Proceedings of the Special Senate Committee on the

Pearson Airport Agreements

Evidence

---

Ottawa, Thursday, September 28, 1995

[English]

The Special Senate Committee on the Pearson Airport Agreements met this day at 8:00 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: Before we begin, I have just one question to put to Mr. Goudge. I think he is the appropriate person to put this question.

When you began your review of the Pearson Agreements, you were supplied with documents which - as you have probably heard in the last couple of days and the press has heard time and time and time again - have been unavailable to us despite repeated requests. Did you receive copies of Treasury Board submissions?

Mr. Stephen Goudge, Legal Counsel, Gowling, Strathy and Henderson: Yes, sir.

The Chairman: You realize that you should not have received these submissions.

Mr. Goudge: Do I realize that that was viewed by or is viewed by certain people now as something that we should have received? I think the answer is "Yes". Did we know it at the time? Absolutely not.

The Chairman: No. And do you realize that Ms Bloodworth, who is the general counsel for the PCO and who is the custodian for all these things has testified - do you want the page numbers - that it was inadvertence, that it shouldn't have been done.

There was apparently some breakdown in communications somewhere; I cannot explain what that was, not having been directly involved.

Were they retrieved, or did you still have continuing use of them? Did anybody come to you and say, "Give us back those things. That was a mistake. You shouldn't have had them?"

Mr. Goudge: No, sir.

The Chairman: Okay. It's customary, in a Treasury Board document, to have a section dealing with risks. And those risks are: What happens if there is a default? What happens if - You're a lawyer and you'd know what appropriate risks would be bringing to the attention of the parties involved the risks that may not have any relevance to what - but they describe what the possible risks are. Do you remember seeing in those documents anything with regard to risks, because it would be unusual not to have that in a Treasury Board submission.

Mr. Goudge: Let me try to tread carefully here, senator, and you'll forgive me for this. I have to come back, I'm afraid, to the confidentiality undertaking to which I must respond.

What I have been released from is everything except indicating to the committee the precise contents of the Treasury Board submission despite the fact that we had it, although we are now told it was given to us through inadvertence.

I have to say, sir, that in terms of my own work, I read it; I relied on it. So I can't say otherwise. But I am not freed from my confidentiality undertaking in terms of sharing with the committee my precise recollection. So I will try to answer in general terms. I regret being put in this position, but there I am.

In general terms, senator, yes, I would say - Let me put it this way - and it really does sound silly, I know, but I've got to do it this way.

Senator Lynch-Staunton: It's a scandal!

Mr. Goudge: What I learned from the Treasury Board submission certainly led me to conclude that there were assessments of risks that had been made.

The Chairman: Yes. And that's normal.

Senator LeBreton: That's standard policy.

The Chairman: But was there anything in those documents that said we should reconsider, we should go slow? There are better alternatives. Did you see any expressions of caution or danger expressed by anyone: The PCO, Transport Canada, Department of Justice, Department of Finance, anybody?

Senator Kirby: Mr. Chairman, just in fairness to the witness, he had a document which he was not supposed to have had. And just so we are clear, you are essentially asking him to comment on a document on which other evidence from the PCO shows he should not have had. And, since we don't have the document and he was not supposed to have had it, it seems to me that asking him to comment on a document or give you information about a document which he was not supposed to have had in the first place is more than a little unfair.

Senator Lynch-Staunton: It contributed to the report.

The Chairman: Well, that's possible, Senator Kirby. But, you see, I'm not asking for specific information. I'm trying to - if I had it - relate these questions to the remarks that you made yesterday when you said they could have flipped it over in 10 years. They could have done a number of different things. And I was wondering whether or not these dangers, these risks, were your own opinions or whether you got them from a Treasury Board submission, that was all.

Mr. Goudge: Let me respond this way, senator. First, I don't recall having said what you said. But I'll address - Let's suppose that that assertion is put. Did I derive support for some of the things the support for the Treasury Board's submission? Absolutely "Yes"; absolutely "Yes". I mean I did; there's just no question about it. When I put forward my memoranda to Mr. Nixon, parts of it relied heavily on what was in the Treasury Board submission.

The Chairman: Well, you can see our problem here. If you relied heavily upon those things, one would deduce that we wouldn't be searching for those documents because they would not help the case that the Conservative senators are trying to make. And we suspect that those are the documents that Mr. Weston has, for instance. That's why we're taking the actions we're doing. If you based some conclusions from a Treasury Board report, then we should have them.

Senator Lynch-Staunton: Yes, of course.

The Chairman: Because we're looking for facts.

Senator Jessiman: Give us the dates.

Senator Stewart: But why harangue this witness? This isn't the person to harangue.

Mr. Goudge: I'm getting used to it, senator.

Senator Kirby: After two days, that's right.

Senator Lynch-Staunton: Everybody's seen them except us.

The Chairman: Yes. The dates, of course, are August 26th.

Mr. Goudge: Yes. I mean, understand, senator, and I know the committee is - nobody's interested in making a case. You're interested in getting at the truth. But there's no question that - I mean, I can't again say the fact that I drew from some of the material I supplied to Mr. Nixon on the material in the Treasury Board submission. I did. I mean, that's a fact.

The Chairman: We'll find them.

Senator Bryden: Mr. Chairman, just from my point of view, I just want to go on the record that there is no senator in this room who would like to see that submission and other submissions to Treasury Board and to cabinet than me. I would absolutely like to have access to that information. One of the reasons being, I believe it would support the case that we are trying to put forward. So I just want to go on the record. There is no dispute about that.

On the other hand, I cannot change government protocol or government procedure. And I have, God knows, probably less authority than anybody else in this room, but I just want to go on the record. I would just love to get my hands and my eyes into those documents.

Now, I don't know the bigger picture - and we've had evidence as to why these protocols, and so on, are in place; and they are probably well founded - but I just wanted to go on record that I would not fear having access to any of those documents.

Senator Kirby: Just so it's clear, Mr. Chairman -

The Chairman: Senator, you put the case much more passionately than I. I agree with you totally.

Senator Kirby: My only objection, Mr. Chairman, was not to us wanting the documents. I mean, I agreed with you on the letter that we sent yesterday. That's not the issue. I just don't think it's fair to ask a witness - to try to obtain by indirection, through a witness that got something by accident, something which we have not been able to get anyway.

Senator Jessiman: Oh, notice -

Senator Lynch-Staunton: Accident? They were given deliberately. Come on, please.

Senator Kirby: That's not what the evidence said.

Senator Jessiman: That's the evidence.

Senator Stewart: Even if it were, that's not the witness' fault.

Senator Kirby: In any event, even if they were given deliberately, it's not the witness' fault.

Senator Stewart: It's not his fault.

Senator Lynch-Staunton: Of course, they were given deliberately. They were plucked out, selected and handed over.

Senator Jessiman: Abhorrence!

Senator Lynch-Staunton: Come, come, now.

Senator Jessiman: Certainly.

Senator Bryden: Senator Lynch-Staunton, we have no evidence of that.

Senator Lynch-Staunton: And you have none to the contrary.

Senator Bryden: You will not make the news tonight just by doing that.

Senator LeBreton: It is really getting to you.

Senator Lynch-Staunton: There's more than the bid that rigged, there was the evidence given that was rigged to support a foregone conclusion.

Senator Jessiman: Until this moment, I didn't know the date of it.

Senator Kirby: I didn't either, by the way. I mean, I only - The chairman said August 26th. I didn't know what the date was.

Senator LeBreton: I just want for know in these documents - this is the one question you didn't ask in your question, Mr. Chairman, was: Who gave them to them? Where were these doc - You know, how did they get them? Who gave them to them? Who give them the package of documents?

Senator Jessiman: Let's ask Mr. Nixon.

Senator LeBreton: Yes. Who gave you the package of documents that included these inadvertent Treasury Board documents? Who gave it to you?

Mr. Robert Nixon, Chairman of the Board, Atomic Energy of Canada Ltd.: Mr. Chairman, is the honourable senator directing the question to me?

Senator LeBreton: Yes, sir.

Senator Jessiman: Yes.

Mr. Nixon: We've discussed this a couple of times, but after my first meeting with the Prime Minister, I went the -

Senator Kirby: Treasury Board.

Senator LeBreton: Ministry of Transport?

Senator Lynch-Staunton: No, no. Don't put -

Mr. Nixon: The Department of Transportation and met with the then deputy minister and a couple of other officials, including the associate deputy. They said that during the election campaign and after the election campaign they had realized that whatever the outcome, there was going to be a call for documentation and they had put these materials together. The only question was where did I want them delivered and when would we arrange for officials of the department to come and assist us with clarification and work our way through them.

I returned to Toronto and then earlier the following week, I believe it was the Tuesday that the materials arrived, the officials from Ottawa arrived. They brought some additional material with them. We spent a considerable length of time going through them to get ourselves accustomed to the facts associated with the case from the standpoint of the Department of Transport, and then we went on about our direct business.

From time to time we contacted them by telephone and I believe there were other meetings. Certainly, I met with the officials I believe in about the third week of the review in Ottawa met most of the officials again for a backup and additional information. But we weren't aware that we received any documents that didn't have appropriate approval. We weren't really aware of it, frankly, until we began preparing for this meeting and in reading the materials that had been discussed by this committee, we realized that there was a matter of grave concern.

Senator LeBreton: Just -

Senator Jessiman: Well, no, it's important.

Senator LeBreton: So was this document that you shouldn't have had in the first package of papers that you got from Transport Canada or the second package?

Mr. Nixon: There's no way that I can tell you about that. There may have been a docketing of the receiving of those materials, but in fact they came in large cardboard boxes and we signed an undertaking of confidentiality which binds this group. And that was witnessed and sent back by return and then the material was in our hands to be used as we saw fit to carry out our purpose.

The Chairman: Okay.

Senator Lynch-Staunton: Can I just clear this up? So that the documents that you received were selected by the incoming government, is that correct?

Mr. Nixon: There was no Liberal Minister of Transportation at that time. The decisions were made by the -

Senator Lynch-Staunton: Well, you said - In your opening statement you said you met the minister.

Mr. Nixon: I think yesterday I corrected that and said it was the deputy minister -

Senator Lynch-Staunton: I'm sorry. I wasn't here.

Mr. Nixon: - and the associate deputy minister.

Senator Lynch-Staunton: Okay. I stand corrected because I missed that.

Senator Jessiman: All right.

Senator Lynch-Staunton: But in any event, the package was prepared by government officials and handed over to - by the Department of Transport?

Mr. Nixon: Yes. Actually, officially an office where the ministers of the old regime and no cabinet ministers nor a new Prime Minister had been sworn in at that stage.

Senator Lynch-Staunton: And did you ask for additional documents as you were into your tasks?

Mr. Nixon: From time to time - and Mr. Goudge should answer for himself - we contacted them by telephone for materials of clarification and they also contacted us with additional material. But I don't recall, from my point of view, asking them for anything other than had been provided on those occasions that I'd been mentioned.

Mr. Goudge: Senator, my recollection is that the first time we met with the officials of the Ministry of Transportation, which was, I think, in November the first, they essentially arrived with this huge supply of information and I would be - I mean, I don't a checklist saying that we received these documents on that day, but I'd be virtually certain that the binders that talk about, the Treasury Board material, was in the material that arrived that day.

Senator LeBreton: From Transport Canada?

Mr. Goudge: From Transport Canada, exactly.

Senator Jessiman: Yes.

Mr. Goudge: And thereafter, from time to time throughout the period of the 30 days there were, I think, a number of occasions where I, or Mr. Wilson, or perhaps Mr. Crosbie, requested further information - not Treasury Board stuff. The Treasury Board stuff, I think came on November the first.

Senator Jessiman: But did you discuss those particular documents, the ones you shouldn't have gotten, with the officials when you were viewing the documents with them?

Mr. Goudge: I don't remember, senator, actually sort of pulling out the Treasury Board submission and reviewing it. What I remember is the Treasury Board officials engaging in a very detailed briefing of us using documents -

Mr. Nixon: The Department of Transport.

Mr. Goudge: Sorry, the transport officials -

Senator Jessiman: Including those document?

Mr. Goudge: - engaging in a detailed briefing of us using what I remember to be a pile of what, in another context, would be overheads, you know?

Senator Jessiman: Yes.

Mr. Goudge: And I don't remember. I don't think we took out the documents and reviewed them in detail. I must say I reviewed most of the documents over time, including the Treasury Board material.

Senator Jessiman: But it could have been discussed with the officials when you were reviewing it with them because you had them all?

Mr. Goudge: That day? It could have been -

Senator Jessiman: Yes. Thank you.

Mr. Goudge: - I have no precise recollection. I really don't think, senator, that we got out any of the documents. They provided us with a huge package of information. I don't think we sort of hauled it out. I think what we did was to work from the material that they brought separately, which I think you people refer to as the decks that they had. I think that is the piece of paper we actually were working from as we sat around the table.

Mr. Nixon: In further response to the question, if I may, Mr. Chairman, I don't recall an occasion in the meeting of November 1st when somebody either from Transport Canada or from among my own group said, "Ah, yes. These are the Treasury Board submissions." I have to tell you that at that time I was unaware that those materials were there and, frankly, I would not have been aware that we should not have received them since we did receive them and that - Surely the decision was made by people with whom we had had no previous contact to provide us material that they thought was appropriate for our perusal.

Senator Lynch-Staunton: Well, Mr. Chairman, I think it's essential that we get these documents. It's highly unfair to the witnesses and highly difficult for us to discuss the same issue when the witnesses have had access to documents on which they base many of their conclusions and we don't have access to them. So we can't discuss their conclusions as intelligently as we would like to when they have information on which they base their conclusion which is not available to us. It's highly, highly unfair to everybody involved in this process.

Senator Stewart: This reminded me of Stewart in the Senate last May.

Senator Lynch-Staunton: Yes. And you were very, unfortunately, very, very prophetic on this thing. But even if we have to go in camera and each of us sign a confidentiality agreement, these documents must be made available to us.

Senator LeBreton: That's right.

The Chairman: Well, we continue the search.

I just have one last question and then we will get off this. You were provincial treasurer of Ontario?

Mr. Nixon: Correct.

The Chairman: You would certainly recognize a cabinet document if you saw one.

Mr. Nixon: Well, a lot of these documents had the crest of Canada. I don't recall anything stamped on documents that were given to us that was stamped "Submission to the Treasury Board", or anything like that.

Senator Jessiman: Marked "Secret"?

Mr. Nixon: Not at that point. I don't recall the imposition of a "Secret" stamp, but I was aware and felt bound by the confidentiality document on all the materials that had been presented to us.

The Chairman: Yes. Okay. We go down - That's fine. If we wish to return to the subject, we will do it with a little bit more reference just to some specific references that might help us find out where this line of questions is going. It's just one of those things that keeps you awake at night wondering. So, thank you for your answers.

Now what are we doing today?

Senator Jessiman: Well, I'm prepared to proceed, unless they want to go first.

Senator LeBreton: It's early in the morning.

Senator Jessiman: I'm easy. I'd probably go - be an hour.

The Chairman: Sir Thomas Beecham used to always start - whenever he'd tap before he started something he'd always say, "What are we playing tonight?"

Senator Bryden: Just to change the monotone from one monotone to another, Mr. Nixon - really - I write at the top of my page "Crosbie, Nixon and Goudge". It sounds like a rock group! Wasn't there a Crosby, Stills and Nash at one time?

The Chairman: It's tinker statements to chance.

Senator Bryden: Anyway, that doesn't come off my time, Mr. Chairman, please.

Mr. Nixon, no paragraph in your report has been referred to more frequently than the paragraph that contains your - at this committee, than the paragraph that contains your conclusion. And I want to just very quickly summarize the three points that I believe is said in that without reading it.

The first point is that it was an inadequate contract or, in my terms, a bad deal.

The second, that the process by which it was reached was flawed.

And the third point, there was the possibility of political manipulation.

Now my first question, Mr. Nixon: Is that a fair summary of your conclusion?

Mr. Nixon: Yes, senator.

Senator Bryden: Now Mr. Nixon, while this is your conclusion and you stated clearly the other day that - I had yesterday here but it wasn't yesterday, it was the other day when you made your statement - that you took responsibility for everything in your report but you also had the assistance of Mr. Goudge and Mr. Crosbie in certain areas, particularly on the legal issues and on business and financial issues in relation to Mr. Crosbie.

Therefore, I want to ask each of you three questions. And if Mr. Goudge or Mr. Crosbie were not involved in that aspect, they can say so.

As succinctly, but as completely as possible, why was this an inadequate contract or a bad deal, Mr. Goudge, from a legal perspective?

Mr. Goudge: Perhaps I could use a modestly - I mean, from a narrow legal perspective and then moving, perhaps, to a more elastic legal perspective, senator.

The contracts themselves, in my view, contained provisions that I thought inadequately protected the public interest. And there were a number of specifics for those, and I'd be glad to review them with you if you want.

Senator Bryden: Yes, please.

Mr. Goudge: But I get outside your distinction of "Succinct" perhaps.

Senator Bryden: No, I wanted to be as complete, but.

Mr. Goudge: Well, can I take you to the report, if you'd like? Let me say, senator, that the descriptions of the agreements that are found in the beginning of the report -

Senator Jessiman: What page, please?

Senator Bryden: Four, page four.

Mr. Goudge: - starting at page four are Mr. Nixon's work, but I provided him with my views about them. And his conclusion is the one that you recited. What I will give you are my views about these.

Senator Bryden: Yes, please.

Mr. Goudge: One can go through them clause-by-clause and determine the difficulties that, from my perspective, existed with the contract. The parties are identified but were not fully made known during the election campaign. The report says - and I agree - that with a transaction of this order of magnitude where a major public asset is involved, transparency ought to be the touchstone. There is no reason for a full revelation of the parties not to be provided to the public of Canada.

Secondly, the term of the agreement provides for 57 years, regardless of whether or not the development beyond Stage 1B takes place.

Senator Bryden: What was your concern with that?

Mr. Goudge: My perspective on that is two-or three- fold, senator. First, it is an unusual, from my perspective, development agreement that permits that kind of term without a requirement that the development actually be concluded. An agreement whose purpose is redevelopment ought to provide, in my judgment, and particularly in this context, that if the development does not proceed, the leasehold interest returns to the Crown. The whole purpose of this was to get the development done.

Senator Bryden: Yes.

Mr. Goudge: Why the Crown should permit the property to remain with the lease holder if the development was not going ahead escaped me, particularly with an asset of this importance.

I think there's a secondary risk involved, and that is that it is conceivable that had the development beyond stage 1B not proceeded, it would have been necessary to do some patch and paste with Terminal 1, and that presented financial risk to the Crown.

The third item is the split between the lease and the option.

Senator Bryden: Yes.

Mr. Goudge: I confess that this was not a major issue for me, senator. However the former treasurer of Ontario insisted that I comment that the result of that was a denial to the province of Ontario of $10 million in land transfer tax. I confess that that was not, for me, a major.

The rent - that simply is a descriptive paragraph.

Over the page the deferral of $33 million of rent - while it is true that is returned with interest, it was of some small concern to me that for the up front years of the lease there was a deferral of rent altogether.

In the calculation of gross revenue - and here I did revive some assistance from the Treasury Board material, I confess - there were a number of deductions on the issue of gross revenue that, from my perspective after consultations, were un usual. That is, unusual in the sense that provided deductions that would understate what in other circumstances would be the gross rent. For example, rent paid by the Crown, bad debts, and so on.

The sole purpose corporation - I think we discussed that yesterday. I acknowledged to Senator Jessiman that that more accurately would contain the first 10 years or until construction constraint. But this is a very long arrangement and if, for 47 years, there is no requirement that this corporation carry on the sole purpose activity, then it is quite conceivable that offshore or other activity could put in jeopardy the owner of the lease hold interest.

The obligation to maintain and upgrade - we can perhaps discuss that in more detail but a portion of that is conditioned on the tenants' ability to recover cost through incremental revenues derived from the occupants or user charges. And that seemed to me to be of some concern.

The passenger threshold issue - Mr. Nixon referred to that yesterday. A concern that this provided a constraint on development of related airports in a way that would cause a skewing of airport service in the greater Toronto area or else force the Crown to pay a penalty.

The remedies for default concerned me because they're very blunt instruments. A default requiring the Crown to enter and operate the premises is a very Draconian remedy. The whole object of this was for the Crown to get out of this business and, in the event of default to force an entire reversal of that is something that, because it is so Draconian, is almost certainly not to be exercised.

The leasehold mortgage -

Senator Bryden: Mr. Goudge, I wonder - and if you don't know, you can say so - what other types of remedies could there have been?

Mr. Goudge: Well, you could have penalty clause, you could have any one of a number of things. But to say you got to undue the whole thing puts such a big set of stakes in play that it's unlikely to be exercised.

Senator Bryden: Okay.

Mr. Goudge: The leasehold mortgage - there are very few limitations if the mortgagee were to enforce its security that protected the public interest. The mortgagee could enforce the security without a requirement that it complete further stages of construction and it could then assign the lease to another lender and the Government of Canada would be left with an operator of the airport over whom the Government of Canada had no control. In other words, the Government of Canada would be left with not T1T2 but somebody, the identify of whom the wherewithal of whom the Government of Canada would have no control over.

Senator Bryden: Did the Government of Canada have to consent to that?

Mr. Goudge: No. They're stuck.

Senator Jessiman: They are first right purchasers.

Senator Bryden: Okay. Go ahead.

Mr. Goudge: The Government of Canada - It should be put the other way: The government of Canada had no power to withhold consent.

Senator Bryden: Yes.

Mr. Goudge: Okay. So that the government's sitting there, the mortgagee enforces the security and then assigns the lease to somebody else and all of a sudden the Government of Canada is dealing with a new tenant without I any ability to control who the tenant is.

Senator Bryden: And that would include, for example, if the security was gained from British Airport Authority, for example, and the partnership defaulted on that, you could end up with British Airport Authority in effect owning this development.

Mr. Goudge: Yes. And I don't mean to infer anything adverse about British Airport Authority.

Senator Bryden: No, I just use that as an example.

Mr. Goudge: The issue, just as somebody - and I confess, senator, I'm a litigator, but I've done enough litigation of problems arising in this to know that if you're an owner and you lease a property, it's in your interest to ensure that whoever ends up with that lease hold interest is somebody that you can ensure something about.

Senator Bryden: Yes.

Mr. Goudge: That was not so here -

Senator Bryden: Okay.

Mr. Goudge: - in my judgment.

