Proceedings of the Special Senate Committee on the

Pearson Airport Agreements

Evidence

Ottawa, Thursday, September 14, 1995

[English]

The Special Senate Committee on the Pearson Airport Agreements met this day, at 9:00 a.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: Colleagues, I'd like to thank Mr. Matthews and Mr. Baker for agreeing to stay over for this morning's session so we could finish up.

We are aware of the fact, Mr. Matthews, that you have a plane that is rather important for you to catch at 12 noon, and we adjourn at 11:30, so we'll keep that in mind. We will hold Mr. Baker over until 11:30 if necessary. I don't know if it will be. The fact is, we are conscious that you must get away by 12. We will try to expedite that.

Mr. Matthews: Did you say that we will adjourn at 11:30, and I catch a 12:00 airplane?

The Chairman: It's only 20 minutes.

Mr. Matthews: You're just not changing. You're not modifying. Age should do something for you.

The Chairman: Before we begin, gentlemen, is there anything you wish to add to yesterday's testimony?

Mr. Matthews: Yesterday, I said that I did not recollect speaking to Mr. Stehelin, and that's true. I didn't recollect it. But my son Jack phoned me last night to tell me that he had indeed phoned me, and when I answered the phone, I didn't know who he was. And he started asking for financial information, and I said no, and that was the end of the conversation, essentially. And so I apologize to Mr. Stehelin and to this group. But I still don't remember the phone call. But my son told me there was such a phone call. So that's that.

The Chairman: The questioning will begin with Senator Bryden, who's indicated that he wants approximately an hour?

Senator Bryden: I thought Senator Tkachuk was first, but I am prepared to go, and I -

Senator LeBreton: Mr. Chairman, just on a point of - on yesterday's testimony. Mister - Mr. Bryden was going through Mr. Hession's diary and indicated that on January - Thursday, January 17, 1991, Mr. Hession had lunch with Gerard Veilleux. And then there was some discussion as to what Mr. Veilleux's capacity was. I may lack many things, but I don't lack a bad memory [sic]. I was quite sure he was president of the CBC. Senator Kirby said, no, he was the head of the Treasury Board.

Senator Kirby: [Inaudible.]

Senator LeBreton: No, excuse me. He was secretary of the Treasury Board from 1986 to 1989, and he was president and CEO of the Canadian Broadcasting Corporation from 1989 to 1993. So he, at that time, was president of the CBC. Thank you.

The Chairman: Is it agreeable then, Senator Bryden, and then Senator Tkachuk? Please proceed.

Senator Bryden: I did go through this morning and eliminate a number of things. So I am really going to try and move as expeditiously as I can to get some documents on the record.

There was a meeting on March 3rd, 1993, and it was attended by Jack Matthews, Mr. Hession and Mr. Kozicz for Paxport, whom I don't know. And there is a teleconference here on March 4th reporting that. And it is document number 0189. In my tabs, it is "L".

Mr. Matthews: Are you asking me a question?

Senator Bryden: No, I am just waiting until you get the document.

Senator Kirby: I should point out that, while Ross is doing this, Mr. Chairman, that our side has been religious in terms of making copies of documents and distributing them to everybody. I am only saying that - and so has Senator Jessiman. I am really saying that so Senator Lynch-Staunton won't launch off into another tirade.

Senator Lynch-Staunton: It was a question of confidential documents which are considered privileged between senior bureaucrats and the ministry. That's all.

Senator Bryden: The first thing I would note is that it indicates - the March 4th memo indicates that the purpose of the conversation was to be briefed on the March 3, 1993 meeting between Paxport and the deputy minister. And the persons attending that meeting included Mr. Hession. This meeting was on March 3rd, 1993.

Mr. Matthews: Yes.

Senator Bryden: You had mentioned yesterday that Mr. Hession was out of the loop.

Mr. Matthews: Wait a minute now. Just for the period when we were initiating a relationship with Claridge. Just for that period, very short.

Senator Bryden: Okay, back in the loop now?

Mr. Matthews: Absolutely.

Senator Bryden: Okay. Now, the document that I have, and we can do this in one of two ways, you can read it into the record or I will.

Mr. Nelligan, Counsel to the Committee: Senator, if I may suggest, this is a government document. It's a memorandum on government files about a phone call between government officials, and I think it should be put to the witness, first of all, if he has any knowledge of the document before he reads it into the record, in fairness to the witness.

Senator Bryden: Do you have any knowledge of the document then?

Mr. Matthews: Well - no, I don't, no.

Senator Bryden: In the - so you would have no knowledge of the comments in this that your employee, Mr. Hession, - of the meeting that he attended where reference is being made at the bottom, on the second page of the document -

ADM's view is that Shortliffe is trying to orchestrate something but not sure what.

- or -

Lobbyists are abuzz.

- what lobbyists they were or what they were buzzing around?

Mr. Matthews: I have no knowledge. I don't even know what that sentence means.

Senator Bryden: That's why I asked the question. I didn't know what it meant either.

Senator Stewart: Which sentence? Which sentence? Is it the fact that you don't know what "Lobbyists are abuzz" means or that Shortliffe is trying to orchestrate something?

Mr. Matthews: He mentioned the second sentence there, the matter that has Shortliffe in it, and I said, I don't know what that sentence means.

Senator Stewart: Okay, thanks.

Senator Bryden: Perhaps I should show this one to Mr. Nelligan. It is in the government documents, but -

The document is document "M" in my tab, document 002191. I would just like to refer you, Mr. Matthews, to the three bullets relating to the financing that is referred to in this memorandum. It is for the Prime Minister, and it is from Mr. Shortliffe; "...the additional $61 million of equity is not firm...", and refers, at the end of that:

...the $20 million Matthews Group Limited contribution will actually be financed by a loan from Allders...

Was that your understanding at that time?

Mr. Matthews: I'm sorry?

Senator Bryden: Was that your understanding, that the $20 million would be coming from Allders?

Mr. Matthews: Yes, we had an agreement to that effect.

Senator Bryden: You had an agreement. Yes, I will put that in - the debt financing in this -

Mr. Matthews: I guess the proof of the pudding is in the fact that they put up the $20 million subsequently.

Senator Bryden: Yes. But as of March 5, 1993, as of the date of this memo, the debt financing was still conditional on you being able to firm up your equity.

Mr. Matthews: I'm sorry?

Senator Bryden: If you read the third bullet - I'm sorry, the second bullet there, where Mr. Shortliffe is saying:

...debt financing remains conditional on both the equity financing firming up and Paxport coming to terms with existing tenants...

Is it your recollection that -

Mr. Baker: That's correct. It is set out in the March 2nd, '93 letter to Huguette Labelle from Deloitte & Touche. And Senator Bryden, there are a number of issues that are raised, normal issues that are raised in any business project over time that have to be satisfied. And, in fact, as I read through the letter this morning, because you had suggested you were going to go to financing issues, every issue raised in the letter of March 2nd, 1993, was satisfied to the satisfaction of the Government of Canada and the negotiators and Deloitte & Touche, finance department, as I recall.

In fact, we have had the testimony of Messrs. Rowat, Jolliffe, Desmarais, Stehelin, Coughlin, Spencer, Cappe - and I forget the two gentlemen that were with him - who have all testified to that effect, senator.

Senator Bryden: Yes, okay. And then on the - did you - on the last part of that memo, there is a reference on the second page, just before the section that was whited out. We have asked Transport to develop options in case an impasse develops.

Do you recall any discussions between you and Transport relating to their options in the event that there was an impasse that developed between you and Air Canada?

Mr. Baker: No, I do not. Senator Bryden, I would - I don't think that there are any options offered by Transport Canada, but I would go back to where Mister - Deloitte Touche refers to the issues outstanding, and the fact that his letter raises, as did the memo of the meeting that you referred to as Exhibit L, to the frustration in dealing with Air Canada. And on March 4th, '93, that expression is raised. The issue is raised again in Mr. Stehelin's letter of March 2nd to Huguette Labelle, and not 'til June 16th - I believe it is the 16th, did Transport Canada advise us that they had extended the lease of Air Canada and failed to put that extension into the RFP. It took another - March 3rd to June 16th, to come clean on that issue.

And Mr. Stehelin points outs in his memo the financeability of the project, one of the major criteria, particularly if you're going to the lenders, is arrangements with Air Canada. And yet they were hiding that crucial, very crucial, fact and hid it until June 16th.

Senator Bryden: That is a little strange that that would be happening -

Mr. Baker: It is extremely strange.

Senator Bryden: - since Paxport and people representing the Matthews Group were in almost continuous contact with Air Canada from 1989 on. Indeed, at one point -

Mr. Baker: And they had never advised us of the guiding principles.

Senator Bryden: At one point you were proposing to redevelop it together.

Mr. Baker: That's right.

Senator Bryden: And that was proposal was going forward at a time when these terms and conditions, or whatever, of the lease were being negotiated by -

Mr. Baker: I'd have to check the dates on that, senator. I can't remember - what's the date on the guiding principles letter?

Senator Bryden: Anyway, I don't -

Mr. Baker: Our proposal was to work with Air Canada. We were not going to take over the - the initial proposal did not contemplate Paxport being the owner of Terminal 2. It contemplated Air Canada and we working as the development partner, as I recollect. So that's quite a different proposal, Senator Bryden. They would have been the ones that had the lease, so therefore they wouldn't have bothered - and did not reveal to us the terms of their lease.

Mr. Matthews: The lease changed. The 40 years came from when the Air Canada put a considerable amount of money into upgrading the local part of Terminal 2. You will remember the work that they did there.

Mr. Baker: I think they testified it was $125 million.

Mr. Matthews: And they spent that. And they negotiated with Transport Canada at that time to protect that investment.

Mr. Baker: I think we can get evidence of that because Mr. Shortliffe, I believe, was Deputy Minister of Transport at the time that that was negotiated and he is now -

Mr. Matthews: That's right.

Mr. Baker: And I would just add, senator, that I did listen to senator - or to Huguette Labelle's testimony and to Mr. Barbeau's, and in neither case did either mention a letter, which I don't have in my hand but which is in your materials, from Air Canada to Huguette Labelle, copied to Victor Barbeau, with a fax cover sheet - it was included in your materials some place - to Victor Barbeau, which specifically reminds Huguette Labelle that there are the guiding principles and that Air Canada considers them binding on the government. And that letter was sent before the RFP was issued.

I think you may have seen it, senator. And it did not come up in the testimony. I was quite surprised.

Senator Bryden: As I indicated, I'm trying to get this on the record, so I can shorten my questions, but I can't shorten your answers. And that in no way is trying to ask you to do so, but I'm trying to fit your time frames as well.

Mr. Baker: Thank you, senator.

Senator Bryden: The point of these two memos - up to this time at least, there was still a significant question of your ability, at least in the minds of the Clerk of the Privy Council and in Deloitte & Touche, to be able to finance it. You resolved it afterwards, but as of the 5th of March, it was still an issue. Is that correct?

Mr. Matthews: That's wrong.

Senator Bryden: Pardon?

Mr. Matthews: In my opinion, that's wrong. As far as I was concerned, we were always able to finance it. Now, we did have to come to terms with Air Canada. There is no question about that.

Senator Bryden: I would like to refer now to a document which is marked "N" in my tab. It is 749. It is a Paxport document. It is a memorandum to Don Matthews, Jack Matthews, with copies to four other people from Mr. Hession. And this one is dated March 9th, 1992 and, while for the most part, I will be moving chronologically forward, I did want to put this particular one in.

It deals with a strategy session, and some of this is in already. But I want to refer in particular to the criteria that's toward the back of the memo. I guess it would be - there's no page number on it. They start - yeah, it is the last section of the memo. It starts, criteria, and there is about six pages of it.

And it has a rating, pusher, blocker, competitive assessment. Now, I realize you are not in a football game here, but, nevertheless, this is an internal memo, and what I want to look at is the competitive assessment. And "Canadian as per Investment Canada Act", that's okay. "Construction strength, capacity and demonstrated performance for Paxport", weak on the rehab, strong on new construction.

So this is obviously a rating that was prepared internally.

If you go to the second page, financial planning experience and financial capability, the competitive assessment - the internal competitive assessment in 1992 is weak. The ability to raise equity/debt on favourable terms is marked weak.

If you go to the next page, at the bottom, adequacy of proposed financial arrangements to ensure completion of the development phase is weak. And those are the only ones that are dealing with the financial situation.

So the point of this, and I'd like to ask you, Mr. Matthews - this memo is directed to you - even back in March 19, 1992, you knew that one of your major weaknesses was the ability to raise equity and to finance this project. And that weakness continued certainly until March 5th of 1993. Is that correct?

Mr. Baker: I'm just reading the memo, senator, so if we could take a moment to read it.

Senator Bryden: Sure.

Mr. Baker: As I read the memorandum, it is proposing to take the form of a competitive assessment on which we will be evaluated and to discuss remaining weaknesses at that point. And I will remind you this is March 19th, 1992, getting ready the RFP proposal. Mr. Hession came back from Europe - or from Asia about March 14th, I think it was, and he was getting ready for the proposal. And so he was dealing with issues that had to be addressed. It is interesting, senator, that he anticipated one, two, three, four, five, six, seven, eight competitors in this process. It turned out there were only two.

He certainly got, under the risks, "Politicized process - the Matthews syndrome". With hindsight, we should never have bid. So it looks like he was listing all the issues for a meeting to be met and discussed.

I will note, Ellis Don joined our consortium, which probably raises one of his issues, his perceived issues. You must remember, Mr. Hession was not a financial analyst and was not involved - was not the person responsible for raising the financing. These issues are his perceptions at that time in March of 1992, before the RFP, before the response to the proposal. So I can only say that you should have asked Mr. Hession what he meant by these and whether each of these were satisfied. And I would say that each was satisfied. We did demonstrate overall strength, capability and demonstrated performance in the proposal and were selected the best overall and rated on all aspects of the proposal, except for the employee transfer benefits, as better than any - the other proposal.

Construction strength, capability and demonstrated performance, I think you've had testimony - in fact, I think it was Ms Hewlyn [phonetic] who did get something right. Matthews had performed on every construction project it had. There was no evidence of any defaults.

So I think that addresses that. Weak - he is talking about financeability, financial planning experience and financial capability. KPMG was brought on, as well as Wood Gundy. So that - hopefully, you are not going to argue, senator, that Wood Gundy and KPMG are not strong financial planners and do not have financial capability.

The ability to raise debt equity on a favourable basis, that issue was raised and analyzed with -

Senator Bryden: Mr. Baker, if I could just -

Mr. Baker: I am just addressing the answers to your questions. I'm trying to find a list -

Senator Bryden: Sure, but you mentioned two particulars, Wood Gundy and Ellis Don, who are - you mentioned as being -

Mr. Baker: Yes, Wood Gundy and Ellis Don withdrew -

Senator Bryden: - financially capable and wise - you didn't say that.

Mr. Baker: No, I said Wood Gundy was financially - financial input. Financial capability, planning -

Senator Bryden: And both of them withdrew from the project.

Mr. Baker: Financial planning experience, they continue to provide -

The Chairman: We are driving the court reporters crazy. You are talking over one another. Please watch that. Wait until the other person finishes the question.

Mr. Baker: Wood Gundy continued to provide planning and financial advice and withdrew on August - sometime in August, they sent a letter saying they were withdrawing, and Mr. Matthews referred to a telephone conversation with Ed King. At that time, Mergeco had been accepted by the government. Mergeco was committed to the funds and actually produced the funds. As far as ability to raise debt and equity on favourable terms, those issues were addressed by looking at the plan and putting together the $61 million in equity and - as under the proposal, and also by speaking to, I think it was, 11 major lenders including such as Mutual Life who were the lead lenders on Terminal 3 and on Vista Cargo Terminals; the Omers [phonetic] pension fund; major institutions - the institutional investors who, in the normal course, you would expect to be involved in a project of this nature.

And most of those institutions were involved in the Terminal 3, and Mutual Life, of course, also in the Vista Cargo Terminals.

That was in order to assess the kind of requirements that would be necessary to raise the debt and equity, and we had favourable responses from those people.

What other one did you raise? Adequacy of security procedures during the construction and operational environment. That was assessed in the - that was addressed in the proposal and met all the criteria. We've had, as Mr. Hession emphasized, the security.

And transfer plan which is marked as a blocker which was addressed - I don't know why he uses the word "blocker". The only issue - that's the one area where our proposal was not rated as high as the Claridge proposal.

Anything else I can help you or assist you with, senator?

Senator Bryden: Yes, refer to document 002092, it is "O" in my list of documents for distribution.

This is a memorandum for the Prime Minister, once again from Glen Shortliffe. It is dated February 3, 1993, and I want to ask you about two of the items, if you come down the bullets, one, two, three, four - the fourth bullet, the second sentence says:

Transport has put the onus on Paxport to prove financeability and has hired outside financial advisors to help assess the response.

That would be Deloitte & Touche, I guess, were the outside - would that be correct?

Mr. Baker: I think that's correct.

Senator Bryden: And then the next one -

Mr. Baker: We're not aware of any -

Senator Bryden: Others?

Mr. Baker: There was some mention somewhere of Richardson Greenshields, but I don't know how far their role went, senator. But I think, if you look through the records, you will find there is a reference to Richardson Greenshields. And at one point, I think Coopers & Lybrand - I have no idea who was in the background. We do know that Deloitte & Touche was retained because we have the correspondence this morning, senator.

Senator Bryden: Perhaps, Mr. Matthews, you could address the next bullet, the one at the bottom, which says:

The original Paxport financing essentially was very highly leveraged, involving $66 million of equity with the remaining costs of the $857 million project being covered by debt financing.

Is that correct, Mr. Matthews?

Mr. Matthews: This is not a correct - he didn't understand that part of the proposal.

Senator Bryden: So Mr. Shortliffe is wrong here?

Mr. Matthews: Yes.

Senator Bryden: Does the last sentence:

Paxport may now be able to draw on the larger equity base of the new partnership...

That would be the partnership with Claridge?

Mr. Matthews: Sure.

Senator Bryden: Which includes the T3 interests. And as you told us yesterday, as indeed Claridge did, when you ended up with 50/50 interest, then the equity portion brought in by Claridge sort of solved the leverage issue. Okay.

Mr. Baker: I just was reading the top of this memo, senator, and I'd just point out, it says:

As expected, on February 1, 1993, Paxport...Terminal 3 Limited Partnership announced...

And I recall, in Madam Huguette Labelle's testimony, I think, or was it in Mr. Hession's it was raised, that Mr. Shortliffe - there is something about Mr. Shortliffe knowing something. As Mr. Matthews testified, the group that we had was very small, but knew that negotiations were going on until they were actually approved by the Paxport board. And as Mr. Coughlin indicated, they had informed various people in the consortium including, I believe, their public relations consultants.

So I expect that Mr. Shortliffe is referring to the fact that, also, the government had been advised about the merger after, I think, it was January 17th. Because I don't think it has been clearly addressed. January 17th, there was a meeting with Huguette Labelle, I believe, to advise her. Just to clarify that point, senator.

Senator Bryden: Thank you. I would refer you now to document "P" in my tab, which is dated February 22, 1993. It may have gotten in at another time when I wasn't here, but it's the Deloitte & Touche letter to Mr. Barbeau. And he is just - this is:

We wish to report the current status of our assignment concerning the financeability of the proposal submitted to the Crown with respect to [T1T2].

And he makes an assessment of the various parties who are participating in it, and one of them is the Matthews Group consolidated, and that's on page 3. And he goes through the total assets, and so on, and that seems pretty clear. But on page 4 is what I wanted to draw your attention to.

Because of the relationship with Allders International Canada concerning the $20 million investment at "The Turnover Date"...

That's the $20 million that Allders was going to make available.

...we have not attempted to verify the availability of the $20 million from borrowings from traditional lenders by Mathews [sic] Group... Based on the Company's existing balance sheet...

That would be the Matthews Group.

...and the nature of its business, we do have some concerns as to the ability of the Mathews Group to borrow $20 million from traditional lenders in the event a problem arose with respect to the funding arrangement between Mathews and Allders. For the purpose of satisfying ourselves, we are relying on Allders International Canada and their parents' financial strength and their ability to fund the Matthews Group...

Mr. Matthews, at that time, the Matthews Group would not have been able to fund that $20 million, except for Allders? Is that correct?

Mr. Matthews: No. But we did have an agreement with Allders which they honoured. The $20 million was put up, and so that's the end of the question.

Senator Bryden: Now, I've looked through as much material as I can in trying to determine the relationship between Allders and the Matthews Group. If we look at just your proposal, it was going to be financed with - before we got into the Mergeco, it was going to be financed with $66.5 million of equity and $20 million of that - $23 million was to come from your group, and 20 of that 23 was to come from the Allders loan. Right?

I would like to refer to a document that is "Q" in my tab, and it is a memo to file from - it is on the Deloitte & Touche letterhead from Paul Stehelin.

Is this the phone conversation that your son confirmed may have occurred?

Mr. Matthews: I guess it is. It is my birthday, so I should have - no wonder I couldn't remember.

Senator Bryden: You celebrate your birthday the same way I do.

Does that draw any recollection at all?

Mr. Matthews: I'm sorry, I have to -

Senator Bryden: The purpose of this was not simply to try to jog your memory, but just in completing the documentation for my purpose, that, at this time, there was concern about the availability of the $20 million if, in fact, Allders became a problem, as expressed by Stehelin.

Mr. Matthews: If you read the last sentence in that letter, I did manage to get his name and his telephone number, and I expect I probably gave it to Jack Matthews.

I said - this letter says:

He took my name and telephone number and indicated that someone would get back to me.

Mr. Baker: And the "he" is Mr. Matthews.

Mr. Matthews: The "he" was Jack Matthews.

Mr. Baker: No, he -

Mr. Matthews: Oh, that's me, yes, yes.

Mr. Baker: And Jack called last night to say that that's what had happened.

Senator Bryden: So it was Jack who was to reply to that.

Mr. Baker: It was Jack, yeah, that it was referred to. And in fact, senator, if you want some additional information on that, Scott McMaster of Allders provided Mr. Stehelin all the information and background relating to that loan. Scott was the president of Allders International Canada.

Senator Bryden: I'd like to go back to the document that I gave you just before the - there are two Deloitte & Touche, this single page, and then there was the larger one, the one that's dated February 22 to Victor Barbeau.

At the back of that letter is a copy of a letter agreement between Allders International and Paxport Management Group. It is dated June 10, 1992. Do you recognize this agreement?

Mr. Matthews: No, I don't - Jack Matthews signed it, so I'd suggest you take it - ask him about it.

Senator Bryden: In this - perhaps, Mr. Baker, were you part of this agreement -

Mr. Baker: I'm aware of the Allders transaction and I did the documentation for the closing of that transaction, senator.

Senator Bryden: So you could speak to this, then?

Mr. Baker: Yes, I will.

Senator Bryden: Is it correct to say that what this does is establish a joint venture company among Allders and Paxport and another of the - which is a Matthews Group company, isn't that correct? Paxport Investment Limited?

Mr. Baker: That's what this letter proposed, sir. That did not happen.

Senator Bryden: It didn't happen?

Mr. Baker: No.

Senator Bryden: So this agreement never -

Mr. Baker: This agreement was superseded by later agreements and Matthews did not participate in the retail ownership.

Senator Bryden: But was this not the agreement -

Mr. Baker: This is the agreement on June 10, 1992, subsequently superseded by the agreements in October of 1993. And Matthews did not participate.

Matthews did not participate because, although I believe - although it was not - there was discussions, and I can't recall when they started, with the Government of Canada who were concerned about the Allders' interests in the airport, being a concession, having an interest in the property. And so, in the course of those discussions, other arrangements were made. Matthews did not participate in the retail ownership, and there were provisions that Allders' ownership interest would not exceed 15 per cent.

Senator Bryden: That's in the final deal.

Mr. Baker: That was in the discussions and negotiations with the government and agreed with the Crown.

Senator Bryden: But isn't it the case that the $20 million that was loaned or committed to the Matthews Group for the equity portion of your 23, was based on Allders receiving this agreement? That was the consideration.

Do you know, at the time the evaluations were being made for the RFP, whether Transport Canada officials knew about this agreement?

Mr. Baker: No, of course not. It's not relevant to - it was not relevant to the proposal, senator.

Senator Bryden: At the time when you were arranging - trying to arrange financing on your own, before Claridge showed up with its so-called deep pockets, the $20 million was coming from Allders.

Mr. Baker: That's correct, senator.

Senator Bryden: And they were providing the $20 million based on - one of the considerations, at least, was this agreement?

Mr. Baker: Yes. They entered into this agreement, senator, because they wanted to have the duty-free operations at Terminals 1 and 2 and they wanted to have an option, in effect, on that duty-fee lease. It's a normal commercial transaction.

However they did not want to take any financial risk until the actual closing of the transaction, and therefore they entered into this agreement and entered into the loan agreement, but they would advance no funds until the actual closing of the lease transaction, at which time they did advance the funds and they acquired their equity interest.

So in effect, they were going to take no risk throughout the RFP period, the proposal selection period or the negotiation period, and that's a normal commercial transaction that they entered into with the Matthews Group.

Senator Bryden: Part of the problem with this was that they were to get a percentage of all of the concessions, is that correct?

Mr. Baker: No, no, that's not the problem. The only issue the RFP addressed with regards to ownership was airlines, if I recall correctly. But, in the course of the negotiations, the Government of Canada thought - and I didn't necessarily agree with them, but I mean it's part of negotiating - that a concessionaire should not have a significant interest in the terminals and therefore, to accommodate the government, as you do in any set of negotiations, senator - you're a lawyer, you've been through negotiations I'm sure - things changed, although the money always showed up.

Senator Bryden: Article 3 of this June 10 agreement - it's on page 2 - says:

Allders will be remunerated for the retail consultancy and leasing and tenant coordination by an annual fee equal to 5% of net retail lease revenue (excluding services, banking, advertising, car rental and parking) for the first five years of the term and 2.5% of the net retail lease revenue for the balance of the Duty Free Lease term.

Now, don't they run duty free shops?

Mr. Baker: Yes, they do.

