase 2, once the government decided that it was going to proceed to private size T1 and T2 and issue a request for proposal, Earnscliffe tried to assist Claridge in convincing the federal government that any request for proposal should evaluate bidders on their financial ability to build and operate T1 and T2, as well as their operational ability to build and operate at Pearson. As you know, financial ability was not part of the final criteria used to evaluate the proposals.
So your lobbyist failed to get the kind of process that you wanted.
Senator Tkachuk: Big Tory, too.
Mr. Coughlin: Senator, I don't know. The RFP clearly had a section on financeability. And I must say, if I had won the bid, if we had won the bid, I would have thought that it was only normal that we would have had to prove to the Government of Canada that we could have financed this transaction as well.
Senator Stewart: I am simply asking you - this is your lead lobbyist.
Mr. Coughlin: During the RF - this is which period, I'm sorry, senator?
Senator Stewart: This is second period.
Mr. Coughlin: Which time period, I'm sorry?
Senator Stewart: It is spring, summer and fall of 1992.
Mr. Coughlin: This is after the RFP and before the submission.
Senator Stewart: All right, let me read you what Mr. Near said.
Senator Jessiman: Tell us the time, that's all.
Senator Stewart: Let me read you what Mr. Near said, because that bears on the question of time. He says:
Overall, I would divide our government affairs activities into the following four phases: In phase 1, Earnscliffe provided Claridge with monitoring and advice regarding the plans of the federal government to privatize T1 and T2. This monitoring occurred primarily in the spring of 1992.
In phase 2, once the government decided that it was going to proceed to privatize T1 and T2 and issue a request for proposal, Earnscliffe tried to assist Claridge in convincing the federal government that any request for proposal should evaluate bidders on their financial ability to build and operate T1 and T2, as well as their operational ability to bid and operate at Pearson. As you know, financial ability was not part of the final criteria used to evaluate the proposals.
Through this phase, which covered the period through the spring, summer and fall of 1992, Earnscliffe assisted Claridge in the preparation of its proposal...
And so on. So they tell us where it was, where phase 2 was, in the spring, summer and fall of 1992.
Senator Lynch-Staunton: The RFP was issued in March 1992.
Senator Jessiman: On March 11, '92.
Senator Stewart: All right, if you have difficulty on the timing -
Senator Jessiman: There is no difficulty. It is quite clear.
Senator Lynch-Staunton: Completely irrelevant.
Senator Jessiman: Read the RFP.
Senator Stewart: No, no -
The Chairman: Order, please. Go ahead. Just a second.
Senator Stewart: In 37 -
Senator Jessiman: God, it is all there.
Senator Stewart: If the senator has difficulty with regard to timing, let's put that aside for a moment.
...Earnscliffe tried to assist Claridge in convincing the federal government that any request for proposal should evaluate bidders on their financial ability to build and operate...
Et cetera.
As you know, financial ability was not part of the final criteria used to evaluate the proposals.
Senator Lynch-Staunton: May I help, Senator Stewart -
Senator Stewart: No, no, I think, Chairman -
Senator Lynch-Staunton: May I quote from Mr. Barbeau who came before us and told us -
Senator Stewart: Mr. Chairman, I ask for your protection. This is a deliberate effort to derail a line of questioning.
Senator Lynch-Staunton: I want to help you, senator.
The Chairman: Are you directing the question to the witness?
Senator Stewart: Yes, I did. And then there were interruptions. He asked for clarifications. I clarified at least twice.
The Chairman: All right. Direct the question, please.
Senator Stewart: I say, am I correct in concluding: (a) is what your lobbyist said correct? This is a prepared statement, not an off-the-cuff answer. Second, am I to conclude that you would have regarded the process as being more satisfactory if financial ability had been part of "the final criteria to be used in evaluating the proposals"?
I am quoting that; that's his language.
Mr. Coughlin: I can't - I really don't know what Mr. Near had in mind when he said that. I always knew that financeability was part of the RFP. We knew that. It was in the business - it was the RFP. It was laid out in the RFP that a proponent would have to present to the Government of Canada its financial plan.
Senator Stewart: In other words, there was a failure of communication between yourself and Mr. Near.
Mr. Coughlin: No, I wouldn't - I must say, senator, that we, whenever we would have a chance, would promote financeability and operation. I mean, we were in a competition. We were fighting against Paxport and, like in any competition, you try to highlight your strengths. Our strengths clearly were, in our opinion, our ability to finance and the fact that we already operated a terminal.
That was during the - I mean, contrary to the collusion, during this intense competition, we were trying to make - whoever would listen to me, I would make the points of the strengths of our bid. And, clearly, our strengths came, we believed anyways, in financeability and in the fact that we operated Terminal 3. We made those points, and Mr. Near is correct that we tried to impress upon whoever we did meet that those were our strengths in comparison to our competition. That's what we thought our strengths were.
I am a little confused on your question as far as financeability within the bid, because there were - there was financial requirements in the RFP.
Senator Stewart: Really, that's not my assertion. I am only quoting Mr. Near.
As you know, financial ability was not part of the final criteria used to evaluate the proposals.
You see, earlier today, I thought that, on the basis of that testimony, that I ought to sympathize with you because your competitor could come forward with a proposal which might be very good but which might raise questions concerning financial feasibility.
You, on the other hand, with your financial ability to which you just now have referred, would be stuck with almost any proposal that you put forward. That's why I thought that perhaps the process was a bit loaded against you and why I should direct some sympathy in your direction.
Mr. Coughlin: Senator, I'm sorry, I'm not clear on the question. I don't believe that the process was loaded against us. I mean, we both - I mean, an RFP was released. That RFP called for submission, I believe, under five categories: a development plan, a business plan, an industrial benefits plan, a management and operations plan, and an employee transfer plan.