Those were some of the issues in the ground lease agreement that warranted description and, as you can tell from the description, some of the pieces are descriptive; some of them contained pieces that caused me in my advising capacity to Mr. Nixon, concern.

The development agreement - the stages of the project are described in the next paragraph of the report. That's simply descriptive.

Senator Bryden: Yes.

Mr. Goudge: That shows where the various stages kick in.

As to the Air Canada default and passenger facility charge, the report says:

If Air Canada ceases to pay its rent due to inability to pay and a Stage is scheduled to commence and is required by the Government of Canada to commence, the...Partnership is entitled to request...to charge a PFC...to provide the minimum revenue stream for the development. If the consent of the Government of Canada to apply a PFC is refused, T1 T2 Limited Partnership need not proceed with the development.

Now, I recognize that that is conditioned on Air Canada ceasing to pay its rent. On the other hand, senator, the whole purpose of this was to lay off to the private sector the risks as well as the rewards of this development. What this does in my submission or at least in my - I feel like I'm making an argument, senator - view what this did was to essentially lay off the risk of Air Canada not being able to pay its rent on the travelling public. And as between the travelling public and the developer, it seemed to me more appropriate that if the government was going to privatize that it about the developer that bore the risk relating to Air Canada because they were getting the rewards. So to say, you know, you're going to take this on, PDC, but if Air Canada can't pay it's rent you can get things back from the travelling public is, for me, an easier course for the developer than I would have thought the public interest warranted. That is, the public interest should have required that the travelling public not bear that risk.

Senator Bryden: Okay.

Mr. Goudge: Over the page, Terminal 1, the issue here was - and again I'll put it in terms of my concern - the RFP had started with the premise that there would be no government payments as a part of the ultimate arrangement. And, frankly, that seemed to me to be consistent with the fundamental government position when the RFP was put out that they were going to privatize this airport. That is, the purpose of doing it is to shed the possibility of public funds being required for this project. It seemed to me inconsistent with that, that the ultimate development agreement provided a possibility - and I won't say it's a certainty, obviously, but a possibility at least, that significant government funds could be required for the repair and upkeep of the terminal T1. The circumstances in which that would happen are laid out at the top of page seven.

So, you have what I viewed to be an inadequacy in protecting the public interest. It seems to me if you're going to privatize it what you should do is shed the risk of having to put public funds into it, and this provided a hole in that dyke.

The non-arms-length transactions I'll review, senator - I've expressed my concerns about that yesterday essentially.

Senator Bryden: Yes. Could you just quickly summarize it?

Mr. Goudge: To summarize, I viewed it as the government having obtained in the bargain a very weak right - that is, the right simply to look at the non-arms-length contracts. That was of concern because the non-arms-length contracts here as listed in the documents were significant. That is, these were not minor matters, they were significant. For the government to have a very weak right, namely, simply the right to look at them not the right to ensure market value or the better right to veto if the agreements were not to the governments's liking, is to not get enough to protect the public interest. The thing that really caused my eyebrows to rise is that, even with that weak clause the Government, up to October 7, hadn't exercised the right.

Senator Bryden: Right.

Mr. Goudge: So, I had some concerns about that. Then the post October 7 non-arms-length contracts - I would have thought the public interest was better protected if the right the government had was not simply the right to ensure it at fair market value but to ensure that they had the right of consent, i.e, the right to veto.

Senator Bryden: Yes. Mr. Goudge, I believe that I had introduced, or someone had introduced at an earlier time a short agreement with the Matthews investment. Do you have that?

Mr. Goudge: Someone showed that to us yesterday, sir.

Senator Bryden: Do you happen to have it at hand? If not -

Senator Jessiman: They didn't have it at the time. That wasn't before them.

Mr. Goudge: Yes. We didn't have it. I saw it yesterday.

Senator Bryden: But it was distributed to us -

Mr. Goudge: That's the Matthews consulting agreement for $350,000 a year for 10 years. Is that what that is?

Senator Jessiman: He didn't have it. So why are you bringing up documents that were not available to them?

Senator Bryden: This is an examination into the deal and the cancellation of the deal. This evidence is there. I would like to have Mr. Goudge look at this -

Senator Jessiman: It's not relevant.

Senator Bryden: - and comment on it as a contract, which it ended up was part of the deal that was made. Could somebody just deliver that?

Mr. Nixon: Here, we have it.

Senator Bryden: You do have it?

Mr. Goudge: I do now, thank you. It's a very healthy sum for a very ill-defined task.

Senator Bryden: Could I just ask you - I don't know very much about - and Senator Jessiman probably does - notes and bills and things of that nature, even though I took something about it in law school. But this looks to me very much simply like a promissory note. I promise to pay $350,000 per year for 10 years commencing on October 31st. This was dated, by the way, the 4th of October. And then it has a very odd last paragraph:

This contract may not be terminated for any reason and is assignable and may be assigned by you.

Now, my understanding from that statement is that it can't be terminated for any reason and it could be assigned to me -

Mr. Goudge: That would be my reading of it too, senator.

Senator Bryden: - or to you, or to anybody.

Now, the reason I asked you to comment on it is: I have read all kinds of agreements and contracts, and they often have an assignment clause in them. But normally the assignment clause says, "This agreement may not be assigned", by you if there's an assignment clause, "except under certain conditions or with the other contractors' consent". Is that not a more normal clause?

Mr. Goudge: That's a very normal clause, senator. And, indeed, for contract for what, I guess - if you do the multiplication - is $3.5 million, one would think the prudent partnership would insist on this.

Senator Bryden: Now, to the best of this committee's knowledge - and we had the proponents here and I asked them the question - this is the entire contract.

Mr. Goudge: It certainly appears to be the entire contract. It's -

Senator Jessiman: Now, don't give evidence that's not true. What they said was this -

Senator Bryden: Okay. Senator Jessiman, I'm try -

Senator Jessiman: But wait a minute. It's not a fact that this was the entire contract at that time. They both explained there was going to be something later.

Senator Kirby: Which was never done.

Senator Jessiman: Well, that's right because you can't get the contract.

Senator Bryden: But whether there was going to be something later or not, when this contract -

Senator Jessiman: Look, these parties are at arm's length. We'll talk about it later.

Senator Bryden: - was executed, this was an enforceable contract -

Senator Jessiman: There's no question about that. We agree with that.

Senator Bryden: - and these - Is it not the case, Mr. Goudge -

Senator Stewart: Will you not insist that Senator Jessiman's right to interrupt any time he want be respected by Senator Bryden?

Senator Jessiman: I only want to interrupt when the senator says things were given before this committee that are not true.

Senator Bryden: Yeah. Okay. Let me rephrase my question, if I can use the court - Forgive me, counsel and whatever. Looking at this contract, if nothing else ever happened, this is an enforceable contract for $375 million.

Mr. Goudge: Yes, sir.

Senator Bryden: Thank you.

Mr. Goudge: And one suspects that the assignee of this contract would have been able to enforce it.

Senator Bryden: Yes. Now, would you continue? And I use this is an example. There are others. But I just used this because it's such a clean one to look at.

Mr. Goudge: And I don't know this, senator, but one would assume from the name of the contracting party that this was likely a non-arm's-length contract.

Senator Jessiman: That's not true. That's not true.

The Chairman: Just let -

Mr. Goudge: Well, I don't know whether it was or why.

Senator Jessiman: That's right. So don't say it is.

Senator Kirby: Well, he didn't said it was. Come on.

The Chairman: Wait for -

Mr. Goudge: I didn't say it was.

Senator Bryden: It's a contract between Matthews Investment Incorporated -

Senator Jessiman: Right.

Senator Bryden: - and the T1T2 limited partnership of which the Matthews Group -

Senator Jessiman: And the witness knows who controls that.

Mr. Goudge: I don't, sir.

Senator Jessiman: The witness knows that Bronfmans controls it.

Senator Bryden: Anyway, I really, Mr. Chairman, would like to avoid getting into an argument. I want to proceed as expeditiously as I can to try and get the evidence in. Could you continue, Mr. Goudge?

Mr. Goudge: We are at the point, senator, of the short review I made of some of the salient features of the management and operations agreement.

The first recitation has to do with pricing to the airlines and the only point there is the point that Mr. Nixon later makes that the costs to the airlines for their use of T1 and T2 would rise very substantially by comparison with current cost.

There is a comment about the retail pricing policy, which is descriptive, and a comment about the parking policy. The concern there, again, was economic rather than legal; that it was inevitable that public parking prices at T1T12 would rise considerably. Again, that's something that Mr. Heed confirmed with us in the information gathering process that we went through.

What I've just finished going over, senator, was essentially my description of the contract together with the concerns or some of the concerns that I had about the contracts themselves. I don't know if you want me to go on, senator, and talk at all about my concerns about the process that led up to the contracts.

Senator Bryden: No, Mr. Goudge, I will ask you that but -

Mr. Goudge: Well, let me stop, then.

Senator Bryden: - at a different stage because I really would like to get this in some sort of order.

And now, Mr. Crosbie, from a business and financial perspective, it was for your benefit, really, I put the word "Succinctly" in my - So can you just in layman's terms, and as close as you can almost in point form tell us what your concerns were, from a business point of view and a financial point of view, with this deal?

Mr. Crosbie: Sure. I'd be pleased to try to answer that question, senator.

First, let me distribute. In our report to Mr. Nixon - Can we -

Senator Bryden: Whatever the witness wants to do.

Mr. Crosbie: - these are some additional financial analyses that we have done to expand on the financial analysis in our report.

In our report to Mr. Nixon, we expressed the view that the returns to the investors would appear to be in excess of that required in the market. And to the extent that the investors are paid a return greater than that required in the market, this means that the ground rents payable to the government are less than they otherwise would be.

What we tried to do in our report, and which we've done and tried to expand on that analysis, is, we've tried to come up with a sense of the amount of money if the investors had only been paid what was required in the marketplace, the additional amount of money that the government would have got under its ground leases and then compute a value for that to the government in today's dollars. And you can see from this table that we have - and I'll just try to explain it simply.

Senator Bryden: Would you just take us through that? It might be useful.

Mr. Crosbie: Yeah. Sure. The two - We have sort of two broad categories. We first of all have the incremental present value over the term of the lease. And in that analysis we've looked at the return to the government, the incremental value that the government could have gotten if, over the term of the lease, the investors had achieved different rates of return which we feel may well be more in line with the market.

Senator Bryden: Okay.

Mr. Crosbie: So that's the one analysis. And we looked at that both on a 37-year basis and a 57-year basis.

Then the second approach that we used was to say, "What is the value of this project in year nine after it's completed and it has a significant cash flow?" And we looked at different capitalization rates on that cash flow and said - to give us a sense of what the property is worth at that time. And then we, using that as a base, then computed a present value. And once again we said, "What sort of returns would have to be required to give to investors to invest in a project with those characteristics?" And if you gave the investors those returns, how much additional would the government have been able to realize?

Senator Bryden: Okay.

Mr. Crosbie: So that these amounts on this table really set forth that the additional amounts under these differing assumptions that the government could have realized in today's dollars if the investors had been paid a return more in line with our sense tells us would have been required in the market.

Senator Bryden: Can you take us through one line? Take us through the middle one, 17.5 per cent.

Mr. Crosbie: Yeah. What we are saying there is if this deal had been done to give the investors a required pre-tax return on their equity of 17.5 per cent, then the government, if we used a 37-year term, would have in today's dollars realized an additional $201 million from what they did.

Senator Bryden: Okay. And over the fifty -

Senator Kirby: That's over and above what they did?

Mr. Crosbie: That's over and above what they did.

Senator Bryden: Okay.

Senator Bryden: Under the deal, the government deal was valued at $842 million or $843 million. If the return to the investors had been 17.5, which - I'll give you some background - we think is perhaps something they could shoot for -

Senator Bryden: No, I just needed - Let the figures speak for themselves.

Mr. Crosbie: The government would have got another $200 million on top of the $843 million.

Senator Stewart: So they left $200 million on the table, then.

Mr. Crosbie: Under this, yes, $200 million, it would appear, could well have been left on the table over 37 years.

Senator Bryden: Now, over 57 years that would have been 252?

Mr. Crosbie: Over 57 years that would have been $252 million - that's right, about one-quarter of a billion dollars.

Senator Bryden: Okay, now just continue into your next blocks on that same line.

Mr. Crosbie: Yes. Now, using this other approach to value, as I mentioned, where one capitalizes the free cash flow of the terminal in year nine and then discounts it back, which is another accepted way and -

Senator Bryden: Yes.

Mr. Crosbie: - I think quite an appropriate way to value this - there, if you'd used a 9 per cent cap rate on the terminal to value the terminal in year nine - And should I explain -

Senator Stewart: Yes.

Mr. Crosbie: - what I mean by "cap rate?"

Senator Stewart: Yes.

Mr. Crosbie: What you do is you take the free cash flow of the property, which I think was around $111 million in year nine, and you say, "Okay, what's that property worth? What's a property with a free cash flow of $111 million, what's that property worth? And you then say - The way you look at it is you say, "Okay. What's the capitalization rate?" And you'd say, "Okay. An appropriate capitalization rate on that property is 9 per cent." So you'd say, "One hundred and eleven million dollars over the value of the property equals 9 per cent."

Senator Bryden: Yes.

Mr. Crosbie: And you do the mathematical model and I think you come out with - the property would have a value of, I believe, $1.23 billion at a 9 per cent cap rate. Now, if you used, say, a 10 per cent cap rate - which is a little more conservative - you'd say, "Okay." You got $111 million of free cash flow and you use a 10 per cent cap rate, then the property would be worth $1.1 billion.

Senator Bryden: Yes.

Mr. Crosbie: So that's how the cap rate works. So we've looked at it at three cap rates: 9 per cent, 9.5 and 10. And under those cap rates, the additional value that the government could have realized under these numbers would be something in the order of $210 million to $267 million.

Senator Bryden: Okay.

So that's the table that we've used, and these are the numbers.

Senator Stewart: I'm sure it's clear to you, but how are you getting these particular percentages, the 10 per cent, 9.5 and 9? Where do they come from?

Mr. Crosbie: Yes. I'd like to take you through that.

The key assumptions here - I would like to take you through some of the background as to the kinds of returns that are in the marketplace. We have made key assumptions on the capitalization rate, whether it is 9 per cent, 9.5 and 10, and we've also made key assumptions on the rate of return that the equity investors would require typically in a project of this nature. There we've looked at it at 15 per cent, 17.5 and 20. I would be pleased to give you some background on that.

Senator Bryden: Once again, I'm under constraints of time. If I can come back to have you flush it out, I would.

Is there another point in relation to the financial concerns about the deal, if we could move on?

Mr. Crosbie: No, I think that's the main point.

Senator Bryden: This is the point.

Mr. Crosbie: Based on our analysis, it would appear that the government should perhaps well have been able to achieve significantly more than they did.

Senator Bryden: Ranging between 266 million at 15 per cent to 125 million, if there was a 20 per cent return, and this deal with a 23 per cent?

Mr. Crosbie: This deal had a 23.6 per cent return.

Senator Bryden: So that would reduce the amount available.

Mr. Crosbie: Yeah.

The other thing I should say is this deal has a forecasted return of 23.6 per cent. That return could well have been understated. You know, the model - it's a very thick model. I'm sure you have perhaps seen it, but it goes through the rates of return. For example, the investors in this project are going to be paid very significant management fees. A portion of those management fees may be in excess of what you need to pay to have this property managed, in which case there's excess return, so that that 23.6 could in fact be higher than 23.6.

Also, the consortium members are supplying services to this project through construction contracts, concession contracts and so forth. So there's additional profits in the provision of those services. So if you add in some of the additional profits that the consortium members could perhaps be earning, once again, that would raise the 23.6.

Also, the model that was used by Transport Canada in assessing it - and it was a model that we reviewed in some detail with Transport Canada - that model was prepared by, we understand or we were told, Claridge or Pearson Development Corporation.

Senator Bryden: Yes.

Mr. Crosbie: Now, it's highly unusual for a buyer to present an optimistic model to the seller. The buyer, I think, typically would present quite a conservative model because you're not going to go to a seller and say "Geez, look what a great deal I've done."

Senator Bryden: That's something I was not aware of and maybe I should have been aware of. Are you saying that the information you had from Transport Canada was that the financial model that they were working from was prepared by Claridge?

Mr. Crosbie: We understand it was prepared by Pearson Development Corporation.

Senator Bryden: Pearson Development Corporation.

Mr. Crosbie: Yeah. We understand the model, and so forth, was prepared by them.

Senator Bryden: Now, Mr. Crosbie, I'm going to move on and perhaps -

Mr. Crosbie: Could I just say - oh, sorry. You're going to be asking me later for support as to these levels of rates of return.

Senator Bryden: Yes.

Mr. Crosbie: But you don't want to do that right now.

Senator Bryden: I would like to be able to come back to that because I want to get at least one pass through this, and then I can have a second round.

Mr. Crosbie: Sure.

Senator Bryden: Mr. Nixon, and without repeating verbatim what is in your report, would you indicate, principally from a public policy perspective, briefly the concerns that you had with this deal?

Mr. Nixon: Yes, senator.

Mr. Goudge has given you a rundown on the specific sections of the contract. At one stage, he indicated that all of the documents we were provided with had an input in that, but, of course, his extensive experience in contract law and in business was invaluable in the assessment of those contracts.

You have just heard some indication that came to me from Mr. Crosbie that the returns were excessive. You can understand that it took me a few minutes under Mr. Crosbie's instruction until I fully understood all of those ramifications. Besides understanding them all, I found it useful that his report indicated in certain words that the contract was less than fully in the public interest, and I incorporated that more general approach, along with his more detailed report, in my report.

From my point of view, as you point out in general matters having indicated that it was too rich, it might have been more beneficial. I was concerned about the 57 years. We've discussed that, and we may discuss it again. From my particular point of view, it made no sense whatsoever. I was concerned about it.

The 75-kilometre proscription that was part of the contract gave the additional safeguards to the lessor so that they were relieved of possible competition from Government of Canada development in Hamilton and other areas. I thought that was inappropriate for the general good of the community.

Also in the contract, although LAAs were referred to and, in the instance of Claridge originally, they had made an interesting attempt to involve the LAA, still the dismissal of that as a possibility and an opportunity concerned me as well.

As far as the contract is concerned, the legal clauses from Mr. Goudge, that was dealt with, and the actual financial return from Mr. Crosbie allowed me to feel confident when I made the report to the Prime Minister that it was factual and effective.

Senator Bryden: And in your opinion, not in the public interest.

Mr. Nixon: That's correct.

Senator Bryden: I now would like to go on to the second question, and that is the question of the flawed process.

Mr. Chairman, in order to move this as quickly as I can, I want to address something that has concerned me. I'm concerned that in pursuing this issue of the flawed process, members of this committee - and I include myself - may have at times given the impression that public servants or the public service may have been in some way responsible. I want to make it very clear that that is not my view. I do not believe it's the view of any members of this committee. I believe that Canadians are served by the finest public service in the world and that every public servant involved with this file carried out their responsibilities loyally, skilfully and within the mandates that were set for them by their political masters.

Now, Mr. Chairman, I'm going to review with the witness my understanding of some of the evidence in regard to this issue of the process in the inquiry. I have numbered each point so that others on this committee who may have a different recollection of the evidence may easily contradict or clarify my understanding when I'm finished. I have nine points. I would like to proceed with those, and I'll name the points.

Mr. Nixon, early on in our proceedings, we were given the following evidence. Former Minister of Transport, Doug Lewis, testified that this was one of the most complicated deals he had ever seen, or words to that effect.

Point 1: There was no expression of interest stage, although the public servants had prepared one and recommended one, but their political masters said no.

Are you aware that there was no public expression of interest stage?

Mr. Nixon: Yes, senator.

Senator Bryden: Had anyone discussed with you the fact that some officials had recommended that there be such a stage?

Mr. Nixon: If you are referring to the people that have previously been named around this table as the officials in Transport Canada, I think it was referred to, but I don't recall it being referred to in a critical sense. I think most of them or all of them, as far as I am concerned, were supporting the final policy that did proceed without an expression of interest stage.

Mr. Goudge: My recollection, senator, is that what we were told was that the decision to have a single-stage RFP was either a ministerial or a prime ministerial decision.

Mr. Nixon: By the way, I don't recall any occasions of great significance where the public servants were other than supportive of the policy as they understood it that the government was putting forward.

Senator Bryden: Yes, and that's my understanding as well.

Point 2: There was no LAA allowed to participate in the process, even though a letter was prepared by the public service recognizing the GTRAA, but Mr. Corbeil did not sign it or send it.

Were you aware of that?

Mr. Nixon: We were aware of that, and it was one of the matters of prime interest and concern for me that the Government of Canada had appeared to take every opportunity to impede the development of the LAA in that particular area, that there was municipal strife or misunderstanding associated with Mississauga and Toronto in this regard, and we mentioned a couple of times about the Island Airport and certain other matters. I felt that if the government policy was going to be applied evenly, as it had been in other jurisdictions across Canada, this could very well have been obviated.

Senator Bryden: Point 3: The time to reply to the Request for Proposals was only 90 days, although the public service had recommended a longer period. Indeed, we have evidence that Chern Heed and perhaps Price Waterhouse recommended that six months would be an appropriate period. The decision that the period would be 90 days was made at the ministerial level.

Is that your understanding?

Mr. Nixon: Yes, it is. When we spoke to Mr. Heed, I said a moment ago that the government officials did not oppose government policy, but that doesn't mean that they could not indicate that their views had been different. But once the policy was established, they, of course, supported it. In his case, he supported it until he moved to Hong Kong.

Senator Bryden: Point 4: Public servants recommended that no RFP be issued until the results of the environmental review panel was known. However, the minister delinked the terminal redevelopment from the EARP review and went ahead and issued the RFP.

Were you aware of that?

Mr. Nixon: We have discussed that previously, and I was aware of it. I think my own response in that regard was that I could not personally find fault with a minister who had decided since the policy of the government was to proceed - which I didn't agree with, and I don't agree with yet - but if he could expedite that and make it more efficient, I don't see that I was prepared to criticize him in that regard.

Senator Bryden: Point 5: The minister decided that neither proof of financial viability of the proponent nor the financeability of the proposal was required before awarding the bid, even although the public service advised otherwise.

Is that a fair statement?

Mr. Nixon: Yes, it is. I don't know whether you want a discussion on that matter.

Senator Bryden: If you have anything to add.