Senator Bryden: And then were then, under this agreement, going to get 5 per cent of everyone else's -

Mr. Baker: As it says, they were going to be the retail consultants and leasing and tenant coordinators of the airport. This is a management function and, in fact, I believe Mr. McMaster spent several months, and his organization, in helping prepare materials relating to that and including considering redesigning of the Terminal 3 retail facilities which were not appropriately located.

Part of the reason they were approached is because Allders are the second largest duty free operators in the world with substantial experience in retail operations, and they added that experience to the consortium. This was remuneration for providing those services on an ongoing basis, senator, and in fact that section was deleted in the final analysis. They did not continue with that.

Senator Bryden: But up to that time it was part of what was holding the matter up and was considerable concern to -

Mr. Baker: No, it really wasn't holding the matter up. It was dealt with rather quickly when it was raised. The things that were holding - if you're talking about holding up the negotiations?

Senator Bryden: Yes.

Mr. Baker: No, it wasn't significant.

Senator Bryden: So it had overcome Mr. Stehelin's concern that he expressed -

Mr. Baker: Oh yes, we overcame all of Mr. Stehelin's concerns.

Senator Bryden: And that was once Claridge came in?

Mr. Baker: This concern was distinct from Claridge. This concern was distinct from Claridge. I mean, there's a number of issues -

Senator Bryden: But when Claridge came in, you no longer needed - did you still get the $20 million from Allders?

Mr. Baker: Yes.

Senator Bryden: Okay, but not on the basis of this contract?

Mr. Baker: This contract was amended and Allders did not get the retail consultancy - were not going to continue with the retail consultancy.

Senator Bryden: Now, I want to move up to when we get to the Mergeco aspect. It was December the 7th that you became - best overall proposal was accepted, and then on, was it the 14th of January that you entered into the letter agreement with Claridge?

Mr. Baker: I think so.

Senator Bryden: And as I understand that, that was a confidential agreement at that stage between you, Claridge, and Transport Canada.

Mr. Baker: It was confidential - no.

Senator Bryden: No?

Mr. Baker: No, it was a confidential agreement between Claridge and Matthews. Transport Canada is not a party -

Senator Bryden: Not party to the agreement, but they were aware of it?

Mr. Baker: I don't think they saw that agreement till January 17th. You'll have to check the testimony as to the date. I believe Mr. Coughlin said the meeting date was January 17th the other day.

Senator Bryden: I'm not really concerned, but initially that letter agreement was between Paxport and Claridge, but there were only initially three parties that were aware of the agreement; that would have been yourselves, the parties. But at some point you advised - and I don't care whether it was the 14th or the 17th - but my point is it was kept confidential to yourselves. It wasn't known on the street.

Mr. Baker: We kept it confidential, very confidential, because in the normal course of dealings confidentiality agreements are very - in fact, I must say, senator, I've spent, in some cases, a week and a half negotiating the confidentiality agreement before you get to moving anything ahead at all.

This was confidential between the parties, and it was made known to the government and eventually publicly announced when it was firmed up and the government had accepted it.

Senator Bryden: This memo is in but I want to put it in to complete this line of documentation. It's my document "R", which was actually put in in relation to the Claridge group that were in before. And I am putting it in just to draw your attention to and ask you to comment, Mr. Matthews, on this memorandum from Mr. Shortliffe to the Prime Minister.

It's an update on the request for proposals and it's dated November the 16th, 1992, which is almost a month before December 7th when it was made public. And in this memo Mr. Shortliffe indicates to the Prime Minister, concludes that while both proposals are acceptable, that one from Paxport is the best.

Senator Lynch-Staunton: On a point of order, Mr. Chairman, I believe this is the same memo which was the subject of discussion yesterday and our counsel, I believe, agreed with the suggestion that its release should not have been made. And if my interpretation of that is correct, maybe we should respect the spirit of that comment. It's got nothing to do with the content of the memo; that's completely irrelevant to my argument, but certain documentation, this one in particular from what I have been led to understand, being a memorandum to the Prime Minister and being considered confidential advice to the Prime Minister, has not been - its release has not been authorized.

And I believe, Counsel, that that is the same memo we were talking about yesterday.

Mr. Nelligan: It's the handwritten memo at the end that was objected to.

Senator Kirby: It's already on the record.

Mr. Nelligan: Yeah, it's on the record.

Senator Bryden: I don't want to enter into this discussion, but that horse is already out of the barn.

Senator Lynch-Staunton: Well, why don't we have a little decency here and put it back in the barn?

Senator Kirby: You can't put it back in the barn once it's out.

Senator Tkachuk: We'll remember that.

Senator LeBreton: You guys are setting a new standard for us.

Senator Lynch-Staunton: Certainly are. Try to give them an opportunity to show a little respect for some of the basic traditions in the parliamentary system and all we get in return, "Ha, ha, we let it out and now you can't put it back in again."

Senator Bryden: I wonder, Mr. Matthews, if you would -

Senator Lynch-Staunton: By the way, there's a sentence missing on our photocopy. It's not complete. The third sentence goes on, obviously. Where is a complete copy? If you're going to let the horse out, let it all out.

Senator Bryden: I have a request in my notes to ask counsel if he could get a better copy. I don't have it in mine either.

Mr. Nelligan: I understand it's in Mr. Shortliffe's possession and I assume he'll have it with him when he comes.

Senator Bryden: Anyway, in that memorandum - and this is prior to the RFP coming out - it identifies a number -

Senator LeBreton: Excuse me, it's not part of the RFP.

Senator Bryden: I'm sorry, being decided December the 7th.

Senator Jessiman: No, not true. Declared.

Senator LeBreton: It was prior to the announcement of the evaluation team.

Senator Bryden: Anyway:

Transport has identified a number of issues to be considered before proceeding:

- the recession is continuing longer than expected and traffic may decline due to the current airline industry expansion (sic) so the need for expanded terminal space has slipped 2 to 3 years. There is no need to start construction until 1996.

As you recall, you were trying to - you were in the midst of this. Was that your assessment of the situation, that in fact...?

Mr. Baker: Senator, just before Mr. Matthews answers that, I believe you said "airline industry expansion" and the word is "airline industry situation". I may have misheard you, but I believe that's what you said.

Senator Bryden: I must slow myself down. I'm hurrying, trying to get Mr. Matthews on his plane. I will read more carefully from now on.

The second one -

Mr. Baker: Mr. Matthews hasn't answered your question.

Mr. Matthews: The answer is that it's almost a philosophical thing. If you look at the major airports of the world, the most successful ones, and I just say Schiphol, Singapore and so on, they expand their airports well in advance of demand so that they never let themselves get crowded, and I support that type of mentality.

The procedure followed in Canada, and I certainly don't say that Transport Canada is responsible for this, is that they do the reverse. They wait until they have a problem then they try to address the problem.

Mr. Baker: And senator, I would expand on that answer and say that the statement for the expanded terminal space has slipped for two or three years, as I explained yesterday. The expansion was minimal. It was the modernization that was the major project. And the modernization - and Air Canada's been here and testified - they needed the modernization then. In fact, they were writing to the - and lobbying in 1990, '91, '92, for the expansion; '93. They needed the expansion. They needed the modernization, not so much the expansion. They are now saying, sir, that they desperately need the modernization and expansion, if you look at the testimony of Air Canada.

Senator Bryden: The next paragraph, Mr. Matthews, and I point this out in relation to the timeframe that it took to negotiate the contract. At that time, on the 16th of November, it says:

- it had originally been expected that construction might start next year. Transport's current estimate is now 1994 at the earliest as it will take a minimum of 12 months to negotiate the lease.

Now, as it turned out, depending on which date you assume that this lease was concluded, there was a target date of the 31st of June, I believe, then there were some documents signed in August, and then finally Prime Minister Campbell directed that it be released from escrow, or finally signed, on the 7th of October.

Mr. Baker: Not signed.

Senator Jessiman: Not signed, released from escrow. You added, "and signed".

Senator Bryden: I think if we go back in the record that the facts that is on the record that Prime Minister Kim Campbell directed the execution of the document. It wasn't signed.

Senator Jessiman: It was declared to be - the document was incorrect. The witness said so. It was a release from escrow.

Mr. Nelligan: Of all necessary documents, and it turned out it was the escrow release document that was the only one that had to be signed, senator.

Senator Jessiman: Released from escrow.

Senator Lynch-Staunton: The contract was not signed on the 7th of October. Let that be clear.

Senator Bryden: I guess my point is that it was also not signed on the 7th of December, which, at least before this process began, was the estimated period of time Transport thought it would take to negotiate the contract.

Mr. Baker: I would say, senator, that our estimate on January 4th, 1993, that it would be signed by the end of April, which is a reasonable time in a commercial transaction, and the actual - at one point William Rowat wrote to Glen Shortliffe, I haven't got the memo with me, but I believe it's May 25th, to say that they expected to enter into agreements within a week. But of course we all know that we were continually complaining that we didn't seem to be able to have fruitful discussions with Air Canada, so it was not till June, Mr. Broadbent testified, "the dogs didn't bark scenario", that nobody seemed - Transport Canada officials didn't seem to have any great concern with the fact that they concealed, for such a long period of time, a factor which their own experts and advisors were telling them was an issue, i.e., negotiating the Air Canada lease which would be necessary in order for the financing. And so Mr. Broadbent testified to the delays arising from that and Mr. Hession testified about the delays in appointing a financial advisor. I think it was over a month after the announcement. And then Mr. Rowat said there wasn't much delay after he came along because they had revealed the Transport Canada issue and from June 16th till July 21st, I believe, there was an agreement with Air Canada and things moved along as they would in a normal commercial transaction at that time. We would have, given the delays that have been testified to, saved a considerable amount of time. We probably could have saved several months, as the witnesses have testified, and completed the transaction much sooner.

Senator Bryden: Now, I would like to draw your attention to a document which is marked "S" in my system, it's document 0179. And this is a memorandum for Glen Shortliffe with copies to Huguette Labelle, from David Broadbent, and the subject is "Meeting with Bronfman and Matthews".

In view of the sensitivities and uncertainties, I thought you should have a brief status report.

Mr. Matthews, at this point do you know what sensitivities - this is presumably after the discussions have begun?

Mr. Matthews: I'd like to read the whole thing, but obviously I can only read the part that is here, and I'll do that right now, please.

Senator Bryden: Could you read it aloud, because one of us is going to.

Mr. Matthews: No, I want to read it and think about it.

Mr. Baker: It's Mr. Broadbent's memo, senator.

Senator Bryden: Well, I can read it into the record as we're going through this.

Mr. Nelligan: Senator, in fairness, this isn't this witness' document. We've had Mr. Broadbent. We have Mr. Shortliffe. All this person can be asked is to comment on matters in it, but I don't think this is a time to read it in - we have the document. But all you can do is ask him to comment on any evidence and see if he agrees with it or not.

Mr. Matthews: Okay, I've read it.

Senator Bryden: Can you comment on what would be the potential minefields that would open up with the Bronfman- Matthews meetings?

Mr. Matthews: No, I don't know. I know this, that in any reasonable negotiations you have problems. He's reporting to his superior that he's got a problem and he's going to try to deal with it. That's the way I interpret this whole letter.

Senator Bryden: Do you recall, were you briefed by your son Jack as a result of the dinner - Jack Matthews - that night?

Mr. Matthews: I doubt it, I doubt it. I don't remember.

Senator Bryden: You don't remember?

Mr. Matthews: No.

Mr. Baker: Just to clarify, I'm reading the first full paragraph before the deletion. It would be nice to know what the deletion was because it might have some relevance. I don't know whether that's legitimately deleted or one of the Hession type deletions. But there's something here about the merging of the two proposals, and the testimony of all the witnesses, including ourselves, is there was no merger of the proposals and perhaps he was apprehensive that there was going to be a proposal merge. There was no merger proposal. It was the Paxport proposal and in Mr. Broadbent's subsequent testimony it was a Paxport proposal. His memorandum referred to the Paxport proposal. His memorandum opening the official negotiations refer to the Paxport proposal. Mr. Rowat says it's the Paxport proposal. So I think it was an apprehension that - a blue sky issue that never happened.

The interesting one, and I haven't read this memorandum, is - I don't know the date. There it is. I assume that's the date - is it the 18th of March, '93 - raises the issue of Air Canada guiding principles.

...not in package was letter you signed as DM giving comfort to Air Cda following T2 partial renovation.

So at that point in time it was quite obviously in the mind of Transport Canada.

Preliminary view of lawyers (here plus Cassells) is that Air Cda may judge it has legal protection from lease changes at T1 for many years.

Something that we didn't know about, something that none of the proponents knew about, and something that did not get revealed until almost two months later. And as Mr. Coughlin said, it was stunning - I don't have his exact words but it was stunning to find out that we had gone that far with everybody knowing the significance of Air Canada, including Mr. Stehelin and Madam Huguette Labelle, and that information was not provided.

Senator Bryden: I'd like to now move to try and determine the rate of return, and I'm leaving out as much stuff as I can. It's my document, tab W.

Now, just to go quickly to it, in that rate of return section it shows the project had a projected rate of return of 14 per cent.

Mr. Baker: Where are you looking?

Senator Bryden: I'm sorry, at page 6, rate of return, the internal rate of return. I think that -

Mr. Baker: Approximately 14 per cent, that's correct, senator.

Senator Bryden: Was that rate of return calculated before or after charges such as a charge for development and consulting fees that would be payable to the Matthews Group?

Mr. Baker: It was determined after all expenses, senator, and that includes expenses for interest, amortization, management; any expense relating to the airport. And I think Mr. Coughlin testified that there were expenses related to activities that were being conducted by the partners on the airport, which are activities which would have to be provided to the airport, and those were determined on commercial basis. And any transaction relating to partners to transaction had to be negotiated with Claridge, who were the largest partner, who were not participating in those fees or the construction management, for example. And they negotiated those in accordance with the January 14th letter on commercial terms and in accordance with the letter that Mr. Coughlin sent to Transport Canada and in accordance with the lease, or development, or management - I forget which one it's in, maybe the management and operations agreement. So they negotiated those. And, for example, on the Allders lease, which the Government of Canada entered into a non-disturbance, that lease was negotiated between Claridge and Allders, and the Government of Canada had input into that. And in fact, if I can find it, in the memo to John Desmarais by Judy, who is the acting director of retail for the airports group - I have copies of it if you would like, or I can just read it into the record. It's a memo to John Desmarais -

Senator Bryden: You may read it in if you wish.

Mr. Baker:

Review of the Allders lease would indicate that it is much more stringent than any lease the Department currently has with any concessionaire, especially with respect to the definitions of gross revenue.

The non-disturbance agreement appears fine. I notice that the lawyers have decided that clause 19.3.2.5 of the Allders lease shall not apply to the Crown. This clause deals with the relocation costs incurred by the tenant when required to move. The clause states that land will pay all costs including fit-up costs of the new facility. It has been past practice that the department does pay for relocation of tenants, and the extent of the fit-up costs that are absorbed by the Crown are usually negotiated. Given that Allders has been through some relocations dealing with the Department this, there is likely to be a question as to why we are changing our practice in this case.

However, it was a practice that benefited the Crown.

Submitted for your consideration.

It's unfortunate the Crown has defaulted on its non-disturbance agreement with Allders and not provided them, under the best lease they've got, the facilities.

Senator Bryden: Sorry, I didn't mean to cut you off.

The 14 per cent rate of return, we were to assume that Mr. Hession was paid his contingency fee, or whatever you want to call it, that was agreed to, and if Mr. Fred Doucet received his, would that have been paid out before the 14 per cent rate of return?

Mr. Baker: The 14 per cent rate of return calculated here does not include Mr. Hession and does not include Mr. Doucet.

Senator Bryden: I would like to refer you to a document; it's "X" in my list of documents. This is a document that looks like a letter contract to Matthews Investments Inc., and it says:

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.

And that is signed by Peter Coughlin and Norm Spencer. Norm Spencer is an officer in...

Mr. Baker: He's an officer of T1T2 Limited Partnership. He was here with Mr. Coughlin and testified the other day.

Senator Bryden: Yes. And this would have been paid prior to the calculation of the 14 per cent?

Mr. Baker: In what sense do you mean prior to the calculation? You mean this would be a fee that would be -

Senator Bryden: Yes.

Mr. Baker: This is one of the fees that was negotiated with the Claridge group. In fact, this is actually, as Mr. Coughlin testified, in the course of negotiations with regards to the Paxport airport management agreement and the construction management contract, which provided for 2.5 per cent construction fee, management fee, this contract was negotiated. The final construction management contract fee was reduced to 2 per cent and this contract was entered into as well as the other management contracts. These were for normal commercial activities to be carried on on the airport, senator, and would be normal costs incurred by anyone operating the airport.

Senator Bryden: Mr. Matthews, is there more to this agreement? What were the duties of Matthews Investments to earn the $350,000?

Mr. Baker: This letter of agreement was entered into, as you see, on October 4th, as we were getting to the closing. It was entered into as we were trying to organize various affairs. In fact, on October 3rd we had started the closing. As you heard, the documents were dispensed -

Senator Bryden: I wonder, Mr. Baker, if you could allow Mr. Matthews to answer my question.

What were the duties of Matthews Investments to earn the $350,000 per year?

Mr. Matthews: I was to provide a consulting service, but I have to tell you that Mr. Baker was central to all of this. This was to do with the last minute arrangements between Claridge and ourselves.

Mr. Baker: I drafted them.

Senator Bryden: Mr. Baker, is this the complete contract?

Mr. Baker: This is a memorandum and, as Mr. Coughlin testified, all the agreements were not completed and it was anticipated that after closing - this was just a memorandum at that point in time. But he referred you to his letter of November 25th and further details would have been added.

Senator Bryden: Can I just ask you, on the basis, as you have said to me from time to time, we are both lawyers, if this $350,000 is not paid per year, just on the basis of this document, isn't whoever doesn't pay it in breach?

Mr. Baker: It says "a consulting fee". So implicit in it is there's consulting, senator, that's right. Mr. Matthews -

Senator Bryden: Can you supply now to this committee a list or a schedule that says what is the consulting that is to be done here?

Mr. Baker: No, senator, just as normally when you hired a chief executive officer and he's appointed president, there's often no specific list. The letter would say you've been retained as president of a corporation, or chairman of a corporation. The parties anticipated sitting down later and dealing with those issues, as Mr. Coughlin testified, and as he indicated in his letter of November 25th that he referred to in his testimony.

Senator Bryden: So at this point there is no written -

Mr. Baker: Well, senator, as you recall, the government cancelled the airport transaction and so there was no need to go further and try to develop and complete these issues, senator. You do recall that the airport contracts were cancelled?

Senator Bryden: Yes. Is this part of the claims, damages that are being claimed for?

Mr. Baker: Yes it is, senator.

Senator Bryden: I will, with some latitude, just without referring to the documents, in order to be a little quick here -

Senator LeBreton: You've got a new definition of "quick".

Senator Bryden: Well, we know what haste is, having dealt with this deal.

Senator LeBreton: That's right, you people sure do.

Senator Bryden: There were a number of other contracts that are part of - and I'm only referring to the litigation not to argue it, but as to the value of the contracts. And there's the contract with Matthews Contractors that was for construction management at Pearson. And if I come to one that is not a cost to the company before the 14 per cent return, would you please say no, that's not correct.

Then there was the Paxport International was to get a minimum of $4 million from T1T2 to promote Canadian airport development expertise internationally.

Mr. Baker: That's correct. It comes out of the expenses. It was part of the industrial benefits program that would have used the Canadian airport expertise around the world. I listed off yesterday all the airports that Paxport International was pursuing, and that funding was to go into that company. I forget the estimate of the number of jobs it was estimated to create in Canada, if successful, but I think it was something in the range of 20,000 jobs.

Senator Bryden: Just to be clear, Mr. Chairman, these contracts that I'm referring to are the ones that are referred to in this affidavit of John Desmarais that was filed with us.

Mr. Baker: Definitely. We have nothing hide to here, senator. We're pleased that you're asking these questions.

The Chairman: Senator Bryden, I don't want to interrupt your train of thought, but I'd like to give you a bit of warning.

Senator Bryden: I know, and I'm almost finished.

Senator LeBreton: An hour and a half, Mr. Chairman.

Senator Bryden: Yes, half an hour of my questions and an hour of answers, which is probably a pretty good proportion.

Senator Tkachuk: Maybe he shouldn't even answer them then you could get all your questions done.

Senator Bryden: One other I just wanted to know, there was one with Blacknell Corporation -

Mr. Baker: Bracknell. It's a major Canadian - I described its business yesterday to you, senator.

Senator Bryden: Yes. And they're claiming about $20 million for their loss?

Mr. Baker: If it's in the affidavit, it's correct, senator, if it's there. I'm not handling that litigation.

Senator Bryden: I'm sorry?

Mr. Baker: I'm not handling that litigation so I don't know. If it's in the affidavit, it's correct. I assume it's correct.

Senator Bryden: There's one for Patrick Brigham, exclusive rights to operate as travel agent, and there's a claim there in that's referred to in here.

Mr. Baker: Yes.

Senator Bryden: That would have come out before the return?

Mr. Baker: No.

Senator Bryden: No?

Mr. Baker: No, no, it's a lease.

Senator Bryden: But that would be an expense, right?

Mr. Baker: No, it's not an expense. There was an agreement to lease them space.

Mr. Matthews: It's income.

Mr. Baker: It's money coming in.

Senator Bryden: Okay.

Mr. Baker: The Allders lease is in the same circumstances. We would have been getting revenue and the Government of Canada would have been getting revenue.

Senator Bryden: The only last thing, to sum up; the result, Mr. Matthews, of the extended efforts, extending right from your beginning bidding on Terminal 3 and then Terminal 1 and 2; was at considerable cost to you, actual out-of-pocket cost, is that correct?

Mr. Baker: Yes. Senator, it was about $30 million to $32 million, depending if you take in some of the accruals after the cancellation.

Mr. Matthews: And that's without any of my time.

Senator Bryden: And so those are actual dollars spent and gone?

Mr. Baker: Yes.

Senator Bryden: And those dollars that are spent and gone were invested, to use that, in the anticipation of earning a profit larger than that at some point.

Mr. Matthews: Well, you have to understand that - that's true, but most of that money was spent after our proposal was considered to be the winning proposal. We spent it on legal costs and on other - engineering costs.

Mr. Baker: I'm sure the senator doesn't begrudge me legal costs.

Mr. Matthews: As a matter of fact, I don't begrudge them either. I want to tell you that having Gordon Baker for a friend is a very important thing to me.

Senator Bryden: I appreciate that.

The cancellation of the contract by the government certainly would result in the loss of those costs, of your ability to recover those costs, is that correct?

Mr. Matthews: That and much more, yeah.

Senator Bryden: And the other aspect that is lost is the return on that investment.

Mr. Matthews: Well, a lot was lost because not only did they cancel it, but they chose to use language that questioned my integrity, and in business that's a very serious thing.

Senator Bryden: You're referring to the Nixon thing.

Mr. Matthews: The adjectives, yes.

Senator Bryden: I'm absolutely not trying to get into the litigation issue.

Perhaps, Mr. Baker, you can answer this question. What is the impact, in your opinion, of Bill C-22, if and when it becomes law, on the litigation?

Mr. Baker: The impact - Bill C-22, by the way, if it does become law, will be challenged constitutionally because it's unconstitutional. But assuming it gets passed, the impact of that legislation is to reach into a judgment already reached and approved by the Court of Appeal of Ontario and try to distort the determination of compensation within the rules that have generally applied in Canada for a long time. So that's the effect of that, and also the effect of it is to try to provide immunity - special immunity, because otherwise why would it be in the bill - to those who have been involved in the cancellation of this project.

Senator Bryden: Can I just ask you if you agree or disagree with this; that one of the things that the bill does or purports to do is to limit the damages that can be claimed as a result of the cancellation of that contract?

Mr. Baker: The Prime Minister threatened litigation during the election period. It was suggested in Mr. Nixon's report. In the briefing to Mr. Nixon by Mr. Rowat and others, they raised the legitimate ways for the government to cancel the contract, and those ways were dismissed. The legitimate ways were to negotiate or expropriate. But as they pointed out, that might mean that they would actually have to pay fair compensation in accordance with the laws of Canada. And therefore they wanted to bring legislation -

Senator Bryden: Can I ask you -

Mr. Baker: I'll finish senator, please. Therefore the purpose of the legislation was to do something that was implicit in the briefing, was what they were doing was - they had no lawful justification and therefore they needed the legislation to limit the liability, as indicated, for political purposes and because of the rhetoric during the election campaign.

So that's the purpose of the bill, senator.

Senator Bryden: So your answer is yes, the impact of the bill is to limit the amount of the damages.

Mr. Baker: The impact of the bill is not only to attempt to limit what otherwise would be a fair assessment by a court; it is to attempt to legitimize the unlawful actions of a government and deny the right - it intended to deny the rights of Canadians to sue.

It's unheard of, senator, in a democratic society. It's what happened - it's the reason why, senator, at the turn of this century, and after the turn of this century, as Doctor Baldwin reports in a report, that this country ended up with a government so involved in infrastructure as opposed to the United States where there's constitutional protection of property rights.

The taking of the Grand Trunk railway without fair compensation and other takings -

Senator Bryden: Which railway?

Mr. Baker: The railways. The taking of the railways - I believe it was the Grand Trunk - and taking of the hydro properties and other infrastructures without fair compensation on an opportunistic basis was described by Mr. Baldwin as the reason why investment fled Canada and you could not get private Canadian investment or foreign investment into projects. And that's exactly the impact of this kind of legislation.

Fortunately, since that time the development of the rights of property have developed in Canada and the laws in Canada developed and we do have the Constitution. And so we now have more protection of Canadian rights. And that's why the testimony before the Senate Legal and Constitutional Affairs committee has pointed out overwhelmingly, through the Canadian Bar Association, Patrick Monahan and others, that this legislation is unconstitutional in many aspects, but overwhelmingly, it's absolutely important now, it is unconstitutional because it violates the rule of law enshrined in our Constitution.