Within the business plan, the RFP clearly stated that the proponents would have to represent to the government how were they going to undertake this $700-million development. We did it in our submission. Paxport did it in their submission. So there was an element of financeability in the RFP process.
It was only natural, I think, for the government to ask, once they awarded Paxport, could you do that? Just like I suspect they would have asked me, could you do what you said in your bid?
Senator Stewart: So you are dismissing Mr. Near's testimony. He says that one of the big concerns for which you paid him during this period was to convince the federal government that any request for proposals should evaluate bidders on their financial ability to build and operate, and so on. New sentence.
As you know, financial ability was not part of the final criteria used to evaluate the proposals.
Mr. Coughlin: I don't think I am contradicting Mr. Near. I think what Mr. Near meant in that statement was that, during this competition, while we were competing against Paxport, we made the argument to anyone who would listen to us of our strengths. And our strengths were financeability and the fact that we did operate Terminal 3. That were our strength. That's what we tried to impress upon anyone, and I believe that's what Mr. Near meant in that statement.
Senator Stewart: When you say your strength - we already established in the committee that the field was a small one. When you say your "strength", you imply relative to your competitor. Right?
Mr. Coughlin: This was a competition. We were fighting against them.
Senator Stewart: Yes, so it is relative to -
Mr. Coughlin: Absolutely. We were fighting against them. We -
Senator Stewart: And within days, your competitor was talking with you and on your initiative, because of reasons you explained earlier - in my opinion, very convincing reasons - you proposed to add your financial ability to their scheme? Is that right?
Mr. Coughlin: No. I mean, we initiated the partnership -
Senator Stewart: Yes, that's what I said.
Mr. Coughlin: We brought Terminal 3 to the equation which was, I think - you know, bringing Terminal 3 to the equation was very important, because Terminal 3 allowed the development process to proceed in a much more - in a much easier fashion.
Mr. Spencer: But it also generates -
Senator Stewart: Chairman, the witness is not focusing on my question.
Mr. Coughlin: Senator, I'm sorry.
The Chairman: With all due respect, Senator Stewart, I think the witness has answered your question at least five times. I don't think what your point - I don't know really what your point is.
Senator Stewart: Perhaps the hour, chairman, is not a good one for you.
Senator Lynch-Staunton: Mr. Chairman, if I may, I'd like to help Senator Stewart. If he'd been here on the 11th of July, he would have heard Mr. Barbeau say - Mr. Barbeau you may remember well - that bidders in an RFP are asked to present - Senator Stewart - are asked to present their business case and be ready to prove financeability afterwards.
You present your case in a memo, and once it is accepted, then you are to prove.
Senator Stewart: I understand that -
Senator Lynch-Staunton: That applied to Claridge as much as - you are trying to suggest that Paxport had the edge here. You are trying to suggest that Paxport had an edge. Both got the same RFPs. Both submitted their own individual business plans and financeability. Paxport won on business. They said your financing is a bit shaky, let's see you prove it. They would have said the same thing to Claridge had they won. So don't suggest that that's favouritism here or -
Senator Stewart: No, no. Of course, they would have asked Claridge to demonstrate, and Claridge has told us tonight that they knew where their strength was and they would have been able to carry through. And all we can rely on is a proposition from the witness that he believes that his competitor could have gone ahead and performed, and that implies an "if", and we don't know what the "if" is. It is pure conjecture.
Senator Lynch-Staunton: Like the rest of your questioning.
Mr. Coughlin: But, senator, there is no -
The Chairman: Order, order, please.
Mr. Coughlin: Senator, there is no proof that they could not have done the financing.
Senator Stewart: Of course not, because -
Mr. Coughlin: You are talking about AGRA which is a well-known, reputable corporation that does major work across not only Canada but the world. Bracknell is a publicly traded corporation. Allders is the world leader in retail. We were dealing with significant corporations that, in my opinion, had the capacity to finance this transaction.
Senator Stewart: Yes. And if major banks had come in, it could have been done, too. That "could have" is a very conjectural -
Senator Tkachuk: Then don't have a competition, senator. Just give it to the richest guy in town. Don't have a competition.
The Chairman: Order, please. Senator Stewart, I want to be fair. I want to give you one more chance. Can you give the Chair some idea as to the thrust of your question, what it is you're trying to prove. We know what Senator Bryden alleged.
Senator Stewart: All right. I don't know whether this is just rhetoric on your part, chairman, or not.
The Chairman: But I don't know where you're going.
Senator Stewart: If you will review the testimony that we had earlier from these witnesses, and compare it with what Mr. Near told us, there appears to be perhaps a contradiction or certainly a difference in emphasis. And I ask, I invite you to review the record.
The Chairman: The witness just allowed as how that he doesn't think there was a - there might have been a difference in emphasis, but he has answered the question about four times. I don't see why - what is the point of -
Mr. Nelligan: May I assist? I think it is a question of this witness testifying as to what his knowledge is. And if I may put this question to the witness.
You've heard from Senator Stewart that, apparently, a previous witness said, as you know, financial ability was not included in the request for proposals. Do you agree or disagree with that statement, whoever said it?
Mr. Coughlin: I disagree. Financing was a part of the proposal. A financial plan was part of the proposal.
Mr. Nelligan: And, I think, with respect, senator, this witness can only testify as to his own knowledge and can't attempt to support another witness. The witness now to be challenged is the other witness.
Senator Stewart: The only reason I raised this was this was his lobbyist.
Mr. Nelligan: Of course, that's right. Now he disagrees with his lobbyist.
The Chairman: Senator Tkachuk, did you have something?
Senator Tkachuk: I'm done. It's time.
The Chairman: Gentlemen, thank you very, very much.
The committee adjourned.