Mr. Nixon: I was interested in committee counsel's assistance yesterday, and I found it very useful - I think it was yesterday - when he was speaking about the financeability aspects of this. I believe that one of your colleagues from the Conservative group had indicated that surely no one would expect the successful proponent to have those millions of dollars in the bank and be able to wave them around, with which I agree and I understand. I have no problem with that.

Perhaps my understanding of the situation was somewhat more simplistic than that described by the counsel yesterday because there was no financeability requirement, not to the point where they would have to have the money in the bank, but prove to the satisfaction of the officials of the Government of Canada that the successful RFP proposal could be built and financed by the company that received the approval - which seems only sensible to me - that there was a serious flaw in the process.

Now Paxport, with Mr. Jack Matthews, indicated that after they were successful with the RFP, that he then tried to raise the money necessary in order to undertake it, which is 61 million plus 5 million and whatever it is - 66 million. He said clearly to me, and I've already told the committee this, that he went to the financial community in Toronto - he mentioned banks and pension funds - and had been unsuccessful in raising that money.

Now there must have been some considerable difficulty and tension at that time because Transport Canada was pressing him. They were meeting, presumably in Ottawa and elsewhere, with the Transport Canada officials saying, "This is a good proposal; it's been approved; now how are you going to finance it?" We're not talking about 860 million. We're talking about less than 100 million, which in itself is an extremely significant amount of money. It wasn't until the contact between Paxport and Claridge that the financing became clear. It was not accepted as clear by the independent review team - and Claridge controlled the bid, totally controlled the bid - that the Government of Canada approved it and was ready to proceed with the signing of the various contracts.

Senator Bryden: Thank you.

Point 6: It was a ministerial decision that the return to the Crown was to have the heaviest weighting in the valuation criteria and that financeability had virtually no weight at all. In making the evaluation, the public servants simply applied the criteria they were given.

Do you have a view on that?

Mr. Nixon: No, but I believe that to be correct. I could understand that the minister in charge would very much like to tell the Minister of Finance and his other colleagues that they had maximized the return in the sale of this lease, if I can use the terminology that has been used in descriptions previously.

The point was that, in our opinion, they had not maximized that return to the Crown. The return to the investors at 23.6 per cent over that long period of time seemed to me to be inordinately large. Mr. Crosbie has, I know, other information that he gave to me that would be valuable to the committee in their considerations. So we felt that, in spite of the minister's attempt to maximize return, it was inordinately generous to the investors.

Senator Bryden: Point 7: It was a public servant, Mr. Barbeau, who at the first meeting with a successful bidder in December cautioned that, in his experience, it would take at least a year to negotiate an agreement. Subsequently, he was removed from the file as a result of a ministerial decision. His successors, Broadbent and Rowat, pushed as hard as they could to meet the deadline set by their ministers. Mr. Shortliffe said the May 31st, 1993 deadline was set by Prime Minister Mulroney because he wanted this contract in place before he left office, or I think Mr. Shortliffe's words were "his government left office".

Now, is it your understanding that it could take up to a year and that Mr. Broadbent and Mr. Rowat, within their mandate, pressed ahead to meet the deadlines?

Mr. Nixon: Yes, senator.

Senator Bryden: Do you want to add anything?

Mr. Goudge?

Mr. Nixon: I want to add something if I may.

There was no doubt that there was substantial dissatisfaction with the approach to this responsibility by Victor Barbeau. It culminated - I was told this by his successor - in his removal from the file. It may have been a relief for him so to do because I think he had been interested in maintaining the position of Transport Canada in the operation of the airport and was not as interested as perhaps some others were in the privatization. There's no way I can tell you what his thoughts were, but it was apparent that his enthusiasm was moderate in this matter.

Mr. Broadbent told me directly that the government was dissatisfied with the rate at which the contract was being entered into, and that he, Broadbent, was brought in from retirement, and because of his well-known propensity and capability in dealing with these matters, he was brought in to handle it and get it going.

The second thing you mentioned was Prime Minister Mulroney's anxiety that this be completed before he left office. There were indications that that was so. Pressure was brought to bear, appropriate pressure through the civil service and from the Clerk of the Privy Council Office to the deputy ministers, saying that the officials in the Prime Minister's Office and others were making regular inquiries as to the progress and were expressing an interest in that way. There's no doubt in my mind that that sort of pressure, which is not inappropriate pressure, was felt by the officials in Transport Canada.

In order to meet that deadline - and I don't think this is conjecture, but it is my interpretation of events - the deputy, Madam Labelle, in fact drafted and signed a letter that was delivered to the Claridge/Paxport group about June the 11th, 1993, which was not a signed contract, but was the strongest indication that she was able to deliver to them that all was in order and that the rest of the review was routine. It was at that stage that she was replaced.

My own interpretation of a number of these events is that there was substantial pressure to complete this before Mr. Mulroney left office and that this was reflected in a number of events that I've described and that you have put to me.

Senator Bryden: Just one comment on that. The point that we're attempting to establish is that the time lines were set at the ministerial level.

Mr. Nixon: I would think there was some effort to enforce them from the ministerial level as they tended to slip back. To be fair, the situation involving the forgotten Air Canada lease had to be undertaken and corrected, but the evidence that I've read from our own transcripts, from Rowat, was that this was done largely with his leadership and at his behest.

Senator Bryden: Point 8: The pressure to complete the agreement before the election continued, even after Prime Minister Mulroney left office, and in the face of concerns expressed as late of July 20th, 1993 - and we have evidence in on that - this was so, even although the Treasury Board Secretariat advised in that memorandum on the 20th of July that the government would have to pay a high price because the partnership perceived that the government wanted a deal at any cost.

In your view, did the cost to government, was it affected by the time lines in getting the deal done?

Mr. Nixon: I consider that there was pressure, I would say, inordinate pressure on the government side discussing and moving toward the accomplishment of the deal. It may have been that they set aside some of their difficulties and questions in order to achieve success.

I notice that the officials that appeared before the committee referred to working long hours and working assiduously in order to complete that but did express general satisfaction with the deal. One of them, and I think it was borne out by at least one other, said that there were a number of causes that he would like to have been able to negotiate differently, but presumably that's not an unreasonable comment. He expressed some dissatisfaction, but nothing of what I would consider to be a serious nature.

My own perception was that there was great pressure to get it done before the middle of June, and that pressure continued, and that the whole thing would be wound up before the election campaign came along.

Senator Bryden: My final point, number 9: It was Prime Minister Campbell who, to use the words of the experts we heard on Monday, "recklessly" or at least "imprudently" directed that the deal be executed in the midst of the election campaign -

Senator Lynch-Staunton: Who were those experts?

Senator Bryden: - even although she knew the deal was highly controversial -

Senator Lynch-Staunton: Who were those experts?

Senator Bryden: - and that it seemed almost inevitable that her government was within days of defeat.

Senator Lynch-Staunton: That's an opinion, not a fact.

Senator Bryden: The point that I would like you to address - and I think you have addressed it before, but I am just doing it for completeness - that that is your understanding of how the direction to sign the final agreement came about.

Mr. Nixon: Yes, it is, senator. I think it probably underlines and focuses on my principal concern with the deal.

I've already talked about its inadequacies, the way that the process leading up to it was subject to substantial and serious criticism, but for the government to proceed as they did in the final days of an election campaign where the very matter under consideration was a major issue in the campaign, in my opinion, was an unacceptable process.

You indicated that the person who expressed that was an expert. I think that a good many Canadians considered themselves expert in that matter.

Senator Bryden: Mr. Chairman, this is an appropriate point for me to stop and turn my monotone back over to Senator Jessiman's monotone, but I think Senator Stewart had a supplementary.

The Chairman: Okay, you have had one hour.

Go ahead, Senator Stewart.

Senator Stewart: Just a subordinate question on the ninth of Senator Bryden's points.

I think in fairness to Prime Minister Campbell, we ought to remember what we were told by Professor Wilson on Monday, that she was a person with relatively little experience, certainly far less than her predecessor in public life and in high office. My understanding is that the public service, particularly the Clerk of the Privy Council, had been involved in this process and probably had an understandable commitment to bringing it to a consummation. To whom did she have to turn for advice? To the very person whom for months had been charged - her predecessor - with getting the deal done. That's one thing.

Another person who was very close to her at this period was the person who had been in charge of her transition team, one of the lobbyists.

The point I want to make, chairman, is let's not dump on Prime Minister Campbell here. She was in a very difficult situation by reason of her inexperience and by reason of the people who were around her at that time.

Do you take cognizance of that, Mr. Nixon, as the statement to which you agreed when Senator Bryden was questioning you implies Prime Minister Campbell is made, in a sense, the villain of the peace or at least the final villain of the peace? I'm suggesting to you that that may be a bit unfair to her - indeed, quite unfair to her.

The Chairman: The question is, Mr. Nixon, do you think that people were being unfair to Prime Minister Campbell?

Mr. Nixon: Apparently the position was put to her whether or not to proceed with the finalization of the Pearson contract. She responded with direct approval and, in fact, direction through the Clerk of the Privy Council that it be signed in total on October 7th at a specific time. I think it was 2 o'clock in the afternoon. Whatever you might say about her inexperience and her lack of advice, the fact is she was the Prime Minister of Canada, and that decision to stop it or to proceed was hers. She decided to order it to go forward. I think that was a mistake. One might point to her inexperience or her inadequate advice, but I think it was a serious mistake. It was the basis of my main objection to the process because all of this work should have been carried over to the new administration, which might very well have been a continuation of her own - we're not here to argue that - or another administration and left to that area of decision. I think that this was one of the things that endangered the whole process.

Senator Stewart: I'll want to come back on this later.

Senator Lynch-Staunton: I'd like to pursue it if I may. Perhaps Mr. Goudge could answer this.

Had Mrs. Campbell not authorized the conclusion of the process, which was a release of documents from escrow, what would have been the implication for the Government of Canada? In other words, did she really have a choice to - had the Government of Canada, which had agreed to the closing on October 7th as early as July, not been irresponsible not to release the documents? Since all the conditions precedent had been met - the money was in the bank, the contracts had already been signed - surely the least one could have expected if the government had unilaterally refused to release the documents would have been a major lawsuit for damages by the consortium. Was that ever thought of before writing in your report that the decision could have been postponed indefinitely or at least until a new government was elected?

Senator Kirby: Mr. Goudge, in answering that question -

Senator Lynch-Staunton: Well, let him answer first, will you please, Senator Kirby? Don't editorialize on my questions.

Senator Kirby: This is an amazing statement. I don't have any intention of editorializing. I was just going to ask my assistant, in case Mr. Goudge needs it, to give him a copy of the relevant portion of the Department of Transport Act, which in fact deals specifically with the condition of the circumstances under which any deed, contract, document or undertaking is to be authorized or approved by the government.

I thought that if you didn't have that handy, it might make your response to Senator Lynch-Staunton easier to handle. I'm referring to sections 12(1)(a)(b)(c).

Senator Lynch-Staunton: I'm not asking for information based on new evidence. I am asking for information -

Senator Kirby: This is an act of the statutes of the Government of Canada actually. I don't regard that as -

Senator Lynch-Staunton: I'm asking on what basis they formed an opinion that the closure could have been postponed. I think we have been told that.

So the second question is, were they aware of the possible implications of Mrs. Campbell not authorizing the release of the documents on the agreed to closing date?

Mr. Goudge: Let me approach that question in this way, senator.

I concluded, as a result of my endeavours of the 30 days in which Mr. Nixon did his work, assisted by us, that there was absolutely no doubt in my mind that the contract that we are talking about was concluded on October the 7th, 1993, not before. There were a number of bases upon which I based my conclusion.

In the beginning, when we first were briefed about the sequence of events and the facts surrounding them by the officials of Transport Canada, Mr. Rowat, on November the 1st, left me with the clear impression that the deal had been concluded on October 7, not before. Indeed, I understand that he has quite recently confirmed that view with this committee in a letter that he has forwarded to the committee. So my introduction to the whole matter began with a clear understanding that, from the perspective of the officials of Transport Canada, the agreement was concluded on October the 7th and not before.

I then had a detailed meeting on November the 15th involving legal advisors who had been involved with the Ministry of Transportation on November the 15th in which exactly the same impression was provided to me.

On November the 3rd in the meeting with PDC, it was clearly asserted that the transaction was concluded on October the 7th and, indeed, that date had been fixed early in the summer.

The information that we got from the government on November the 1st left the very clear impression in my mind that the government was clear that, following the meetings of state in late August, there were substantial negotiations yet to take place which did take place and which then resulted in the contract being concluded on October the 7th.

My general legal experience, senator, is that when a contract is made, rights arise. Before it is made, rights don't arise. There is no law of "semi-contract". So I concluded, senator, that the contractual rights that were facing the country and indeed the new government spoke as of October the 7th, not before.

The Chairman: That's not the question asked of you.

You acknowledge that there was a contract completed on October 7th. You have doubts as to whether there was any liability before that, but that's a separate issue because we're trying to get some information on that. But, as of October 7th, there was a contract; otherwise, what the hell did you recommend should be cancelled? There was a contract! Senator John Lynch-Staunton has asked you what would happen if the Prime Minister said, "No, I'm not going to release those documents from escrow; the deal is off."

Mr. Goudge: The contract is not concluded.

The Chairman: What would have been the liability of the Crown at that stage?

Mr. Goudge: There would have been no breach of contract liability.

I can't imagine what liability there would have been, senator. I mean, there's no law of semi-contract.

Senator Lynch-Staunton: Wait a minute.

Mr. Goudge: Before the contract is made, what liability is there going to be?

Senator Lynch-Staunton: The contracts - we've had this repeated to us over and over again by anyone who has been asked in front of this committee. An agreement was reached between the Government of Canada and T1T2 - whatever they were called at the time - at the end of August. Everyone agrees there was a binding agreement.

Senator Bryden: That's absolutely wrong.

Mr. Goudge: That is the answer I just gave, senator.

Senator Bryden: That's false. It's been repeated over and over and over again by you.

Senator Kirby: You're not a lawyer.

Senator Lynch-Staunton: What do you mean I'm not a lawyer? What's that got to do with it?

Senator Kirby: Because you're now giving a legal opinion.

Senator Bryden: You are asking a lawyer for a legal opinion.

Senator Kirby: And now you don't like his legal opinion.

The Chairman: Order! Order, please!

Senator Lynch-Staunton: Dear, dear, dear. We are touchy this morning, aren't we.

Nearly every witness who has been asked the question, lawyer or non-lawyer on the government side or the private side, has agreed in so many words that, at the end of August, the Government of Canada and T1T2 had a firm agreement. I urge you to read the testimony, and when we come back in two weeks, we can continue the discussion. Everyone has confirmed -

Mr. Goudge: I just blanched at the prospect of coming back in two weeks.

Senator Lynch-Staunton: Everyone has confirmed, because it's on the record, that PDI signed the contracts on one day, and the minister signed the contracts on another day. I think it was the 3rd and 4th of October.

Senator Kirby: That's correct.

Senator Lynch-Staunton: The contracts are signed on those days. There's no dispute about that.

Senator Kirby: Agreed.

Senator Lynch-Staunton: The contracts are signed.

Senator Kirby: Agreed.

Senator Lynch-Staunton: Then it's agreed that they are to be put into escrow to make sure that they are not released and executed until certain conditions are met. We've been through all of that. We have a list of all the documents that were to be signed at two o'clock on the closing date of the 7th of October. That was the final phase of a long process, the conclusion of the agreements on the 7th of October. There's no dispute about that. But the contracts are signed. The contracts have been signed on the 3rd and the 4th of October.

Senator Bryden: Mr. Chairman, that is not correct.

The Chairman: Wait! Stop!

I'm trying to stop these people from interrupting a questioner. Now you are starting it on that side. It's an epidemic. Now, let Senator John Lynch-Staunton finish his thing, then you can make any remarks you want to make.

Senator Bryden: It's just that we had a deputy minister who was responsible, who was there, who said it was not completed until the 7th of October.

Senator Lynch-Staunton: I'm not disputing that. I said the process was concluded on the 7th of October.

Senator Bryden: And she said it's not over 'til it's over.

Senator Lynch-Staunton: That's quite right.

Senator Bryden: There was no contract until it's concluded.

Senator Lynch-Staunton: I agree with all of that. We agree with all of that. There's no disputing that there was a non-binding letter of agreement in June; a firm agreement between the two parties in August; putting it all into legal language; signed in early October; the release of the document on the 7th.

I see the witness is shaking his head.

Mr. Goudge: I don't agree with that analysis, senator. Forgive me.

Senator Lynch-Staunton: Well, then what is your analysis of the process?

Mr. Goudge: That there was nothing legally binding at the end of August. It's simple.

Senator Lynch-Staunton: I didn't say it was legally binding. I wish you would listen. I said there was binding agreement. I didn't say it was legally binding.

Mr. Goudge: Okay.

Senator Bryden: Morally binding?

Senator Lynch-Staunton: Listen. Let's simplify it.

When you go out and buy a house and agree on the purchase price, you don't become the owner right away, but you have an agreement with the person who is selling you the house that on a given day, certain conditions - financing and buying the carpets, whatever - all of that will be worked out over a certain period. Then you go in front of a notary, and you finalize a deal. But, you have an agreement at the time that you shake hands on the agreed purchase price. I insist that that comparison is valid with what happened at the end of August. It was not, in legal - don't shake your head, please, because shaking your head does not appear on the record.

Mr. Goudge: Can I shake my head when you finish the question, senator?

Senator Lynch-Staunton: Well, the question is the original one. We'll get to that.

Senator Kirby: Is his analogy valid? You better comment on that too.

Senator LeBreton: They are very good witnesses. They are good students this morning, I might say. They are even anticipating our questions before they are asked.

Senator Lynch-Staunton: Maybe counsel can put it in better legal terms, which obviously you understand better than layman's terms.

Mr. John Nelligan, Q.C., Counsel to the Committee: Mr. Goudge, perhaps to try and clarify this a little, document 2420, is a letter released by the Privy Council, notwithstanding it appears to be legal advice. You wrote Mr. Rowat requesting that the lawyers from the Department of Justice, who were to meet with you, consider certain matters. You said there:

As a subtext, and when we meet, I would look forward to discussing the views of your legal team as to when and to what degree legal obligations arose that bind the federal government as this process evolved.

Now, coincident with that, we've heard Madam Bourgon tell us that, in her view, there were evolving legal obligations as this matter progressed.

I also note that in your handwritten notes at document 2417, you have a note: "Legal issues: (a) Bob Green gave verbal advice of maybe legal consequences of cancellation pre-October 7th; and (b) Bob Green gave written legal opinion on post-October 7th liability."

In light of that, can you tell us whether you did have a discussion with the legal officers on this question of the degree to which legal obligations arose as the process evolved?

Mr. Goudge: The note you speak of, Mr. Nelligan, was made at the meeting on November the 1st with Transport Canada officials, and Mr. Green was not at that meeting. So what I presume that is is my note of a recollection of one of the three people from Transport Canada as to what they thought had happened.

When I subsequently met with Mr. Green and Mr. Pigeon and Mr. Dickson of Cassels Brock on November the 15th, there was no detailed discussion of this issue. What there was a clear impression formed by me, as a result of that discussion, that their view was that the contractual rights - that for me are the essence of it - formed on October the 7th, not before.

If I can just use that as an opportunity to come back to Senator Lynch-Staunton's analogy.

It's quite right, senator, that when I seek to purchase a house and sign an offer and it is accepted by the seller, there will then be a subsequent closing date; but, there is no question that there is a contract as of the offer and acceptance prior to the closing date. There is a contract from which contractual rights spring.

That analogy, in my respectful view, does not apply here. The contract from which rights spring was made on October the 7th, not before.

Senator Lynch-Staunton: Then what was signed on the 3rd and 4th? What was the value or the significance of the signatures put to the contracts on the 3rd and 4th of October?

Mr. Goudge: The detail of signing, you are more familiar with than I.

Senator Lynch-Staunton: No, sir. You have to be familiar with the sequence of events.

Mr. Goudge: Let me finish my answer, if I may.

Senator Lynch-Staunton: I'm sorry. I apologize. I'll control myself.

Mr. Goudge: My understanding in a general sense is that it may be so that some of the documents necessary to be signed on October the 7th to finalize the contract were signed, in fact, before.

It is also my understanding - and I may be erroneous in this - that a number of the documents were in fact signed on October the 7th. Indeed, that's what the direction by Madam Bourgon to Mr. Rowat of October 7th directs him to do. It indicates that Mr. Shortliffe, who was the clerk at that point, would be signing the remaining legal documents at 2 o'clock on October the 7th. It indicates that Mr. Rowat is therefore authorized to sign, on October the 7th, the relevant documents on behalf of the Crown.

I can say, sir, that that conforms to my understanding of what in fact happened, and it certainly played a role in my concluding that the contract we are speaking of, from which the rights we are speaking of spring, happened on October the 7th, not before.

Mr. Nelligan: May I just clarify for the facts - I appreciate that we have a lot more information than you did, and we only learned about these contracts.

I assume you were unaware, whatever merit or worth there is in it, of the fact that there had been some presigning of some of the documents, and you are not aware yet of which documents were signed before and which documents were signed on that date.

Mr. Goudge: I may have had, Mr. Nelligan, at some point precise information of which documents were signed pre- October 7th - that is, on October 3 or 4 - to be held for release on October 7 and which documents were in fact signed on October 7.

What I recall now is very clear, and that is that there was signing under the direction of the Prime Minister of Canada on October the 7th.

My legal view - I confess, senator, that there are probably as many legal views about any issue as there are lawyers to speak to it, but my legal view is that the contractual rights at issue here speak as of October 7th, not before.

Mr. Nelligan: All right. Then if I just may ask a final question, accepting what you say as to there being a contract, was there any discussion between you and the officers of the Crown at that time with regard to any liability the government might have for damages arising out of, say, the doctrine of detrimental reliance, if at this stage there was a refusal to continue with the agreed plan?

Mr. Goudge: We had no detailed discussion on November the 15th about that, Mr. Nelligan. My own view would be that to stretch any doctrine of law to take in potential damages other than contract damages in this circumstance would be difficult.

Senator Lynch-Staunton: Were you provided with a list of the documents that were concluded on the 7th of October? Were you given the order of the day at Blake Cassels (sic) where the signing took place?

Mr. Goudge: We had all the closing documents and the closing agenda, senator, yes.

Senator Lynch-Staunton: Which documents there would you consider are contracts as opposed to the routine documents?