This government, in the legislation, has violated the rule of law and they can't escape it by passing the legislation because it's unconstitutional.

Senator Bryden: Presumably, Mr. Baker, if that legislation ever gets reported out of committee, the courts will ultimately decide that.

Mr. Baker: Well, why doesn't the government take it on a constitutional issue to the Supreme Court of Canada? Why wait to have it reported out of this committee? I mean this kind of delay by the government is not new. This government has purposely delayed on developing this airport, and even after Mr. Justice Borins' January 16th decision removing the lease - which we did not oppose to remove the leases off the title - the Minister of Transport is out saying the leases are preventing the development of the airport. The fact is Transport Canada has no plan other than to try to foist it over onto the GTA, who has no business plan, no development plan and no complete design plan. So they are going to be delayed further, and it's going to take the rollover.

So this government is delaying and delaying. The congestion that Air Canada referred to is increasing and the problems, and they are harming southern Ontario. They are harming jobs and job creation, and they have harmed a number of Canadian companies.

Senator Bryden: I said I could control the length of my questions but not the length of the answers.

Mr. Baker: I appreciate having the opportunity to answer your question, senator.

Senator Bryden: Yes, indeed.

Mr. Baker: I never thought I would have that opportunity.

The Chairman: Senator Bryden, you have had -

Senator Bryden: Believe me -

Senator Stewart: Could I raise a point of order, Chairman? It's not a very important one, but it may be of some practical significance.

We were told that Mr. Don Matthews had a travel commitment, but I notice that almost all the time is being consumed by answers provided by Mr. Baker. My question is, is there some way in which you could assure that while Mr. Matthews is here, he deals with questions, and then Mr. Baker, whose time seems to be more flexible, could remain and say what he wishes to say?

Mr. Baker: Mr. Chairman, the reason the answers are long is we want to make sure that the questions get fully answered.

Senator Stewart: Chairman, I'm not objecting.

I was speaking to the chairman.

I'm not objecting to the length of the answers. What I am questioning is the fact that Mr. Baker seems to be using up the time that you, Chairman, assigned to Mr. Matthews.

The Chairman: Well, I didn't assign anything. This is the team. This is the Matthews/Paxport team.

I've given an enormous amount of time to Senator Bryden, and we're adjourning at 11:30 for lunch. I think your point may have been taken, Senator Stewart, but it should have been taken an hour and a half ago.

Senator Bryden: The last thing I was going to say - I could have saved you five minutes.

I wanted to say, Mr. Matthews, thank you very much for your evidence, and I hope you get your aircraft.

Mr. Matthews: Thank you very much.

The Chairman: Senator Tkachuk.

Senator Tkachuk: I've got about 15 minutes here.

Mr. Matthews: Thank you.

Senator Tkachuk: Mr. Matthews and Mr. Baker, thanks for your testimony. I want to just spend a little time on the reason we're here. Yesterday in the presentation that you made, Mr. Baker - really, it doesn't matter to me who answers the question. The two of you can decide that.

I want to talk a little bit about the team of Paxport, because Paxport has been associated through politics and myth and rumour and everything else with Don Matthews. I think the Government of Canada owes you a great apology, Mr. Matthews, after what Mr. Nixon has said in his report and what others have said.

You named some of the companies, Mr. Baker, that are part of the partnership of the Paxport group, one of which is the Matthews Group, who are here, but I want to talk about some of the other ones.

Agra Industries is a company listed on the Toronto Stock Exchange, therefore a public company in Canada. It is an engineering company which I know a little bit about. I promote them all the time. I think they are a wonderful company. Who is the president of that company?

Mr. Matthews: A chap by the name of Alex Taylor.

Senator Tkachuk: Pardon?

Mr. Matthews: Alex Taylor.

Senator Tkachuk: Alex Taylor?

Mr. Matthews: That's right.

Senator Tkachuk: When something like this happens, what percentage of Paxport were they?

Mr. Matthews: I think around 5 per cent, but I'm not certain of that. Gordon could tell you that.

Senator Tkachuk: Their equity would be put up by the company themselves, ie., the shareholders of that company.

Mr. Matthews: That's correct.

Senator Tkachuk: So when the contract was cancelled, Agra Industries' shareholders would suffer.

Mr. Matthews: You got it.

Senator Tkachuk: And Agra Industries is made up of millions of shareholders.

Mr. Matthews: I don't know about millions.

Senator Tkachuk: Hundreds of thousands of shareholders.

Mr. Matthews: Lot of shareholders.

Senator Tkachuk: Millions of shares is what I was trying to say, but by thousands of shareholders. This cancellation would have a direct effect on them.

Mr. Matthews: I'm sure it did.

Senator Tkachuk: Well, do you know the politics of the president of Agra Industries?

Mr. Matthews: No, I don't.

Senator Tkachuk: Do you care?

Mr. Matthews: No.

Senator Tkachuk: Why was Agra Industries a partner?

Mr. Matthews: Because they had a lot of skill to - we put together a consortium that would form the nucleus of a group that would give us the skills that we required, and Agra were part of that.

In designing, building and operating terminals, over 200 skills are required, and so that you have to bring together those technical people. We found out - Ray Hession found out, as he organized this whole entity, that we could do most of it in Canada.

Now, there were some skills that we didn't have in Canada - for example, the operation of a first-class facility. We didn't have it because we had never developed it. So what we did was we went to the best in the world, and that is the Schipol management. We had a contract with them, and they were going to teach us how to do it. We had a contract for two or three years, some period of time, and we were going to pay them. They were going to teach us, as Canadians, to do this, and then we were going to do this around the world.

Senator Tkachuk: The job of a president of a public company, one of his major responsibilities is to maximize shareholder return.

Mr. Matthews: Well, he thought he was making a good investment, I'm sure.

Senator Tkachuk: I'm sure he did.

So this action by the government, the Liberal government, to cancel the contract on the basis that Donald Matthews - one of the bases that Donald Matthews was a Tory and that perhaps patronage was involved, hurt thousands and thousands of shareholders.

Mr. Matthews: In more companies than just that one.

Senator Tkachuk: And prevented the president from maximizing shareholder return for all those investors and shareholders in Canada.

Mr. Matthews: Yes, that's right.

Senator Tkachuk: It's possible that even pension funds have shares of Agra Industries. I'm sure they do.

Mr. Matthews: I don't know who holds their shares.

Mr. Baker: I understand they do, senator, as well as Bracknell, which is another public company.

Senator Tkachuk: Let's go to Bracknell, which is the next question. Who is the president of Bracknell Corporation?

Mr. Matthews: A chap by the name of George Ploder.

Senator Tkachuk: And do you know his politics?

Mr. Matthews: No.

Senator Tkachuk: Do you care?

Mr. Matthews: No.

Senator Tkachuk: Why is Bracknell Corporation part of the Paxport group?

Mr. Matthews: They bring a lot of skills, management skills and the operation, the mechanical operation of the facility, which the travelling public do not see, but which is very important to the success of the venture.

Senator Tkachuk: They too would have thousands of shareholders throughout Canada, the United States, and maybe the world. Anybody can buy shares in the Toronto Stock Exchange.

Mr. Matthews: That's right.

Senator Tkachuk: So we've got the Matthews Group headed up by Mr. Matthews in Toronto, a man unfortunate enough to have been involved in a political party. We have Agra Industries, an engineering firm. You don't know his politics, yet you're a partner with him. And we have Bracknell Corporation. You weren't that interested in his politics.

Mr. Matthews: I want you to know my daughter was here yesterday supporting me, and she's a dyed-in-the-wool Liberal.

Senator Tkachuk: Oh, my God. I was going to ask you about that. Who is your son-in-law? Do you have a son-in-law who is a well-known Liberal?

Mr. Matthews: Yes, I do.

Senator Tkachuk: Who would that be?

Mr. Matthews: David Peterson.

Senator Tkachuk: Did you put a political test on him when he was dating your daughter? Did you say, "Oh, God, we can't have that"?

Mr. Matthews: If you talk to his mother, she'd say "yes".

Senator Tkachuk: Or did a Tory have an advantage?

I'm asking these questions, Mr. Matthews, because when Mr. Nixon issued his report, and then it was followed up by cancellation, and Mr. Young has been saying those things, which I wouldn't have the guts to say in private, let alone in public -

Senator LeBreton: Or be rude enough to.

Senator Tkachuk: - or be rude enough to about someone, he's not talking about you. He's talking about - I want to know the president of Agra Industries here again. I want Mr. Young to know who he's talking about, and I want the Prime Minister and Mr. Nixon to know what he's talking about. Who is the president of Agra Industries?

Mr. Matthews: Alex Taylor.

Senator Tkachuk: Therefore, if he's a partner of yours, then those accusations made in the Nixon report apply to him too. They must.

Mr. Matthews: I guess so.

Senator Tkachuk: They must.

Mr. Matthews: That's a logical projection.

Senator Tkachuk: And Mr. Bracknell (sic), what's his name?

Mr. Matthews: George Ploder.

Senator Tkachuk: I want the people to know that name too.

Therefore, Mr. Nixon and Mr. Young and Mr. Chrétien, when they talk about these people in their casual and mean-spirited way, are talking about them too, are they not?

Mr. Matthews: Well, I would guess they are, but I have to tell you that if you could look inside their head, I would have some doubt as to whether they were; but, in fact, they are, yes.

Senator Tkachuk: In fact, they are. That's what I was trying to get at. Paxport was not Donald Matthews by himself.

Mr. Matthews: No. Heavens-to-betsy, no. We were involved in many, many projects, and there's no way that we could afford to be the big investor in every one of them.

At the same time that this was going on, I was the lead person in the proposal to build 407 highway. Now I had to leave that because of circumstances here, but, you know, we wanted to invest in that. So, sure -

Senator Tkachuk: You were prevented from investing because of what has happened and transpired.

Mr. Matthews: Because of what has happened here, sure.

Senator Tkachuk: Allders International Canada, who is the president of that?

Mr. Baker: Scott McMaster.

Mr. Matthews: Scott McMaster was, but I don't know who is now.

Senator Tkachuk: Now does Allders have a lot of duty-free shops in airports?

Mr. Matthews: They are the second largest in the world.

Senator Tkachuk: They have a lot in Canada. Did they get any of these contracts during the seventies and eighties?

Mr. Matthews: I have -

Senator Tkachuk: I would think they did. I know they did, actually. They operated duty-free shops in the seventies. Did it even cross your mind to say, "Well, are you a Liberal, Mr. McMaster, because you have all those duty-free contracts?"

Mr. Matthews: Not at all.

Senator Tkachuk: Why were they part of -

Mr. Matthews: Because they brought a skill, a tremendous skill, that was very important to us. You know, there was questioning earlier about why would we hire them to redesign the commercial aspect of the airports and the terminals, and they brought a very important dimension. It's important that these shops be located in such a way that they are convenient to the travelling public.

Senator Tkachuk: Agra Industries, they own shares in Allders; is that correct?

Mr. Matthews: Yes, they do. They own 51 per cent of Allders Canada.

Senator Tkachuk: So the shareholders of Agra Industries are thousands of people who own shares, and the pension funds that own shares in Agra Industries have been hurt by this action as well. They have been hurt twice because they also have shares in Allders.

Mr. Matthews: That's correct.

Senator Tkachuk: And NORR group consultants, airport architects and design group, who is the president of NORR group, or who is the general manager? I don't know who that is.

Mr. Matthews: It's a large company, but the group, the part of it that we were dealing with, was headed up by a chap by the name of Trevor Carnahoff.

Senator Tkachuk: Trevor Carnahoff. And they were headquartered where?

Mr. Matthews: Toronto.

Senator Tkachuk: They are a fairly large consulting group.

Mr. Matthews: They were a fairly large consulting group, and they were considered preeminent in the airport design business in Canada.

Senator Tkachuk: When you say "were", why do you use the word "were"?

Mr. Matthews: Because their company, largely because of this situation, were put into -

Mr. Baker: Receivership.

Mr. Matthews: - receivership of some sort.

Mr. Baker: Well, a proposal and restructured and the airports group, and they have been split.

Mr. Matthews: It's had a tremendous impact on them.

You have to be specific legally, and Gordon is just - I just know that they are in trouble.

Senator Tkachuk: I am asking in generalities because I'm trying to put a human face on a situation that has transpired over the last number of years.

Mr. Matthews: By the way, you should know - you didn't ask me what the politics of Trevor Carnahoff were. Were you going to do that?

Senator Tkachuk: Yeah. I was going to ask the politics of everybody.

Mr. Matthews: Well, Trevor is a very active Liberal.

Senator Tkachuk: No kidding.

Mr. Matthews: And he's a wonderful guy.

Senator Kirby: You mean in spite of that?

Mr. Matthews: Notwithstanding.

Senator Kirby: Notwithstanding.

Senator Tkachuk: So this is a bit of a leap of logic, is it not? Isn't the leap of logic that Mr. Nixon can say, well, it's possible that they may have gotten the contract because of politics of one partner, but doesn't subscribe to the opposite politics of another partner? It is a leap of logic, isn't it? I want to get that clear again. Paxport is not just the Matthews Group.

Mr. Matthews: That's correct, and corporate entities really don't have any political ideology.

Senator Tkachuk: You didn't care if he was a Liberal, did you?

Mr. Matthews: Not at all.

Senator Tkachuk: The reason you were interested in NORR group consultants is because they knew something about airport architecture.

Mr. Matthews: They brought skills that we needed.

Senator Tkachuk: Patrick Brigham, the family trust that holds Sunquest Vacations, why is he a partner?

Mr. Matthews: Well, that's an important part of airport operations. The travel groups, particularly those who sell the packages, are very important. Many would argue that they are the future of airports. So you have to consider them and their needs in the development.

Up until now, really, they have almost been an adjunct to airport development. We wanted to have them in the forefront.

Senator Tkachuk: Patrick Brigham, do you know his politics?

Mr. Matthews: No, I don't know his politics.

Senator Tkachuk: Do you care?

Mr. Matthews: No.

Senator Tkachuk: So when you put together Paxport, you didn't go around doing political tests to make sure that they were all Conservatives to assure yourself of the contract.

Mr. Matthews: That's correct.

Senator Tkachuk: As a matter of fact, you might think that might be a disadvantage.

Mr. Matthews: Well, I didn't view it as a disadvantage at the time, but I sure as heck have since then.

Senator Tkachuk: So we have a situation where a contract is cancelled on the basis of a Nixon report. Nixon, as we have been told, was engaged by the Prime Minister, and Mr. Rowat made phone calls to you or to the Pearson Development Corporation previous to the government taking power and engaged by the Prime Minister. To cancel a contract based partly on the fact that there was patronage involved, and yet within the company of Paxport itself, you have Liberals; you have Tories. A lot of them you don't know, but most business people I know, they are either Liberal or Tory. There aren't too many socialists. There may be some Reform people now, but maybe not around the Toronto area, although I'm knot sure about Agra's politics. So we didn't have a situation where it was a whole Tory firm.

Mr. Matthews: We did not have that, no.

Senator Tkachuk: As a matter of fact, it was not part of the process.

Mr. Matthews: Not that much of it.

Senator Tkachuk: I'm going to ask a couple of questions on the process, but I'm going to stick basically to Mr. Nixon. I'm going to use some questions I have, and I'm going to use, as a basis, some of the analysis that has been done.

When you decided to become involved in the process, did you feel that you were at an advantage or disadvantage because of the fact that it was a 90-day process, or did you think that you had a competitive advantage over anybody else?

Mr. Matthews: No. That's about the average time that you would get for this type of project. Frequently it's much less than that. So most people who are in the business of responding to proposals of one form or another know that whatever the owner sets as a time, you have to deal with.

Senator Tkachuk: Previous to the RFP, you had put an application in - which Mr. Baker had shown to us - in a partnership, an unsolicited proposal on the management of Terminals 1 and 2.

Mr. Matthews: No.

Senator Tkachuk: You did not?

Mr. Matthews: No. We put in a proposal with Air Canada to reconstruct Terminal 2, and it was not accepted.

Senator Tkachuk: So it was a construction proposal.

Mr. Matthews: Yes. It wasn't an ownership thing or investment.

Senator Tkachuk: And you got turned down.

Mr. Matthews: That's correct.

Senator Tkachuk: Now you got turned down by - who was the government at that time?

Mr. Matthews: A Conservative government.

Senator Tkachuk: You made this proposal. Were you the majority partner in this deal?

Mr. Matthews: With Air Canada?

Senator Tkachuk: Yeah.

Mr. Matthews: I think we were 50/50, but I don't... They were going - we were going to be the developer. They were going to be the landlord, and they were making their own arrangements with the Government of Canada.

Senator Tkachuk: So you, as a Conservative, had 50 per cent of a corporation which was asking to build Terminal 1 - or Terminal 2, sorry - and you got turned down.

Mr. Matthews: That's correct.

Senator Tkachuk: Now, you competed for Terminal 3.

Mr. Matthews: We sure did.

Senator Tkachuk: And who was your partner in Terminal 3?

Mr. Matthews: Oh, we had quite a large consortium, but included was Canadian from Calgary.

Senator Tkachuk: Canadian Airlines?

Mr. Matthews: Yeah.

Senator Tkachuk: And this competition was with -

Mr. Matthews: It started out with CP, and that's when CP were purchased by - became part of Canadian Airlines.

Senator Tkachuk: Right. So in Terminal 3, you were competing with a number of other companies.

Mr. Matthews: Yes. Yes.

Senator Tkachuk: Who was the eventual winner?

Mr. Matthews: Huang & Danczkay.

Senator Tkachuk: Now did you know their politics?

Mr. Matthews: No, I did not.

Senator Tkachuk: Now this seems really strange. You competed for Terminal 3 to build a building, and you lost the contract.

Mr. Matthews: That's correct.

Senator Tkachuk: And you lost the contract to someone who you don't even know the politics of, and I don't think anybody does.

Mr. Matthews: M'hmm.

Senator Tkachuk: Or at least that we've talked about. I mean, I don't know. I couldn't care less, but -

Mr. Matthews: That's right.

Senator Tkachuk: - it's not been written about a lot.

Mr. Matthews: No.

Senator Tkachuk: And then you made an unsolicited proposal, and you got turned down too.

Mr. Matthews: That's correct.

Senator Tkachuk: And then you compete in a proposal call with an RFP, and because you win, politics is an issue.

Mr. Matthews: Right.

Senator Tkachuk: So I suppose as long as you kept losing, it would be okay.

Mr. Matthews: I think that's a very reasonable conclusion.

Senator Tkachuk: And as long as someone maybe who had no politics, and the Liberals won and the Tories were in power, that would be okay.

Mr. Matthews: It's better to be a political eunuch.

Senator Tkachuk: And not be involved in the process.

Mr. Matthews: I think so.

Now, I don't really prescribe that because Canada needs people involved in politics. As I indicated yesterday, I don't really pay a lot of attention as to which party you are associated with, as long as you are associated.

Senator LeBreton: Exactly.

Senator Tkachuk: Mr. Nixon, though, did say that there was a tremendous advantage because of your unsolicited proposal, and yet you say it was for a construction contract that had nothing to do with a leasing contract.

Mr. Matthews: I don't know what prompted him to make that comment. You will have to ask him.

Senator Tkachuk: Did he ever talk to you?

Mr. Matthews: Never.

Senator Tkachuk: Did he ever, like, phone you and say - do you know Mr. Nixon?

Mr. Matthews: Well, I tell you, we both went to the same highschool, the Brantford Collegiate Institute.

Senator Tkachuk: Did you cross block him in football, or something, and cause him a head injury?

Mr. Matthews: I don't remember that he played football, but I did. That's how I wrecked my knees.

Senator Tkachuk: Oh, he was probably a little jealous. You had all the girls. "Don has all the girls; I'll get him now."

Mr. Matthews: No. Listen. He was a great big guy. Quite frankly, I didn't know him a lot, but my first wife was in his class, so she knew him very well. I always had the highest regard for him until this...

Senator Tkachuk: Until this happened. Well, didn't you think it passing strange that he wouldn't phone you?

Mr. Matthews: I was rather disappointed, frankly, that -

Senator Tkachuk: No kidding.

Mr. Matthews: - that happened. But, mind you, I have to tell you that I did receive a call from a chap who was and is a chairman of one of the regional areas in Toronto, and he said that he had met with Nixon, together with the other chairman.

Senator Tkachuk: Who would that be, sorry?

Mr. Matthews: I didn't ask him for authority to give you his name, but I would have him call you if you want. He said to me - he told me that Mr. Nixon had really assured them that they were going to proceed with the contract, but with some modification in the contract. That's all.

Senator Tkachuk: Then you better have that guy phone me, then. That would be good. I'd appreciate that. I'll give you my card, actually, before you leave on your trip.

One of Nixon's criticisms was that there was a bit of a rush. I think, over time, we've dispelled that whole idea that it was hastily put together. Could you tell us when you start thinking about this, when you start thinking about - obviously you were thinking about it quite some time because you had made a bid before, and you made an unsolicited proposal; but, when did you start thinking about putting together the possibilities of Terminals 1 and 2?

Mr. Matthews: Well, when the government announced their intentions in this regard, which was '90 or '91.

Senator Tkachuk: 1990. What did you do?

Mr. Matthews: Well, we were at that time building an organization. Ray Hession was building the organization with that thought in mind and, by the way, with the thought in mind that we would work in other airports. As Gordon indicated yesterday, we were involved in a lot of airports, and, by the way, being very successful - very successful. Had that operation continued, we would have today been building airports around the world.

Senator Tkachuk: Let me ask you, do you know Mr. Hession's politics?

Mr. Matthews: No, I don't.

Senator Tkachuk: Do you care?

Mr. Matthews: Nope. The only employee that would concern me, their politics would concern me, would probably be my secretary. I've always - for one reason or another, she's turned out to be a conservative.

Senator LeBreton: A smart secretary. Secretaries are smart. I was one myself, I know, but I'm not saying I'm smart.

Senator Tkachuk: Did any member of the Matthews Group, like the Paxport group that you put together, were they called by Mr. Nixon?

Mr. Matthews: I think Jack appeared before Nixon.

Mr. Baker: Jack had a meeting with Nixon, and I don't think anybody else.

Senator LeBreton: Did you, Mr. Baker?

Mr. Baker: No.

Senator Tkachuk: So they did talk to Jack. Did they talk to Mr. Hession?

Mr. Matthews: I don't think so, but I'm not aware.

Senator Tkachuk: I can't remember now if I asked him that question or not.

Senator LeBreton: I think we did.

Mr. Baker: I don't know.

Senator Tkachuk: But you did.

Mr. Matthews: I certainly -

Mr. Baker: I don't think they did.

Senator Tkachuk: Do you know about how long Mr. Jack Matthews, your son, spent with -

Mr. Matthews: I think you should ask him that.

Mr. Baker: It was approximately about an hour.

Senator Tkachuk: About the same as was spent with Mr. Coughlin.

Mr. Baker: Yes.

Senator Tkachuk: Did you believe, as Mr. Coughlin did, that there would be much more time spent by Mr. Nixon -

Mr. Matthews: I have to tell you, when Mr. Nixon was appointed, you know, one can't help but think, "Well, how would I react if I had a job like that to do?" My thoughts were that, number one, he needed some consulting advice, and, number two, he should talk to the principals. I don't know how much consulting advice he got or used, but he certainly didn't spend a lot of time talking to the principals.

Senator Tkachuk: Did he talk - do you know if he talked to members of Agra or Bracknell, two public companies, on the effect that this would have on their shareholders?

Mr. Baker: I'm advised that he did not.

Senator Tkachuk: That he did not?

Mr. Baker: That he did not.

Senator Tkachuk: I can't believe that he would not - but I'm going to ask again - talk to companies listed on the Toronto Stock Exchange whose shareholders might be affected, public shareholders who might be affected by what might be seen by many as a political decision. Did he ask you about that? Did he write you a letter and say, "Do you have other shareholders in your company and who might they be?"

Mr. Matthews: I had no contact whatever with him.

Senator Tkachuk: So he wasn't interested even in Matthews Group of companies to find out who your other shareholders were and to verify certain things?

Mr. Matthews: That's correct.

Senator Tkachuk: Did he ask you about the $20 million?

Mr. Matthews: He didn't ask me anything.

Senator Tkachuk: Did he ask anybody about the $20 million?

Mr. Matthews: I don't know.

Senator Tkachuk: Jack would be able to answer that.

Mr. Matthews: Jack is the only one who can answer for us.

Senator Tkachuk: That has been a big concern here, and definitely a lot of questions have been asked about it but he never asked you about it?

Mr. Matthews: That is correct.

Senator Tkachuk: I'll be done soon. Some of the questions have already been covered, so I'm just taking my time here. I don't want to re-ask them again.

The Toronto Local Airport Authority.

Mr. Matthews: Yes.

Senator Tkachuk: I know I'm jumping all over here but I'm sorry about that.

Mr. Matthews: I'm just preparing for my departure.

Senator Tkachuk: Okay. When do you leave?

Senator LeBreton: He has a flight for 12:00; it's quarter after eleven.

Senator Tkachuk: Okay. I'm sorry.

Would you have been willing to work with the local airport authority?

Mr. Matthews: Of course. The concept of the local airport authority, in my mind, was that it would replace the position that Transport Canada has.

Senator Tkachuk: You had $61 million to put into the partnership with the Claridge group of companies that became the Pearson Airport Development Corporation.

Mr. Matthews: Yes.

Senator Tkachuk: Would this group of companies of Paxport have a few more bucks than the local airport authority?

Mr. Matthews: Well, the local airport authority have no money.

Senator Tkachuk: They have no money.

Mr. Matthews: Yes.

Senator Tkachuk: Now, I want to get this straight. The local airport authority is sort of the favoured group that's going to get to run the airport and they have no cash at all?

Mr. Matthews: That's correct.

Senator Tkachuk: They have no equity.

Mr. Matthews: That's correct.

Senator Tkachuk: And they're going to redevelop Terminals 1 and 2.

Mr. Matthews: I have no idea what their plans are. Something has to happen.

Senator Tkachuk: They've got to do something, right? But they have no cash.