Mr. Goudge: I'd have to go back over the precise list. I remember looking at the closing documents. They comprised probably 10 or 12 black binders. There was a closing agenda of what had to be signed. My view was simple - that is, it took the conclusion of that day before the contract was in effect, and the rights we're talking about spring from that contractual arrangement.

Senator Lynch-Staunton: So your view is that had the government refused to release those documents, it would not have been exposed to any liability. It could have had a good defence based on your argument, should it have been pursued for damages.

Mr. Goudge: Generally speaking, that's correct, sir. In my respectful submission, had the documents not been concluded on October the 7th, there would not have been a contract in place, and so the breach of contract assertion that is now made would not be alive.

Senator Lynch-Staunton: Mrs. Bourgon appeared before us - you see, here we have testimony before us. She was heavily involved in this process. She said that as the final date approached, the government's liability increased. Now you are telling us that there was no liability, or whatever it was - negligible - if the documents had been signed.

Now, a senior civil servant told us the contrary, that as the process went on, the government's liability increased.

Mr. Goudge: Let me put it this way -

Senator Lynch-Staunton: The former clerk said that in the government's view and in the consortium's view, they had a binding agreement at the end of August. And the views of others too. So I respect your view, but it's in conflict with many other views giving a totally opposite opinion.

Mr. Goudge: Well, I mean, I can simply say to you that it appeared to be Mr. Rowat's view; it appeared to be Mr. Green's view.

Senator Lynch-Staunton: I'm sorry. Mr. Rowat -

Senator Jessiman: Now it's his view.

Senator Lynch-Staunton: - says here, in his opinion, in his letter which he sent to us, which we agree with, he says:

...and it is still my view now, that the Pearson Contract was not concluded unless and until all the documents were signed...

We agree with that completely. No signatures on the 7th of October; no contracts to be executed. We agree with that.

What we're disagreeing with is the significance of the 7th of October. You are saying, and we are agreeing, that the contracts cannot be executed until the closing date documents were signed; but, we are maintaining and others before us have convinced some of us that the binding agreement actually took place at the end of August, and that had the government refused to respect the understanding that something was going to happen on the 7th of October, it would have been exposed to - well, I'll put it in my terms - a breach of contract.

Mr. Goudge: Well, I take Mr. Rowat's position that the contract was concluded on October the 7th to be necessarily an assertion that there was no contract before October the 7th.

Let me say this, senator. Can I just add -

Senator Lynch-Staunton: Well, I -

Senator Bryden: Let him finish!

Senator Lynch-Staunton: My, my, we are touchy.

Senator Bryden: I'm trying to get on national TV too.

Senator Kirby: He believes that notoriety outlives fame.

Mr. Goudge: Let me just add this.

I would be entirely comfortable in saying there was no binding agreement at the end of August. Indeed - and I will do no more than this, subject to my confidentiality undertaking - it was clear to me, reading the material I got from the government, that it was clear to the government as of the end of August that there were significant negotiations that had to take place before this matter would be finalized, between the end of August and whenever the date for concluding the contract was going to be, which had been fixed for that first week in October - significant negotiations about a number of matters.

You and I would both have experience, senator, in negotiations that are set about with the best of intentions not coming to truthful conclusion.

My assertion is that there is no way one could say that in your terms - forgive me for respectfully disagreeing with you - there is no way one could say that there was a binding agreement at the end of August. I mean, there were significant negotiations that everyone was aware of that were going to have to go on before you got to October the 7th.

Senator Lynch-Staunton: I am interrupting you because we're not getting anywhere. We have had opinions giving a contrary view to yours. What we're hoping to get is what legal opinion the government gave to its officials as to the significance of the 7th of October. So far we've heard here that they had no choice.

Hopefully, Mr. Chairman, we can get on to that when we have those who were actually involved in that process before us.

The Chairman: Before we take a break, we have two hopefully short supplementaries.

Senator Kirby: I want to allow Mr. Crosbie to finish with the table he gave us because there was a question he started to answer, and then he said he would come back to it at the end.

The question I think, Mr. Crosbie, just so we can complete the document was - the question you were asked was you have used, in your document, required pre-tax rate of return on equity numbers. I guess I would like to understand, are they merely illustrative examples, or are they in fact what I would assume people in your business would normally do, which is to give a range across the realistic range that one could expect? So while you explained the individual numbers in the table, can you just comment on your assumptions?

Mr. Crosbie: Yes. We have done a fair bit of work trying to get a handle on what we think might be the required rates of return on a pre-tax basis that equity investors would require. We've also reviewed a number of the government documents and documents that Transport Canada had available to them dealing with these sorts of rates of return. So we've taken that into our consideration as well.

I'm happy to take you through that work we did and the background and so forth to give you a sense of it, but I think when you do that, you will see that these sorts of rates of return would appear to be quite reasonable.

Senator Kirby: So given the fact that it was a 57-year lease, and I'm assuming the 17.5 per cent is in the middle of your reasonable range, is it a fair conclusion for me to draw from that table that the government left $252 million on the table - ie., it gave up a lease, but it was short in the amount that it should have been able to get by 252 million?

Mr. Crosbie: Yeah. Based on this analysis, it left something in the order of a quarter of a billion dollars on the table.

Senator Kirby: From a professional standpoint, you would be comfortable with that.

Mr. Crosbie: We built it up using the various assumptions. We're pleased to take you through those assumptions and take you through the analysis and show you how we arrived at that conclusion, yes.

Senator Kirby: I may do that subsequent, Mr. Chairman, but I wanted to make sure that I understood where the numbers came from.

The Chairman: I just wanted to go back to earlier parts of Mike's nine points.

The risk of development in each phase of this transaction, the redevelopment of the airport, is borne by Mergeco or the T1T2 partnership; is that not true?

Mr. Nixon: You are looking at me, Mr. Chairman?

The Chairman: Anybody.

Mr. Nixon: The risk aspects were offset as much as possible, for example, by prohibiting the Government of Canada to undertake any competitive development within 75 kilometres. For example, that was one way in which the risk was moderated. The fiscal and the financial risk was guaranteed perhaps in other ways.

Mr. Crosbie: Yes, that's absolutely right because as part of the transaction, Mergeco or Pearson Development Corporation entered into a long-term contract with Air Canada where a lot of the construction risk and the operating cost risk and interest cost risk was effectively passed on to the airlines.

The Chairman: Well, I mean -

Mr. Goudge: Then, senator, I indicated this morning -

The Chairman: Well, the $682 million that we're talking about in various phases - 235 million, then 190 million, 107 million, 53 million - I mean, this is private money, is it not?

Mr. Crosbie: Yes, it's private money, but it's backstopped by the contracts with Air Canada.

The Chairman: It's backstopped by a lot of things. It's backstopped by concessions; it's backstopped by any number of revenue sources.

Mr. Nixon: That's right, it balances the risk.

The Chairman: All right, then, if there was any default in any one of these phases, would not the title to T1T2 and T3 revert to the Crown?

Mr. Crosbie: But it depends. A default by who? There are lots of different areas of default. Which default would you be asking about?

Senator Bryden: Mr. Chairman, might you direct that to Mr. Goudge. He already answered it, I thought.

Mr. Goudge: There are a number of different ways it could happen, senator. If it's a default, the mortgagee had rights to step in and then assign it to somebody that the government couldn't control. One option might have been for the government to step in in the middle of a development that was partially completed and try to take over the operation.

From my perspective, senator, and you may not agree, that would be a disaster for the Government of Canada. There would be nothing worse than coming into the mess of a development where the developer had walked out.

The Chairman: Even though the developer had put $400 million into it?

Mr. Goudge: The mess for the travelling public and for the Government of Canada couldn't have been worse, in my judgment.

The Chairman: I once used the analogy - I don't know if you'd agree with it - that the Crown is akin to the veterinarian who is also a taxidermist; either way he gets his dog back.

Mr. Goudge: The second way isn't a whole lot of use to the travelling public.

The Chairman: We'll take a short break.

The committee recessed.

Upon resuming.

The Chairman: The table 1 that was provided by Mr. Crosbie, this document here, the table, is it agreed that this will be attached as an appendix to today's report?

Hon. Senators: Yes, Mr. Chairman.

Senator Bryden: At the appropriate point, whatever the format is.

The Chairman: Yes. And if anybody is reading from anything else which they consider to be relevant -

Senator Kirby: I actually thought it was automatic, so I'm glad someone raised it.

The Chairman: All right. Senator Jessiman.

Senator Jessiman: Thank you, Mr. Chairman.

The Chairman: I would like all committee members to try to emulate the cool composure of the chairman. Take me as your role model as you conduct yourselves today.

Senator Bryden: One day at a time, Mr. Chairman.

Senator Jessiman: Thank you, Mr. Chairman.

Mr. Nixon, I'm going to ask you this question, but really it's directed I think to Mr. Goudge, but I'm sure you received a copy of it from Mr. Goudge.

Mr. Goudge, on December 15, 1993, Phillips & Vineberg wrote you a letter comprising nine pages, and I'm going to give you a copy of it just so you can remember that particular letter. And first I want you to acknowledge that you received it.

Mr. Goudge: Yes.

Senator Jessiman: I want you also to acknowledge that you didn't answer it.

Mr. Goudge: Yes, sir.

Senator Jessiman: Rather than take up the time of the committee in going through all these letters, these nine pages, it does answer, as far as they are concerned, a number of the points that you brought out this morning. And what I would like you to do, if you would, between now and when we meet again, is either answer it to Phillips & Vineberg, if you wish, or to the committee, where you say that this letter is wrong. If it's wrong in some part, tell us, and then we'll know. Otherwise, we will assume that if you don't do that, that that part that you're not talking about, you say yes, what he says there is correct.

Mr. Goudge: I'm prepared to do that now, senator, if you want me to.

Senator Jessiman: I think it would take a long time, but if -

Mr. Goudge: Well, I don't want to be taken by my silence to agree with it -

Senator Jessiman: Oh, no, no, no, no.

Mr. Goudge: Since you put that possibility out, senator. I just thought -

Senator Jessiman: What I'm suggesting is there is a number of things here that they said about the report are not exactly accurate or there is something missing, and, in particular, and I'm going to go through some of them in a very short manner, but what I would like you to do is just answer the letter, if you can, and you will. And you say you could do it now, but I'm trying to save time for the committee. If you could just go back to your office, dictate a letter and answer it -

Mr. Nixon: If I may, Mr. Chairman. The fact that the letter was not answered does not mean that we didn't give consideration to it. Mr. Goudge and I have discussed it, and, Mr. Chairman, if you want to proceed with that point by point, that's fine with us.

The Chairman: Mr. Goudge indicated his willingness. You brought the matter up. Proceed, Mr. Goudge.

Senator Jessiman: Fine.

Mr. Goudge: Why don't we do it one by one, senator, if you'd like?

Senator Jessiman: Sure.

Mr. Goudge: The first point, Mr. Vineberg states is that:

... "The beneficial ownership of T1T2 Limited Partnership was made known to the Government of Canada but was not made fully public when the agreement documents were partially disclosed during the election campaign." In fact, such beneficial ownership was made public to the extent suggested by the Department of Transport; had the Department requested any additional disclosure, T1T2 Limited Partnership would have certainly complied. An inference may be drawn from Mr. Nixon's statement that T1T2 Limited Partnership intended to hide in some way the names of its beneficial owners - such an inference would be entirely inaccurate.

You will know, senator, that the report simply says that there was not full public disclosure made of the principles involved. Mr. Vineberg acknowledges that in this point. The point that the report makes, senator, is that that was not done and it should be done in a matter of this magnitude.

Now, whether that was at the direction of the department, i.e., the Campbell government, or whether it was at the direction of the consortium for me is a matter of no moment. It is very little better for the government to seek to hide the full participants than it is for the partnership to seek to hide the full participants.

I may say that I did talk to Mr. Desmarais after receipt of this letter, and my recollection of that conversation is that his view was it was the partnership rather than the government that was the initiator of the line being drawn short of full disclosure. I say, senator, that it doesn't really matter from my perspective. The concern I had was that where you have a transaction of this order of magnitude, that transparency should be the order of the day. So that is my response to that point.

Senator Jessiman: Yes, sir. May I now speak? Are you through with that one?

Mr. Goudge: Yes.

Senator Jessiman: All right. I do have, and I'm going to have it part of it record here, a copy of an advertisement in a newspaper. Unfortunately, at the moment I can't tell you what newspaper, but it does say who the participants are. And from what I understand from the newspaper, it tells who the people are. Now, they are not hiding. What I further understand, although these are the principles, and you'll see the ad, we're now told that some of these are held by subsidiary companies or numbered companies. So are you suggesting here we have - we cannot tell you, we just know the date is March 1, 1993, and here is what the ad says, yes.

A company controlled by Montreal-based Claridge Group owns 73% of The Terminal 3 Limited Partners, the company that runs Terminal 3. Lockheed Air Terminals of Canada Inc., a subsidiary of Lockheed Corp., owns the rest.

Paxport is proposing to divide its equity between Matthews Group Limited (35 per cent), Allders International Canada (21%), CIBC Wood Gundy Capital Inc. (14 per cent), Ellis-Don Inc. (12.5 per cent), Bracknell Corporation (12.5 per cent), Agra Industries Limited (3 per cent), Norr Partnership Limited (1 per cent) and Sunquest Vacations Limited (1 per cent).

Now, I suggest to you, sir, that that is full disclosure. And I think it is better disclosure than if they had given the name of some numbered company who might be the actual registered owner, but we're now telling who the beneficial owners are.

But if you wanted actual ownership, and I'll just take one of them, and I don't know if this is the case, but let's say Sunquest Vacations Limited owning the 1 per cent. I'm told that that's a family. It's not a public company. It's owned by a family, and there may be a trust involved. And if we had put in there, if that were the case, that wouldn't tell you anything.

This is the disclosure that the public wants. And I'm suggesting that's not a valid statement in the report.

Mr. Goudge: Do you say, senator, that there was full disclosure of the beneficial ownership?

Senator Jessiman: That's what I'm told.

Mr. Goudge: Well, Mr. Vineberg doesn't seem to agree with that.

Senator Jessiman: Where do you see that?

Mr. Goudge: Mr. Vineberg's complaint in the letter, senator, is, it wasn't our fault that we didn't make full beneficial disclosure. His complaint is it was the government's fault.

Senator Stewart: To the extent suggested.

Senator Jessiman: Maybe this is what they suggested. I don't know. But these are the players that we understand owned these limited partnerships. What more disclosure do you want? I give you an example. Would you prefer that in the event that Sunquest Vacations Limited, that their interest actually was owned by a trust of the owner of that company, would you want that?

Mr. Goudge: I think what should have happened, senator, is that there should have been full disclosure of the beneficial ownership of the interests that were acquired in this airport. Mr.<#0104>Vineberg and I, I think, agree that there was not such full disclosure. I respect your view, senator, that there may have been, but in answering Mr. Vineberg's complaint, I thought, in fact I was sure, he and I were on the same factual footing, i.e. there had not been full beneficial disclosure of the ownership. Full disclosure of the beneficial ownership.

I've tried to make my point, senator, that on that premise, and that was my understanding at the time and still is my understanding, and it's my view that that's Mr. Vineberg's assertion, on that premise, it doesn't much matter whether it's the government that's seeking to keep that information from the public or the partnership that's seeking to keep that information from the public. Either is unsatisfactory.

Senator Jessiman: Go to the next paragraph, please.

Mr. Nixon: If I may, Mr. Chairman?

Mr. Nelligan: Can I just ask a question for clarification? So that we'll know what it was that was kept from the public, was any of the information in your view, Mr. Goudge, that was kept from the public material or substantial?

Mr. Goudge: In my view, Mr. Nelligan, the beneficial ownership question is itself substantial. And it should be Mr.<#0104>Nixon, because it's his report, but my view was that, as I've said before, and Mr. Nixon's view as recorded in the report, is that it is important where an asset of this magnitude is being transferred to the private sector, that the people of Canada know who the beneficial owners are that are acquiring the property. That's a matter of policy on which reasonable people could differ, but my view, and the report that Mr. Nixon authored and his view therefore, is what I've stated.

Mr. Nelligan: It wasn't in theory, sir. Now, subsequently, of course, we've heard who all the people are, and so we now have an opportunity to compare with what was disclosed and what might have been disclosed. And I just wondered if you had ever applied your mind to the fact to determine whether anything which was failed to be disclosed would be of major significance or any significance. I wondered if you had applied your mind to that.

Mr. Goudge: Yes, sir. The criterion of significance, to use your language, is the criterion of what's in the public interest, in my language. So that the information that is not disclosed is, in your terminology, significant. In my terminology, it's an undesirable shortcoming vis-à-vis the public interest. In other words, the public has the right to know who is acquiring this property. Anyway, sorry for being repetitive.

Mr. Nixon: If I may, Mr. Chairman, since the final comments from Mr. Vineberg in point number one are, in my view, somewhat pejorative, I should say - that is, regarding me, that I should say that in light of our review in November of 1993, we were looking back just a couple of weeks to the political furore over the signing of the contracts on October 7. In response to that, the government of the day felt that they could allay, to some extent, the concerns expressed by citizens across Canada by revealing additional information.

The reports based on that information made it clear that they were were inadequate in two respects: that the details of the non-arms-length contracts that were a part of the contract had not been revealed, and secondly, the full beneficial ownership had not been revealed. That was the information available to us at the time we were considering the matter, and I was in agreement with Mr. Goudge's view that he has already expressed that full transparency of ownership was necessary, and, since it had not occurred, it was a basis of some criticism.

We went on to examine the other aspects of the contract that for commercial reasons had not been made public, and we've discussed those in this committee under other headings.

Senator Bryden: Mr. Chairman, I just want a factual point cleared. The announcement in the newspaper article which is dated March 1 -

Senator Jessiman: I was told it was dated March 1.

Senator Bryden: That's fine - has Ellis-Don Incorporated at 12.5 per cent. Were Ellis-Don -

Senator Jessiman: At that point, I think they were. In October, they had either reduced or were not part of the consortium.

Senator Bryden: What this says is, disclosed during the election campaign, which would have been, I take it, in the fall. I understood that he Ellis-Don withdrew sometime shortly after this, and Wood Gundy.

Senator Jessiman: Yes, that's right.

Senator Bryden: So whatever disclosure was in this advertisement was not the beneficial owners around this period of time.

Senator Jessiman: It was at the time of that date, assuming March 1 is the correct date. That is correct.

Senator Bryden: My point is that in this paragraph here, later, these beneficial owners had changed.

Senator Jessiman: Whether or not there was further public disclosure after that, I can't tell you, but I'll inquire.

The Chairman: Mr. Goudge, in going through this, which could be lengthy, would you help the shorthand reporters by saying, when you read the thing, read the paragraph number out, and then whatever part of it you're going to quote, and then say, "My response is"?

Mr. Goudge: Yes. Thank you, Mr. Chairman. I apologize for not doing that so for.

Can I go on, senator, to the second point?

Senator Jessiman: I want to say one thing. I'm going to file with you, and it's similar, but it's a typed - we wouldn't find out the name of that paper. What we did get was we found that a similar disclosure was made in The Globe and Mail some date in February, near the end of February. I want to just file that. You can go on. If it changes, if you want to add something after you see it, fine. But let us go to paragraph 2 for the meantime.

Mr. Goudge: Okay. If I can go then, Senator Jessiman, to paragraph 2 of Mr. Vineberg's letter at the top of page 2, where Mr. Vineberg says:

In the next paragraph, Mr. Nixon states, when referring to the term of the lease and option and the obligation to develop, that, "If those events [being the development triggers] do not transpire, the lease continues although the development will not."

Mr. Vineberg goes on:

The tone of this sentence suggests that this ought to be considered as some sort of "deficiency" in the agreement; the fact is that the agreement so provides because if the passenger triggers are not achieved, there is no need for further development of the Terminals. Since the majority of the costs of development are ultimately borne by the airlines through their rent, an obligation imposed upon T1T2 Limited Partnership to unnecessarily develop would be unsupportable by both the airlines and the travelling public.

Senator, my response to that is twofold. I'll be brief, because I've already given it, I think. First, my concern is that, in a contract whose essence is the redevelopment of T1T2, it seems to me unusual to leave with the lessor, sorry, the lessee, that is, leave with the partnership the right to occupy the premises if the fundamental principle behind the deal is not proceeding, i.e. the redevelopment. One would have thought that what would happen is that the leasehold interest would revert to the Crown, and my experience is that that's a common commercial arrangement where development is the issue.

The second concern I have, senator, is that if the stage 2 or stage 3 passenger triggers were not met, the replacement of T1 by new facilities would be jeopardized. The Crown had agreed to pay one-third the excess costs of keeping the terminal processing portion of T1, excluding the parking garage, open if the cost exceeded $15 million. That amount was based on the minimum capital required to keep T1 operational for eight to ten years, not indefinitely. So that if indefinite continuation of T1 were required, the Crown's exposure to more than $15 million was very real indeed.

Alternatively, T1 could have been forced to close at some stage because of age, given that the passenger triggers were not met. That would have required the passenger traffic below the triggers to be split between T3 and whatever portion of T2 had been redeveloped. This might have forced the Crown to develop other facilities before a 33 million passenger threshold was achieved, thus reducing the Crown's rent for the amount of passengers transferred as well as the capital cost of the new facility.

So there were risks either way, but it seemed to me appropriate that the thing ought to come back if the development wasn't going to proceed. Given that it wasn't going to come back, there are real financial risks for the Crown in proceeding if the triggers weren't met.

Senator Jessiman: But if it doesn't come back, the rent is still paid.

Mr. Goudge: Yes, but if the triggers aren't met, the Crown is going to have to pay its share of the redevelopment of T1. That's more than the $15 million that was contemplated, because the $15 million is contemplated on the basis, senator, that the thing only stays in that state for eight to ten years, not indefinitely.

Senator Jessiman: We had evidence before us that indicated that the Crown - the deputy ministers and such from Transport Canada said that they estimated the cost to do the 15 million, as you suggest, was 11 million. So that up to 15 million, the developer had to pay. What the Crown said was, "We estimated the costs were going to be 11 million, so we have a $4-million cushion."

Mr. Goudge: Yes. That's, senator, on the assumption that all you have to do is to keep the existing T1 alive for eight to ten years. Okay? Given the way this lease works, where if the triggers are not met the development doesn't go ahead, it is possible that T1 would have to be kept at the responsibility of the Crown for a third of an excess beyond $15 million for more than eight to ten years. Okay? That is the whole theory of the 15.

Senator Jessiman: The likelihood of that, from what I understand, is pretty remote. The Crown themselves, the civil servants convinced me, at least, that the possibility of them even having to put up any money was remote.

Mr. Goudge: Well, anyway, we can differ, senator. All I can give you is my view.

Senator Jessiman: Do you want to go to the third now?

Mr. Goudge: The third paragraph on Mr. Vineberg's page 2 is:

With reference to the rent, Mr. Nixon states: "The annual rent to the Government of Canada for the first 9 years begins at $27 million annually and rises to $30 million annually." This statement is incorrect. The annual rent begins at $28 million annually and the cash flow forecasts delivered to and (we understand) accepted by the Department of Transport indicate that such rent in year 6 will be $58 million, in year 7 will be $63 million, in year 8 will be $80 million and in year 9 will be $86 million.

To deal with what Mr. - and my response, Mr. Chairman, to get it into the record, is that Mr. Vineberg's criticism of the line in the report is to a degree accurate. It is also to a degree sharing of the mistake. It is $27 million, not $28 million, but it should appropriately have said "minimum". Okay? The $28 million includes the rental for the heating plant. Okay? And what the report talks about is the project short of the heating plant, where it is accurate that the minimum rent is $27 million, not $28 million.

So I acknowledge Mr. Vineberg's assertion that the report is to that modest degree inaccurate. It should have said "minimum". I don't acknowledge that his statement of what was correct is correct. His should have said "minimum" too. So let me go on. But that's a small point.

Senator Jessiman: Sure.

Mr. Goudge: Let me go on to paragraph 4. The fourth criticism is:

In dealing with the deferral in rent for years two, three, and four of the lease, Mr. Nixon states: "The result is that the actual rent for years 2, 3 and 4 of the lease will be substantially less than the $26 million of net revenue obtained by Transport Canada from the same facility in fiscal 1993." If Transport Canada maintains its financial records on an accrual basis of accounting, this statement is incorrect. If it maintains its financial records on a cash basis of accounting, this statement may be accurate in a strict sense, but is clearly misleading because:

i) it fails to recognize that the Department of Transport's revenues will be increased by the result of the deferral over the following 10 years;

ii) if Transport Canada were to spend the $100 million that the developer would spend during this period of time, its cash resources would be depleted by far more than $33 million; and

iii) the reason for $33 million deferral was because the Department of Transport insisted that T1T2 Limited Partnership commence the development immediately while maintaining Air Canada's rent at its present unrealistically low level until 1998. The Paxport proposal stated that the obligations of Paxport to commence the development were conditioned upon rentals reflecting market rates being in effect at that time.

My response to that, senator, is that the accounting basis is indeed a cash basis. The report accurately states the circumstances of deferral of rent. It accurately acknowledges that there is a build-up of interest which will come back, but there is no question that in the early years of this lease, the cash flow to the government is less than the cash flow at the time the lease was entered into.

Senator Jessiman: Number five.

Mr. Goudge: Number five. The criticism is as follows:

Mr. Nixon refers to the deductions in the computation of gross revenue as "unusual in commercial transactions" - the only sense in which this statement could be considered to be true is that there are very few commercial transactions in which an airport terminal is leased. In fact, these deductions are, in almost every case, completely "normal" in the context of the computation of gross revenues in a retail lease where percentage rent is payable and closely parallel those negotiated with respect to Terminal 3.

I can say, senator, my response to that is that it was my view, after reviewing the matter and consulting with other lawyers or receiving their views, that, indeed, these deductions from gross revenue were unusual. I begin with the information that I received from the Treasury Board. I'm sorry to do this, Mr. Chairman, but while I begin there, that simply set me on a course. I will say no more than that. It didn't -

Mr. Nelligan: Excuse me, Mr. Goudge. I think we're both familiar with the problem. When the witness reads from a text, he puts a very heavy strain on the reporter and the interpreters.

Mr. Goudge: I'm sorry, Mr. Nelligan. I am usually doing what Mr. Nelligan is doing, and when I'm on the other side of the witness chair, I forget.

The Chairman: Just a little bit slower.

Senator Kirby: Can we say, Mr. Chairman, in any event, do the people in translations, since he's reading from a document that in fact Senator Jessiman gave him, if they could have they that. You supplied the document.

Mr. Goudge: If it will make sense for the record -

Senator Kirby: I'm just trying to make life easier for the people in the booth. They have it as well. Okay.

Mr. Goudge: If it will make sense for the record, I'm quite happy simply to deliver my response and use the numbered item. I'll do whatever you would prefer, whatever makes your record most useful.

Mr. Nelligan: I think everyone has the text of the letter in front of them.

Mr. Goudge: Why don't I just deliver my response. Is that okay?

Senator Stewart: The paragraphs will be inserted in the record in the appropriate place.

Mr. Nelligan: Yes.

Senator Kirby: I move it, seconded by Senator Jessiman.

Senator Jessiman: So that the reporter knows, that even though he's going to give the response, the actual paragraph in the letter will be typed into the record.

Mr. Nelligan: Mr. Goudge, if you are reading from notes, it would be of assistance if you could let the reporter see them, just to check his own text afterwards.

Mr. Goudge: Absolutely, Mr. Nelligan. I'm pleased to do that.

Senator Bryden: Just that so I understand, when he gives his reply to this letter, the points in this letter are going to appear in the report?

The Chairman: If he refers to number six, number six is written in full, and then his response is the only thing that he speaks to that is recorded.

Senator Jessiman: You can show number six in total.

Senator Bryden: Okay. I want to go to number ten, if we're not going to go through this point by point,

Senator Jessiman: Yes, he is. He's going to answer every point. He's not going to read it into the record. We're going to assume it has been read into the record. Let us deal with six. Assume it to be read in.

Mr. Goudge: I'm hope I'm about to do what everybody thinks I'm going to do. I'm not quite sure.

Senator Jessiman: You just answer number six. We've read it.

Mr. Goudge: Why don't I just go ahead and, senator, you will tell me if I'm not doing it right.

I should like to respond, Mr. Chairman, if I could, to the point raised in point five by Mr. Vineberg, Senator Jessiman.

My view, as I've said, after taking some advice and reviewing the matter myself, was that there were a number of deductions from gross revenue that would be considered, from my perspective, at least, unusual in commercial transactions.

You will know, senator, that in the brief supplied by the Ontario government, there is a schedule where a legal analysis was done by the Fraser and Beatty firm, and they comment on the same point. There is reference in the material, as I say, from Treasury Board that raises this as a possible issue. My own view was that there were a number of items that would not be usual in calculating gross revenue as a basis for rent payment in making deductions from that.

Senator Jessiman: I don't remember, but was Fraser & Beatty referring to commercial leases generally, or were they specifically talking about the airport terminal leases?

Mr. Goudge: Can I just read to you what they said? This is a document that you have, senator. I don't know whether the number stamps on the bottom references your document number, but let me just indicate for the reporter that what I am reading from is I think a schedule to the provincial submission to Mr. Nixon. I think it's Schedule A. I'm reading from point seven on page five of that schedule where gross revenues are addressed, and the recitation there is that there are some deductions from PDC's calculations of its gross revenues, and the opinion given is that among many generous deductions, unusual ones are rebates and refunds, payments by her Majesty as occupant of leased premises, bad debts, only 20.5 per cent inclusion re retail and conventions run by tenant with no limit on what tenant could operate. So that's the Ontario government's view.

Senator Jessiman: But my question was -

Mr. Nelligan: For the record, that was document 2318.

Senator Jessiman: My question was - I didn't remember, and what you've read hasn't said. I'm asking whether that, what you've read, refers to airport leases. What you have read out does not specifically say "in airport leases".

Mr. Goudge: Well, it is referring, senator, to an airport lease, and indicating that the deductions are unusual.

Senator Jessiman: Would you read it back? I didn't hear you say anything about an airport.

Mr. Goudge: Well, it's a comment on this airport lease.

Senator Jessiman: I understand that.

Mr. Goudge: And it characterizes -

Senator Jessiman: I want to know whether they're saying airport leases. Are they talking in that report about airport leases, or are they talking generally about commercial leases?

Mr. Goudge: It's about - they are talking about this airport lease, and they say these are unusual deductions. Now, do they say it's unusual for all airports? I would assume they mean that. That is just - they say when you look at this airport lease, there are some unusual deductions from the calculation of gross revenues. And I think a fair reading of that is that they say this is a unusual deduction in this context, and the context is airport leases.

Senator Jessiman: I know of one other airport lease, and that's Terminal 3. Mr. Vineberg is saying that this is better than the Terminal 3 airport lease. Go ahead. You made your point.

Mr. Goudge: Can I go on to point six?

Senator Jessiman: Sure.

Mr. Goudge: The one trouble with doing it this way, senator, is that I have to read it to figure out what it is, so there will be a pause, if you will forgive me.

I think, senator, we've dealt with this, haven't we? My views are on the record. I'll repeat them, if you'd like, but I think you understand my position.

Senator Jessiman: What they are saying, as you understand, is that they are saying ordinarily they are keeping it up first rate and they don't get money - the money they spend is not recoverable. It's only major repairs where they have to get a return.

Mr. Goudge: I think you're on point seven.

Senator Jessiman: Oh, I'm sorry. Okay. Explain this one.

Mr. Goudge: This one is what in the report is referred to as a sole purpose corporation.

Senator Jessiman: Okay. We've dealt with that.

Mr. Goudge: Okay. Over the page to point seven of Mr. Vineberg's letter, this is the first class air terminal debate.

Senator Jessiman: Yes.

Mr. Goudge: And again, I indicate that the analysis that Mr.<#0104>Vineberg makes that the obligation about which concern is expressed in the report does indeed relate to one of the three aspects of maintaining a first class air terminal. It is from my perspective an important aspect.

I may say, senator - and I was just going to try and go to the place in the report where this is referred to.

I am not sure I can lay my hand on it quickly.

Senator Jessiman: I may find it for you while you are looking at something else.

Mr. Goudge: Let me just see if I can do that. I think it's correct that - in fact, now that I've found it, it's on page 5 of the report, second paragraph from the bottom.

It is true that the obligation to maintain a first-class air terminal as asserted there, carrying with it the cost recovery from the travelling public, relates to the third of the three characteristics of maintaining a first-class air terminal.

The paragraph that is in the report, I may say, leans extraordinarily heavily - given my confidentiality agreement I can say no more. It leans extraordinarily heavily on precisely the information that was before Treasury Board at the end of August.

Mr. Nelligan: May I do something on that? I am always concerned about this confidentiality, so I am going to put it another way.

Mr. Goudge: And maybe I shouldn't raise it, Mr. Nelligan, because I maybe getting on thin ice when I, you know -

Mr. Nelligan: No, that's fair enough. So there would appear to be some opinions on which you have relied which have appeared in a confidential document.

Mr. Goudge: Let me put it this way, senator - or Mr. Nelligan. When I recite the way in which the contract worked, in this paragraph -

Mr Nelligan: Yes?

Mr. Goudge: The way in which I recite it to work appears to be the same as it may have appeared elsewhere.

Mr. Nelligan: Let me put it this way -

Mr. Goudge: I can't. I mean I -

Mr. Nelligan: Having read whatever you read -

Mr. Goudge: Yes.

Mr. Nelligan: - did you have an opportunity of discussing the same subject with departmental officials during your review?

Mr. Goudge: I would have had an opportunity, senator, I confess - or Mr. Nelligan - I confess that I -

Senator Kirby: He has been here long enough -

Mr. Nelligan: Time's running out. I missed the last group in.

Mr. Goudge: He certainly would meet the casting office requirement.

Mr. Nelligan: But if you discussed it with them, what was the view they expressed when they were dealing with you on a face-to face basis outside of the confines of any cabinet room?

Mr. Goudge: On this particular point?

Mr. Nelligan: Yes.

Mr. Goudge: I think I would have derived what's in the report not from my discussions, senator, but from what I read.

Mr. Nelligan: And I take it you did not take further advice from them or ask them to comment on those questions at that time?

Mr. Goudge: About this particular paragraph?

Mr. Nelligan: Yes.

Mr. Goudge: The one saying obligation to maintain and operate? No.

Senator Jessiman: Is Mr. Vineberg correct, though, that the only tenant obligation that is conditioned is the obligation to effect an upgrade of the complex which means to effect structural changes to the complex of significant magnitude following completion of the development?

Mr. Goudge: That's correct, senator. My view was, though, that that's, over 57 years, an extraordinary likelihood. So it is an important obligation that is conditioned the way the report recites.

Senator Jessiman: Number eight?

Mr. Goudge: I think this is also, senator, something we have dealt with. I would be glad to reiterate my position if you like, but this has to do with taking back the security and the consent that the mortgagee doesn't have to get from the Crown to assign it.

Senator Jessiman: But you see number nine.

Mr. Goudge: Yeah, it's the same point.

Senator Jessiman: But they have a first right of purchase.

Mr. Goudge: The response I have already given, senator, is that, in the event of default, that is, if the mortgagee takes over possession, not only is there a consignment without consent available, but the notion that the government would have to, in effect, go back into possession in the midst of a development that is in default is, in my respectful submission, not something that's in the public interest.

Senator Jessiman: It wouldn't be a bad deal in this case. You're going to get 87.5 per cent of Terminal 3.

Mr. Goudge: I guess my sense, senator, is that there isn't -

Senator Jessiman: I wouldn't mind taking that position.

Mr. Goudge: There is no landlord that puts out a property for development to the private sector that wants in any way to be stuck with development in process under collapse, to have to take it back and continue it. In my experience, that's the product of enormous litigation and enormous difficulty for the owner.

Senator Jessiman: But the difference here is you've got a Terminal 3 all completed with $150 million worth of equity.

Mr. Goudge: But what they've got to take back includes Terminal 1 and 2 and, on my hypothesis, in the middle of a redevelopment that has been defaulted upon.

Senator Jessiman: Well, I'm saying it's better than the usual situation.

Mr. Nelligan: May I just ask a question there?

We've heard evidence, Mr. Goudge, that one of the reasons for giving some security to the mortgagee was the obvious necessity of borrowing money and having to make this development and provide security to the lenders.

What would you recommend would be the appropriate way of assuring security to the lender and yet, at the same time, not giving them the opportunity to foreclose.

Mr. Goudge: I would have thought that the consent of the Government of Canada before the lease - before the lease could be assigned by the mortgagee would be a minimum protection for the public interest.

Senator Jessiman: So what's the different - what's the situation? The situation is the mortgagee now doesn't - maybe the mortgagee - unless there's a personal covenant from the mortgagee to the Crown, what happens? You don't give your consent. And the mortgagee says, well, we're not going to develop. What do you do? You foreclose.

Mr. Goudge: There is no consent required for the mortgagee, but -

Senator Jessiman: I know that. Let's assume there is consent required and you don't give it.

Mr. Goudge: Right.

Senator Jessiman: And they don't want to develop.

Mr. Goudge: Right.

Senator Jessiman: What do you do?

Mr. Goudge: You have to take it back and it's a mess.

Senator Jessiman: In exactly the same position. So your answer is not the answer. There may be another answer but that one isn't it.

Mr. Goudge: Well, the criticism that's made, senator, is about the consent requirement. That's the criticism.

Senator Jessiman: But it should have some meaning.

Mr. Goudge: No, but -

Senator Jessiman: You say we can't - we have to give consent to it being assigned. We have the right to buy it before they can assign it, so we have that right. We can take back this thing. We can complete it ourselves. You say, well, they've got to have our consent.

Mr. Goudge: All I'm saying is -

Senator Jessiman: If they don't give the consent -

Mr. Goudge: If you say to me, senator, is it as good protection for the public interest to have the right to buy it back, as it would be to have the right to withhold consent, if that's your assertion to me, then I simply would respectfully disagree. I mean, it seems to me they ought to be able to have both.

Mr. Nelligan: But if I may get back to my point, I'm concerned about security. I am assuming that we have to provide the mortgagee with security. In your view - and I hesitate to ask you this because I don't think you know anymore about it than I do, with respect, as a litigator.

Mr. Goudge: I would be quite prepared to say I know less, Mr. Nelligan.

Mr. Nelligan: But on the basis of the advice that you received, was it the view of your commercial advisors that a senior lender would consent to a mortgage where the right to foreclose was dependent upon the consent of an outside party?

Mr. Goudge: I think what we're talking about is the right to assign. The right to assign.

Mr. Nelligan: The right to assign, all right.

Mr. Goudge: And if you say to me, would that stand between the mortgagor and a potential mortgagee -

Mr. Nelligan: Yes?

Mr. Goudge: - the judgment I make is no.

Mr. Nelligan: All right.

Mr. Goudge: And the reason for that, Mr. Nelligan, is that it's commonplace for this kind of protection to be built in for an owner. That is, where an owner faces a lessee who is raising money with a mortgage, the owner doesn't want to be stuck either with the project back or with a new tenant, in effect, who has taken over the mortgage interest through an assignment for which no consent is required.

Senator Jessiman: We are going to go - are we at 10 now?

Mr. Goudge: Yes. Thank you, senator.

Senator Jessiman: These are the circumstances in which a PFC can be given. Do you think that is unreasonable?

Mr. Goudge: Again, I have given my response. Let me just reiterate it in a nutshell, senator. It seemed to me, and let me just say it respectfully, that if Air Canada is insolvent - there is a risk presented about the possible insolvency of Air Canada. Who should bear that risk? Should it be the government and the travelling public or should it be the developer? And in my view, given the nature of this being put into the private sector, it is appropriate that the private sector, namely the partnership, take on the risk of the Air Canada insolvency. They have laid it off here on the travelling public.

Senator Jessiman: They have already invested $350 million. That was a covenant that they had to put up from day one. They have also put security of another $150 million. Surely to goodness, there's got to be some give and take in any negotiation. I think the Crown did pretty well here.

Mr. Goudge: I quite understand, senator, that from the partnership's point of view, they would lay off all the risk they could.

Senator Jessiman: If they could, of course.

Mr. Goudge: Absolutely. That's what dealing is all about. My task, I thought, in advising Mr. Nixon, was to talk about the public interest. And it seems to me, if I had been advising the government, I would have tried to urge upon them the right of the government to say to the developer, look, you are taking this on, you're in the marketplace, you're assuming risk, you're also taking on the potential of reward. One of the risks that you should continue to have involves the circumstances of Air Canada not being able to pay its rent. You should not be able to lay that off on the public by charging a PFC or by declining to do the development.

Senator Jessiman: But what Mr. Nixon is recommending to the government - which it hasn't done, by the way - what he has recommended in his report is for the government to go out and borrow the necessary money to build this facility and then transfer it to an LAA. And you know and I know that the only way the LAA is going to get any money is by a PFC. You know that. That's how they raise their money.

Mr. Goudge: I don't know that, senator. I mean, I -

Senator Jessiman: You don't? You've gone to Vancouver?

Mr. Goudge: Absolutely, I've gone to Vancouver.

Senator Jessiman: Okay. Is there a passenger facility charge?

Mr. Goudge: There is a passenger facility charge, but if you say to me, is that inevitable with an LAA, my answer is that not so far as I know. That is, is there any law of nature that says an LAA has to impose a PFC?

Senator Jessiman: Are any of the persons, the members or directors of an LAA, do they put any money in? Do they have any money at risk? Where is the money going to come from?

Mr. Goudge: We are getting into a whole other area, senator.

Senator Jessiman: Fine. All right. I'm sorry. Go to 11.

Mr. Goudge: I am quite prepared to engage in this if you want, but it's going to get -

Senator Jessiman: I think we have discussed 11, have we not?

Mr. Goudge: Yeah, I think we probably have.

Senator Jessiman: So I think the reporter can, at that - you can answer, you've already answered.

Mr. Goudge: I'll just say the same response. How's that?

Senator Jessiman: That's good. Well, a non-arm's length -

Mr. Goudge: We have discussed 12, too, haven't we?

Senator Jessiman: I think we have, yes. And I think, for the reporter's sake, he can look back when we were discussing this yesterday.

Mr. Goudge: Yeah, but as long as you're satisfied that I don't by my silence adopt Mister -

Senator Jessiman: No, no, you've got -

Mr. Goudge: - criticism? Okay.

Senator Bryden: Mr. Chairman, can we just get enough so that the reporter can find it? Can they find it -

Mr. Goudge: This has to do, Senator Bryden, with the non-arm's length contracts and I've responded two or three times, I think, to that.

Senator Stewart: The reporter isn't going to find it and reinsert it here. But the reader might be helped a little bit by some clue here as to what is being discussed and then be able to revert to earlier passages.

Mr. Goudge: Just to shorten it, Mr. Chairman, why don't I try to capsulize in just two sentences my concern. My concern is that the protection of the public interest for the pre-October-7, non-arm's-length contracts was insufficient. All they had the right to do was look and they didn't even look.

Secondly, for the post-October-7 contracts, I would have prepared a right that said more than fair market value but also had the right to veto. Simple.

Senator Jessiman: Okay, go to 13.

Mr. Goudge: This has to do with really the increased costs that will be charged to the airline.

Senator Jessiman: What's your answer then to that last part where, you know, you said it's just so terrible to the airline. Here we've got the major tenant who has already signed a 37-year lease. I mean, if it's such a terrible thing to the airlines, how were they able to negotiate and get Air Canada to sign a lease?

Mr. Goudge: At the end of the day, senators, it's the travelling public that pays for these increased costs. That's the problem.

Senator Jessiman: But you were talking about the airline.

Mr. Goudge: Do you want me to go on to point 14?

Senator Jessiman: Yes, please.

Mr. Goudge: This is short, so, perhaps, Mr. Chairman, I can just read it. So Mr. Vineberg says:

With respect to the Retail Pricing Policy, Mr. Nixon states that subtenants will be restricted to charging not more than 15 per cent above the average price of a comparable product offered in downtown Toronto. This policy is the same found in the agreements governing Terminal 3 and we believe that this policy is more restrictive than that currently in place by virtue of leases signed by the Department of Transport with concessionaires in Terminals 1 and 2.

As I indicated this morning, senator - I think I did, at least - when I went through the precise paragraphs in the report that describe the clauses in response to Senator Bryden, that was simply a descriptive paragraph. Mr. Vineberg seem to raise something pejorative, implied it was simply descriptive.

Senator Jessiman: This is a very important paragraph, and I think you should take time to read it and I think the senators should take time to read it, and if you want to read it into the record now, I have no objection. But it is terribly important. In effect, it is saying, it is not what is in the report but what is left out of the report. Because they said they sent you on November 9, 1993:

...a booklet comprising 35 pages and enumerating approximately 157 specific provisions of 19 agreements between the parties which -

- in the proponents' view-

- constituted protection of the public interest and/or constraints upon T1T2 Limited Partnership.