Mr. Matthews: It may be that the intention is that Terminals 1 and 2 are allowed to continue in their present condition. Who knows? I don't know.

Senator Tkachuk: So, we're going to have a local airport authority with no cash and yet it seems to have been a big concern by this government that a company was going to redevelop and lease Terminals 1 and 2 with $61 million in cash.

Mr. Matthews: And $150 million in equity in Terminal 3 supporting that.

Senator Tkachuk: Let's talk about the financeability.

Mr. Matthews: Plus $30 million that was spent on development getting to that stage.

Senator Tkachuk: Because, I want to talk about the $800 million development and then I want to talk about the $61 or - What is it, $61 or $67 million in cash?

Mr. Matthews: $61 million in cash on closing.

Senator Tkachuk: On closing. And that wasn't going to be the total equity financing for the $800 million development over a period of 57 years, is that not correct?

Mr. Matthews: That's correct.

Senator Tkachuk: It was going to be financed how?

Mr. Matthews: Well, there was an additional equity requirement in the third tranche.

Mr. Baker: But that was solved through having the equity of which all the parties owned in Terminal 3 supporting that. There were guarantees across the fault provisions relating to the obligations on Terminals 1 and 2. We had already spent over $30 million, so in effect money that would have been spent if we'd closed earlier on developing and getting to the construction - part of that was part of that design, engineering, environmental, et cetera. So we would have been there and so the equity base that you're working off of on closing is approximately a quarter of a billion dollars.

Senator Tkachuk: Part of it, my understanding of it is from the -

Mr. Baker: And the cash flow.

Senator Tkachuk: Exactly. The cash flow-

Mr. Baker: The cash flow off of Terminal 3, and then there was reinvestment, there was a restriction on dividends. There was reinvestment of capital on the ongoing basis. We had a positive cash flow and there was an obligation to accumulate at least $5 million a year in cash towards the next stage of the development. Also, shortly after closing the lender's committed to the financing necessary for the $350 million of the first two stages of construction.

Senator Tkachuk: I just wanted, just so that everybody understands that when they talked about low debt, a low equity situation that it's totally false to talk about the $61 million equity against the full construction value-

Mr. Baker: That's correct, senator.

Senator Tkachuk: - of the contract -

Mr. Baker: That's correct, senator.

Senator Tkachuk: And that the $61 million is your initial equity.

Mr. Baker: Well, it's actually $61 plus $30 million that had already been spent to bring it up over $90 million, plus the equity that existed in Terminal 3 that was committed to supporting the project, which is another $150 million.

Senator Tkachuk: But even before -

The Chairman: Senator Tkachuk, I don't want Mr. Matthews to miss his plane. Maybe we can continue with Mr. Baker, if you find that necessary. Could we not excuse Mr. Matthews?

Senator Tkachuk: Sure.

The Chairman: Mr. Matthews, we thank you for your very forthcoming testimony.

Mr. Matthews: Thank you very much.

The Chairman: Thank you for staying over with us today.

Senator Tkachuk: Thank you very much.

Mr. Matthews: Thank you, sir. I hope that I've answered your questions.

Senator Tkachuk: You have that person phone me.

Mr. Matthews: I will. And thanks to all of the committee. I want to say that as a citizen of our great country, I think this hearing is very important and I, for one, appreciate all of you. Thank you.

The Chairman: You realize, Mr. Matthews, that we decided at the first instance that we're not here to protect anybody. We're here - it's an examination of public policy as it affects the privatization of airports in Canada.

Mr. Matthews: I understand that, Mr. Chairman, but I as one citizen did have an axe to grind and you have allowed me to present my thoughts to you.

The Chairman: Thank you very much. Do you want to carry on with Mr. Baker?

Senator Kirby: We have no more questions, Mr. Chairman.

Mr. Baker: Senator, something that came up yesterday that was-

Senator Tkachuk: I just want to finish up this finance stuff and then I'm done.

Mr. Baker: Also, his involvement in the various companies. I was going to raise an issue on - Mr. Matthews mentioned yesterday he had about 130 companies. I asked them to fax me the charts on the companies when they quit after a certain point in time. I think they did 17 pages and then another run of 30 some pages. I'll give you the charts of the various operating, investment and holding companies and I'll just read off. Mr. Matthews had a lot of people reporting to him in Matthews Group Limited. He was the chairman.

Senator Tkachuk: But, Mr. Baker, I just want to focus on the-

Mr. Baker: I just wanted to focus on the fact that he had a lot more on his plate than just this transaction.

Senator Tkachuk: Yes.

Mr. Baker: And he had Dick Cerny at Matthews Contracting Inc.; he had Rick Matthews at Matthews Southwest in Texas; and he had a couple other holding and operating companies in the southwest. He had Matthews Investments BD in the Netherlands, managing director Mr. Gruter; he had Mr. Bouclair from Mustang Engineering and Construction, the president of that company; he had Mr. Hession; he had Mr. Ashe of the Construction Angor Group; he had Mr. Parks at Carlson Construction.

Senator Tkachuk: Mr. Baker, I got it. He was acting more as chairman of the board.

Mr. Baker: Also, Mr. Buckner at Matthews Buckner. Mr. Smith at Anderin, who is now the new CMHC chairman.

Senator LeBreton: Oh, really.

Mr. Baker: Mr. Kirbel at other companies. There's a long list.

Senator Tkachuk: I understand. I got it.

Mr. Baker: I've only got halfway through the list.

Senator Stewart: You're just too anxious to ask questions. Let the witness answer.

Senator Tkachuk: I didn't ask this question.

Mr. Baker: I just wanted to get it on the record.

Senator Tkachuk: I do not even know how this happened.

Senator Stewart: He's very generous with the committee's time.

Senator Tkachuk: I like it when he answers my questions. On the financing, though, I want to spend just a little more time - just a couple of more minutes and then we're out of here, because I think it should be clarified. Without the Claridge group, though, when we talk about the $61 million in cash, we're talking only about initial equity.

Mr. Baker: Yes we are.

Senator Tkachuk: And then the balance of the development was going to be paid from out of additional equity which could be gotten from investors or it could be gotten from profits, cash flow.

Mr. Baker: It was reinvestment of cash flow.

Senator Tkachuk: Now, we've heard a little bit about - I just want to get sort of the theory of this thing because we have heard a little bit about $350,000, and stuff like that. This is a private sector company, Paxport.

Mr. Baker: Yes it is.

Senator Tkachuk: So, I know this is going to sound a little - I don't mean it to sound this way, but let's say that Pearson Development Corporation had gotten the contract, which they actually did have the contract - now it's in dispute. But let's say this didn't happen and the government hadn't taken the action it did and you were running this place. Revenue that comes in belongs to whom?

Mr. Baker: Belongs to the company, the entity that operates the business.

Senator Tkachuk: Pearson Development Corporation.

Mr. Baker: Right.

Senator Tkachuk: Their obligation to the Crown is to pay the lease.

Mr. Baker: That's right, and maintain and operate, et cetera, all the provisions in the ground lease and the Management Operation and Development Agreement.

Senator Tkachuk: Right, but they got to pay the government cash.

Mr. Baker: That's right.

Senator Tkachuk: That's their money.

Mr. Baker: That's right.

Senator Tkachuk: What you do with that money is kind of like your business, providing you don't jeopardize your shareholders' investment and that you run a proper organization.

Mr. Baker: What you do with the money, yes, is relevant. That's is right - within the confines of your agreements.

Senator Tkachuk: The better you manage and the more efficient you are, the more return you have to your investors.

Mr. Baker: That's true, and also lower the cost to the airlines. Because the way the airline compensate or release works is that the payment of the operating cost, the terminal are allocated. And, therefore, if you can manage to lower those costs, you will reduce the costs of the airport.

Senator Tkachuk: What I'm trying to get at here is that when we talk about this $350 thousand dollars -

Mr. Baker: And they police them, by the way.

Senator Tkachuk: - and we talk about this management here and this management here, we're not talking about something that's sort of a private deal here because we had Mr. Matthews just talk about his partnership, Paxport-

Mr. Baker: That's right.

Senator Tkachuk: - which is a partner here. They have public companies involved in that partnership.

Mr. Baker: That's right.

Senator Tkachuk: Public companies have to report to the securities exchange. They can't take action within the partnership which would jeopardize their shareholders, can they?

Mr. Baker: No, they have duties and responsibilities.

Senator Tkachuk: They have fiduciary duties to their shareholders.

Mr. Baker: That's right.

Senator Tkachuk: Legal obligations, matter of fact, to their shareholders, do they not?

Mr. Baker: That's right.

Senator Tkachuk: So when Paxport and Claridge form a partnership and within that partnership are public companies like Bracknell and Avro Industries.

Mr. Baker: They don't have to be public companies.

Senator Tkachuk: Exactly.

Mr. Baker: Claridge is one of the major private companies in Canada and, obviously the same duties are owed to them as they are to any public company.

Senator Tkachuk: So when they pay a management group or a consulting cost, they're not paying it because they wouldn't have to pay somebody else this amount of money necessarily, they're paying it because why not pay a partner, why not pay an obligation to a partner, providing it's fair market value.

Mr. Baker: We have a board of directors - 14 or 15, I forget the exact number - and a management committee of the same number of which I'm a member of both. And we have to approve every contract. So you can imagine that there's nobody getting a contract approved without everybody having their say. And so no minority who happens to have a contract will get a special deal.

Senator Tkachuk: And, of course, if one partner is getting a contract that would be above fair market value internally, that would reflect on less return on investment to the shareholders, would it not?

Mr. Baker: Exactly, senator.

Senator Tkachuk: So they have a self interest in ensuring that doesn't happen because if it happens that means less money in their jeans.

Mr. Baker: That's exactly correct, senator, and that's why the clause in our agreements with January 14 expressly said all contracts would be at fair market value and, for the Crown's protection in the agreements, all adjustments and calculations would be based on fair, competitive terms. So, it's because the Crown was participating in percentage rent.

Senator Tkachuk: That's all I have, Mr. Chairman. Thank you very much.

The Chairman: Thank you very much, Mr. Baker. You've been very, very helpful.

Mr. Baker: Mr. Chairman, thank you and thank the members of the committee and thank all the rest of the members of the Senate for holding this committee.

The Chairman: We are adjourn until 12:30, one hour from now, when we'll hear from Madam Jocelyne Bourgon, the Clerk of the Privy Council.

(The committee recessed until 12:30 p.m.)

Ottawa, Thursday, September 14, 1995

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

Senator Finlay MacDonald (Chairman) in the Chair.

The Chairman: Before we hear our witness this afternoon, I have the following statement to make:

Honourable senators, yesterday morning Mr. Donald Matthews, the chairman and chief executive officer of Paxport, made an opening statement before this committee in which he provided a chronology of events surrounding the setting up of Paxport under the leadership of Ray Hession. Mr. Matthews stated the following:

As part of his responsibilities, Ray Hession visited with opinion leaders; political, corporate and labour. It was recommended to me that someone should call on Mr. Chrétien. Paul LaBarge, who was acting for us in Ottawa, subsequently arranged a meeting between Mr. Chrétien, Jack Matthews and himself. Mr. Jean Chrétien, like almost everyone else, supported the privatization of Pearson.

Following Mr. Matthews' opening statement, Senator Bryden raised a point of order. Senator Bryden said:

... that during the course of his evidence Mr. Matthews has stated that Mr. LaBarge arranged a meeting between Jack Matthews and Jean Chrétien, and that at that meeting Mr. Chrétien supported the privatization of Pearson. As you know, that's been categorically denied by the Prime Minister ...

Discussion then ensued among senators as to whether additional witnesses should be invited to appear and to give evidence on this matter.

I indicated at that time that I had been listening carefully to Mr. Matthews' testimony, and I informed the committee that:

... if Mr. Matthews had made any statement which has been widely reported over the last number of months with respect to discussions which took place at this so-called meeting, I was prepared not to accept that statement and to rule it out of order. However, I did not think that Mr. Matthews had gone beyond the pale ...

I therefore did not rule Mr. Matthews out of order at that time.

Following our recess at noon, I informed the committee that, over the lunch break, the steering committee, which consisted of Senator Kirby and myself, had met with our counsel and our committee clerk to review the matter and that a ruling would be rendered in due course. I'm now prepared to render my ruling, which, pursuant to the Rules of the Senate, is subject to an appeal.

Honourable senators, Rule 91 of the Rules of the Senate states that:

A standing committee shall be empowered to inquire into and report upon such matters as are referred to it from time to time ...

Although that rule refers specifically to a standing committee, I am convinced that it applies equally to a special committee, of which this committee is one.

Beauchesne's Parliamentary Rules and Forms, Sixth Edition, citation 831, state:

(1) A committee can only consider those matters which have been committed to it by the House ...

(2) A committee is bound by, and is not at liberty to depart from, the Order of Reference ...

What is relevant to a committee's order of reference is not an easy one to determine. It is, however, the duty of a presiding officer, be it in the chamber or in committee, to enforce the rules of relevancy. Relevancy is a fundamental rule in the procedures of Parliament. In a paper prepared by the Table Research Branch of the House of Commons in 1982 entitled "Rules Respecting Repetition and Relevancy in Debate", it is stated:

The requirement of relevancy is necessary in order that the House might exercise its right to reach a decision and to exclude from debate any discussion which does not contribute to that process ...

The problem the Chair has, then, is whether the calling of any witness on the circumstances of a particular meeting which took place in 1989, well before the issuing of a request for proposals, contributes to reaching decisions regarding our order of reference.

To repeat once again, our order of reference from the Senate is as follows: To examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and the operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.

I do not wish to imply that answers to these questions as to what the various participants recollect about that meeting are not important. They may be very important, particularly since different versions have been reported in the media and discussed in both the Senate and the House of Commons. However, it is my opinion that those discussions do not appear relevant to any of the areas of study concerning the Pearson Airport agreements that our committee has conducted over the last three months. These have included such subjects as the policy environment, the Terminal 3 precedent, the decision to redevelop, the development of the RFP, the evaluation of the proposals, the post-evaluation development, the negotiations, the signing of the deal, and the review of the conclusions drawn by Mr. Nixon. Whatever may have been discussed at this meeting between Mr. Matthews and Mr. Chrétien does not appear to be relevant to any of these aforementioned subjects.

I therefore rule that this area of discussion is beyond the reference given to this committee by the Senate and any evidence by future witnesses that is in any way related to this matter will be ruled out of order.

Senator Lynch-Staunton: I would like to raise a point of order, Mr. Chairman. I agree we must be respectful of the rules. This is an official committee document and therefore should have been presented to us in both languages, and until it is I don't believe that it's receivable. I think it's very important, if this ruling is to be accepted, that it be submitted in both languages so that all members have a complete understanding of its impact, should it be approved. Until then, I don't believe it's acceptable. In presentation, yes, but as a subject of debate, no.

The Chairman: There is no obligation, senator, to present this in two official languages. I'm reading from it because -

Senator Lynch-Staunton: I would like to see the French text. This is a very important ruling. I want to sake sure the French text - we've had many difficulties in the past in front of other committees and elsewhere where sometimes the French text and English text are not exactly in sync. For our colleagues who have a preference for one language over the other, I think we owe them, at least them, the courtesy of seeing that the document is well translated, and for future witnesses too.

The Chairman: You do not want this distributed until it's in French and English?

Senator Lynch-Staunton: I maintain, Mr. Chairman, that the rule of the Senate, particularly when it comes to languages, is that all official documents emanating from a committee or from the Senate must be in both languages. We have been extremely tolerant in accepting documentation submitted by the government to come only in the language of their origin and not have them translated, which our rules do require. We waived that rule. Certainly we are not going to hopefully waive the rule when it comes to our own documentation.

The Chairman: It will be translated. Senator Tkachuk, did you have your hand up?

Senator Tkachuk: Well, are we discussing this document?

Senator Lynch-Staunton: It's out of order if we do, as far as I'm concerned.

Senator Tkachuk: I kind of agree with Mr. Lynch-Staunton. We have a witness here. To guide her, is this document on the table in English, or is this document off the table until it's in both official languages and therefore it can't be considered?

Mr. John P. Nelligan, Q.C., Counsel to the Committee: My understanding is it's not a document at all. It's a ruling made from the chairman of the hearing. He may have happened to be reading from a piece of paper which are notes, just as perhaps, senator, this morning you read from questions you had prepared, but the actual presentation before this committee was the oral statement made by the chairman. Certainly if any senator would propose discussion be postponed until a later date, I suppose such recommendation could be entertained by the committee.

Senator Jessiman: I would move that, that it be delayed until next Tuesday.

Senator Lynch-Staunton: I would like to point out, Counsel, that rulings by the Speaker of the Senate are always made in both languages, whether they're read in one or the other. That rule applies to committee rulings also. It's fundamental. It's not a question of agreeing or disagreeing with the ruling. It's that we have certain rules, and we should apply them as much as possible. I find we're straying here and elsewhere more and more from them.

The Chairman: We'll have it distributed in both languages and take it up on Tuesday.

Senator LeBreton: Is it withdrawn from the table?

The Chairman: Would you care to introduce our witness?

Mr. Nelligan: Under the circumstances, then, if we can go on to other business, we have before us today Madam Jocelyne Bourgon, who is presently Clerk of the Privy Council and who was at certain relevant times the Deputy Minister of the Department of Transport. Do you have any opening statement to make, Madam Bourgon?

Ms Jocelyne Bourgon, Clerk to the Privy Council: Very briefly, if I may.

The Chairman: We are swearing witnesses, Madam Bourgon, as you know.

(Ms Jocelyne Bourgon, sworn:)

The Chairman: Madam Bourgon, please proceed with your opening statement.

Ms Bourgon: Thank you.

[Translation]

I will do my best to help the Committee as much as possible with its deliberations. I will confine my initial comments to the context of the time as this could facilitate my testimony as well as exchanges between Committee members. I served as Deputy Minister of Transport from June 1993 to March 1994.

[English]

Prior to my appointment, I was with the federal-provincial relations office and CIDA and therefore had no prior knowledge or dealing with the Pearson negotiations or related issues. When I joined the Department of Transport in June, that was right after - you may remember in light of your previous discussion, it was after a letter of intent had been signed on June 18 between the partners and the Crown, Madam Labelle signing for the Crown, and it was following very intense period of negotiation under the leadership of Mr. Rowat, who was then the chief negotiator.

Now, let me try to put my tenure in perspective. There had been by then three ministers involved in the negotiation, two deputy ministers, two associate deputy ministers, and four chief negotiators, and then I came in. After discussion with the minister, Mr. Corbeil, it was decided that the interests of the department would be best served if, instead of trying to get myself involved in all the details of the negotiation, which were so advanced at that point in time, if I was instead focusing on the overall need of the department and all the other issues in the transport sector of Canada, which are numerous and very vast.

So my role on the Pearson file was basically to make sure the minister had the support he needed, that he was receiving the information and the advice he needed at the time he needed them, that his decisions were implemented swiftly and efficiently and professionally, that the cabinet roles and prerogative were respected, and that the negotiating team was getting the guidance and assistance they needed at the time they needed them. And there we went, and I started to look after the affairs of the Department of Transport.

So in a way, I'm raising two points. I may not be able to help you as much as you might wish on the details of the negotiation, the technical content of agreements and so on, as I was not involved. However, I wish I will be able to help you on a number of critical events that took place during the period of time where I was there. Let me mention a few, just for to position that period of time:

August 27, 28, you will remember the Order in Council providing delegated authority to the Minister of Transport for signing a number of agreements. August 30, the ministerial announcement on the general terms of agreement. The September/October period of negotiation of all kind of legal texts and components of the agreement. October 4, the closing procedure, signature. The first few documents were signed by Mr. Corbeil on the 7th, finalizing all the legal agreement and final closure. Then you know also the other events.

[Translation]

A new government was elected on October 25, Mr. Nixon was given his mandate on the 29th, and the government decided to cancel the agreement and conduct further discussions on December 3.

[English]

That's the period of time in which I was involved with the Department of Transport, a very key period in light of the number of events I've just mentioned.

Mr. Chairman, I was the deputy minister who had to serve under both the government of Madam Campbell and the government of Mr. Chrétien at the period of time of concluding the negotiation and then proceeding with adjustment to the policy. Mr. Chairman, you will not be surprised if I say that I believe that both governments were very well served by the Department of Transport.

So just to remind you of the chronology of events, I thought that would be useful to you, senators, and could be part of the background for our exchange.

The Chairman: Thank. Madam Bourgon, did you come here today under the impression that the questions put to you would be those of your previous position as Deputy Minister of Transport?

Ms Bourgon: Correct.

The Chairman: Are you prepared to take any questions in your position as the Clerk of the Privy Council?

Ms Bourgon: Well, if that is the wish of the committee, I will do my best to satisfy the wish of the committee, but I was clearly informed that I was asked to appear in front of you as the former Deputy Minister of Transport, and therefore I thought about how could I assist in that, in my comments in that regard. I was not informed that there would be exchange or discussion as clerk. I'm quite prepared to do the best I can on those questions as well. It could be easier, though, if we dealt with the period as Deputy Minister of Transport and then any other questions. If I'm not ready to discuss or provide an adequate answer today, I may wish to turn to you and indicate that it may require additional research on my part or thinking about it, since I was not aware prior to today that that was your wish.

The Chairman: That's fair enough. The first questioner is Senator Kirby.

Senator Kirby: Thank very much, Mr. Chairman. Welcome, Madam Bourgon. It's the first time I think that you appeared before any Senate committee, certainly any that I've been, as secretary of the cabinet, so welcome. I hope it won't be the last.

I really just want to go back in fact to your period as Deputy Minister of Transport and just to clarify a few issues which have been touched on I think by other witnesses before the committee.

You took over I think on the 25th of June; is that right?

Ms Bourgon: I was appointed at that date, but I took charge of the department ten days later.

Senator Kirby: Okay. When you first became deputy, were you given a briefing on the Pearson file? If so, by whom?

Ms Bourgon: Not immediately, but in the weeks following my appointment, yes.

Senator Kirby: Can you tell us a bit about the briefing? Was it just designed to tell you that is a problem that Mr. Rowat is handling on your behalf, so don't worry about it, or was it a pretty detailed substantive briefing on the issues outstanding?

Ms Bourgon: It was one of many briefings, because as you can imagine, when you come in charge of a department of that size, you have to get on top of a number of files. But there was adequate and solid briefing aimed at bringing me up to speed on the major files, and that was certainly one of them. I remember discussions being briefed by Mr. Rowat and the team at that point in time.

Senator Kirby: And were you briefed on the technicalities of the - "technicalities" not being a pejorative term - on the details of the transaction, or was there any part of the briefing that dealt with the question of the timing of when agreements should be done and in view of the political environment of the day whether that should be considered?

Ms Bourgon: I don't remember if it was discussed at that time, but let me try to be more helpful in my answer. The initial briefing were intended to give me a sense of what were the outstanding issues, what was at play, what was being discussed, what was more or less advanced, what was contentious at the time, so give me a first overview of the magnitude of the file being discussed and all the various pieces and components, so that was the first set of discussion.

In that context, it was felt when I came in that there were - the employees, the members of the negotiating team, were really working very hard to move things as quickly as they could. And you will remember that in the letter of intent signed by Madam Labelle on behalf of the Crown, they were hoping to be able to move a number of pieces of agreement quite fast, and they were hoping that by the end of July some of that would be ready. When I came in, it was already clear that that deadline would not be met. And shortly thereafter, or around that time, we started to thinking and talking in the department about aiming to be ready for the fall, which was later reflected in the release, the ministerial release of Mr. Corbeil. When he released, he made a statement at the end of August that clearly at that point in time we were already saying the time lines we are aiming to achieve is in the fall. Is that -

Senator Kirby: I believe the phrase "in the fall" was included in the minister's press release at the time.

Ms Bourgon: Yes, it is.

Senator Kirby: Was the timing an issue only in the following sense, that when you were briefed, or subsequently, as you say, as the time lines got delayed, and given the fact that an election was expected momentarily, was there any discussion about the appropriateness or not of concluding this agreement in that political frame as opposed to waiting till after the election?

Ms Bourgon: Yes, there were, but again, I would like to position that in time.

Senator Kirby: That's fine.

Ms Bourgon: There was no discussion about the appropriateness of what we were doing in July and August. Parliament had not been dissolved. There was no election. The decision of cabinet was absolutely clear. The policy was clear. The wish of the minister was clear. We knew what we had to do, and we were negotiating as well and as quickly as we could. So there was no need for discussion that I would phrase as seeking political guidance at that point in time. I think the decisions were very clear, and cabinet decisions were quite clear.

Following the dissolution of Parliament in September, there was then a need for political guidance, and that was sought to my recollection twice: once from the minister, general discussion, and once from the Prime Minister. But prior to that, there was no need.

Senator Kirby: When you sought guidance from the minister, this was when? Just after the writ was issued?

Ms Bourgon: Before we submitted documents for his signature. I would be hard pressed to say exactly what -

Senator Kirby: He signed on October 4.

Ms Bourgon: I would say the end of September.

Senator Kirby: Okay. Because he signed on October 4. That's fine. What was the question you essentially put to him?

Ms Bourgon: I wouldn't want to get involved into private discussion between ministers and DMs.

Senator Kirby: That's fine.

Ms Bourgon: But there was a need in my judgment at that point in time to satisfy ourselves that it was indeed the wish of the government to proceed. And that is not unusual, by the way. I don't want to leave the impression there is anything unusual about that. There is a general rule of conduct to act with caution as soon as Parliament is dissolved. The purpose of seeking guidance is to make sure that those who have the power of making these decisions are the one making these decisions as opposed to those who do not have the authority of making them. So there was a need to ascertain that it was the wish of the minister to proceed, and that was clarified, and his will was very clear. And later on the same thing was sought from the Prime Minister.

Senator Kirby: Okay. I'll come back. Just to keep this in chronological order, I'll come back on your seeking of direction from the Prime Minister in just a second.

Just to clarify, Mr. Rowat was both associate DM, sorry, associate deputy minister, for the record, and chief negotiator.

Ms Bourgon: Correct.

Senator Kirby: So to that extent, was he the one who would have dealt with PCO, for example, or would you have automatically been included in all of that?