Mr. Goudge: I guess my response to that, senator, is that it is understandable that Mr. Vineberg wouldn't agree with Mr. Nixon's conclusion that parts of the contract failed to properly protect the public interest. That is - I mean, that's hardly surprising, you know.

Senator Jessiman: Even though there is a $50-million letter of credit as security in respect of some of their obligations? I mean, there seems to be a limit. From what I am getting, and there is nothing wrong with this, Mr. Nixon, sir, you apparently are of the view that the private sector cannot go in there and make more money, enough to make a profit and also give the government a good rate of return.

I mean, it seems to be your view - and there are people, you know, that lean that way. I don't happen to lean that way. I lean more to the right. I think the private sector can get in there and do a better job, make money and do a better job for the government.

Mr. Nixon: Let me point out that Mr. Goudge has responded to your questions and Mr. Vineberg's complaints about the report as effectively as we can.

Beyond that, however, we have received information, largely from Crosbie & Associates, that the return to the taxpayers was not as large as it might have been and that, in fact, the 23.6 per cent profit level before taxes that was incumbent - or that was involved in the deal was inordinately high and unnecessarily high.

It is on these bases that we expressed our objection. Now, the senator has indicated that maybe I object to somebody making a profit. I don't do that. But I saw this as an inordinate profit and, in that instance, faulted the deal on that basis and brought it to the attention of the Prime Minister. I felt the government should have done better.

We have heard testimony this morning from Mr. Crosbie that the government of the day left $250 million on the table on the basis of what might have been. Our criticism was that their negotiation and their financial approach to this was inadequate and should have been better.

That's the basis of my criticism. We're talking about process and we may get into that again before we finish today, but on the basis of the terms of the contract, I feel quite confident that my recommendations to the Prime Minister were appropriate.

Senator Jessiman: And you depend on Mr. Crosbie's report in that regard, as far as the monies are concerned? And solely Mr. Crosbie's - and anyway, Senator Lynch-Staunton's going to deal with that this afternoon, so I'm not going to go on at length. But there is sworn testimony before us that Mr. Crosbie just does not agree with Price Waterhouse. He does not agree with Deloitte & Touche, and he does not agree with RCMP - which is not the RCMP that we know, but it is Raymond - I think you are familiar with RCMP. It is an auditing firm out of Montreal. They all agree - and it really gets down to the cost of money. And he is out 200 basis points.

But let Senator Lynch-Staunton bring that up later and he will be questioning Mr. Nixon at that time.

Mr. Crosbie: Just for the record, though, Senator Jessiman, I do not accept what you have just presented in terms of who we agree with and who we don't agree with -

Senator Jessiman: What I'm saying to you - I'm not saying who you agree with or who you don't agree with. What I'm saying to you, we have Mr. Stehelin, the president of Deloitte & Touche, under oath, has said just that. And he's going to read it into the record.

Mr. Crosbie: We're happy to talk with you about some of the things he said.

Senator Jessiman: Right, and I am saying, I'm not the one who is going to discuss it. I could, but as the senator across the way, you know, get a little bored with his voice and the same with mine.

I've got a few other questions and some of them - we may have even touched on some of these, but I think I can get through them in a hurry. My answers are short. If your answers are yes or no, we -

Senator Kirby: I think you mean your questions are short. Anyway, something like that.

Senator Jessiman: You are very critical of that 57-year lease. I'd like to ask you a few questions about this. Do you know the term of the Vancouver LAA lease? Do you know the term of that?

Mr. Nixon: No I don't.

Senator Jessiman: If I told you it was 60 years, would you be surprised?

Mr. Nixon: No, I wouldn't be surprised.

Senator Jessiman: Okay, just - Edmonton? Edmonton, Calgary?

Mr. Nixon: I should tell you that we have not examined in detail the leases elsewhere in Canada, other than as they are associated with the LAA and other than that they may have some provisions that are more advantageous to the arrangement than the one that we are discussing in detail, that I pointed out that, because of the acceptance of the T1T2 proposal, that there might have to be renegotiations with those other ones.

But if you want to go through each one of those airports, I am not familiar with the term, other than the same approach was taken by the same officials and it would not surprise me if it were in the 60-year range. And that means my view is similar under those circumstances; that in my view, it's not possible to predict what the needs of the air-travelling public will be 60 years from now and that the lease should more appropriately reflect that by being for a shorter term.

Senator Jessiman: You knew, I assume, that the lease wasn't negotiated. That was right in the request for proposals. Did you know that?

Mr. Nixon: That's correct. I think that was a mistake.

Senator Jessiman: So really what you're saying -

Mr. Nixon: And where you turn it over to an LAA, where there is not the drive of the requirement to meet profit expectations but simply to provide appropriate facilities and return the profits to the development of the facility for the public good, that you can't compare those in any significant way. It is simply a difference in kind.

Senator Jessiman: I guess, anyway, it will come up, that Mr. Stehelin again says - and other evidence that we were given was, if you're going to finance something like this, these kind of figures, you have to get a long-term lease.

But what they would really like, the investor or the lender, they would like them to get fee simple title. But they've got a leasehold title here, and it has to be for a long time or you can't finance it.

Let's deal with the cancellation clause. You're critical or you appear to be critical. You don't say it should be there. You just mention.

I want to tell you that Ran Quail, in his testimony, he was a person that was one of the chief negotiators early on in '93, confirmed that the clause entitling the government to cancel for a convenience would not normally be part of a land lease. Both Mr. Quail and Mr. Desmarais explained that this type of clause would render all land leases unfinanceable. That's the point I was getting at. Were you aware of this government policy?

Mr. Nixon: I was, Mr. Chairman. It concerned me that, since the possibility of a cancellation was being presented to the elected government of the day, it is unfortunate that there had not been some contractual inclusion that would permit negotiations leading to that end.

As I recall, I did not include the lack of that clause in my report but it does appear in some of my drafts.

Senator Jessiman: At some point during the 57-year term, the government does have the right to buy itself out. You knew that? Yes.

What's the deal with the 75-kilometre restriction, the radius clause? The clause prohibits the government from developing other airports within 75 kilometres of Pearson until passenger traffic actually exceeds 31.5 million passengers.

You mentioned 33 million, but they always have the right to move up to 1.5 million passengers. You state that this clause may well constrain policy initiatives and could lead to overcrowding. Do you know if there's a similar clause in the Vancouver LAA lease and, if so, what the radius is?

Senator Kirby: I think my answer would be similar to what the -

Senator Jessiman: I am told that each and every of the leases, Vancouver, Edmonton, Calgary and Montreal, have that 75-kilometre radius clause, but if you -

Senator Kirby: Senator Jessiman, can I just ask you a question? I don't know the details of where the airports are in some of those cities, but I think I know Edmonton, Vancouver and Calgary pretty well. In a question, I believe, yesterday or the day before, Mr. Nixon responded and I think we counted up 11 or 12, or something, different airports in the 75-mile radius of Pearson.

There are no other airports within a 75-mile radius of Calgary, for example, and in Edmonton, there is one which is the Edmonton Municipal Airport. So I think there is quite a difference between -

Senator Jessiman: But Montreal is the same thing, I am told.

Mr. Nixon: Except that both their terminals come under the LAA there.

Senator Kirby: The only point I am trying to make is, it's easy to give someone a 75-mile radius if there is nothing included inside it. That's all.

Senator Jessiman: I said earlier, and I didn't think I - I wanted to say it again, though, that Mr. Stehelin, president of Deloitte & Touche, testified before this committee that the 75-kilometre radius provision is essential to borrowing money. He also told the length of the term, plus this is important to borrowing money as well. So I am just giving you - and you wouldn't have known that.

Mr. Nixon: Well, as a matter of fact, the matter was discussed, and I felt that it had to be balanced with the policy alternative which would allow the development of the air transportation facilities in southwestern Ontario as a unit under an appropriate LAA.

It's very difficult to say to the people of Hamilton, which is no mean city, which has made huge developmental expenditures, and so has the Government of Canada made huge developmental expenditures in their regional airport, that they're going to be put on ice until such time as the total Pearson facility is utilized and in fact crowded. It may be convenient and, in Mr. Stehelin's view, essential that that sort of removal of risk be a part of the contract. My own view is that it was not in the public interest.

Mr. Goudge: Can I comment on that, senator? Because I think there is an important distinction between the LAAs, as I understand them, and the leasing arrangement in question here. And that is that the LAA constraint is premised on the LAA continuing to meet demand.

The concern that is recited at page 11 and 12 of Mr. Nixon's report is that the constraint on development within 75 kilometres arises until the 33-million-passenger-per-year threshold is reached. And it was the staff's opinion, as in the Treasury Board's submission, that pressure for alleviation would commence when the 30-million-per-year figure is reached. In other words -

Mr. Nelligan: Bingo, Mr. Goudge. That was what you weren't supposed to say.

Mr. Goudge: No, no. That's in the report, Mr. Nelligan, and I have been - Mr. Nixon has been inferentially released from his confidentiality requirement for that item by the government having released the report, as I indicated to you before. Okay? That is not a breach of the confidentiality requirement, as I tried to explained to you yesterday.

Mr. Nixon: They didn't white it out.

Mr. Goudge: They didn't white it out. Okay? So I really don't think that's a breach of the confidentiality agreement. Fair enough?

Mr. Nelligan: It leaves it in limbo because we don't know the rest, but that's not your problem.

Mr. Goudge: Well, no, but I think -

Senator Kirby: [Inaudible.]

Mr. Goudge: Yeah, but the point that is made is the constraint on 75 kilometres in this arrangement could apply even where Pearson is not meeting the demand and there is overcrowding. And that's different.

Senator Jessiman: Now that you're talking about the confidential documents that we haven't seen - and I'm not asking what is in it, but you've certainly implied that, gee, you know, that's why we put that in there.

Is it not true that, in these confidential documents from Treasury Board, that Treasury Board is telling the politicians: Now, here are the cons and here are the pros. Is that not true? There's the things you've got to look out for. And then, on the other side, there is this. Now you have to make a decision.

And is it also not true that what you've used in this report are all the cons?

Mr. Goudge: I don't think, senator, without really stepping offside, I can answer that question in any detail.

Senator Jessiman: Can you answer that the reports that you have and, generally, from Treasury Board, that when Treasury Board is going to cabinet and giving their views, they give both sides? You know, it would be kind of nice if you'd have looked at this and said, well, there's this side and this side, and we came down here. All you've said is this is what it has to be and it is disaster-ville.

Mr. Goudge: I am not all that familiar with -

Senator Jessiman: Can you tell me about -

Mr. Goudge: This is probably the only one I've ever seen and I clearly shouldn't have seen this one.

Senator Jessiman: Aren't there four of them?

Mr. Nelligan: Can I ask a question, and I want to go at it the way I did before? Assuming we can go no further on the printed record that you saw, in your subsequent discussions with department officials, did you discuss this item with them and have them explain to you in any way why the particular clause you object to was found in the final agreement?

Mr. Goudge: I can't recall a precise discussion of the point that is made on the top of page 12 of the report, but I can say, Mr. Nelligan, that my bet is that if there was a discussion, it would reflect this concern, because it is the same people.

Mr. Nelligan: My difficulty is that we did hear some evidence with regard to the saw-off on the 33 million. There was some talk about a proposal for 39 million by the developer and that they had the 30 million and then they put in a million-and-a-half clause and so on. And the departmental officials attempted to explain to us their bargaining process. I just wondered if you had a similar discussion and if they gave you those details or whether you just had to rely on this secret document?

Mr. Goudge: I can't recall a discussion about the bargaining process to the detailed level that you recite, Mr. Nelligan. It certainly would not surprise me if the $33 million person-number was a negotiated figure. The only reason it is referred to in the report is that there clearly was a view that, at that level, Pearson would be under extreme pressure and not meeting the demand as would be defined in similar constraints in LAAs across the country.

Senator Jessiman: I think I just have one last question at this time, and I direct it to you, Mr. Nixon.

Mr. Fiore of Air Canada, whom you interviewed, told us on August 16:

When we reached the point where our current and future lease arrangements were being honoured and PDC's expenditures were in line with our needs, I recommended the lease package to Air Canada's management team.

Despite the fact that our costs would rise substantially after our current lease expired, Air Canada needed and, I believe, still needs to make their improvements in order to develop its network and its operations. Our costs would be not out of line with airlines operating out of Terminal 3 or at competing U.S. hub airports.

In your one hour - which I understand your meeting was one hour - with Air Canada and Mr. Fiore, did he tell you anything different than that?

Mr. Nixon: Mr. Chairman, as I recall Mr. Fiore's point of view, he was not seriously concerned about who his landlord was going to be. He was very anxious that an appropriate development plan be put in place. There was some discussion at the time about pressure being reduced somewhat, unfortunately, by the economic recession in the world and particularly in Canada and Ontario. And the Gulf War - I'm not sure whether that was the year but passenger traffic had fallen off dramatically; that the throughput of passengers was probably back to about the level it had been in 1986. I understand it has now moved up to where it is about equivalent to what it was in 1989. And the implication there was that there was a breathing space in which further consideration could be given to these matters and, as has been pointed out to the committee, the very time for construction and development is presumably when it's not very busy.

On the other hand, no one likes to make an economic commitment of this size unless they are very sure that it's going to be utilized and be productive, whether it is to the government or the people who privately lease and develop it.

There was some discussion of the improvement of the international capability of T2 which I understood - which I understand subsequently occurred. And I had used the international facilities quite a bit and felt that they were at least as good as what I was used to at the other side of the Atlantic where the British Airport Authority had an independent responsibility for a number of years.

There was also an undertaking - or some concern expressed that the facilities in T2 dealing with Air Canada's special responsibility for flights to the United States was, in their opinion, inadequate and should be planned and developed as soon as possible.

Further, I understand that Air Canada, with the participation of the Government of Canada, had undertaken and has undertaken the development of that area, although it has not gone nearly to the extent that the Paxport proposal would have taken it and where a similar proposal, one would hope, in the future, will take it.

Senator Jessiman: I said that was the last. I have four or five other questions. I hope they won't be long. My questions have not been long.

Senator Stewart: You just got him to read the long stuff for you and you rested in the meantime.

Senator Jessiman: You stated in your report that it is clear that the lobbyists played a prominent part in attempting to affect the decisions that were reached, going far beyond acceptable concepts of consulting. That is page 9 of your report. We've now heard - we, this committee, has heard testimony from former ministers of the Crown, dozens of civil servants and many independent experts hired by the Crown in connection with the T1T2 process. Each and every one of them has, under oath, confirmed that lobbyists had no influence on their decisions. In fact, the vast majority of them stated they had little or no contact with lobbyists. This is the sworn testimony of the witnesses.

On what did you base your allegation? How was it clear? We know about the Ontario document. We know about Morrison Hershfield. And we know about the politicians out there and the so many - but is there any concrete evidence, first-hand evidence, that would support that statement?

Mr. Nixon: In my opinion, the concrete evidence is that all of the significant lobbyists in the - associated with the Government of Canada and its departments were fully engaged in this. And the fact that they didn't contact anyone who has ever appeared before this committee, and those people have said under oath it never occurred, is an interesting fact.

These lobbyists would presumably spend all their time then simply advising the people who had engaged their services how to word their letters to the government and so on.

My own view is that their involvement in this was far more extensive than that.

Senator Jessiman: What kind of evidence have you got to support that, though?

Mr. Nixon: The evidence that I have to support that is the comments made by people speaking with me, including Madam Labelle, who had indicated that there was a good deal of lobbying going on and that it was her view, under oath -

Senator Jessiman: But she was under - I didn't want to interrupt you before, but I told you yesterday that, under oath - under oath - she said that was not the case.

Mr. Nixon: And under our oath, we have notes of our discussion with her and the -

Senator Jessiman: You don't have no oath. She didn't take any oath in front of you.

Senator Kirby: He can only reply on the basis of what she said to him.

Mr. Nixon: You asked what information came to me, and that was one aspect of it, because I thought, in a very responsible way, she acknowledged that these pressures were there, that the representatives of various cabinet ministers were expressing an interest in the conduct of these affairs, and that it was part of her significant job to see that none of the officials working under her direction or, of course, herself, were responding in any way other than being polite to these people who have to make a living also.

Senator Stewart: Would you include representatives of various cabinet ministers under the heading "lobbyists"?

Mr. Nixon: I think, in the report, I refer to political assistants and lobbyists. I'm not sure of the wording there.

And it was quite clear that people in the employ of cabinet ministers were expressing interest on basis that they were asking for information, indicating that their ministers were concerned about the progress of the negotiations and wanted information as to how it was going.

This included people from the prime minister's office, we were told, and a variety of cabinet ministers from the Toronto area who naturally would have a very strong and focused interest in the progress of any sort of negotiations that would lead to things impacting on the future service at Pearson.

Senator Stewart: When you use the expression "lobbyists", do you mean registered lobbyists -

Mr. Nixon: Yes.

Senator Stewart: - or lobbyists in a broader sense?

Mr. Nixon: Actually, I am talking about the people who had established their lobbying capabilities in the negotiations by the Government of Canada for the purchase of the Airbus and for the -

Senator Jessiman: [Inaudible] - Terminal 3?

Mr. Nixon: For the - they were involved in Terminal 3, they were involved in all of the major decisions, developmental decisions that the government had taken. That's what they do. And they rent out their capability and information to people who are interested in receiving these contracts or having influence on these contracts and, in return, they try to assist in any way they can.

I think it is characteristic of successful lobbyists that many of them have associations with the government party and personal associations often having been staff members of influential cabinet members.

Senator LeBreton: Can I have a supplementary, Senator Jessiman?

Senator Jessiman: Sure, go ahead.

Senator LeBreton: And it is interesting, the chairman pointed out earlier on when we had lobbyists, that the number of lobbyists have increased under this government.

But in any event, the Federal Lobbyist Registration Act, broadened earlier this year to find consultant lobbyists, section 5(1), and I am familiar with this because I responded for our side in the Senate:

Every individual who, for payment...undertakes to

(a) communicate with a public office holder in an attempt to influence -

- [inaudible] -

...(vi) the awarding of any contract by or on behalf of Her Majesty in right of Canada...

Various possible communication techniques are recognized including 5(2)(i), contacting or meeting with various public officials, in 5(2)(j), grass-roots campaigns relying on appeals to the public through the media.

Now, this is the federal law, amended under the present government, and I have a direct question.

Mr. Nixon, are you - do you not think that these are law-abiding people in a lawful business?

Mr. Nixon: I at no time indicated that they undertook anything unlawful.

Senator LeBreton: Then what do you define as an acceptable amount of lobbying?

Mr. Nixon: I suppose this is a personal judgment. It was apparent in the perceptions that I received in talking to a number of people associated with this, that the lobbyists were persistent; that they were in evidence in many circumstances; that the pressure for the completion of the contract was very high; and I deemed that inordinate. And I still feel it was inordinate.

Senator Bryden: Mr. Jessiman, may I have -

Senator Jessiman: I would really like to - I have about three -

Senator LeBreton: Could you define "inordinate"?

Mr. Nixon: I really haven't got a dictionary here with me. It means, in my view, beyond what would be reasonable.

Senator LeBreton: Because we had testimony, sworn testimony, citing examples of previous files that had much more so-called excessive lobbying than this one.

Mr. Nixon: If I'd been asked to examine those, I might have found it to be inordinate as well. For example, everything I've read about the Air Canada purchase of Airbuses would indicate to me that there was inordinate lobbying. That's a personal opinion. I was asked by the Prime Minister to review this and give him my personal opinion.

Senator LeBreton: [Inaudible] - the duty-free shops, the sky shops?

Mr. Nixon: In Pearson, if the contract goes forward, there won't be much to look at there, because there'll be a monopoly on duty-free for 57 years.

Senator LeBreton: No, because on the duty-free shops -

Senator Jessiman: Go ahead. I really want to get on with this.

Senator Bryden: [Inaudible] - supplementary, if somebody would turn my light on.

Senator Jessiman: I asked Mr. Nixon if he would be sure to answer - we only have 15 minutes. I'd like to get three more questions, but you'd like to go back to this one, go ahead.

Senator Bryden: Thank you. And that is, just to be clear, what Senator Jessiman cited as the evidence before this committee is correct in many ways as far as it goes. But there is other evidence before this committee of a report of Mr. Neville who is a well-known lobbyist, debriefing the chief of staff of the Minister of Transport, to gain information about what went on at a policy and planning - priorities and planning committee, in order to be able to -

Senator Jessiman: [Inaudible.]

Senator Bryden: - of the cabinet, in order to be able to advise the president of Paxport and the principals.

So I just want to make it clear on the record that there is other evidence relating to lobbyist activities before this committee besides what Mr. Jessiman said.

Senator LeBreton: And Mr. Neville testified and -

Senator Jessiman: And Mr. Neville testified and someone else. So it is all on the record. Thank you.

Now, you made a statement here about lobbyists just now, and you've made the statement here when you gave us your first statement to start with. Right? Is that right?

It's in your statement a couple of days ago that:

She advised me that lobbyists had been observed all over the file...

Is that right?

Mr. Nixon: That's correct.

Senator Jessiman: You didn't make any notes when you were interviewing Ms Labelle, did you?

Mr. Nixon: I had two meeting with Ms Labelle. At one, Mr. Goudge was -

Senator Jessiman: I didn't ask that. I asked you if -

Mr. Nixon: Well, the notes were taken of the first meeting by Mr. Goudge.

Senator Jessiman: Right, and I have them - wait a minute.

Mr. Nixon: At the second meeting, there were only the two of us present.

Senator Jessiman: All right. Did you make any notes yourself?

Mr. Nixon: No.

Senator Jessiman: And so you were - you told us yesterday that the interview you had with the officials from the judicial - the ministry of justice people and the lawyers representing them, and the forensic accountants, where you had three meetings and the other two had two meetings, and it refreshed your memory and - because it is two years away.

And when you wrote the report, you said nothing about Ms Labelle. You made no notes. You've got these notes of the meeting and there is not a thing about lobbyists in these notes. Now, isn't that strange?

Mr. Nixon: It may be in your mind, senator. I can recall Ms Labelle speaking about this and - as I've said -

Senator Jessiman: [Inaudible] - under oath otherwise.

Mr. Nixon: And I've said before that I was impressed and certainly under the impression that part of her responsibility was to see that these people were properly received and so on, but that it had no impact on the conduct of the affairs of the department and there is no reason for me to doubt the validity of her question.