Ms Bourgon: I would have been informed of any discussion, I believe, between Mr. Rowat and PCO. It is one of my own rule of conduct within any department where I work, I wish people reporting to me to keep me informed of exchange, significant exchange, and I would consider that an exchange with PCO would be significant. So I would have been informed. I would not have been necessarily the one getting the call, but I would have been informed.

Senator Kirby: Was there a fair bit in the course of this period, was there a lot of involvement of PCO in this transaction?

Ms Bourgon: No. It was agreed with Mr. Rowat that he would call regular meetings with the central agencies. I believe it is advisable for departments involved in major transactions to take the initiative of calling regular meetings with other agencies and department that may have an interest, so that way you maintain the momentum of a file, you make sure that everybody's need to know is satisfied, and you avoid people waking up with long list of questions because you did not keep them informed. So there was not a lot of traffic. There was discipline, I would say. He was calling meetings regularly, if not every week, would be my recollection, with those who had the need to know.

Senator Kirby: Called by?

Ms Bourgon: By him.

Senator Kirby: Sorry, who is him?

Ms Bourgon: The chief negotiator, which would be -

Senator Kirby: Called by Rowat. Okay. That's what I want. So in fact the central agencies were kept informed on a weekly basis?

Ms Bourgon: Roughly.

Senator Kirby: Yeah. I don't mean religiously a week, but okay. Let's then proceed.

I understand you're getting instructions from Mr. Corbeil at the end of September. Can I ask about - and Mr. Chairman, I don't know if I need to reintroduce this document. I don't know what the rules are. This is just a document that I think has already been before the committee at least once before, Document Number 0092, which is a memorandum from Madam Bourgon to Mr. Rowat dated October 7, '93. This is - we've had this around. This is a document that in fact I think Senator Lynch-Staunton has asked questions on before. Can you tell me a bit about the background of that document? Like, what led up to it?

Ms Bourgon: Well, there would be a long way and a short way of dealing with that. Let me start with the short way.

Senator Kirby: I'm happy to take the long way.

Ms Bourgon: Let me start -

Senator Kirby: Even your long way has got to be considerably shorter than what we've gone through for the last day and a half, so it's a substantial improvement.

Ms Bourgon: Well, I would be inclined to review where we were at some critical dates leading to this, because I noted in some of the discussion that there might have been a feeling in some party that it was - there was question about whether it was appropriate for the Prime Minister to provide that guidance. Well, I just want to establish there was no question in my mind that it was appropriate for the Prime Minister to provide guidance. In fact, guidance was requested. But let me put that into perspective.

We had moved from letter of intent on June 18, the department, when I say we, the Crown, to a general agreement at the end of August. That's a lot of work. That's substantial progress. That's quick progress. In August, however, I want to make it clear that nothing was signed. Nothing was signed, sealed, and delivered. There was a general agreement, and when Mr. Corbeil made his press conference at the end of August, he said, and I think the paper is saying that, it is our wish to achieve legal agreement by the fall. So we were in the period of time when I go back to the Prime Minister, I have to position that in the need to provide adequate guidance to officials doing that.

From the end of August till dissolution of Parliament, September 8, we were still at the stage of converting this general agreement into all the component pieces and agreements required to give effect. At the end of the day, you have already received a document, I believe, that explained to you that to make that happen, we needed 100 plus documents of all kind to come together.

After Parliament was dissolved, what happens in terms of conduct for officials is that there is this general rule. It's not a law. There is a general rule that from that point on, you must act with caution. So the question comes, who is going to make the judgment as to whether or not you're cautious. Well, that's not a judgment to be made for officials. You go to your minister or the first minister, the Prime Minister, depending on the circumstances.

Moving from the end of August to when we went to the minister on October 3 and 4 was a key step, and my view was that there was a need to seek clarification as to whether or not we were acting with caution by submitting these documents for signature. Following that, following October 3 and 4, I received guidance and we implemented. Okay?

Following that, there were two events, additional events, that took place. One of them was you have to remember that this is during the middle of an election campaign. There was a statement by the Leader of the Opposition requesting publicly the Prime Minister to put everything - I think he used the expression - in the freezer. Request number one. The day after, I believe the Leader of the Opposition -

Senator Tkachuk: What day was that?

Ms Bourgon: The 5th, I would say.

Senator Tkachuk: Of what? Of October?

Ms Bourgon: Or the 6th of October. After Mr. - after the guidance received by Mr. Corbeil. The 5th, there was this statement, and on the 6th, I believe there was also a statement by the Leader of the Opposition to the effect that he would wish, should he form the government, to review the approach.

These two events raised in my mind the need to receive guidance on the appropriateness of proceeding further, which is closure on the 7th, but this time from the Prime Minister. Because the Prime Minister is responsible for the behaviour of government during a period of election. And the call having been made at the level of the Leader of the Opposition, in my mind, it was not sufficient to simply ask guidance from the minister at that point in time. So that was the background.

Now, it's not for the Deputy Minister of Transport to get on the phone and call the Prime Minister and say, "I would wish to get guidance." You refer the matter to the clerk, whose job it is to make sure that we respect tradition and values and due process and so on. And when I raised my view with the clerk, the clerk was also of the view that it was appropriate to seek guidance from the Prime Minister. He did and gave me my instruction. So that's the background to that piece of -

Senator Kirby: In the course of this process, were there any discussions or did you seek an opinion from Justice on the appropriateness of doing this?

Ms Bourgon: No. At that point, at the point where I'm engaging in my discussion with the clerk, saying -

Senator Kirby: Or what motivated you to actually go to seek the direction?

Ms Bourgon: In my mind, it was not a legal issue. There was no question that even after Parliament is dissolved, a government retained all the legal power and authority of a government. It is more a question of judgment. It is not a law, a rule of law. I remember a brief exchange at the time I was discussing with Mr. Shortliffe, the clerk, with the Deputy Minister on the same issue, and he confirmed the same thing, that it was not a matter of law. It was not a question for the rule of law. It was a matter of what is the appropriate - the judgment of the Prime Minister on what is wished in terms of the behaviour of a government during a period of campaign.

Senator Tkachuk: Could I asked a supplementary on this? This is an interesting discussion. When you seek guidance, do you seek guidance because of what is happening in the campaign or because of the subject matter of the decision?

Ms Bourgon: You seek guidance if discretion must be exercised by the political level. You seek guidance when the decision does not belong to the bureaucratic level. That's where you seek guidance.

Senator Tkachuk: Was there not a Treasury Board approval?

Ms Bourgon: But that was not -

Senator Tkachuk: I'm just asking.

Ms Bourgon: No, I agree.

Senator Tkachuk: When was -

Ms Bourgon: There was a TB submission. Could I clarify why it was not part of my thinking to consider that?

Senator Tkachuk: Yeah.

Ms Bourgon: Okay. Ministers have powers and authorities. Officials have powers and authority. Sometimes we have enough; sometimes we don't have enough. Then we get an Order in Council that grants us additional power. To have the power to sign is not an obligation to sign. So we had been careful to seek delegated authority to the minister to sign should the circumstances warrant. It is not a judgment on the circumstances. So to have delegated authority does not force you to exercise it. Okay? So the TB submission, in my mind, was not a factor.

Senator Tkachuk: Okay.

Senator Kirby: Okay. Can I just supplementary to the supplementary or whatever? In response to Senator Tkachuk, and also earlier when you talked about the August 27 date, which I believe is the date of the Treasury Board approval, what that Treasury Board approval did is give the minister the authority to sign where, to use your words a minute ago, were the circumstances such that he felt signing was appropriate. So that did not constitute any kind of a legally binding agreement on the government; is that correct?

Ms Bourgon: It was not forcing the minister to sign. That was not the intent of -

Senator Kirby: Let me ask the question slightly differently. A lot of people who aren't lawyers have commented on things non-legal around here. Did you have the view that the government had an option subsequently to not sign, for example, without incurring a liability? Namely, the deal was not yet finished?

Ms Bourgon: Okay. I'm not a lawyer.

Senator Kirby: Neither am I. That's one of our mutual great advantages today. Go ahead.

Ms Bourgon: Let me go back to the TB submission and the question of liability. Okay. The TB submission, in my mind, at the time and now, was intended to make sure that the collective responsibility of ministers was respected where it was needed and that the minister had the power of implementing that collective responsibility. That's a mouthful. I'll try to do better than this.

This was a huge and complicated agreement. It went beyond the authority of the Minister of Transport on his own without the wish and support of ministers, let's call that cabinet, to do - to sign all of that and to enter into such a fundamental transformation of the transport system.

What we put, and I was there, what we did put in the TB submission was enough description, solid description, of the core elements that - of the new regime so that collectively ministers would be satisfied that indeed it was the collective wish of cabinet to achieve that new regime. And in light of that, it was providing the Minister of Transport with a delegated authority of signing these key agreements at the moment appropriate, should he be satisfied that it's coming together, that it is appropriate, that the professional work had been completed and so on. The TB submission was not intended to instruct the Minister of Transport, even in the absence of his best judgment that we were ready to sign, to sign. It was never the case.

Now, then you move to another question. You move to the question, but was there not a liability as of August. My view, senator, and I'm not a lawyer, is that I worked under the assumption that there was some degree of liability every step of the way. And if I had to be guided by a rule, my assumption was that it was more at each step. I do not know what, I don't know how much more, but more was my guiding principle.

In June, when the letter of intent was signed between the Crown and the partners, there was some degree of responsibility. I don't know how much. That's a matter for lawyers or the court, for deliberation of others much more knowledgeable than I. But I thought it was a reasonable assumption that there was some degree of responsibility.

In August, when the minister said we reached a general agreement and now we intend to produce legal documents, there was some degree of responsibility. But it was more every step of the way. And that's why guidance was needed and care was needed at every step until everything is over. It's not over until it's over.

So was there liability? My assumption, subject to, you know, confirmation of others who knows much better about these questions, was that there was some every step of the way.

Senator Kirby: Okay. But some doesn't mean all, and some means that - I mean, I think you put it carefully when you said perhaps it was increased liability at each step, but in any event it wasn't a done deal.

Just one last question on that memorandum from you to Mr. Rowat advising that he sign the documents on the 7th. I have two questions. One, why was the memorandum sent to John Tait, who was then Deputy Minister of Finance - Deputy Minister, excuse me, of Justice? That strikes me as odd, since this was a Transport/PCO arrangement. Why was that done?

Ms Bourgon: At the time that I drafted this note, we were in a deputy ministers' retreat. This is when you get all DMs together to look ahead and do planning and so on. And in the course of my discussion with the clerk seeking guidance, John Tait, Deputy Minister of Justice, was involved in our discussion. And he did confirm the point that you raise, which is are we dealing with a matter of law or are we dealing with a matter of principle. And he made it very clear without hesitation we are dealing with a matter of principle.

Senator Kirby: It just struck me as odd. That's all. By the way, on the 7th, what was actually signed? That is to say, there are conflicting views around the table as to whether anything of substance was signed or whether anything of substance wasn't signed.

Ms Bourgon: Well, I'm afraid on this one I'm going to make the life of the members of the committee probably more complicated than it is right now. I was informed of an exchange that has taken place between some of the witness and the member of the committee on actually on the 7th by and large what was taking place was a release from escrow. I was struck by that, because that's not my recollection. So to satisfy myself, I've asked the Department of Transport to remind me of what was actually done and signed on the 7th, and I can simply say that, you know, maybe the Department of Transport could be of further assistance to the committee in reviewing carefully the list of everything that was done on that day.

On the 7th, remember I said this agreement to come together, to execute the intent of all the parties, you needed 111 pieces of information or paper or agreement to come together. Some were documents; some were real substantial agreement; some were easier agreement. But all of it had to come together to execute the agreement, to execute the deal. On the 7th, it was at least 20 documents that Mr. Rowat had to sign, of which one was the release of previously signed documents, which is the release from escrow.

Senator Kirby: Only one of the roughly 20, or 20 or more. Okay.

Ms Bourgon: Of what he had to sign on that day. That's my understanding.

Senator Kirby: Okay.

Senator Kirby: Can you tell -

Senator Tkachuk: What happened to the others?

Ms Bourgon: He signed them all.

Senator Kirby: What were the others?

Senator Tkachuk: Before?

Ms Bourgon: No, on that day.

Senator Tkachuk: The other 90.

Ms Bourgon: Oh, yes.

Senator Kirby: Sorry. What were the others in addition to the release from escrow, even just generically? Were they -

Ms Bourgon: There were some - well, for instance, there was an agreement with Allders that was contrôlait tous les concessionnaires -

Senator Kirby: Yes?

Ms Bourgon: - that was not completed until very late and had to be signed on that day. And that's not insignificant because it's also a member in the partnership. There was agreement about the use, the guarantee that the Crown would provide the use of utility services. There was an undertaking that Transport was representing the Crown on behalf of many other departments and was confirming a whole host of services would be maintained, RCMP services and so on. I'm not very familiar with the detail of it, but there were many that had to come together as part of the final closure procedure.

Senator Kirby: Is it fair, then, to characterize what you said by saying that on the 7th, in addition to signing the release from escrow documents, documents, substantive documents affecting the transaction, were signed?

Ms Bourgon: That is my view.

Senator Kirby: Can I just ask you about one other document, which again for the record is Document 002068. This is a memorandum which is being distributed. I think you may have it with you. It's a memorandum from Andy MacDonald to Mel Cappe and Ian Clark. It's actually an E-mail. I guess it's a copy of an E-mail. Just for the record, because Andy Macdonald is a name we haven't seen before, who is Andy Macdonald?

Ms Bourgon: Andy Macdonald was the controller general. He was a member of the Treasury Board senior management team.

Senator Kirby: Okay. This memorandum summarizes - I'll just read one sentence from it. It says:

... Jocelyne Bourgon asked my advice on a study she was contemplating ... a review of the entire decision and advice process in the Pearson Airport decision. She ...

Being yourself, Madam Bourgon.

... is more than a little concerned that some public servants might get hung out to dry on this one at some future date, and wanted to have a complete file on the entire process.

Why did you write that? Or sorry, can you explain -

Ms Bourgon: I didn't.

Senator Kirby: I'm sorry, you didn't write it. That's why I stopped my question. Can you explain a little bit about what your concerns were and what in particular you were concerned about in terms of public servants being hung out to dry?

Ms Bourgon: I was not aware of this note until very recently when it was surfaced in the context of the deliberation of this group. I would probably dispute some of the language, but I would not dispute the concerns. So let me deal with the substantive questions.

Senator Kirby: It's not the language but the substantive question I'm concerned about.

Ms Bourgon: The question was why was the Deputy Minister of Transport worried around October 12. Well, I was concerned that it would be advisable for everyone involved, because it covered such a long period of time, for everyone involved, be it the Department of Transport, and all the agencies involved, Treasury Board, PCO, Justice, Government Services and so on, I thought it would be highly advisable for all to pull out all the documentation that was relevant, establish, make sure that everything was in order, make sure that everything was ready for review, that time lines were clear, that chronology were established, that the review of the due process was clear and documented.

It was quite clear at that time that it was a very controversial issue, and, in hindsight, I was assuming there would be a review, which was the case later. All I wanted to make sure at that point of time is that officials that had been working and involved in that file negotiating on behalf of the Government of Canada, competently and professionally, were thinking ahead of time and documenting what has taken place step by step by step so that we would not waste time and start worrying where is the TB submission, and where was the Order in Council, and where were the appropriate signatures. Our books would be in order and ready for review should a review be required.

Senator Kirby: Was that done? Did officials proceed to do that?

Ms Bourgon: I certainly requested that in Transport. We did it. My advice to the Board was to do the same. Obviously they were at least taking note of my request for them to do it.

Senator Kirby: There is a name Paul Gonu, which is a name I don't know, at the bottom. You notice this was a - Mel Cappe scribbled a note back to Paul Gonu saying, "Please discuss any release of your documents", "your" underlined, "with me ..." Does that mean anything you to? Paul Gonu is not a name that means anything to me either.

Okay. Thank you, Mr. Chairman. That's -

Could I just ask you one last question? I know you were not there when Mr. Barbeau was sent on gardening leave. You were there when he returned from gardening leave; is that correct?

Ms Bourgon: Correct.

Senator Kirby: And when he came back, he came back into his position as Assistant Deputy Minister for Airports; is that correct?

Ms Bourgon: Correct.

Senator Kirby: Although you were not there, I presume you knew some of the circumstances that led to his gardening leave. Did you have confidence in his ability to perform as an ADM when you brought him back?

Ms Bourgon: I did not know Mr. Barbeau prior to joining the department. I knew his reputation, I knew his name, but I had no personal knowledge. Nothing in what Madam Labelle told me was questioning two things: his professional competence and his will to perform his duty. And I think he was coming back to the department the very same week I was starting, and he introduced himself to me. He confirmed that he was eager and willing to go back to his job.

I like to judge situations by myself. I asked him to go back to his job and perform his duties. It is my responsibility as a Deputy Minister to ensure that department is providing the government with the support needed, and I'm the one to which ADMs are accountable. I discussed - informed the minister of my decision, and he was supportive of my decision, so we simply proceeded.

Senator Kirby: During your remaining time as Deputy Minister of Transport, did you ever have any cause to doubt the professionalism as a public servant of Mr. Barbeau?

Ms Bourgon: Not at all.

Senator Kirby: Thank you very much, Mr. Chair.

Senator Tkachuk: This Mr. Barbeau you had a lot of confidence in, that's the same Mr. Barbeau who organized and was responsible for organizing the RFP process and organizing and assembling the team for the decision on Paxport; is it not?

Ms Bourgon: Can I go back to -

Senator Tkachuk: Is it the same guy?

Ms Bourgon: It's the same guy. Can I just go back to the -

Senator Tkachuk: That's all I wanted to know.

Ms Bourgon: - comment attributed to me? Remember, I said I did not know Mr. Barbeau prior to joining in, so I could not judge any one of the past activities, nor did I have knowledge of them. It's the same person, same ADM, same job. And as of the day I joined the department, I can confirm that he was a very solid and competent ADM.

Senator Tkachuk: He's still there?

Ms Bourgon: To my knowledge, yes.

Senator Jessiman: Thanks, Madam Bourgon. I just want to clarify one more time from your point of view. Did the final contract prohibit an LAA from being formed?

Ms Bourgon: I do not know. I can't answer that.

Senator Jessiman: Did you know that in the request for proposals that the land lease provided for an LAA, that it could be assigned? You never looked at the request for the proposal?

Ms Bourgon: Yes I did, but not in a manner-- You see, one decision I very deliberately made in coming to join you is not to try to study or rehearse or try to remember things I did not remember automatically. I would not remember what was the detail of the request for proposal or the components of the agreement per se.

Senator Jessiman: And if I told you that the final agreement also provided that an LAA could take over the management of the airport notwithstanding T3 was the airport, was leased, and T1 and T2 were going to be leased, but what the LAA would do was take over the position of transport- Isn't that what an LAA does, takes over the airport not necessarily some of the buildings. Isn't that correct?

Ms Bourgon: Well, I would have to speculate a bit. LAAs-

Senator Jessiman: Well, if you don't know, just say so.

Ms Bourgon: LAAs can play many roles. In the case of Toronto, because of the organization, an LAA would have to play a different role because you would have T3 with one form of ownership; you would have had T1 and T3 with a different kind of ownership; you would have had a role for the Crown. So by definition, the role of an LAA in the context of Toronto would have been different and yet it was slightly different from place to place.

Senator Jessiman: Yes.

Ms Bourgon: It was intended to be a flexible model, so I'm not disturbed by what I just heard.

Senator Jessiman: How often would you have met during your term? Now I'm talking up to October 7th now of 1993. How often would you have met with Mr. Shortliffe on this particular file?

Ms Bourgon: Honestly, I don't remember having a meeting with Mr. Shortliffe on that file during that period of time.

Senator Jessiman: Thank you. Did you feel any particular pressure from anyone to get this matter cleared up?

Ms Bourgon: Well, were we feeling pressure? The answer is "yes" and "no". Let me try to be fair. We were all feeling pressure. People were all working very hard. You need momentum in a file of that complexity to bring it to an end. So everybody was working extremely hard. That is pressure. A lot of that is self inflicted, I must admit. It is part of the dynamic of negotiating a very complicated agreement. You cannot leave it to take place over too long a period of time. So, yes, there was pressure; and, yes, there was a desire to finish the job and to get to the point where we would have fulfilled a mandate. Was that undue pressure? I would say "no".

Senator Jessiman: And Mr. Broadbent said it was self-imposed pressure. Everybody working on it were very anxious to get on with the job and were imposing on themselves time tables.

Ms Bourgon: Part of that is the nature of very complicated negotiations. You set deadlines and you really strive against that. That's how you ensure progress.

Senator Jessiman: Yes. And at the time that you became the deputy minister wasn't the really main issue that was on the table for Mr. Rowat the Air Canada lease?

Ms Bourgon: It was a very key issue. It was a very major outstanding issue. I would not say it was the only one. I don't recall that the development agreement was well advanced or as well advanced as it should have been. I don't remember that the service and operation agreement was as advanced as we would have liked. So it was not the only issue. And, as I said, you know, there were other components of the agreements that were needed for closure that came into play very, very late in the process. So, yes, it was a very major issue. It was a key one to be successful, but not the only one.

Senator Jessiman: Thank you.

Did you meet any lobbyists while you were involved in this file?

Ms Bourgon: Not on this file per se. I remember meeting Mr. Hession once and I remember meeting-

Senator Jessiman: Mr. Hession is not at this point - you may consider him a lobbyist; he was the president of one of the proponents.

Ms Bourgon: I stand corrected.

Senator Jessiman: Okay. Other than Mr. Hession, did any see you?

Ms Bourgon: No, I was not lobbied on that file. I think that people knew that I was not negotiating actively and, therefore, there was no need in any event.

Senator Jessiman: When Victor Barbeau came back from what someone called his gardening meet - I think that was near the end of May until the early part of June -

Ms Bourgon: July.

Senator Jessiman: The first part of July. He said it himself. He was away about four to five weeks. Was he put back in his old job?

Ms Bourgon: Yes.

Senator Jessiman: Were there any negative repercussions to that?

Ms Bourgon: No, not that I'm aware of.

Senator Jessiman: Fine. Now Senator Kirby referred to this document 002068 that you have there. And its an E-mail message, I'm told, from Mel Cappe to several people and -

Senator Kirby: It's to Mel Cappe.

Senator Jessiman: It's from Cappe at the top.

Senator LeBreton: From Cappe to MacDonald.

Senator Jessiman: I'm reading from Mel Cappe to MacDonald.

Senator LeBreton: And who's Richard Patten?

Senator Jessiman: Clark, Ian Patten, Richard Fleury, whatever.

Senator Kirby: I was reading farther down. I'm sorry. It doesn't matter.

Senator Jessiman: But it has reference to you. And it says, "At the DM retreat last week"- So that, if it's exactly a week - and I don't not know if it is - that takes you back to October the 5th.

Ms Bourgon: It was on October 7th.

Senator Jessiman: October the 7th.

Ms Bourgon: I believe so.

Senator Jessiman: All right. Okay. And you wanted to get the file put in order and so you could have everything ready for the new government. But when the election was called on September the 8th and it was held on October the 25th, even though you knew there was going to be a new government regardless of who was elected - whether it was a Progressive Conservative government, or a Liberal government, or whatever - did you start to prepare some documents for the new minister?

Ms Bourgon: Not at that time.

Senator Jessiman: When would you have started?

Ms Bourgon: I believe you've seen a document which was dated November 4th that was released by Mr. Young in the house, I believe -

Senator Jessiman: I'm going to show - Yes?

Ms Bourgon: - which was essentially a transition document that was prepared. That was prepared later. It was prepared maybe a week earlier. We did prepare-

Senator Jessiman: A week earlier than?

Ms Bourgon: Than the date of the document, which was November 4th, I believe.

Senator Jessiman: All right. I want to show you four documents.

Ms Bourgon: Okay.

Senator Jessiman: And I'd like my assistant to provide you with some, the press with the same, and I have them here as well. And I'm going to deal with them, Madam Bourgon, in the order - the first one I want to speak about is 00304.

Ms Bourgon: Yes?

Senator Jessiman: And then there's another one that has the number 1235 in ink on the right hand side.

Ms Bourgon: Yes?

Senator Jessiman: And then there's another one, 1236 on the bottom right hand side?

Ms Bourgon: Yes.

Senator Jessiman: And then there's another one it's #803278.

Ms Bourgon: Yes.

Senator Jessiman: And at the top it says 803279. Do you see that one?

Ms Bourgon: Yes.

Senator Jessiman: Four documents. Now, do you remember having seen any of these documents? Look at them closely, if you will, please, particularly the first one.

Ms Bourgon: I've seen the November 4th one for sure.

Senator Jessiman: But you've told us that on October the 7th you had said that you wanted to set up something for the new minister. Are these the kind of documents that you were preparing for the new minister?

Ms Bourgon: No. Can I go back to what you just said?

Senator Jessiman: Sure.

Ms Bourgon: Okay. This E-mail that you quoted is from -

Senator Jessiman: Yes, from Mel Cappe.

Ms Bourgon: - a person in the central agency Treasury Board. It refers to a conversation with me, where I'm saying, "it would be advisable for every department and agencies to put their paper in order". This has nothing to do with transition. I'm not looking at options, if you want to pursue different policy options.

Senator Jessiman: Which does not have to do with transit- this document, the one, the E-mail?

Ms Bourgon: Yes, the E-mail. The E-mail is not related to transition preparation. The E-mail is a judgment on my part saying that it would be advisable for everyone to have their paper in order.

Senator Jessiman: Okay.

Ms Bourgon: So I go back to my own organization and I gave instruction and my colleagues' DMs are free to do as they wish.

Senator Tkachuk: Paper on what?

Ms Bourgon: Everything related to Pearson because it covered 3 or 4 years; it's complicated. So I thought at that point in time it would be advisable for all to make sure your files are clean, in order, you have all your relevant documents, that you have everything at your fingertips, in other words.

Senator Jessiman: And did you do that later?