Senator Jessiman: I want to go on to my next question. You state in your official report that senior bureaucrats felt that their actions were being heavily affected by lobbyists.

We, again, interviewed every civil servant, the two ministers of the Crown, and each and every one of them, under oath, clearly rebutted this contention.

I again ask you: On what did you base this allegation?

Mr. Nixon: I received very clear indications from a number of people who were associated with the file -

Senator Jessiman: Would you name them? Would you name them?

Mr. Nixon: Well, I can - named a number of them including the deputy minister and -

Senator Jessiman: You are talking about Labelle again?

Mr. Nixon: Yes. That the cabinet - you will recall that in one of the drafts where we were perusing - of my report, there was two or three lines whited out with the appropriate Privy Council authority for so doing. And it had to do - the part of it that was visible referred to cabinet Minister Jelinek.

There was a specific instance that I'm not at liberty to discuss obviously but where people associated with cabinet ministers found themselves approaching officials in the government and -

Senator Jessiman: Why aren't you able to disclose it?

Mr. Nixon: Because the matter was whited out in the report. I believe that's a message to me that that's a matter that I should not be discussing.

Senator Jessiman: You mean you named certain people and they whited it out? Is that what you're saying?

Mr. Nixon: I can't say what's in there, can I?

Senator Jessiman: No, but I'm asking you, are there persons - are there persons - well, you haven't given us one person. You've said Labelle. Okay? Now, you have said Dr. Labelle said some things which we've told you - and it is on the record, under oath - has refuted everything you've said.

Mr. Nixon: Yeah.

Senator Jessiman: Now, I'm asking you, other than the Ontario government report, Morrison Hershfield, who else? Who is there? Give us their names, their addresses, telephone numbers. I know maybe we can't get their personal numbers. Maybe we can get their business numbers.

Mr. Nixon: This is sort of in the yes/no category and the answer has got to be broader and more effective than that. If I think of names, Chern Heed, for example, was very forthcoming.

Senator Jessiman: We have no evidence of that.

Mr. Nixon: Well, why don't you get it? As far as -

Senator Jessiman: The government had - the government -

Mr. Nixon: As far as Chern Heed is concerned, he expressed very directly and frankly with me. Maybe his freedom of approach there was based on the fact that he had already decided to leave the employment of Transport Canada. We've talked about that.

But I should tell you that, on a number of occasions, the deputy minister had to use her authority to cool out the approaches from other parts of government and indicate that, while all the information would be conveyed as was appropriate, still she had the responsibility to see that her officials had the freedom of action to undertake a review and make recommendations that would lead to a successful contract.

I have already indicated that, from my perception of Ms Labelle's comments, there definitely was contacts being made, and it was her job to see that their influence was minimalized, at the same time understanding that citizens have the right to have access to public information.

Senator Jessiman: So you really haven't got anybody else, so let's go on to the next question if I may.

Senator Bryden: Mr. Jessiman, and I'm just going to ask this quickly because counsel was going to check whether the whited-out portion of one of the draft reports that I asked you about - did you determine? Have you found out whether they can be reinserted?

Mr. Nelligan: I had further discussions with Mr. Hunter and Mr. Edge last evening. They assured me that they were continuing their discussions with Ms Bloodworth and they hadn't got directions from her yet but they were still working on it. That's the best I can offer you.

Senator Bryden: Because at least one other name is not whited out and it's Otto Jelinek, and then the whiteout comes after that name.

Senator Stewart: Draft number? What document?

Senator Bryden: Three.

Senator Jessiman: Can we just go to the next question?

Mr Nelligan: I pointed that one out specifically to them.

Senator Jessiman: Your official report states that there was the perception that political staff were interested in this transaction to a highly unusual extent.

Again, every single servant involved, also the ministers, under oath, each have confirmed no pressure, no influence put upon them. And here is what Mr. Rowat said on page 9:

During my tenure, relations with minister's staff were normal.

Rowat. Desmarais:

I believe relations with the minister's staff throughout my whole relationship...were normal. They would ask questions in the normal course of events, but there wasn't daily calls from their office saying where are you, or anything like that.

So where is your evidence in respect to that statement?

Mr. Nixon: I received a clear impression from a number of people associated with this file that representatives of cabinet ministers were inquiring as to the status of the development on a regular basis.

Senator Jessiman: Who did you hear this from? Please answer - you have to answer. I mean, if you haven't got it, let's just say, look, it's a rumour and we'll accept it. There are rumours out there. But if you have got somebody, give us their names.

Mr. Nixon: It is difficult to proceed without -

Senator Jessiman: I know it's difficult. It must impossible.

Mr. Nixon: - without violating some of these confidences.

Senator Lynch-Staunton: Oh, come on. Just get off it.

Mr. Nixon: For example, something that is close to the whited out area -

Senator Lynch-Staunton: You are just confirming that you went on rumour and innuendo.

Mr. Nixon: - would indicate that a representative of a cabinet minister would insist on attending meetings between Paxport -

Senator Lynch-Staunton: A point of order. Mr. Goudge was allowed to quote from a Treasury Board submission to support his view, and now we are being told that confidentiality won't be here to support an unfounded rumour. I think that is shocking.

Mr. Goudge: That's not accurate. What I did was read from the report which the government made public.

Senator Lynch-Staunton: Yes, and which you knew now you shouldn't have read and should not have reported.

Mr. Goudge: No, it is in the report.

Senator Lynch-Staunton: By inadvertence.

Mr. Goudge: It is in the report.

Senator Kirby: - didn't read from the Treasury Board document -

Mr. Goudge: It is in the report. I read nothing from the Treasury Board submission.

Senator Lynch-Staunton: The mistakes are getting to be -

Mr. Nixon: All I can say, Mr. Chairman, is that what I am about to say gets fairly close to the area which would break my oath of confidentiality, but I will be very careful not to go over that line. But when we are talking about specific information, I was informed that, at the meetings where the financeability of the successful RFA proponent - RFP proponent was under consideration with the ministry, that a representative of a cabinet minister insisted on being present and taking part in the discussion until, at one point, I am told, the deputy minister took steps to see that the discussions were restricted to the department officials and those officials representing the company concerned.

Senator Tkachuk: Who is it?

Senator LeBreton: He filed a letter with the committee.

Mr. Nelligan: Can you give us the name of the -

Mr. Nixon: No, I can not.

Mr. Nelligan: Sir, without giving us the name of the informant, give us the name of the assistant.

Mr. Nixon: The name of the assistant, I think, was - it was in the material that was provided here, who had been in the employ of the Honourable Mr. Jelinek and had gone on to the employ of Paxport.

Mr. Nelligan: Just so we make it clear, because we've had a witness - I just want to make sure it is the same person. We've had a witness who had once worked for Mr. Jelinek and who then was working for -

Mr. Nixon: Can you tell me the name of that person?

Mr. Nelligan: - the Paxport group. What's his name?

Senator LeBreton: He wasn't working for Mr. Jelinek. His name was -

Senator Stewart: Mr. Pascoe?

Senator LeBreton: - Greg Kozicz?

Mr. Nixon: No. Peter.

Mr. Nelligan: Pascoe.

Senator LeBreton: No, no -

Senator Tkachuk: Is it Kozicz?

Mr. Nixon: That's the name, Peter Kozicz.

Senator LeBreton: He never worked for Otto Jelinek. He worked for Bill Winegard. And he filed a letter with this committee. It's Greg Kozicz.

Mr. Nixon: Well, then, that's a different person.

Senator Tkachuk: Do you know the name? Do you know the name? Is it Peter Kozicz, or is it Greg?

Mr. Nixon: The person's name, as I recall, was Peter. And the whole matter - I mean, the persistence -

Senator Tkachuk: [Inaudible.]

Mr. Nixon: What do you mean? Give me a minute.

Senator Jessiman: Was it Peter Pan?

Senator Tkachuk: I think you've got him confused. That's the other guy.

Senator Kirby: Well, the thing that was of concern to me was that the cabinet ministers interested in this matter - most of them from the Toronto area and that makes sense because the development of Pearson was so significant to them - had a loose association of people who considered themselves in a special position to be sure, that they were going to assist the government in reaching their conclusions. And the officials associated with these cabinet ministers had as their job to be sure that the cabinet ministers were fully informed of progress. That one of the - one of the aspects -

Senator Lynch-Staunton: [Inaudible.]

Mr. Nixon: Well, I can put it that way and you can construe it as you see fit and reject it in any way you wish.

Senator LeBreton: It is innuendo and unsubstantiated rumour.

Mr. Nixon: Reject it in any way you wish. But the fact remains that I was told that there was some concern, during the negotiations with Paxport, by the Department of Transport because people who were associated with both the government and with the commercial interests were present and the deputy minister took steps to see that they were not.

Senator Jessiman: I have got two more questions.

The Chairman: Just a second. Mr. Nixon, could you give us a little bit of a definition as to what your oath of confidentiality was and to whom?

Mr. Nixon: Well, you've got a copy of it, I believe. I don't have it with me.

The Chairman: Let me ask you this. Did not your oath of confidentiality refer to and restrict itself to those matters of official documents which you were permitted to see?

Mr. Nixon: Perhaps, Mr. Chairman, since you are asking specifically about this, I should see the actual wording of it so that I can answer properly. The wording of it is before you and your colleagues. I don't have it before me at the present time -

May I read it to you: I hereby undertake to keep confidential and not divulge unless authorized in writing by the Assistant Secretary to the Cabinet (Economic and Regional Development Policy) any information obtained in the course of or after the review of all factors relating to the agreement between Pearson Development Corporation and Transport Canada for the redevelopment of Terminals 1 and 2 at the Lester B. Pearson International Airport, or any ancillary matters related thereto.

So it is very broadly encompassing. I have to defend my report before the honourable senators and I am trying to balance that oath with my responsibility to the honourable senators in response to their questions.

Mr. Nelligan: Just so that I can clarify that, we had understood that there were still residual obligations imposed on you with regard to cabinet confidences, but we had assumed your very presence here today had waived any other confidentiality with respect to the investigation you carried on, and you have, in fact, been telling us of the different meetings you have had with different people, so that one would assume that we now can hear from you everything you heard with the exception of those things that come under the question of cabinet confidentiality.

I think what the committee is concerned about right now is that you made an ancillary undertaking of confidentiality to individual witnesses and assured them that you would not disclose what they told you. I think our concern is that the difficulty with those confidential disclosures is they were neither official nor are they examinable. And it makes this committee in a position where we really can't check the weight which should be assigned to them. This is our difficulty right now.

I am just wondering if we can distinguish between your personal promises of confidentiality to witnesses, and your official undertaking to the government.

Senator Kirby: Mr. Chairman, just because of the witnesses won't be aware of this, we have had at least two other instances, one from Mr. Hession and one from Mr. Stehelin, in which they refused to answer senators' questions on the grounds that they had made - and I believe Mr. Hession's words were - a personal undertaking to not disclose -

The Chairman: Senator Kirby, that's fine. That's all that Mr. Nixon has to say. I'm sorry. I can't tell you that because I was -

Senator Jessiman: Gave my undertaking.

The Chairman: - I gave my undertaking. But he is using the terms "the oath of confidentiality", whatever he took, and that's not applicable in these questions.

Mr. Nixon: Perhaps if I may, just before I continue this line, in the questions that were associated with the train of thought just before we got into this discussion, the material that I was asked to detail was, let's put it this way, associated with a section of one of my draft reports that had been removed under the authority of the Privy Council Office. And those numbers that were replacing it on the whiteout gives the authority of the Privy Council Office to do that.

I naturally thought then that any matters generally associated with that would come under that proscription.

I'm very glad that Mr. Nelligan has recalled to the committee that, in my opening remarks, I referred to the fact that a number of people had come to me and expressed views of significance in the findings that eventually I transmitted to the Prime Minister which they indicated were personal confidences and which I will not be able to refer to. And I appreciate the fact that Mr. Nelligan has referred to that.

But what we were talking about specifically was a matter that I viewed or thought I viewed in my amateur approach to the PCO powers in this regard, that they had reached a decision, that their decision had not been communicated to me in any other way other than the draft has a whiteout with the authority written over it.

Senator Jessiman: I have two more questions.

Mr. Goudge: I may say, Mr. Chairman, that I had the opportunity to advise Mr. Nixon exactly that, that it seems to me that, insofar as we're dealing with that chunk of information, the chunk of information that is in the whited-out portion of the report, that that indeed is subject to the confidentiality undertaking that Mr. Nixon read from that was given to the government.

Senator Jessiman: Mr. Nixon, I just - a yes or no on this one, if you don't mind. You knew, I think, that Paxport had one company of lobbyists and that Claridge had four? You knew that?

Mr. Nixon: And then - yes.

Senator Jessiman: Yes? And you knew that their costs for lobbyists was about $200,000, and Claridge was close to a million, 800 to a million?

Senator Bryden: Plus contingencies.

Mr. Nixon: I don't recall those numbers at this stage.

Senator Jessiman: Thank you. When you made such a great big fuss about lobbyists - and they are recognized people, they are registered - why didn't you ask some of them to come and talk to you? It seems just - you know, here are these people - you've gotten the government in such a state that they're passing a bill that says we're not going to pay lobbyists.

Mr. Nixon: I am impressed that the senator feels that I have that much influence on the policy of the government. I can assure you that I do not. I was expressing -

Senator Jessiman: Well, my question is -

Mr. Nixon: - a personal view in these matters based on -

Senator Lynch-Staunton: Rumours.

Mr. Nixon: - observations that had been made to me.

Senator Lynch-Staunton: Yes? By people -

Mr. Nixon: For example - I shouldn't get into -

Senator Jessiman: But no facts. Okay.

Senator Tkachuk: Is that the view of the other two gentlemen -

Mr. Nixon: We were not a committee.

Senator Tkachuk: I'm asking, you said personal view only?

Senator Jessiman: This is my last question.

Mr. Nixon: My understanding of my report to the Prime Minister was it is based on my personal view and advice. We are not a committee. I was a single - I was singly asked by the Prime Minister to review this and express my views to him.

Senator Jessiman: All right, now, we've got sworn testimony about this that there isn't anyone - unless you want to call Barbeau's gardening leave, as it was referred to. But I want to read this to you, and I want you to give me the names that - you said in your report that several civil servants were reassigned or requested transfers as a result of the so-called pressure.

We know of Mr. Barbeau's departure on gardening leave. We also heard from Huguette Labelle who testified, again under oath, that she alone and without interference was responsible for moving Victor Barbeau due to a perception which he did not share that he was delaying the process.

You for the first time told us - we had thought this was the case, but you told us under oath that it was your view, and I guess you must have had reason to say that Barbeau was against this. We know of no other civil servants who were reassigned or requested transfer. Who were these people? Please give us their names and the circumstances under which they were transferred or requested reassignment.

Mr. Nixon: Chern Heed resigned from the public service and left the community. Victor Barbeau was removed from his responsibility as chief negotiator and replaced.

Senator Tkachuk: Certain heed was asked - [inaudible].

Mr. Nixon: He was not asked to leave. We are talking about a decision taken in response to all of these difficulties. And, finally, the deputy minister herself, after signing a letter indicating to the greatest extent she possibly could, under the circumstances, that Paxport was going to receive the contract. But as of June 11, a few days before the - before Prime Minister Mulroney ended his régime, she was not able to say we have a fully identified and legal contract.

Shortly after that, she was removed from her office, replaced by a deputy minister and associate deputy minister who then proceeded with it. Now, I had a clear undertaking -

Senator Jessiman: She came before -

Mr. Nixon: - that she was removed from that because of her perceived inadequacy in getting this contract speedily approved.

Senator Jessiman: Who told you that?

Mr. Nixon: I can't answer that question.

Senator Tkachuk: Why not?

Senator Lynch-Staunton: Because you don't know. You are making it up.

Mr. Nixon: You mean to say that nobody told me that? Well, that's not true.

Senator Lynch-Staunton: How can you assert something you can't support? These are -

Mr. Nixon: Because I have undertakings to people speaking with me -

Senator Lynch-Staunton: A promise - what?

Mr. Nixon: - that I would hold their positions of confidence.

Senator Lynch-Staunton: And I think it is wrong to come before a committee which has taken its job seriously and bring down suggestions, so-called facts, without supporting evidence. These are serious charges. These people were removed because -

Mr. Nixon: - asking for supporting evidence -

Senator Kirby: Mr. Hession and Mr. Stehelin did exactly the same thing.

Senator Lynch-Staunton: I think that was wrong. If you can't support it, don't say it.

Senator LeBreton: Mr. Chairman? Mr. Chairman?

Mr. Nixon: Was Mr. Stehelin the one that said put me in gaol?

Senator LeBreton: He didn't say put you in gaol.

Mr. Chairman, perhaps -

Senator Kirby: Mr. Chairman -

Senator LeBreton: He said, you could put me in gaol.

Senator Kirby: If Senator Jessiman is finished, is it my turn?

Senator LeBreton: I just wanted - I'm trying to be helpful here. And I know that sometimes my chronological memory gets me in trouble with the Chairman, but I think I can solve the problem of the whited-out section in Mr. Nixon's draft, November 18, 1993. And it's interesting because - and I will refer to you. It is 002455 and the page - and it's the page new number 2. And when Huguette Labelle was testifying before this committee on the 1st of August, 19 - 1st of August, 1995, Senator Kirby asked her about:

...And I really have a couple of questions. First of all, why would anyone on Mr. Jelinek's staff - he was in revenue at the time, am I correct?

Ms Labelle: Yes.

And they name a gentleman by the name of Greg Kozicz, and Huguette Labelle said, yes, that's the name.

Now, if you'll follow this along, you will remember that Mr. Kozicz wrote a letter, counsel, to you, expressing great shock that his name had come up because he had never worked for Otto Jelinek. And as a matter of fact, he worked for Bill Winegard.

And I might point out that, on this same page, they threw in a line, Senator Colbert, C-O-L-B-E-R-T - I'm sure Senator Kolber loves that - is associated with Claridge and was an executive of the board. David Peterson is the son-in-law of Don Matthews. I mean, why that's on that page is beyond me. But in any event, that's kind of thrown up against the wall. But it's all there. Is that the name, Mr. Nixon, Greg Kozicz?

Mr. Goudge: Is that the name that's whited out?

Senator LeBreton: Yes.

Mr. Goudge: I don't think - I'm not here as Mr. Nixon's lawyer, but with the greatest respect, senator, that's exactly the problem that is presented by the white-out.

Senator LeBreton: Because I believe -

Mr. Goudge: I mean, what's the point of having a white-out? You know.

Senator LeBreton: Well, I believe that -

Senator Kirby: Exactly.

Senator LeBreton: I believe - all I'm saying this for - all I'm saying this for - it's the same kind of misinformation and gossip that was flying around this place, to the point that Huguette Labelle, the deputy minister of transport, would name someone who wasn't even a staffer to Otto Jelinek.

Mr. Goudge: My only concern is that -

Senator LeBreton: That's all I have to say.

Mr. Goudge: Mr. Nelligan has been quite right to focus on there being two confidentiality constraints here, but this one is clearly one that relies on the section in the act. That's one that the government has asserted.

Mr. Nelligan: May I just suggest - I don't think there's any need to get confused on this. We are not talking about the whiteout at this point, but you have simply raised the name of Mr. Kozicz which relates to the evidence we have already heard a few moments ago from Mr. Nixon that it was suggested that a ministerial assistant attended a meeting.

I think then the question to Mr. Nixon is, does that refresh your memory, sir, and was that the name that was given to you by someone as being someone who attended meetings to Ms Labelle's chagrin.

Mr. Nixon: And my response to that is that, while the name may be of great importance to the members of the committee, I did not consider it important other than an individual who was on the staff of a cabinet minister had felt that he or she had the right to attend that meeting and that the deputy minister had taken her authority to see that that person or any other person would take part in those discussions or monitor them.

Mr. Nelligan: I don't deny your point. I just want to know was it Mr. Kozicz's name that was used in that context?

Mr. Nixon: I believe that it was -

Mr. Nelligan: Well, that's all -

Mr. Nixon: - but I can't say that it was in the whited-out area.

Mr. Nelligan: No, no. I don't think we're asking about that.

Mr. Goudge: One senator did -

Mr. Nelligan: I just wanted to see if that's what we were talking about.

Mr. Goudge: That's what Senator LeBreton was asking.

That's exactly what she was asking, and it seems to be very unfair to Mr. Nixon to try to get the same answer another way.

Senator LeBreton: - a lot of information, according to you. You throw Huguette Labelle's name around here liberally - if I may use the word. And the fact of the matter is, she already testified.

So here you were, you're repeating the same gossip. Senator Kirby asked her the question and she answered it, and then Greg Kozicz corrected it with a letter to counsel which was read into the record here. And that's all I'm saying.

Mr. Nixon: Mr. Chairman, you may be thinking of adjourning, but I just want to say that the senator's comments about throwing around the gossip, and so on, has got to be taken in this view. And I have said this before. You have to remember the volatility of this particular issue at the election - the time of the election. It was generally assumed by people who had been reading the press about this thing, as it heated up more and more, that the then-Leader of the Opposition jumped into the issue and made certain statements about what his views were in this regard. That the whole role played by lobbyists, the whole role played by the leadership of the Conservative government and various cabinet ministers was very much under review. I was not given a Royal Commission capability, power or status.

I was asked to review the matters particularly as they were discussed during the election campaign and contribute to the Prime Minister my own view of those matters and a recommendation as to what his course of action might be. So that I want to disabuse all of the senators on the basis of what my status was. I was out there finding out what was happening in the community and what the community thought about these matters, conveyed them to the Prime Minister along with my recommendations for action.

Senator LeBreton: But, Mr. Nixon, under testimony the first day, you did not survey the community. You put out - you put out a kind of a 1-800- catch-all - just a moment.

Senator Kirby: [Inaudible] - the witness, Mr. Chairman. I mean, that's -

Senator LeBreton: - to catch the names of - you interviewed people disproportionately -

Senator Kirby: She doesn't like his answers -

Senator LeBreton: No, no.

Senator Kirby: - so she argues with him having said that it's going to be -

Senator LeBreton: No, I'm just - I want -

Senator Kirby: - three times that she was finished. So can we -

Senator LeBreton: Senator Kirby, I don't need you to interpret what I say, thanks very much.

The Chairman: Senator LeBreton -

Senator LeBreton: What I'm saying - I'm asking the question -

The Chairman: - why are you arguing with the witness?