Ms Bourgon: We did that in transport; we've organized our files.

Senator Jessiman: I wonder why, Madam Bourgon, it's taken us four months and we still haven't got all the documents? And you say everything's in order; everything's at your finger tips. That's interesting.

Ms Bourgon: Let me leave that question aside for now.

Senator Jessiman: Yes. All right.

Senator Tkachuk: But you did produce a report.

Ms Bourgon: No. The intent was not to produce a report. You see, in Transport you had on Pearson probably thousands and thousands of documents and pieces of paper. My instructions was to ask people: Make sure your files are in order. So the intent was not to produce a report, it was to make sure that we had our paper flow, our paper trail, well organized. So that's the E-mail, okay? Then, senator, you're moving to a different question beside the paper trail. Your question, senator, was: What did you do to prepare for the transition. Is that correct?

Senator Jessiman: Yes. And are these four documents I've given to you, do they represent what you prepared for the transition? Is this a document? You say a document was presented in the house by the minister?

Ms Bourgon: Yes.

Senator Jessiman: And that was the one that's dated November the 4th?

Ms Bourgon: Correct.

Senator Jessiman: All right. I want to talk first, though, because it's apparent that there are other documents here that are somewhat similar but not exactly the same as that November 4th. And let's first look at 00304. That's the one I want you to look at first.

Ms Bourgon: Okay.

Senator Jessiman: But first, before you look at any of them - well, you can look - I want to talk generally. In drafting this up we're told that Mr. Rowat was one of the persons that was involved in drafting it up and he worked under you?

Ms Bourgon: Hm-hmn.

Senator Jessiman: Is that correct?

Ms Bourgon: Hm-hmn.

Senator Jessiman: Do you know whether Mr. Desmarais was involved?

Ms Bourgon: No.

Senator Jessiman: Can you tell me who did it?

Ms Bourgon: Okay. Let me try to help.

Senator Jessiman: All right.

Ms Bourgon: We did prepare a doc-

Senator Jessiman: Who's "we"? Who is the "we"?

Ms Bourgon: The Department of Transport.

Senator Jessiman: Yes. I want you to give me the names of the persons.

Ms Bourgon: I'll do my best.

Senator Jessiman: Let's look at 00304 first.

Ms Bourgon: I cannot because I have not seen, to my knowledge, this document before. So I can hardly talk about that one. Can I start with the November 4th one?

Senator Jessiman: No, I'd like you to start with this one if you don't mind. Because-

Ms Bourgon: Well, then, I believe, senator, I have not seen this document before, so I would be hard pressed to tell you who wrote it.

Senator Jessiman: All right. Well, it does at the first page says "Terminal 1 / Terminal 2 Privatization", which is exactly what the document that you want to refer to now - and we will refer to it - is exactly the same except it's not dated. Do you see the first page?

Ms Bourgon: I do.

Senator Jessiman: Would you take a couple of minutes now just to look at it and see whether you think - This is a document - obviously the one I'm looking at, 00304, already has on what they call page two with a history on it. You see that there are things taken out of it. So somebody has looked at this and decided that that paragraph shouldn't be shown to others.

Ms Bourgon: Sure.

Senator Jessiman: Okay? So take a look at it and tell me whether you think that this document is something about what we're talking about, namely, getting ready for the new minister?

Ms Bourgon: Well, I can make an hypothesis, senator, but it's only going to be that.

Senator Jessiman: Well, but it's pretty important because I want to know whether any of the persons that are politicians had any input into the drawing of this document or any of these documents.

Ms Bourgon: Okay. I'm going to make an hypothesis.

Senator Jessiman: Okay.

Ms Bourgon: The one you just asked me to look at.

Senator Jessiman: Yes?

Ms Bourgon: I think it would be a reasonable assumption -

Senator Jessiman: Yes?

Ms Bourgon: That is could be an earlier draft leading to the production of the document that I was talking about. I do not know. I cannot confirm, I cannot guarantee, but it might be a reasonable assumption.

Senator Jessiman: Okay. Having made that assumption, let's go on from there. Do we further assume that this document was drawn by Mr. Rowat - because he told us he was responsible for drawing these documents or partially responsible. I'm asking you - You keep telling me "we" and then I say "who". You say "the Department of Transport".

Ms Bourgon: Sure.

Senator Jessiman: I'm still trying to find out Mr. Rowat and who else helped compile this doc- They're work for you, right? And you asked them to draw it. And who would have done it? Rowat and who else? Anybody else, or was he the only one?

Ms Bourgon: You will have to ask Mr. Rowat. You see, when a deputy minister is asking for a piece of work to be done you define the need, you clarify your instruction, and you assign the task to someone.

Senator Jessiman: Yes.

Ms Bourgon: I would have assigned the task to Mr. Rowat of saying, "For the transition, let's make sure that we've reviewed our options". He would in turn organize the work in the manner appropriate to his style, his way of doing business, the employees available. I would not have instructed the project leader about, "The members of your team must be the following members exactly". I would not have done it that way.

Senator Jessiman: But you were there.

Ms Bourgon: Sure.

Senator Jessiman: I'm showing you four different - actually, there's just three different documents. One has some white outs, the other doesn't. But you can't tell me - Your recollection is that you've never seen this, but your recollection is from your E-mail that you certainly- Or, no. I'm sorry. That was for later on. That was a bigger project. But would you be the one, then, to instruct them to even start drawing this kind of a document for the new minister?

Ms Bourgon: Yes.

Senator Jessiman: Yes. So you asked for this to be done.

Ms Bourgon: Every department has the duty to prepare for a transition.

Senator Jessiman: Yes.

Ms Bourgon: By the way, "transition" does not mean a change of government. It means the result of an election and a government coming in. It could be the same government.

Senator Jessiman: Yes, and the same minister.

Ms Bourgon: So there is a duty to do work which is called transition. "Transition" means that you will prepare documentation to apprise the minister being confirmed in his or her position about what are the issues, what are the decisions pending and what are the options. So, yes, I would have requested from the Department of Transport, I would have asked every assistant deputy minister and the associate to trigger the appropriate work for a transition. And each and every one of them would have prepared analysis and documentation to be ready to apprise the minister, upon appointment, of "Those are the issue. Those are the decisions required and the options".

Senator Jessiman: And you knew this was a pretty delicate one that was going to cause some looking into by the department and that the minister was going to have to consider what to do about this particular file and these particular agreements, right?

Ms Bourgon: Correct.

Senator Jessiman: Now, in drafting this, what I'm asking you - and I can refer to the first one or any one of them - to your knowledge do you know whether there was any input by any of the persons involved from the political point of view while this was being drafted?

Ms Bourgon: No. I would be extremely surprised. My answer, without checking would be it would be unusual, and I don't believe that would have been the case.

Senator Jessiman: Right. And this shouldn't really contemplate or consider matters that are political. That's up to the politicians, is that not right?

Ms Bourgon: Well, when you prepare documentation on a transition, as I said, the duty is to make sure that you identify what are the issues, what are the options, and you have to understand what is the context within which these options are going to be discussed. So you're not divorced from the reality of the country. You're not divorced from the reality of what is going on.

Senator Jessiman: Right. Now I don't know if you've kept abreast of these hearings - you might tell me if you have or have not. Have you listened to some of it or read some of it?

Ms Bourgon: I did listen to some of them and then I was fortunate enough to go on holiday for three weeks. You were not. You worked all summer, I know. I should not have said that. So I missed at least three weeks of your deliberations.

Senator Jessiman: And from you have said, you had no contact with lobbyists. There's a question also of patronage.

The evidence, as I understand that's being given, there isn't anyone that's come and said, "You know, there's been a great deal of patronage here. From your knowledge of this file from the time you were appointed to October the 7th do you think there was any patronage? Was there a patronage problem?

Ms Bourgon: On the basis of the information I have, I have no evidence of it.

Senator Jessiman: Right, okay. Now, if you look at the third last page of that document, 00304 - You see, we're now talking about this particular transaction and we've now got the minister. And we're drafting this document, and we're all civil servants. And we're saying, "What are his options?" Can you see that page at the top?

Ms Bourgon: And what page are you, sir?

Senator Jessiman: Third last page on document 00304 - or is it the second-last page? Sorry, second last page. No, third last. I was right.

Senator LeBreton: Okay. Starting with "Renegotiate at Certain Elements"?

Senator Jessiman: No. It's 00304 -

Senator LeBreton: Yes?

Senator Jessiman: And my - One says "Options". Can you not see that?

Senator Bryden: Senator Jessiman, do you have a document that none of the rest of us have?

Senator Jessiman: I don't know. I had a terrible time getting it, I'll tell you, but-

Senator LeBreton: You just have to learn now to count, senator. It's not three pages back.

Senator Tkachuk: We don't get them delivered by an EA, though, it just comes in a brown bag.

Senator LeBreton: It's three actual pages, but it's one, two, three, four, five, six.

Senator Jessiman: I know how to count. I'm counting a page as a page, both sides being one.

Senator LeBreton: Oh, I count both sides being two.

Senator Jessiman: All right. I think that's a page. Is that a page and that's a page?

Senator LeBreton: It's two pages.

Senator Jessiman: Okay. Whatever. They're not numbered, but the top of it - do you see it?

Senator LeBreton: Yes, we've got it.

Senator Jessiman: You have, but the witness.

Ms Bourgon: Is that the one that starts with "Options"?

Senator Jessiman: Yes. Okay. And the first option you're telling the minister, or this person that's drawn this, says to "Retain PDC", that's Pearson Development Corporation, "to develop T1/T2". Do you see that? That's one of the options, right?

Ms Bourgon: Hm-hmn.

Senator Jessiman: And that seems reasonable. They're coming in and that's one of the things they could do. And they say these are the good things, the pros:

No legal problems, no compensation, construction proceeds as scheduled.

The cons - and this is the part that I'm concerned about. Why would a person, a civil servant - and if Mr. Rowat was the one, as far as he was concerned from what we got from him, he agreed with Mr. Broadbent, who used the words "This deal was squeaky clean". Now why would a Mr. Rowat, or whom ever do this, say "This is the cons gainst going ahead from the status quo:

Perception that "deal" is bad not dispelled patronage will remain a public issue.

Why would a civil servant - now you're not the person; you haven't seen this, but isn't that unusual?

Senator LeBreton: It deals with perceptions not reality.

Ms Bourgon: Well, thank you for saying that it's hard to comment from me on a document that I had not seen.

Senator Jessiman: Exactly.

Ms Bourgon: So that's very complicated. But let's move from the comment on the paper -

Senator Jessiman: Yes.

Ms Bourgon: - to what you're raising, which is a broader question of appropriate conduct.

Senator Jessiman: Yes.

Ms Bourgon: Would that be fair?

Senator Jessiman: Right.

Ms Bourgon: And what you're saying is that officials should restrict themselves to facts.

Senator Jessiman: Well, I'm suggesting - you say you didn't think it was so. I'm suggesting that maybe, just maybe, there's some other influence here and - but that's my suggestion. I can't believe, independently-

Ms Bourgon: Senator, it would -

Senator Jessiman: - some civil servant who's supposed to be neutral, who's said we've got a squeaky clean deal is writing this kind of information to his minister.

Ms Bourgon: Let me make two comments that might be helpful.

Senator Jessiman: Yes.

Ms Bourgon: Number one, I would be concerned if you thought that transition documents in the Department of Transport were prepared in collaboration with political officials. I firmly believe that it was not the case.

Senator Jessiman: Okay.

Ms Bourgon: So I would like you to take the time to get someone who could confirm, instead of me speculating, from Department of Transport that it was indeed the case so that your mind be put to rest.

Mr. Nelligan: Senator, this question may help. I wonder, Madam Bourgon, if you'd look at page 1 of the document. It is on the other side of the opening sheet. And the issue is set out there and there appears to be possibly a name there written in ink. Can you read that writing and does it assist us to identify the author of the document?

Ms Bourgon: I can't read the name.

Mr. Nelligan: It's not familiar to you, in any event? That's all I wanted to know.

Ms Bourgon: To me it's just a scribble.

Senator Jessiman: I think there was an earlier one that was mostly in ink, but I can't find it. Anyway, I think I've gotten my point across.

This actually is not dated, but I took the same view that you did, that it predated the one which is our next document, 1235, which is a memorandum - if you look at that document - to Brad Wilson. And this is from William Rowat, memorandum to Brad Wilson. And just to confirm, was Brad Wilson the administrator or administrative person for Mr. Nixon? Do you know?

Ms Bourgon: I believe so.

Senator Jessiman: Yes. And this document says this - the subject-matter is Terminal 1 and 2 review, "Attached as requested for Mr. Nixon's review", dated October 29th, which is about - It says:

Attached as requested for Mr. Nixon's review is a presentation on "Terminal 1/Terminal 2 Privatization". Please assure Mr. Nixon has signed the confidentiality agreement before you give this to him. Thank you.

It's signed by Mr. Rowat. Now I note the one we have, it's marked "secret". But the document that we were given that was attached to this letter on several - two or three of the pages at least, has white out. I thought we were made to understand if you signed a confidentiality agreement, you got to see everything, or do you know? That may be a legal question that you can't answer.

Ms Bourgon: You're talking about whom signing a confidentiality agreement?

Senator Jessiman: Mr. Nixon. It says here, if you read it, "Attached as requested for Mr. Nixon's review-

Ms Bourgon: No.

Senator Jessiman: No? No what?

Ms Bourgon: I believe that it is not because someone sign a confidentiality agreement that you get access to everything.

Senator Jessiman: I see, you can still white something-

Ms Bourgon: It means that for what you get access to you are bound by the confidentiality agreement. Signing a confidentiality agreement does not give you automatically access to anything the Government of Canada would have.

Senator Jessiman: Fine.

Senator LeBreton: Just for clarification on that, so a document like this that would be given to Mr. Nixon, would it have things whited out on it?

Ms Bourgon: No. Okay. You see, let me go back to Senator LeBreton for a minute. There are two points we just covered, okay?

Senator Jessiman: Yes.

Ms Bourgon: You are an agent, let's assume - that's not the case but just for my sake of argument, you're an agent working, retained by the Crown.

Senator LeBreton: Like Mr. Nixon was.

Ms Bourgon: Like Mr. Nixon. In retaining you, there could be a need to give you access to some document. The fact that I would request that you sign a confidentiality agreement does not waive my discretion to decide what is it you need to fulfil the mandate given to you and, therefore, the Crown. In this case whomever is retaining the services would have to decide what is essential for you to fulfil your mandate. So to your first question: Does signing a confidentiality agreement give you access to anything? The answer is "no". But once-

Senator LeBreton: The document is decided.

Ms Bourgon: Correct. Once it is decided that to fulfil your mandate you need access to "A, B, C and D" and I provide them to you, you are bound by your confidentiality agreement to behave in a certain way and in that case I am going to give you information that is not white out, okay?

Senator LeBreton: Okay.

Senator Jessiman: The document that you have there, 1235.

Ms Bourgon: Yes.

Senator Jessiman: It's a letter or memorandum at least?

Ms Bourgon: Yes.

Senator Jessiman: And attached to it is something, it says attached is what's to be signed for Mr. Nixon's to get. But you said that the document that he got, there was no white outs. Is that correct?

Ms Bourgon: I'm assuming so.

Senator Jessiman: Well, but this one has white outs and this is what's attached. That's why I'm asking.

Ms Bourgon: You will have to check with those who provided the document to make sure. My assumption is that Mr. Nixon was provided this document with covering notes saying "Please sign confidentiality agreement" and upon signature he was given a document without the deletion. That's my assumption. But you may wish to check with those who provided the document for greater certainty.

Senator Jessiman: We'll have to ask Mr. Nixon.

But the people that have given us this and attached to it isn't the document as you understand it at least? We've been provided with this memorandum attached to which is a document dated the October 29th, marked "secret" with white out.

Ms Bourgon: Yes.

Senator Jessiman: And you're saying whatever document- You're not saying they're correct in what they gave us, but your understanding is that whatever Mr. Nixon did get had no white outs.

Ms Bourgon: I would assume that to be the case.

Senator Jessiman: Why would you assume that?

Ms Bourgon: For the reason I mentioned.

Senator Jessiman: Okay, please.

Ms Bourgon: Mr. Nixon was retained to fulfil a mandate. A judgment had to be made about what were those tools and instruments essential for him to achieve his mandate. In the Department of Transport, the associate deputy minister was asked to provide Mr. Nixon with help and assistance to ensure that he would fulfil his mandate - what would be needed. So, for greater certainty, as I said, you may need to check or want to check from those who actually provided the document, but I think that's a fair assumption.

Now, then your question is a different one. Your question is: Why would this committee be provided with a copy that would include some deletions? And that goes to another issue which is: The need to protect cabinet confidence, the need to protect ministers advice. Okay? That's probably the reason for these deletions. I don't remember exactly whether it was 21 and 69, but chances are that that's the case.

Senator Jessiman: But you think that under the circumstances Mr. Nixon was entitled to see more than this committee should see. Is that your view? Did he have some more important job to determine whether, you know, looking at these contacts he should see everything? There's been a big controversy for two years now - the other one went on for six weeks or so. He's come in and it's your view - and that's fine if it's your view, but it's a strange one as far as I'm concerned - that you say that you think Mr. Nixon should be entitled and you think he did get - and I think you're correct on this, that he got documents that were clear and there were no white outs.

Ms Bourgon: Can I start from the position of: What are the principles at play here, and then move to the specific case that you're dealing with?

Senator Jessiman: Okay.

Ms Bourgon: Okay. Let's start with cabinet confidence. What is this question of cabinet confidence? Cabinet confidence is a principle that government, after government, after government have tried to protect, which means that ministers should be free to come together, debate freely, come with their own opinion, express them clearly, in the course of the debate change their mind, reach a decision and they are all bound and tied by the collective decision. In order for that to happen, government after government, going back to the 1940s, have decided that there was such a thing as cabinet confidence that needed to be protected, that it was related to a concept of responsible government, and so on. So that's why under access to information and all kinds of other procedure there is a recognition of the need of preserving that. And that covers all kind of documents. There are experts in government who normally apply this legislation, decide what is cabinet confidence, what should be excluded and what should be included. And that is part of the process leading to documents presented to you, I believe. Under the leadership of the Department of Justice, there is a committee of expert who is reviewing probably everything that is coming to you that states - and its a judgment call: What is cabinet confidence and what is not? And you get the result of their judgment.

So that's one string. And there is something very worthwhile preserving there. The importance of the cabinet secrecy is very key to our system of government. There is another issue. And I know you want to relate them, but I can only deal with the question of principle.

Senator Jessiman: May I go on?

Ms Bourgon: The executive not the legislative, from time to time may wish to recruit agents for the purpose of getting some work done. That's when they are tied by confidentiality agreement.

Senator Jessiman: The chairman has a supplementary he'd like to ask you.

The Chairman: I realize you weren't the Clerk of the Privy Council at that time, and I have read all the conventions with respect to the things from MacKenzie King on. Tell me: What has happened, if anything, to the general thing passed on from prime minister to prime minister with respect to the matter of not providing any information to anyone who was not a member of the previous ministry except to Privy Council officers or staff.

But now we have confidentiality agreements. When the RCMP, the Honourable David McDonald's Commission, that was a cabinet decision to release documents, a very important thing. Yet, I'd love to take you back to your present job as Clerk of the Privy Council. But doesn't that strike you as being strange that people are coming in and getting documents by signing an agreement of confidentiality? I mean, have we loosened the rules that have gone from prime minister to prime minister to prime minister over the years since 1935.

Ms Bourgon: Well, I'd be pleased to check the Convention and to discuss the matter.

The Chairman: Yes, I'd be happy.

Ms Bourgon: As I said, not knowing that the part of our exchange was to be about convention, I was more ready to talk about as former Deputy Minister of Transport - I make that clear. But I'd be pleased to discuss that with you.

The Chairman: Well, I just give notice that possibly we may have to see you again because I'd like to find out, since you look over as Clerk of the Privy Council; and, since you knew that the reference to set up this committee was made on May the 4th of this year, you as the chief mandarin, boss, had to decide how things were going to go. And who do you put in charge, and what instructions you gave, and all the release of documents, that was all your doing. You were the ultimate person responsible. And I just give you notice of this question. I'm wondering whether or not you will come back.

Ms Bourgon: I will always be pleased to discuss matters of convention with you, sir.

The Chairman: All right. I'm wondering if possibly, since we have an opening next Tuesday morning, would that be convenient for you?

Senator Kirby: Tuesday at three.

The Chairman: No, Tuesday morning. Tuesday afternoon.

Senator Kirby: I'm just saying that's our normal time on Tuesday.

Ms Bourgon: I would be willing to check, sir and get back to you. I cannot confirm right now.

Senator LeBreton: You mean coming back as the clerk, chair?

The Chairman: Yes, coming back as the Clerk of the Privy Council.

Senator LeBreton: Just a point of clarification.

Senator Jessiman: Well, there may be other questions, I don't know. Let's see how we get along here today.

The Chairman: Because we've got mixed in two things. Madam Bourgon is wearing the hat now as the Deputy Minister of Transport, but I say there are other things to be taken into to consideration.

Senator Stewart: What I'm uneasy about Mr. Chairman, you anticipate but I'm uneasy and it's the problem that I raised back in the Senate before the committee was established and that was that very different rules would apply to different witnesses. It was my view at that time that you, as the proponent of this inquiry, should clarify the ground rules before the game started. Here we are, what is it, 70 per cent of the way through and you are now asking what the ground rules are.

The Chairman: No no, no no. I don't-

Senator Stewart: Well, indirectly.

The Chairman: - I don't want to delay this.

Senator Stewart: I know you don't.

The Chairman: We have Mr. Thompson, the Senior Assistant Deputy Minister of Justice coming before us. He is the person you appointed.

Ms Bourgon: The Department of Transport is providing this committee with all the support. So they have organized to receive documents, to review them, to organize it, to analyze it. We have committee of expert that reviews every piece of documentation we they provide you with the service agreement.

The Chairman: Yes, but in answer to Senator Stewart's question, we're working under the presumption that information will be forthcoming and not withheld and there is documents and testimony from the Deputy Minister of Justice that leads us down this garden path. And your assistance would be immensely valuable to us in trying to get the answers to questions which have been plaguing Senator Stewart and myself.

Senator Stewart: No, no. Don't suggest that it is my presumption. It is your presumption, Mr. Chairman. I warned you against it months ago.

Senator Bryden: In fairness, Mr. Chairman, if you're going to ask this witness to come back, presumably we would give her some indication on what it is that she would be expected to -

The Chairman: Oh yes, we would do that. But we are only looking at certain places. Have you any objection to that?

Senator Kirby: Just one in terms of the timing, Mr. Chairman. Next Thursday we're dealing with the issue of the whole role of documents which came before this committee and it seems to me that that would be the appropriate time to do it rather than Tuesday, that's all.

The Chairman: This is an issue that goes beyond the provision of documents. However, who is questioning?

Senator Jessiman: But you just said now, in answer to the chairman, that it's Transport that's providing us with these documents. That's correct, right?

Ms Bourgon: The provision of the support to this committee is through the responsibility of the Department of Justice. They receive documents from transport, indeed, but from other agencies as well.

Senator Jessiman: But what we received here - and I don't want to belabour this - we got a memorandum. Attached to it is a document dated October the 29th that presumably, from the memorandum, was given to Mr. Nixon. And its got white out. You say there are no white out. We are also provided without an accompanying memorandum with the same document with no white outs, and that's 1236. So it's the same document. Then we have another document, which is 803279-

Senator LeBreton: 278.

Senator Jessiman: - and it's dated November 4th, 1993. Now it, too, did not have attached to it that memorandum. Do you know as a fact - Mr. Nixon will be able to tell us, but do you know as a fact - which documents Mr. Nixon got, or did he get them all?

Ms Bourgon: I cannot answer that question.

Senator Jessiman: You don't know whether he got one, two or three?

Senator LeBreton: Or four.

Ms Bourgon: What I do know is the following.

Senator Jessiman: Okay.

Ms Bourgon: The November 4th document - I should be careful and review inside. I believe that the November 4th document was released by Mr. Young in the House of Commons and I believe that it is at that time, or around that time, that I reviewed this document.

Senator Jessiman: Which document, now?

Ms Bourgon: November 4th, okay.

Senator Jessiman: Yes.

Ms Bourgon: I believe that the minister was asked in the house and confirmed in the house that he was releasing this document, which is unusual, by the way. Transition documents are not normally documents released.

Senator LeBreton: What date would the Minister of Transport have released that document, Madam Bourgon?

Ms Bourgon: I do not know. I could check.

Senator LeBreton: It would be after Parliament came back. Were you still a deputy, or was it when you had gone on to be the clerk, because Parliament didn't come back until February or March.

Senator Kirby: She didn't become clerk until May.

Senator LeBreton: She was named clerk at the end of March.

Ms Bourgon: March.

Senator Kirby: March?

Senator LeBreton: No, it's March 1984.

Senator Kirby: Okay. I thought it was May.

Senator LeBreton: So, actually in terms of when the minister made this public in the House of Commons is really not relevant to this discussion because it was obviously after Parliament came back and there's some question as to whether you were even the deputy at that time. You were probably the clerk at that time. So we should just get the date.

Senator Jessiman: Yes. You'll note on page 25 of that last document, the one dated November 4th, the options are quite different than the ones that were in the first document that you presume, and I presume, is the first time they took a run at it. And the second time around all they say, they don't say "Status quo. Retain the deal". They don't go through all the other options to expropriate, or legislate, or whatever. All it says here is "Cancel the deal or renegotiate or restructure the deal." There's only two choices. Why would a civil servant, if there was no political interference, change from, you know, they've got a good deal. There's been no patronage. It's a squeaky clean deal. Everything's been done that was supposed to be done. Why do you think they would eliminate the status quo?

Ms Bourgon: Well, I'm afraid that I'm not as helpful as I can be.

Senator Jessiman: You don't know.

Ms Bourgon: Let me repeat that it would be safer and better and more satisfactory if you were dealing with the author or the person releasing it. You would get more precision.

Senator Jessiman: But you're the boss, right?

Ms Bourgon: Yes, and you're always accountable for everything. It doesn't mean you know everything at the same point. But I could find out for you who wrote it, when it was written and make sure that the committee's provided with the information.

Senator Jessiman: But that's a pretty important deal. And its a multimillion, almost a billion dollar deal and we're talking in one memorandum made a few days before because we're only talking about days. And we're talking about days before the new government was sworn in. And one day they say "Status quo" and give all the pros for it; and a few days later they don't even mention the status quo.

So, if the document that Mr. Nixon got, he didn't even consider looking at how good the deal was because you people said either renegotiate it, which infers there's something wrong - you've to get a better deal - or cancel it.

Ms Bourgon: Can I put a comment on your question. Since I cannot deal with your question satisfactorily, let me make a comment.

The status quo is always an option. So the length at which you go to describe an option, which is the reality, this is a matter of choice. You will find in various documents a lengthy description of options that would not include a lengthy description of the status quo. So you should not be overly disturbed in any one document if you find that more energy is invested in describing more different kinds of options. It doesn't mean that this option does not exist. I'm only trying to comment. As I said, I was not - I'm not helping you much.

Senator Jessiman: I think I made my point. Thank you, Madam Bourgon, I really appreciate it.

The Chairman: Madam Bourgon, when you were on the deputy minister's retreat and you had spoken to Mr. Tait, who had advised you that it wasn't a legal problem at all, it was a matter of principle, was there any doubt in your mind or Mr. Tait's that at that time there existed a legal document, a deal?

Ms Bourgon: Well, what do you call a deal?

The Chairman: I mean, it was a legally enforceable deal.

Ms Bourgon: This was not my view.

The Chairman: That is what you said was going to make us unhappy.

Ms Bourgon: No. Remember I explained that my view was that the degree of liability and responsibility of the Crown was growing at every step of the way, okay, at every step of the process, that nothing is over until everything is over. Closure was brought on October 7th and, therefore, the decision to bring closure was a very key decision.

The question of the discussion with Mr. Tait was not on whether or not we had a deal. The brief discussion with Mr. Tait was to simply confirm what I thought was the case, which is governments, even though in an electoral period, retain every power, authority and legislative authority that they normally have. Therefore, the issue of receiving guidance was not a legal issue; it was an issue of judgment on the part of the elected official as to what they would consider the appropriate conduct of their government during election. That was the only legal discussion at that point in time.

The Chairman: I know that good bureaucrats know the difference between politically partisan and politically sensitive. Mr. Rowat has testified that the major criticism of this transaction, the Pearson development, took place after October 7th, and Mr. Rowat said that you and Rowat got together and said, "This thing is bigger than both of us. Let's move it upstairs to Shortliffe. Get him to call Kim Campbell and get her to give authority to release the documents," but the documents had already been signed.

Ms Bourgon: Some documents had been signed.

Senator Jessiman: Everything except -

Ms Bourgon: That goes back to - I know that part of your difficulty, and that is where you will have to get assistance from legal advisors, and I will not be my own counsel. Part of the difficulty is that everybody is using the terminology of: What is a deal? What is an agreement? What is a legal agreement? What is a legally enforceable agreement? Yet we all use the same terminology - we talk about an agreement.

I can only tell you about what was my role of conduct when I was the Deputy Minister of Transport. My role of conduct was that it is not over until it is over; that there was a letter of intent on June 18th, which was creating some degree of responsibility but was not the end of the process.

We worked very hard to move to August 30th, to the point where the minister could make a ministerial statement, and he said, "We have now reached an overall agreement, and it is my intent to now move to a legal agreement." Why did he say that if we all believed that it was already done?

We move from August to all kind of very serious negotiation until late October. We were still negotiating 24 hours before I asked the minister to sign some of the documents, some of the 111 documents needed to all come together.

So we sought input from the minister before his signature and after from the government to make sure that that was the wish and we brought closure.

The Chairman: Would you take a question from Mr. Nelligan, please?

Mr. Nelligan: I just want to clarify the legal situation. First of all, the announcement in August was the minister said that he had reached agreement, but that is on the record and we don't worry about that.

I am intrigued by your suggestion that liability increases from stage to stage and that in June there would be certain liability and then in August there would be more liability. But you said that the decision in October was a policy matter.

Now, when I look at Mr. Rowat's statement and so on in preparation for Mr. Nixon is that in anticipation of a policy decision he analyzed the various results and anticipated what the exposure to damages and so on would be. So it occurred to me that if you are asking for policy direction from your minister or Prime Minister that you would inform that officer of the potential exposure; and, since you have told us that their liability increased, was there any attempt on your part to inform the minister or Prime Minister of their potential liability if they should fail to take the next steps; and did you take legal advice on that and so advise the minister or Prime Minister?

Ms Bourgon: I don't believe that we sought formal legal advice, to be honest.

Mr. Nelligan: Did you get casual legal advice?

Ms Bourgon: The team was involved in the discussion, so you exchange views, you exchange comments.

Let me just go back once more. There was a need for discussion, and it was in my mind quite appropriate, between the minister and the deputy prior to sending to the deputy - the minister all the documents that we had ready on the 3rd and the 4th. It was an important step in the process. We had been working for years to get to that point.

The question was to make sure that the view of the minister is that it was fair and appropriate to proceed at that point in time. We got that guidance. We got his approval. He signed the document. And he did one more thing - he signed a piece of paper delegating his signing authority to Mr. Rowat so that we could deal with the rest.

Then remember I have mentioned the events that took place on the 5th and the 6th and that raised, in the mind of the Deputy Minister of Transport, the question as to whether or not it was appropriate to seek guidance, not at the ministerial level, at the Prime Minister's level. That is where I sought the view of the Clerk who has to be the judge on those questions.

The view was that it was quite appropriate to seek the view of the Prime Minister. This is not asking them to sign documents and so on but to confirm the wish of the government to behave themselves in a specific manner during a period which is an election. It calls for a judgment. It calls for discretion and discretion has been properly exercised.

Mr. Nelligan: I accept all that.

When you ask your minister to exercise a discretion, I assume that you tell him what the alternatives are and what the risks are. What I wanted to know: Did you consult with anyone as to whether there was a risk in the minister not signing or in the Prime Minister refusing to sign and did you discuss it with any legal member of your staff as to whether there were risks in not carrying out the original plan; and to who was the person you would have spoken to about that?

Ms Bourgon: Again, I am afraid I will have to go back. I don't want to move into private discussion between ministers and DMs.

Mr. Nelligan: It is your discussions with the lawyers.

Ms Bourgon: Fine. Keep in mind that the minister had been involved in that file for many years. He knew very well every aspect of the file. In terms of my discussion with the legal advisors -

Mr. Nelligan: Yes?

Ms Bourgon: - around that time that I had this discussion with the minister, I don't think that was a major issue and I don't think I sought formal advice.

Mr. Nelligan: Were there discussions with lawyers over that period?

Ms Bourgon: Involving me?

Mr. Nelligan: Yes.

Ms Bourgon: I have mentioned I referred to my discussion with Mr. Tait. Beyond that, not obvious to me.

Mr. Nelligan: Did you discuss with Mr. Tait this question of increasing liability as you progress from stage to stage?

Ms Bourgon: No. I was discussing the question of convention and conduct of the government during an election. That was the issue I was discussing with Mr. Tait.

Mr. Nelligan: In a sense, then, the whole issue of whether there was any legal liability on the part of the government at that time was not reviewed by you over that period?

Ms Bourgon: I explained the role of conduct at that point in time. It was not reviewed beyond confirming that role of conduct.

Mr. Nelligan: So the answer is you didn't consider the legal thing; you were just discussing the policy matter?

Ms Bourgon: That is correct, the policy, the substantial policy, the due process of approval and the need for guidance. That were the key factors.

Mr. Nelligan: None of the lawyers on your staff can help us on this matter, then.

Ms Bourgon: Unless they did work on their own, but not that they were involved in that debate.

Mr. Nelligan: Okay. Thank you.

Senator Tkachuk: Just to end that, so you saw this - and then I have a couple of supplementaries on that transition period. So you saw this as so important that it would go all the way up to the PM's office on a matter of policy?

Ms Bourgon: M'hmm.

Senator Tkachuk: And convention?

Ms Bourgon: M'hmm.

Senator Tkachuk: But yet you did not develop any advice around yourself that would be moved to Mr. Shortliffe as to what the repercussions were if they didn't sign or they did sign? You didn't know?

Ms Bourgon: You see, the point -

Senator Tkachuk: No, I am asking you.

Ms Bourgon: I understand.

Senator Tkachuk: Did you ask and were you supplied with advice and did you then pass on that advice to the Prime Minister's office or did you just send them the contracts to say, "Here, you deal with it"?

Ms Bourgon: No. They did not have to deal with the contract and they did not have to analyze the contract. You see, what was being sought -

Senator Tkachuk: Tell me exactly was what was being sought.

Ms Bourgon: What was being sought was the wish - an indication of the wish of the government as to what was their guiding principle of acting with caution during an electoral period. You see, this is not a rule -

Senator Tkachuk: The Prime Minister didn't have to sign any contract.

Ms Bourgon: No.

Senator Tkachuk: What did she have to do?

Ms Bourgon: She had to indicate what was the wish of the Leader of the Government as to the appropriate behaviour of her government during that period of time. That is what was being -

Senator Tkachuk: So if she would have said "no", then the wishes of the Treasury Board and all the ministers would have been turned down.

Ms Bourgon: If the Prime Minister had said, "It is the wish of my government to defer agreements of this kind for the next three weeks," then we would have got people together and found all the options possible to give material effect to that wish.

Senator Tkachuk: Okay. Now, because nothing is over until it is over, as you say, let's go to October 25. October 25 there is an election - of 1993 - and a Liberal government is elected, a Prime Minister and ministers in waiting - probably hundreds of ministers in waiting. So let's go to that October 25.

We are now into a period of what they call transition. Who is your minister at this time?

Ms Bourgon: Mr. Corbeil is the minister until the next government is sworn in.

Senator Tkachuk: He is your minister and that is who you take instructions from?

Ms Bourgon: The government is the government until the next one is sworn in.

Senator Tkachuk: The government is sworn in on November 4.

Ms Bourgon: Yes.

Senator Tkachuk: Who is your minister at that time?

Ms Bourgon: On the day of the swearing in?

Senator Tkachuk: Yes.

Ms Bourgon: The new government is in office.

Senator Tkachuk: Minister Young is the minister on November 4th. Now, on November 3rd, Mr. Nixon is meeting with the Claridge Group in Toronto as the appointee of Mr. Chrétien and who had received a phone call from Mr. Rowat. How did that happen?

Ms Bourgon: I do not know about the meetings Mr. Nixon had.

Senator Tkachuk: No, no, no. How did Mr. Rowat who works for you under Minister Corbeil - did Minister Corbeil ask Mr. Rowat to make the phone call?

Ms Bourgon: Okay. The Privy Council Office retained the services of Mr. Nixon, I believe around the 28th. He was given a mandate to review, if I remember correctly his mandate, all aspects to the transaction between the partnership and the Department of Transport.

Senator Tkachuk: The Privy Council Office?

Ms Bourgon: The Privy Council Office retained the services of Mr. Nixon and gave him his mandate.

Senator Tkachuk: Before the new government was sworn in?

Ms Bourgon: On the 28th.

Senator Tkachuk: On the 28th of October?

Ms Bourgon: Correct.

Senator Tkachuk: Under the transition team?

Ms Bourgon: Under the authority of the Clerk who has the obligation to prepare for a transition.

Senator Tkachuk: I understand he has the authority to prepare for the transition. But he is now spending cash, right?

Ms Bourgon: Yes.

Senator Tkachuk: He is getting authority from Treasury Board to spend cash. He has to pay this person?

Ms Bourgon: Yes. But I would be surprised if he had to go to Treasury Board. But that is something that you could check with the previous Clerk.

Senator Tkachuk: I am more interested in what happened with you. So what takes place then?

Ms Bourgon: Okay. The Privy Council Office informs us that they had retained the services -

Senator Tkachuk: No, no, not "us", you.

Ms Bourgon: Me.

Senator Tkachuk: Okay.

Ms Bourgon: That they had retained the services of Mr. Nixon, and I believe that the same day that we were informed that his service had been retained to review all aspects of the transaction between the partnership and the Department of Transport we were asked to provide Mr. Nixon with the assistance and collaboration we could in the context of that review. So that is what happened next.

Senator Tkachuk: What happened? Like, did you meet with him or who talked to him?

Ms Bourgon: Mr. Nixon came over during the same day.

Senator Tkachuk: The 27th, 28th?

Ms Bourgon: The 28th, I believe - came over the same day. He met with me and Mr. Rowat. We met for half an hour, 20 minutes, and we confirmed that Mr. Rowat would be his point of contact for the Department of Transport to ensure that he would be supported in fulfilling his mandate, the one that had been assigned to him by the Privy Council Office.

Senator Tkachuk: You had your files prepared for him?

Ms Bourgon: I sure believe so. I mean, we -

Senator Tkachuk: All the files that would be necessary on this matter from all of the departments were all prepared?

Ms Bourgon: I don't think that was ever requested or needed.

Senator Tkachuk: So he didn't take them or he didn't use them or what?

Ms Bourgon: It is back to the question that we had with Madam LeBreton. It is not because the service of someone is retained, even by PCO, that they automatically get access to everything. He had to be provided with the assistance he needed to fulfil his mandate.

Senator Tkachuk: Let me rephrase that question. Did you have all the files from your department ready for him on the 28th of October?

Ms Bourgon: The files were ready for us, for whatever purposes we had ourselves. We did not turn over to him the files of the Department of Transport.

Senator Tkachuk: No, no. But you had done your job - your people had done your job. You had organized everything for the 28th of October. You had everything ready for him?

Ms Bourgon: I believe so.

The Chairman: Senator -

Senator Tkachuk: Am I too long?

The Chairman: That was a supplementary of Senator Jessiman that I interrupted, and then I turned to you, so Senator Jessiman -

Senator Tkachuk: Sorry, I thought it was my turn.

The Chairman: That was my mistake. Senator Jessiman.

Senator Jessiman: I really would like to give my time to Senator Lynch-Staunton.

Senator Lynch-Staunton: Go to the other side. Does somebody over there want -

Senator Tkachuk: They are not on the list. I went over and checked because I went out for a smoke and I had to come back because nobody was there asking.

Senator Lynch-Staunton: Do you want to finish up?

Senator Tkachuk: I just wanted to make sure she had the documents ready. Did you have all the documents ready from Transport organized to your satisfaction on the 28th?

Ms Bourgon: I had requested that the documents be organized. I did not check if it was done afterwards.

Senator Tkachuk: You didn't know if it was done on the 28th when he arrived?

Ms Bourgon: I assumed that once requested actions were taken.

Senator Tkachuk: You didn't ask if it was done?

Ms Bourgon: Afterward, no. There is really no need.

Senator Tkachuk: Treasury Board - so you wouldn't know - but you knew that they were all working on all these things and had them all ready?

Ms Bourgon: In the other organization beyond Transport, beyond the fact that I had made that suggestion, it was up to each DMs to make their own decision as to what was appropriate.

In my own department I asked that we organize ourselves and I felt no need to go and check afterwards, once the request was put across. It is a responsible management team. I was assuming it was done.

Senator LeBreton: Just a supplementary to that, chair, just to clarify.

Senator Tkachuk: Are you acting on my supplementary or Senator Jessiman's?

Senator LeBreton: On the basis of your meeting, then, with Mr. Nixon on the 28th of October, 1993, that is what then precipitated Mr. Rowat calling on the department's behalf the proponents, as Mr. Coughlin testified, to ask them to delay the startup date. Was it on the basis of that that Mr. Rowat made the phone call then, obviously? Mr. Rowat - because Mr. Coughlin testified that Mr. Rowat called him asking him to delay.

Ms Bourgon: Yes.

Senator LeBreton: And Mr. Coughlin testified that it was a decision in hindsight that he will regret for the rest of his life. So it is your understanding since you designated Mr. Rowat, Mr. Rowat then called the proponents on behalf of the Department of Transport, just as a point of clarification.

Ms Bourgon: I think that is correct.

Senator LeBreton: And, just for the record, I now know the date that Minister Young actually tabled the document, Senator Jessiman, was certainly not relevant to the discussion here because it was in fact the 28th of March 1995, which was just this year. And so you were the Clerk, you were not the deputy.

Ms Bourgon: Thank you.

The Chairman: Senator Lynch-Staunton.

Senator Lynch-Staunton: I would just like to - I thought we had it until a few minutes ago - really pin down the significance of these various dates, particularly after you come in in January just a few days before your predecessor had signed what the Library of Parliament calls a "non-binding letter of understanding setting out the major substantive components of a proposed agreement". That is what I believe you identified in your presentation as a letter of intent.

Ms Bourgon: Correct.

Senator Lynch-Staunton: I must say, chairman, that - did I say June? The 18th of June 1993.

I must say, chairman, that I am very impressed with the research work we are getting from the Library of Congress - Library of Parliament - I am watching too much of the other network - the research branch. I think it is excellent work and very helpful.

In any event, there is a letter of intent. Now, how committed are the two parties once a letter of intent is on the record?

Senator Stewart: That is a legal question.

Ms Bourgon: Well, the letter of intent -

Senator Lynch-Staunton: It is a legal question, Senator Stewart. But, also, the Deputy Minister of Transport at the time was intimately involved, and I think she should give us her interpretation of the events that she was involved in intimately until she left her position to become Clerk.

Ms Bourgon: The letter of intent was signed before, as I said, before I joined the department, and this is not a legal opinion but my understanding of what we were dealing with.

The letter of intent was saying, "It is the intent of all the parties to continue to negotiate." That is essentially what it was saying. It says, "We have a number of outstanding issues, but we are committed to continue negotiations for the purpose of reaching a final agreement." So that was the letter of intent.

Senator Lynch-Staunton: Good.

Ms Bourgon: It is much more than that, but that is the gist of it.

Senator Lynch-Staunton: At the end of August, again reading the Library of Parliament's notes, Order in Council authorizes the Minister of Transport to enter into lease and development agreement with Pearson Development Corporation reflecting Treasury Board approval; and on the 30th of August Minister Corbeil announced a general agreement with Pearson development, et cetera.

So, in three days we have two major events, one Order in Council which authorized the minister to sign, and three days later the minister is satisfied the agreements are in such form that he can publicly announce that an agreement has been reached between the two parties.

Ms Bourgon: Okay. Can I pause on the announcement of the minister on the 30th?

Senator Lynch-Staunton: Yes.

Ms Bourgon: The communiqué, the information that was released by the minister on the 30th is basically saying the following: "We have reached a general agreement today."

Senator Lynch-Staunton: Yes.

Ms Bourgon: "A general agreement was reached today. It is our intent that it will be finalized this fall under the terms of a 37 lease," and then it says, "The Government of Canada has reached an agreement on the major issues and will enter into a legal agreement."

So, in August where we were, which is a lot of progress had been done, you move from it is our intent to the next phase, which is we basically see eye to eye on some of the major issues and we are now announcing that it was our intent to move to a legal agreement. That is August. That is - what I just read is from the document released by the minister at that time, okay?

Senator Lynch-Staunton: Previous witnesses who have come before us, including the parties themselves, on the private side and representatives of Transport, and I think Treasury Board, but certainly Transport, in layman's language, anyway, indicated to us that the August 27 decision was in effect binding both parties, and that what they had agreed to - they had a general agreement on the concept of privatization and everything related to it and now they were to execute the legal documents to confirm in that language, legal language. It can be compared, I believe, to two parties agreeing to a sale and purchase of a house and, perhaps, a month or two months later meeting in front of the notary for the final execution of the deeds and so forth.

Is that comparison valid with what is happening here, that agreement at the end of August? And, as early as July, as early as July, according to Mr. Desmarais, as early as July it had been agreed that the 7th of October would be the day that both parties agreed to was a day of execution, to use one word, not the day of the signing of the contracts, the day of the execution, meaning that as early as July the parties were so far advanced that they knew that it was reasonable at the time to set a date ahead to allow whatever had to take place on the last day for the contracts to be executed.

Ms Bourgon: Can I start with your first point -

Senator Lynch-Staunton: Yes.

Ms Bourgon: - which was the Treasury Board approval? What was submitted to Treasury Board was not the totality of the components of the agreement.

Senator Lynch-Staunton: No.

Ms Bourgon: It was those five or six individual agreements that taken together with my 111 pieces of documents all coming together were central to the making of the new regime, the five or six. Those were the items on which it was felt that the collective responsibility of ministers was needed, otherwise you don't go to Treasury Board. If your minister has the individual authority of proceeding on his own, you don't bother all the other ministers.

On the five or six items, such as the ground lease, the option to lease, the transfer of employees, the development agreement, the four or five of those, those are the ones on which we - the minister went to Treasury Board to make sure that the collectivity of ministers were supportive, that it was in line with the desire of the government, and he had a delegated authority to sign.

So when some of the witnesses - and I don't know which ones so I cannot comment on witnesses you would have heard. If some of the witnesses said that coming out of that Treasury Board discussion they felt that they were not at liberty to change these five or six, that would be quite appropriate because what you have engaged is the collective judgment, collective authority of ministers beyond the individual authority of the Minister of Transport. So it is not giving an instruction to the minister, "You must sign under any circumstances." It is not providing you with the other agreements on which he had his individual authority, which was sufficient to fulfil it, but he was not at liberty on his own, would be a fair judgment, to change these five or six which had engaged the collective responsibility of ministers. Okay?

Senator Lynch-Staunton: I am going to interrupt you because we are in full agreement, I believe, on the significance of that date, of the 27th of August; it was that cabinet collectively was saying to the minister, "What you have presented to us approved by Treasury Board is what this government wants to execute."

Senator Stewart: That is not what she said.

Ms Bourgon: What they had was -

Senator Lynch-Staunton: I think the witness should answer this one.

Senator Bryden: Mr. Chairman, if I could just interrupt. We have always every time that I have been at these hearings allowed every witness the opportunity to fully answer the questions before being interrupted. I have noted this afternoon that this witness has been interrupted while still trying to answer. I think we should continue to extend the courtesy we have extended to everyone else.

Senator Lynch-Staunton: It was certainly not my intention to be discourteous by interrupting. It was done in order to accelerate the debate because everything I have heard so far is what we have heard in different terms. But, certainly, the witness can take all the time she needs. I have all the patience needed to listen to her. And I don't care whether her answers are longer than my questions.

So, Madam Bourgon, please continue.

Ms Bourgon: Where are we?

Senator Lynch-Staunton: We are trying to establish the significance of the decision taken on the 27th of August as far as it committed both the government and the consortium to an agreement which only together could be unwound or cancelled.

Ms Bourgon: As of that date, the Minister of Transport had the authority to sign agreements on behalf of the Crown. Now, they are not signed. In fact, to be - if my memory serves me well, at the end of August there was nothing to sign; they were not ready. Some were not finished in terms of negotiation and some were not in final legal terms. There is a long distance between knowing what you are going to draft and final text ready for signature. But as of the end of August, through this decision of the Treasury Board, the Minister of Transport had the authority to sign should he judge that it was now time to sign, should it be ready, should the document be completed, should it be in a format that would be appropriate and should the parties be able to come together.

So this is a signing authority. This is a power to sign. It is not an order to sign. That is the distinction I was trying to make.

Senator Lynch-Staunton: And one which I accept. The power to sign reflects the government's approval of an agreement entered into between various parties.

Senator Kirby: That is a legal question - whether or not it constitutes legal approval, that is a legal question.

Senator Stewart: May I ask one question?

Senator Lynch-Staunton: No, I want to finish.

Senator Stewart: Thank you. You are very gracious.

Senator Lynch-Staunton: It is not a question of being ungracious, Senator Stewart; it is a question of every time I ask a question somebody pops up and says, "That's a legal question." Am I now not to ask any questions that have a legal content to them?

Senator Stewart: No, that wasn't the point at all.

Senator Lynch-Staunton: Go ahead, then, senator.

Senator Stewart: It is just a matter of clarification. As to the implications of the Order in Council of August 27, one interpretation is that the approval by the Treasury Board constituted a general instruction to the minister to go ahead. That is not my understanding. My understanding is that this is a complicated struck building and that insofar as some components of the structure, let's say the electrical parts of the house, the minister had to go to Treasury Board for those parts of the whole but getting approval, insofar as those parts are concerned, did not approve the other parts of the structure nor, indeed, constitute instruction to go ahead and sign insofar as the whole or any part was concerned; is that correct?

Ms Bourgon: I agree. The distinction is probably better put the way you did. That is the point I was trying to make, that to have delegated authority is not the same as to be instructed to sign. The minister had to satisfy himself that all the components were there, that there was something ready to sign.

Remember I mentioned at the end of August the development agreement which was so central to this deal to my knowledge did not exist. So it is not because you have the power to sign that you are going to sign something that does not exist. So, having delegated authority is not the same as to be instructed to execute.

Senator Stewart: Thank you, Senator Lynch-Staunton.

Senator Lynch-Staunton: I agree with everything, and whether it is a legal question or not is irrelevant. The point is that there were certain events that took place and I maintain, and others who have appeared before this committee have confirmed, that in effect even if there were no final signatures, and even if all the documentation wasn't ready, on the 27th of August the Government of Canada committed itself to an agreement with Pearson Development Corporation.

Ms Bourgon: Well, that is -

Senator Lynch-Staunton: If you will allow, before you start so I won't be accused of interrupting you, and that can be compared to someone agreeing to purchase a home, has put a deposit down, but doesn't have all his financing in place, hasn't sold his house or has set certain conditions to execute the purchase and agrees to meet in front of the notary two or three months later to finally confirm the deal, but the commitment had been made for the purchase of the house and there is a serious penalty to pay if that person backs off.

Senator Kirby: Can I just ask - I just want to clarify one thing.

Senator Lynch-Staunton: I don't want to be discourteous.

Senator Kirby: That is fine. Just so you are clear, you said A can be compared with B. I don't dispute that A can be compared with B. The comparison may not be valid, however. You can compare apples and oranges, but apples don't equal oranges. I thought that that comparison does not connote equality. I thought we ought to put that point on the table.

Senator Lynch-Staunton: The whole point is that you make a handshake and then you execute it later in front of a lawyer. That is what happened in this case, I believe, on the 27th of August.

Ms Bourgon: I think it is important to keep in mind that at the end of August nothing had been signed, not one of the agreements that we are talking about had been signed. Some of the legal documents did not yet exist. The development agreement was still under negotiation, some of the very key components of the collective responsibility of ministers. So I know that you will have to come to a view about when is an agreement an agreement. That is part of your debate and you will be assisted by legal counsel.

Senator Lynch-Staunton: Can you not assist us? When you saw the authorizations on the 27th of August in your own mind as Deputy Minister, and in the department's mind, was that not considered, "Phew, we've got a deal, now we will go to the legal documentation and the loose ends and on the 7th of October, a day chosen as early as July, we will then do all the final execution"? Surely, the 27th of August takes on major significance in the whole sequence of events which have gone back quite a few months.

Ms Bourgon: The announcement of Mr. Corbeil at the end of August was very significant. It was significant in saying, "The parties have come to a common view and it is our intent to now move to the next step, which is a legal agreement." It is, however, my view at that time and now that we were not yet in a legal agreement.

It is also my view that in the general statute of the Department of Transport there is provision to protect the minister that he is - Her Majesty is bound only when things are in writing and signed by the minister or a duly appointed representative on his behalf; and we were not at that stage. That was my view then and is my view now.

Senator Lynch-Staunton: I would like to get on to the date of the 7th of October, this date that will live in infamy in some circles.

Senator LeBreton: Before you do that, senator, can I make a point on that last point?

Senator Lynch-Staunton: Certainly.

Senator LeBreton: Because in his testimony Mr. Demarais from your department, your previous department, testified that in effect at the end of August 1993 Mr. Corbeil, the then minister, could have signed the ground leases right there and then and that would have been it. I think those were his words. So, in effect, he could have at least transferred or signed the ground leases on the basis of the documentation that was available then.

Ms Bourgon: As I said, I cannot comment on other testimony that I did not hear. You may want to clarify if the ground lease existed at that time. Was there something to be signed? You see, it is back to the debate: Did the minister have the power to sign a ground lease? Absolutely. Was there a ground lease to be signed at the end of August? I am not sure that the answer is "yes"

Senator LeBreton: You were the Deputy Minister.

Ms Bourgon: I am not sure that it was in legal form until around October 3rd.

Senator LeBreton: That is his testimony.

Senator Lynch-Staunton: The actual contracts are signed, I think, on the 3rd and the 4th, or the 4th and the 5th.

Ms Bourgon: Correct.

Senator Lynch-Staunton: Separately by both parties. So with the agreement of the 27th it is formally ratified at that time. Then the documents are put in escrow in order to - before they are released and begin to be executed on the 1st of November, all the conditions are met, including the $61 million which had to be shown to be in the bank. I am repeating what we were told by those who were right on top of the deal for a much longer period than they probably enjoyed.

Then you have told us that because there was an election campaign it was felt prudent to contact any minister on any topic of controversy. If there had been other controversial matters during the election campaign which necessitated ministerial approval, the Deputy Minister of that particular department, I suppose, would have asked permission to get guidance from the Prime Minister; is that correct?

Ms Bourgon: I think controversy is not the only factor, if I may, senator. I think the general rule of conduct to act with caution during an election means that you would consider factors such as: Is it a transaction that is going to bind future governments? What is the - are there alternatives? Are there urgencies in the matter? Is there an obligation to act? Is there controversy? Controversy is certainly a factor, but I would simply want to say that it is not the only one you would consider, in which cases you would seek guidance. There would be more than one factor which would be considered.

Senator Lynch-Staunton: The question of binding future governments, which will come up when the academics come, had already been done at the latest in early October when the two - when the two signatures were made. I mean the government was already bound. The future governments were bound for 57 years.

Ms Bourgon: Okay. It is back to the one question on which you will need legal counsel and not the deputy - the former Deputy Minister to advise you.

Can I refer just for a minute to a document you have already received which I believe - I don't have a number, but I have a covering note from Mr. Hunter to Mr. Nelligan on September 12. I will leave the title with you will so that you may wish to consider it.

It was called the "closing agenda". This is the document that lists the 111 pieces of paper that were needed to bring it together. It is important to note that in the category of documents that they describe as preconditions there were some that were not there on October 3rd and 4th. There were some that were fulfilled on the 7th.

Remember when I referred to, for instance, the Allders agreement? That could not have been signed, I know that as a fact, before the 7th because we needed a piece of paper from Mr. Corbeil to grant the authority to the representative of the department to sign it.

I just want to caution you that it would be advisable to look at that list of documents, get assistance from both Transport and legal counsellors as to which pieces were signed when, exactly -

Senator LeBreton: Who is Mr. Hunter?

Senator Lynch-Staunton: He is the lawyer.

Ms Bourgon: Working for the Department of Justice and preparing documents for you.

Senator LeBreton: With the firm of Scott & Aylen?

Mr. Nelligan: These are documents that we received recently, the date the witness has mentioned, in the normal course of providing documents and we were given a set of the closing agenda documents. They are available.

Senator LeBreton: Just because Senator Kirby, you know, just for the record, trying to clarify who Mr. Hunter was, that is all.

Mr. Nelligan: I am sorry.

Senator Lynch-Staunton: You are not suggesting, Madam Bourgon, that there were some significant signatures that were directly related to the contracts that were put in place on the 7th of October.

Ms Bourgon: Yes, I am. Now -

Senator Lynch-Staunton: I will interrupt you and quote to you from Mr. Rowat when we asked him exactly what happened on the 7th:

...What happened on the 7th of October?

Mr. Rowat: In terms of the actual documents themselves?

Senator Lynch-Staunton: Yes.

Mr. Rowat: As I remember, it was a formal release from escrow, plus numerous other documents in terms of whether certain conditions precedent had been met."

Now, you are saying in addition to that there were other documents that were signed?

Ms Bourgon: Remember earlier today on a similar question I said that I had been - although I had not - did not hear some of the witnesses because for the reason I mentioned, I was out of the country, I was made aware that that question was discussed and I was made aware that one of the comments was about the only thing that needed to be signed on the 7th was the release from escrow. In anticipation of my meeting with you, I have asked the Department of Transport to tell me what is the full list of everything that was signed by Mr. Rowat who had delegated authority by the minister that we obtained on the 5th, I believe. What is the full list of what was signed on the 7th? And there are at least 20 documents.

Senator Lynch-Staunton: Yes.

Ms Bourgon: Of those 20 documents some - in your documents that you received on September 12 appear in the section that are described as "conditions precedent to closing." So there are some conditions precedent to closing that had not been signed until the 7th.

Senator Lynch-Staunton: Because the conditions had not been met.

Ms Bourgon: Correct.

Senator Lynch-Staunton: Mr. Rowat was asked to confirm that all conditions precedent had been met.

Ms Bourgon: Correct. So, to your question, on the 7th the lease was already signed and therefore Her Majesty was bound. I am just saying, well, some preconditions had not been met, yet, until all the documents were coming together. So I am just saying this is an issue you may want to discuss further with legal counsellors. So some of the conditions had not been met. Some of the agreements were not completed and they were, indeed, coming together as planned on the 7th.

Senator Lynch-Staunton: On the 4th and the 5th, when the signatures of the Government of Canada and those of Pearson were put on the documents -

Senator Kirby: The 3rd and 4th, just for the record.

Senator Lynch-Staunton: The 3rd and the 4th. It is not my afternoon for exactitude, I apologize.

Senator Kirby: That is fine. It is just for the record.

Senator Lynch-Staunton: On the 3rd and the 4th there were still conditions that had yet to be met?

Ms Bourgon: Yes.

Senator Lynch-Staunton: Correct. That is why the documents - once the contracts were signed, that is why the documents were then removed and put in the freezer, if you like, and the Government of Canada saying, "On the 7th of October we are ready to release them if you meet the conditions." Right? And Mr. Rowat then, or whoever -

Senator Kirby: Can she answer whether you are right or not? You asked the question and then said "Right" with a question mark. Can she answer that question?

Ms Bourgon: I lost my train of thought now.

Senator Kirby: Sorry.

Ms Bourgon: On the 7th, closure could be achieved if all conditions had been met, all other agreements for which we did not seek the signature of the minister were ready to be signed, and all other relevant documents, my list of 111, were available; okay? So some documents were signed on the 3rd and 4th; others carried on in terms of negotiation until the morning of the 7th. If they had not been completed at that time, we would have failed with closure.

Senator Lynch-Staunton: Correct. So all the conditions were met on the 7th of October, Mr. Rowat so confirmed and the documents are released?

Ms Bourgon: On the 7th.

Senator Lynch-Staunton: Yes.

Now, the conditions having been met, the contract that had been signed a few days earlier, everything then being in order, right? I say "right", I believe. Everything being in order on the 7th of October, the Prime Minister then consulted because the thing had become a campaign issue and so it is felt necessary to consult and get the Prime Minister's direction. And the Prime Minister, according to this memo, instructs Mr. Shortliffe to proceed with the signature of the remaining legal documents, which Mr. Rowat does on behalf of the government.

Now, what if the Prime Minister had refused, for whatever reason? No doubt the Prime Minister is told that all the conditions are met, all the contractual signatures have been put down a few days before, we are told that there is money in the bank, all the conditions are met, the government is now satisfied, what if the Prime Minister - what if the Prime Minister had said, "Despite that," for whatever reason, "don't release them"?

Ms Bourgon: Among the documents that Mr. Rowat had to sign on the 7th, there were at least three that were in the list of conditions to be met for closure. They were not yet signed. The conditions had not yet been met. They were not signed. It is my view that if it had been the wish of the government to, say, defer, we would have sought deferral on a voluntary basis and we would not have signed. There is no question that if that had been the wish of the government we would not have signed. Therefore, we would have cause for some of the conditions not to be met.

Senator Lynch-Staunton: Can you repeat that last statement? You would have...?

Ms Bourgon: If the Prime Minister - if the wish of the government had been see if we could defer, we would have negotiated deferral. There is no question that if that had been the wish of the government to seek a negotiated deferral that Mr. Rowat would not have signed anything on that day.

Now, is that without repercussion? Of course not. There are no options that are without repercussion. Is it without consequences? Of course not. Every options have consequences, including the one that you are all dealing with. But Mr. Rowat would not have signed the 20 documents that were ready for his signature.

Among these 20 documents ready for his signature, three were conditions for closure, and he would not have signed.

Senator Lynch-Staunton: Even if the conditions had been met?

Ms Bourgon: His signature was confirming that the conditions - let me give an example and, again, that is where you will need more expert in the detailed negotiations than I to assist you on what were exactly these 20 documents, what was in there and so on.

One of the documents Mr. Rowat was signing that day was an agreement that was confirming the role and responsibility of Allders, on the side. Now, Allders, to my recollection, always made it a condition of its role in the partnership because they are - they were investing funds and they were 7 per cent of the partnership and they were coming up with 20 of the 65 million that were needed on that day, they always made it on the condition that Canada, the Crown, would have signed this agreement with them. It was not yet signed on the 7th.

So when Mr. Rowat got there at seven in the morning, if he had been told, "It is the wish of the Government of Canada that you seek to defer," we would have done that. We would have tried the best we can to achieve a consensus with all the parties to defer. Would we have been successful? History will never know; we will never know. It would have been inappropriate to attempt it without the wish of the government.

Mr. Nelligan: May I just ask a question for clarification? Taking the example that you gave, that Allders required this confirmation or authority from the government, I take it from what you say that the government had already agreed with Mergeco to provide that authorization and what was needed on the closing was the completion of the agreement that had already been signed with Mergeco to do it. So this was something that they were doing in fulfilment of an agreement they had already signed?

Ms Bourgon: You may be right, sir. That is too detailed for me.

Mr. Nelligan: Since it is confusing for you to explain the legal repercussions, is it possible with the guidance of the Transport officials to provide us with a copy of the closing agenda identifying precisely the documents that were signed by Mr. Rowat on the closing date?

Ms Bourgon: That was my suggestion earlier, sir. I think it is highly advisable.

Mr. Nelligan: I think it would be easier rather than speculate as to what was signed and what was not signed.

Senator Kirby: I would agree.

Senator Lynch-Staunton: It would certainly be helpful. But I want to pick up on your - if the Prime Minister, whoever, had decided not to authorize Mr. Rowat, you would have sought deferral, which meant that the government realized they could not do this unilaterally, unless it was ready to suffer certain repercussions, it would be preferable to do it with the approval of the other party, right? That is all hypothetical. We can assume that the other party would have refused.

What the would the government have done then? Was this discussed at all? Were they - I would like to know the tenor of the discussion between the Prime Minister and her officials and whether the Government of Canada had legal opinion or legal advice to the effect of what would be the repercussions if they unilaterally refused to execute the closing documents?

Ms Bourgon: Again, no one is going to speculate on the content of the conversation between Mr. Shortliffe and the Prime Minister. In terms of my discussion with Mr. Shortliffe, it was not about the options. It was not about the liability. It was not with documented legal opinion. It was whether or not it was appropriate in the circumstances, in light of the event of the 5th and the 6th, to ascertain the wish of the Prime Minister that the events would unfold as previously planned. That was the extent of the desire to receive guidance, and for the reason that I mentioned before.

So it was not under one hand if this is the decision or the wish of the Prime Minister, those are the - we would have been back to her, or to the Prime Minister. The discussion between me and the Clerk was about the advisability of seeking guidance in the circumstances.

Senator Lynch-Staunton: The circumstances being the election campaign?

Ms Bourgon: Was the request of the Leader of the Opposition to put everything on hold on the 5th, I believe, and -

Senator LeBreton: No.

Ms Bourgon: - or the 6th, and the statement by the Leader of the Opposition that if he was to form the government that he would not hesitate to use a legislative approach, if need be, after review. So these points were made formally. Twenty-four hours before signature there was a need to seek clarification on the wish of the Prime Minister. That was my judgment and the judgment of the Clerk.

Senator Lynch-Staunton: If the leader of the Reform Party during the election campaign had said that once he formed the government he would cancel the P.E.I. fixed link contract, which was also signed, using somebody else's language, on the 7th of October, would you have sought the Prime Minister's advice on that one also?

Ms Bourgon: That is a very good point actually. There are many items on which you could seek guidance during an election to see is that the understanding of the Leader of the Government as to what it means to be cautious. In the case of the fixed link, well, number one, it was supported by Parliament. It was voted by Parliament, and I believe very strongly supported by all. So the will of Parliament, of all parties, were clear on the matter, and there was no controversy that I recall.

Senator LeBreton: Nor was there on Pearson in Parliament, I might add.

Ms Bourgon: Furthermore, it required a constitutional amendment to follow. So the government coming into office had an occasion for pause before deciding to make the appropriate, or whatever required, constitutional amendment.

Let us take another example. The Prime Minister, Madam Campbell, proceeded with a major restructuring of the public service at the end of June. This is an unprecedented change to the system of the public sector. It was not controversial and the government coming into office had the opportunity to review each and every one of the legislation to give effect to her decision at the time. So the flexibility to modify was clearly there. In fact, the government that formed - Mr. Chrétien's government, coming into office, decided to change some of the decisions and give effect to most of them.

So the flexibility to change course, to give effect to the policy agenda of the incoming government, is a major factor. That is why you seek guidance. So it is not on the whim of whoever said something on that day. It is the need to ascertain that a judgment is made on what is a cautious behaviour for a government.

It is absolutely appropriate that Madam Campbell rendered the decision that she did, and it was implemented accordingly.

So, the need for guidance is a recognition that the decision belonged at that level as opposed to a decision that rests with officials. That is what it means.

Senator Lynch-Staunton: But I insist, and I will end on this, chairman, on this topic anyway - I hope that you are coming back next week because I want to talk to you in your role as Clerk regarding documentation and release of documents.

On this one, if I may, I will end on this. I don't think that the Prime Minister had any choice in this matter. I don't see what difference it made whether it went to her or not that she could not unilaterally, without serious repercussions on the Government of Canada decide - without serious repercussions on the Government of Canada decide that, in effect, a contract which had been signed in - had been signed and was ready to be executed could be cancelled.

Senator Kirby: Mr. Chairman, I have no problem at all with Senator Lynch-Staunton making his judgments on these issues. I just want to say some of us faced with the same facts as the witness has presented would reach a different judgment, but it is a judgment.

Senator Lynch-Staunton: You already have.

The Chairman: Madam Bourgon, following that suggestion of Senator Lynch-Staunton, would it be convenient for you to come back next week? We have two openings, and two alone, so it is very important to us, in your capacity as Clerk of the Privy Council. The dates are Tuesday next at 3 p.m. and the 21st of September, which is Thursday, at 9 a.m. We will provide you before that time and circularize to the entire committee with the exact information we wish to pursue.

Ms Bourgon: Would it be fair to ask, sir, that I be provided with the opportunity of checking the two windows you just mentioned?

The Chairman: Yes. If you could do that and let me know, or the Clerk know, but call me.

There are two questions, one from Mr. Nelligan and Senator Stewart.

Mr. Nelligan: Madam Bourgon, you have referred to the general reorganization of the government on the 24th of June. You said that was non-controversial. Unfortunately, there has been a suggestion here that it was part of the problem at Pearson.

When you were appointed as Deputy Minister, were you given any intimation by anyone that your appointment was to replace the current Deputy Minister because of her conduct on the Pearson matter?

Ms Bourgon: No reasons were given to me about the movement of Madam Labelle to CIDA and mine to Transport. Nor would I have expected to be told about the reasons that support such a specific move. It would be most unusual if the reasons leading to the transfer of a DM would be discussed with another. So there was no discussion with me about any concern about the performance of the Department of Transport prior to my appointment.

Senator LeBreton: On that point of clarification, counsel? I believe that this was all done in conjunction with, as you just mentioned, the whole restructuring of government, all these DM - I think there was something like 25 or 27.

Ms Bourgon: A lot of us.

Senator LeBreton: - shuffled on that particular date.

Mr. Nelligan: Proceeding from that date when you were appointed, did you receive any special instructions from Mr. Shortliffe regarding to particular treatment you should accord to the Pearson file?

Ms Bourgon: No.

Mr. Nelligan: Was it identified as being a particular problem that you would have to cope with or was it just part of your general briefing?

Ms Bourgon: No. Everybody knew coming into the department that it was a major file, so there was no need to tell me it was.

Mr. Nelligan: Thank you.

The Chairman: Madam Bourgon, I have one last before Senator Stewart.

Did you have any evidence at all that the whole process was flawed?

Ms Bourgon: For the period in which I was in the department, to my knowledge the department was very careful to ensure due process as it was implemented during the course of this very crucial period of negotiation, and then similarly after.

The Chairman: Did you consider the contract as being adequate?

Ms Bourgon: It was meeting the requirements of the Treasury Board who were the expert in the matter and other advisors on the matter. Special concerns were not brought to my attention.

The Chairman: Did you have any evidence of political manipulation?

Ms Bourgon: For the period in which I was there and for which I can speak, none.

The Chairman: Senator Stewart.

Senator Stewart: Thank you, chairman. Two matters. I refer to the memorandum dated October 7th, 1993. You, in that memorandum, tell Mr. Rowat, the Associate Deputy Minister of Transport, that he is authorized to sign the relevant documents on behalf of the Crown - October 7th. You tell him that the minister has been informed of a decision and is in agreement, and you tell - the decision in question appears to be the decision of the Prime Minister communicated to Mr. Glen Shortliffe to the effect that the remaining legal documents are to be signed.

Now, I just try to see where statutory authority rests. Am I correct in believing that the statutory authority to sign the documents was assigned to the Minister of Transport but that he had authority to delegate that competence to you and then you in turn could delegate it to Mr. Rowat; is that correct?

Ms Bourgon: Correct.

Senator Stewart: All right. Then, what I am trying to ascertain, to make certain, is the role of Treasury Board. Could he have signed the relevant documents without the prior approval of certain aspects of the total agreement by the Treasury Board?

Ms Bourgon: Sorry, sir.

Senator Stewart: Okay. He has authority to sign but am I correct in believing - and am I correct in believing - that that authority could not have been exercised without prior approval of certain aspects of the total agreement by the Treasury Board?

Ms Bourgon: Well, that is back to a point that we discussed, which is there were elements of this agreement which clearly engaged the collective responsibility of ministers.

Senator Stewart: When you say "collective responsibility of ministers" you confuse me -

Ms Bourgon: Cabinet.

Senator Stewart: - because I immediately think of the Privy Council or the cabinet, whereas I think -

Ms Bourgon: The Treasury Board.

Senator Stewart: - apparently there is the Treasury Board. Which are we talking about?

Ms Bourgon: The Treasury Board is a cabinet committee. It is part of the cabinet system. So the board, indeed, was recognizing that four or five of these agreements were central to the collective responsibility, and that is why their delegated authority to the minister was needed.

Senator Stewart: All right. That is very helpful. Now, you decided that the minister - that you would not advise your minister even although he had had the prior approval of the Treasury Board for certain aspects of the agreement, you decided that you would not give him advice to sign until, for the reasons you have mentioned, the will of the Prime Minister had been ascertained.

Ms Bourgon: I don't think I discussed the advice I gave - I hope I did not discuss the advice I gave to my minister. I said that I felt that there was a need to clarify the political guidance twice in the process: Once from the minister before he signed on the 3rd and 4th; and once from the Prime Minister engaging therefore the conduct of the overall government before closure on the 7th.

Senator Stewart: As Mr. Truman used to say, "The buck stops here." In this case the buck stopped with the Prime Minister. The question - and presumably it was up to the Prime Minister to ascertain what the consequences of the various possibilities with which he was confronted were.

Do you know if the Department of Transport was consulted by Minister Campbell as to the consequences of the several possibilities?

Ms Bourgon: There was no need anyway, sir. The role of the Prime Minister was not to become the Minister of Transport.

Senator Stewart: No, no. I am taking up a point that Senator Lynch-Staunton raised earlier, or perhaps it was some other senator opposite, concerning the financial consequences of not proceeding. What I am trying to ascertain is whether you had any obligation to say to Mr. Shortliffe, "Now, be sure to tell the Prime Minister that this may cost some millions of dollars." Or is the obligation the other way? Is it for the Clerk of the Privy Council, Mr. Shortliffe, or the Prime Minister in their conversation - I am not trying to sort out who should pitch and who should bat in that discussion, but is it for them to say, "Well, okay, if we go ahead these are the consequences, perhaps political consequences. If we don't go ahead, perhaps these are the consequences, perhaps financial consequences." What I am trying to do is fix the onus of obligation to engage the consequences of the various possibilities.

Ms Bourgon: Well, again, I am going to reply in very general terms. It is the one seeking advice that has to make sure that the way you seek advice or seek guidance is clear enough that it allows the person you are talking to to fulfil that role. In this case what I was discussing with Mr. Shortliffe was his judgment and mine as to whether or not it was advisable to clarify the rule of conduct that Madam Campbell wanted to provide to the government.

Senator Stewart: Can I ask you, then, if Mr. Shortliffe to your knowledge - ask you about the consequences of not going ahead with the signing?

Ms Bourgon: As I presume you know, Mr. Shortliffe was very knowledgeable about the file.

Senator Stewart: So he did not.

Ms Bourgon: He had been following it for many years. So we did not discuss that.

Senator Stewart: You did not discuss it. He did not come back to you and say, "Enlighten me as to how much this might cost."

Ms Bourgon: He was very knowledgeable on that.

Senator Stewart: You are answering my question by indirection. You say he is very knowledgeable. I am sure he is. He is probably a good gardener. But you imply by that answer that he did not need to come to you and, indeed, did not come to you.

Ms Bourgon: That is right. He did not need to ask me what were the consequences or his options; he knew.

The Chairman: The ruling of the chairman has now been distributed in both languages.

Senator Lynch-Staunton: I don't have my copy and we have two of our members missing. I know that my colleague here has gone back west. Senator Bryden is gone, and I assume that Senator Tkachuk is gone.

Senator LeBreton: You said Tuesday, chair, when we discussed this that you will deal with it Tuesday. So our colleagues knowing that 3:00 o'clock is normally the time we break on Thursday and have flights -

The Chairman: I am in the hands of the committee. What is your pleasure?

Senator LeBreton: You said Tuesday. So we stand by what you said.

Senator Lynch-Staunton: Particularly Senator Bryden.

The Chairman: Very good. We will adjourn now until next Tuesday, the time to be determined as a result of Madam Bourgon's decision as to whether she can join us Tuesday or whether she can join us on Thursday. I cannot emphasize how important it is that you be with us.

Senator Kirby: May I just clarify that just so we all know our schedules? If Madam Bourgon is coming on Tuesday, we meet at three. If she is not coming, we meet at seven; is that correct?

The Chairman: Correct.

Senator Kirby: If there is to be any discussion of your ruling, it will occur at seven, then, because in fairness to ensuring that ex officio representatives from both sides are present -

Senator LeBreton: Don't we meet at three?

Senator Kirby: We don't have a witness if it is not Madam Bourgon. That is my point. Can we agree if there is any discussion of the ruling it will occur at seven so that I can assure that an ex officio member from our side is present?

Senator Lynch-Staunton: If the other ex officio is not present, the ex officio who is should not vote. That was my understanding with Senator Molgat at one time. I never discussed it with Senator Fairbairn.

Senator Kirby: I wasn't asking for precedents.

Senator Lynch-Staunton: I won't take advantage of my presence here to go one way or another. Unless the two ex officio members are present, it has always been my understanding - and certainly it is Senator Molgat's - that the one who is present would not take advantage of the other's absence.

Senator Kirby: Thank you. That solves the problem.

Senator Lynch-Staunton: I should have tipped Senator Fairbairn off. She wouldn't have wasted all afternoon here. She could have watched it on TV.

Senator Kirby: It wasn't a waste at all.

The Chairman: Madam Bourgon, we thank you very much for your very useful and helpful testimony.

The committee adjourned.