Senator LeBreton: I'm not arguing.

The Chairman: Have you got a question to put?

Senator LeBreton: Yes, I do.

The Chairman: Well then, put it.

Senator Kirby: On top of that, you said three times, this is my last question. That's all.

Senator LeBreton: Here's my question. Why did you not interview all the people - here, you three gentlemen have special powers.

Mr. Nixon: Finish your question.

Senator LeBreton: Why did you not interview the people in business, public servants, outside experts, lobbyists, some of the finest minds that took - you know, this took four years - and don't raise your eyebrows when I say "finest minds". I guess you think only Liberals have finest minds, but the fact of the matter is why -

Mr. Nixon: Why would I ever think that?

Senator LeBreton: Why would you not interview people who were involved in the process and produce for the Prime Minister a fair and balanced study and not a political hatchet job? That's my question.

Mr. Nixon: Mr. Chairman, in response, I would say that I used my judgment in from whom I sought opinions; that I sought these matters carefully along with expert opinions that were available to me. I formulated a personal report to the Prime Minister and delivered it to him along with my advice.

Senator Tkachuk: Didn't you have a duty and a responsibility to look these people in the eye that you mentioned continually through here and intimate to the general public of Canada that they may have done something wrong, to face them in a room and ask them the questions?

Senator LeBreton: Give them a fair hearing?

Senator Tkachuk: Don't you think you, as the Prime Minister's advisor, would have a duty and a responsibility to do that?

Senator Bryden: Mr. Chairman, if we're going to enter into a debate, I would love to enter into a debate, but I would also love to go to lunch.

The Chairman: Okay. Senator Kirby, go ahead.

Senator Tkachuk: I asked a question.

Mr. Nixon: The answer is no.

Senator Kirby: Mr. Chairman, when yesterday I suggested we go to extended hours, it was under what turns out to be a false assumption. My original assumption was that, in fact, we would finish with these witnesses today and, therefore, in fact, we made extended hours in order to complete the testimony from these witnesses.

It is my understanding now that members opposite, in fact, want these witnesses back on some future date. Those of us on this side don't think that's necessary, but I understand that the Conservative members want these witnesses back.

In light of that and in light of the fact that we have always adjourned at 3 o'clock on a Thursday to enable members who don't live in central Canada, on both sides of the table, to get back home on Thursday night, I would like to make two suggestions. Number one is that we adjourn certainly no later than three which has been our normal Thursday adjournment time all the way through the process; that we take our regular lunch which would bring us back here at 1:30 or quarter to 2:00. And then as I understand it, I am next and I presume that allows me to go to three o'clock, because I have probably an hour, an hour and a bit.

Alternatively, Mr. Chairman, I am also happy, if you don't want to do that, to in fact adjourn now and reconvene whenever we reconvene. So I am quite happy to do that.

Senator LeBreton: [Inaudible.]

Senator Kirby: But you won't get on because I'm going to use the time this afternoon. So that's the problem. I don't care, I'm just - the point is we are going to have to come back anyway. So, Mr. Chairman, on behalf of those of us on this side, I am quite happy to adjourn now and recognize it, it that makes sense.

Senator LeBreton: No, we will go.

The Chairman: Well, let it be very, very clear that I totally agree with my colleagues that we have apparently scratched the surface of the information we are trying to get on the Nixon report. And we need a great deal more information and we need a little time to prepare it, because a great deal of it has been very, very unsatisfactory. Rather than give you my reasons for saying that, I just leave it be that way.

As far as this afternoon is concerned -

Senator Kirby: Mr. Chairman, if that's the case, we are going to have a lot more time. Why, in reasonableness, do we not adjourn now?

The Chairman: Senator Kirby has just made a suggestion. He suggests that we adjourn now to the call of the chair.

Senator Kirby: I think Senator Jessiman found that acceptable -

Senator Jessiman: It doesn't matter, I can -

Senator Kirby: I'm not trying to start a fight here, I was trying to propose that -

Senator LeBreton: You suggested that we adjourn for a normal lunch, come back at 1:30 or quarter to 2:00, and then adjourn at 3:00, and I think we're agreeable to that.

The Chairman: Quarter to 2:00, for adjournment at 3:00.

The committee adjourned to 1:45 p.m.

Ottawa, Thursday, September 28, 1995

The Special Senate Committee on the Pearson Airport Agreements met this day at 1:45 p.m. to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.

Senator Finlay MacDonald (Chairman) in the Chair.

The Chairman: Come to order, please. Now, you may be interested in the letter that I received today - or, at least, Mr. O'Brien has received today from Mr. James Travers, the editor of The Ottawa Citizen. In response to a letter sent to him yesterday he writes:

Dear Mr. O'Brien:

Thank you for your letter of September 27, 1995 inviting Citizen columnist Greg Weston to appear before the Special Senate Committee on the Pearson Airport Agreements. As I informed your office yesterday, Mr. Weston is out of town and we have not had an opportunity to discuss your request in detail. But given the sense of urgency in your letter, I am making this preliminary response on behalf of Mr. Weston and The Ottawa Citizen.

Through its extensive coverage, the Citizen has demonstrated considerable interest in fully exploring events that led to the contracts in question. Our concern is that the committee's request unnecessarily jeopardizes our columnist's ability to cover this and other stories. By appearing before the committee, Mr. Weston would be abandoning his journalistic role of observer to become an unwilling participant and, in doing so, lose the confidence of his sources. Rather than seeking the assistance of observers, we would expect the committee to draw its information from original sources including documents and those people directly involved in the decision making process. The committee clearly has not exhausted those channels.

Given the serious implications of your request and the fact that Mr. Weston cannot supply any relevant additional information than that now on the public record, I respectfully request the committee reconsider its position.

That's signed by James Travers and it's copied to Greg Weston, to me, to the deputy chair, Senator Kirby, and to John Nelligan, our counsel.

I just read this in for no additional comment or discussion.

Senator LeBreton: Mr. Chairman, before we start the questioning this afternoon, can I raise a point of order on testimony that was raised before this committee?

The Chairman: Yes, certainly. It's a point of order? Yes.

Senator LeBreton: Yes, thank you, Mr. Chairman.

Mr. Chairman, I refer to sworn testimony before this committee last Thursday, September 21st - first by Jack Matthews, President of Paxport; and then by Mr. Paul LaBarge, a former partner of Prime Minister Chrétien's at the law firm of Lang Michener.

Mr. LaBarge testifies he met with Mr. Matthews on April 14, 1989 - a fact that is not in dispute. In fact, a letter was sent to members of this committee fully explaining the details of the April 14, 1989 meeting. I am told that this letter last been filed with the clerk and is being translated.

The issue in question is the period of time of late 1989, early 1990, and whether Mr. Jack Matthews was in Ottawa at that time.

Mr. LaBarge, in sworn testimony before this committee, stated that - and I refer to his testimony last Thursday, September 21st, pages 1900-3 and 1900-4 - and I quote him:

I might add that, in 1990, in February 1st 1990, I moved from Lang Michener to Blake Cassels & Graydon. I think it is fairly common knowledge that there had been substantial disruptions within the Lang Michener office with respect to its organization and operation in the latter part of 1989. I was directly implicated in those discussions and I can tell you that not only was I occupied in trying to maintain by practice, but I was also trying to deal with the issue as to whether I would stay within the firm or relocate.

During that period, I only had two meetings with Mr. Chrétien and not with any clients, and those two meetings were, one, a discussion with him, whether he would exercise any mediation within the office to maintain harmony, and, "B", the second, was to bid him farewell.

There were no meetings with the clients during that period.

I underline that, and it's the end of the quote.

Mr. Chairman, the answer to whether Mr. Jack Matthews was in Ottawa in December 1989 or January 1990 has been right under our noses all along, thanks to Senator Bryden. He insisted on going through Ray Hession's diaries, something I found intrusive.

Well, I now wish to refer you to Mr. Hession's diary for 1990, which he submitted to this committee at Senator Bryden's request. Senator Bryden used these diaries to question Don Matthews.

On January 17, 1990, Mr. Hession makes the following notation - "Jack in Ottawa", then -

Senator Bryden: Mr. Chairman, I just make a point. We, I do not believe, ever received 1989 diaries.

Senator LeBreton: Mr. Hession's diaries - I got these from the Clerk - from the committee office, excuse me, Mr.-

Mr. Nelligan: I think she's referring to the 1990 diaries.

Senator LeBreton: That's what I'm talking about. I'm talking about 1990.

Senator Bryden: Okay.

Senator LeBreton: But I said the question was whether or not Mr. Matthews was here in 1988 or 1990.

On January 17, 1990, Mr. Hession makes the following notation: "Jack in Ottawa"; then later shows the meeting which lists one of its participants as one Paul LaBarge. I repeat: January 17, 1990. The conclusion is obvious.

Thank you, Mr. Chairman.

The Chairman: Fine. That's your point of order?

Senator LeBreton: Yes, I just want-

The Chairman: Yes, it is. There's no - We take your point of order.

Senator LeBreton: Well, I just, I think - but, Mr. Chairman, if you want me to expand-

The Chairman: No, no. No, I don't.

Senator LeBreton: Who's telling the truth?

The Chairman: No, no. I do not. It has nothing to do with the testimony before us this afternoon, of which we have one hour.

Senator LeBreton: No, well it's -

The Chairman: As a matter of fact, I have received from Mr. Gordon Baker yesterday evening pretty well the same information you've just indicated in your point of order and I have directed -although I don't quite understand it, but that's beside the point - that it be circularized. And it's now - all the committee members have a record of it and it will be considered at the appropriate time.

Senator LeBreton: Yeah. Mr. Chairman, I think that - I read the letter as well; I just got it. And he was explaining, according to Mr. LaBarge's testimony, the letter of April 1989.

I was simply making the point that in Mr. LaBarge's testimony, he denies any meeting in 1990.

The Chairman: Yes, I understand what you were going to - That's fine.

Now, where are we this afternoon?

Senator Kirby: We're here, Mr. Chairman. I know some of us sometimes wonder where we are, but we're here.

The Chairman: As they used to say, "We're all here because we're not all there."

Senator Lynch-Staunton: That was profound.

Senator Kirby: I just say, Mr. Chairman, that that's open to lots of interpretation. I'm still glad we get Cape Breton humour occasionally around here, Mr. Chairman. Our witnesses from Upper Canada may have difficulty with it, but that's life!

The Chairman: Better than a farm in Brant!

Senator Kirby: Thank you, Mr. Chairman. Mr. Chairman, I have really three different areas - actually, four different areas I want to get into. The first are a series of questions for Mr. Goudge because I'm trying to understand exactly how the government's position vis-à-vis what was a potential liability or not a potential liability evolved over time. And I'm doing that in part because I really want to understand it, not being a lawyer; and in part because there have been a number of observations made by, particularly Senator Lynch-Staunton but others to the effect that "binding agreements" were in force even before the election was called.

So I wonder if I can begin by asking you to look at - we've had this before, Mr. Chairman, it's document number 00269. It's the Transport Canada news release of August 30th, which I handed to you just as you walked into the room. I don't - You haven't had a chance to look-

Mr. Goudge: Yes, I have it, senator.

Senator Kirby: Okay. I just want to ask you two or three questions about it. Again, so you understand where I'm headed, I'm really just trying to understand how, over time, the legal position or the legal liability of the government may have changed.

First of all, with respect to August 30th, you'll notice that the opening sentence says: "A general agreement was reached today with the consortium Pearson Development Corporation", and then it goes on to talk about what the agreement's about. In fact, just let me finish with that page and you can comment on both.

You'll notice that the second to last paragraph says:

The transfer of the terminals from the federal government to PDC...will be finalized this fall under the terms of a 37-year lease which includes an additional 20-year option.

Realizing that the opening part of the press release talks about a general agreement and it then talks later on about something "will be finalized", at that stage in the game do you believe that there was any liability incurred by the federal government up until then?

Mr. Goudge: No, sir.

Senator Kirby: What makes you say that?

Senator Lynch-Staunton: He's rehearsed this well.

Senator Kirby: No. As a matter of fact, I don't think he's seen it and I don't even think he read it. I just handed it to him when I got off the elevator.

Senator LeBreton: He must have read it. It's part of the documentation.

Senator Kirby: Well, he may have read it because it was part of the documentation.

Senator LeBreton: Maybe Mr. Hunter will know.

Mr. Goudge: Let me try to explain it this way, senator. My view of what occurred at the end of August was that Treasury Board approved the right of the government to enter into certain specified agreements conditional upon the successful conclusion of further negotiations. It's that simple. Those further negotiations were to deal with a number of important matters. And the negotiations took place and were successfully concluded with the execution of the documents on October 7th.

Senator Kirby: And, therefore, on August 30th, in fact - indeed, up to the calling of the election a few days later, there was no, in fact, liability. The fact that the two sides had said, "We agree" without writing anything down or without signing anything - excuse me - does not constitute any liability on the part of the government.

Mr. Goudge: There was no "binding agreement", to use the phrase you used because the authority to enter into the agreements that was accorded to the appropriate representatives of the government at the end of August was, quite appropriately, conditional upon successful conclusion of negotiations yet to come.

Senator Kirby: So the authority at the end of August was an authority to enter into negotiation and, I guess, in fairness, complete negotiations-

Mr. Goudge: Oh, absolutely.

Senator Kirby: - consistent with certain rules.

Mr. Goudge: Oh, sure.

Senator Kirby: But until those negotiations were completed, the government could have backed -

Mr. Goudge: There's no contract.

Senator Kirby: So the government could have backed off?

Mr. Goudge: I mean this is - Let me explain, senator. This is not like a house deal. This is not a circumstance where there is an offer an a acceptance as there is in a house deal. That forms a binding contract. There is then a closing date for the transaction and the contract made with the offer and acceptance provides for certain steps to be taken between the making of that contract and closing. That was not that this circumstance at all. The only contract that ever exists from my perspective - and I concede that lawyers may differ on this - but the only contract that ever existed in my perspective on this was the one that was concluded on October the 7th.

Senator Stewart: You mean making money for lawyers.

Senator Kirby: In particular, had - you could take a week or so later; whenever the election was called. I think it was the 5th, or 6th, or 7th, or sometime-

Senator Jessiman: Eighth.

Senator Kirby: Thank you very much. Certainly up until the calling of the election the government hadn't occurred any liability at that stage in the game.

Mr. Goudge: That's clearly so from my perspective, yes, sir.

Senator Kirby: And indeed, if you look further into your document, into that press release, there's a thing called "Backgrounder, Terminal 1 and 2 Deal.

Mr. Goudge: "Backgrounder, Pearson Plan"?

Senator Kirby: No. If you go on, it says "Terminal 1 and 2 Deal"?

Mr. Goudge: Yes. I have it, thank you.

Senator Kirby: And the first paragraph says:

The Government of Canada has reached agreement with Pearson Development Corporation on the major issues...

Am I correct - please tell me if you think I'm wrong, but -my interpretation of that is that there are a number of issues on which agreement hasn't been reached let alone anything written down. I mean, otherwise why would you say--

Mr. Goudge: That's absolutely clear. I mean, the information on - It's absolutely clear that there were substantial negotiations on serious matters yet to be done after August 30th.

Senator Kirby: Okay. And therefore, when it goes on to say:

...and will enter into a legal agreement with the consortium...

Again, it makes it very clear that there is no legal agreement binding on the government - at least as of August 30th. Is that right?

Mr. Goudge: That's is correct, and I think that's acknowledged here.

Senator Kirby: Okay. So we now know that there was no legal agreement entered into prior to the calling of the election.

Senator Lynch-Staunton: There was no legal binding agreement.

Senator Kirby: Well, there was no binding agreement. I'm sorry. Let me take the word "legal" out.

Mr. Goudge: No.

Senator Kirby: Let me take the word "legal" out. There was no binding agreement entered into prior to the calling of the election.

Mr. Goudge: That's absolutely correct.

Senator Lynch-Staunton: Not "absolutely correct", by your opinion. Because opinions we- I am going to hesitate to interrupt, but we have heard others say that there was a binding agreement-

Senator Stewart: You never hesitate to interrupted.

Senator Lynch-Staunton: -at the end of August. So your opinion is that there was not a binding agreement.

Mr. Goudge: All I can give you, senator, is my best professional view.

Senator Lynch-Staunton: Yes.

Mr. Goudge: I can't purport to adjudicate this.

I can say, though, senator, just - I think it's worth making the point that I use the phrase "legal agreement" and "binding agreement" to make the same point. It's the same -

Senator Lynch-Staunton: Well, I'm not.

Mr. Goudge: Well, there's no such thing as a non-legal binding agreement, in my view. If it's a binding agreement, you ought to be able to sue on it and that's a contract.

Senator Lynch-Staunton: You can have a binding agreement without having a legal agreement.

Mr. Goudge: Not one you can enforce in the courts.

Senator Lynch-Staunton: Well, that's what we're going to find out during this court action.

Senator Kirby: Can I then ask you-

Mr. Goudge: Oh, I thi- Just to correct that, as I understand it, the law suit is about a binding agreement that is about the one made on October the 7th.

Senator Lynch-Staunton: Go ahead. They're coming back; we'll do it then.

Senator Kirby: Can I, then - Okay Mr. Goudge?

Mr. Goudge: Absolutely.

Senator Kirby: Okay. So, I know where we are as of the date the election has been called, and that's a significant issue which I will deal with Mr. Nixon on subsequently because, obviously what happens during an election or should happen or should appropriately not happen during an election is something on which he's expressed views in the report and I will come back on that.

But I want to right now, sir, move chronologically through time here for a minute and go to October 3rd. I'm only picking October 3rd because the minister signed on October 4th, so I want to pick the day before the minister signed.

And, I ask you to look at the extract from the Department of Transport Act, specifically section 12 (1). I believe that was distributed this morning, am I correct?

Mr. Goudge: I think I have it here, senator.

Senator Kirby: Okay.

Mr. Goudge: Yes, I do.

Senator Kirby: And I'd just like you to read the first part of it and then have you comment on it. This is particularly, I think, helpful to Senator Lynch-Staunton with his emphasis on the word "binding". Section 12(1) says - and I quote:

No deed, contract, document or writing relating to any matter under the control or direction of the Minister shall be binding on Her Majesty unless

(a) it is signed by the Minister;...

Or two other alternatives. So, therefore, I presume, am I correct - again, I'm asking you because I'm not a lawyer - in assuming that as of October 3rd, 22 days before the election, nothing was binding on the government?

Mr. Goudge: That is my view, sir.

Senator Kirby: Just as an aside, is there -

Senator Lynch-Staunton: What did the minister sign?

Senator Kirby: The minister signed a bunch of documents on the 4th.

Senator Lynch-Staunton: Irrelevant documents.

Senator Kirby: No, I didn't say they were irrelevant. I asked the question vis-à-vis the 3rd.

Mr. Goudge: Yes, I agree entirely.

Senator Lynch-Staunton: The ministers signature is not binding.

Senator Kirby: He hadn't signed anything as of the third. As of the 3rd of October he hadn't signed it. Okay? Just -

Mr. Goudge: There is nothing executed by the minister October 3 and before.

Senator Kirby: Right; okay. And therefore, under - If I'm correct in reading section 1 of the act, therefore - and please tell me because, I repeat, I'm not a lawyer - it follows that absolutely nothing was binding on the government up until the third of October.

Mr. Goudge: That's my view, sir.

Senator Kirby: Okay. And, therefore, the government became bound on this deal only after - became at least partially bound; completely bound on the 7th. I understand we seem to have agreed on that. But there's no way the government could have been under any liability up to the third.

Mr. Goudge: I agree with that.

Senator Lynch-Staunton: Madam Bourgon didn't say that.

Senator Kirby: Madam Bourgon - again, just for the record and to help the witnesses - was expressing her opinion. She said five or six or seven times. She went through her testimony that she was not a lawyer and that what she was doing was - Well, she did say that. She stressed that and she is not a lawyer.

Senator Lynch-Staunton: That is right.

Senator Kirby: And she was simply expressing the impression she had as a non-lawyer to the notion that the government might have been accumulating some liability as they went along. But in any event, clearly nothing - 22 days before the election nothing was binding on the government. Am I correct on that?

Mr. Goudge: That's right, sir.

Senator Lynch-Staunton: Signatures mean nothing.

Senator Kirby: Then, the next day, the minister signed a series of documents. Do you have that series of documents? Do you know what the documents were that were signed on the 4th?

Mr. Goudge: I don't have a list in my possession, senator. As I tried to indicate this morning, my recollection - and I may at one stage have had a very precise chronology about what was signed in the couple of days before October the 7th and what was signed on October the 7th, my recollection; and I give this without the assistance of any precise closing documents - my recollection is that there were some documents executed in the couple of days before October the 7th and there were a considerable number of documents executed on the 7th.

I was comforted in that view of my recollection this morning by referencing the October 7 memorandum to Mr. Rowat because that memorandum very explicitly instructs the senior negotiator to execute relevant documents on the 7th and very explicitly states that the clerk is going to execute other documents on the 7th.

So there was a bundle of documents that were executed on October the 7th.

Senator Kirby: Indeed, Madam Bourgon testified that there were actually negotiations ongoing on the 5th and 6th between the documents the minister signed -

Mr. Goudge: That's my understanding.

Senator Kirby: - and the documents on the 7th.

Senator Lynch-Staunton: Excuse me. Did you say the clerk was signing documents on the 7th?

Mr. Goudge: The first paragraph of the direction from Madam Bourgon to Mr. Rowat, senator, says: "The Prime Minister, the Right Honourable Kim Campbell, has instructed Mr. Glen Shortliffe to proceed with the signature of the remaining legal documents..."

Senator Kirby: I think you made a mistake. The clerk didn't sign it.

Senator Lynch-Staunton: I'm not aware that the clerk signed anything.

Senator Kirby: No, you are right.

Mr. Goudge: Whatever Mr. Shortliffe was.

Senator Kirby: Senator Lynch-Staunton is right. The signing was actually done by Mr. Rowat. The clerk was directed by the Prime Minister to get the signing done is maybe a better way of describing it. That's actually what happened.

Mr. Goudge: Then I simply read this to say that Mr. Shortliffe is going to sign some, and Mr. Rowat is going to sign some.

Senator Kirby: In fact, Mr. Rowat signed them all.

Mr. Goudge: He signed them all?

Senator Lynch-Staunton: You don't know who signed the documents? You are telling us today that you think that Mr. Shortliffe signed some documents? You are just finding out now that he did not?

Mr. Goudge: Yeah, but that doesn't have anything to do with -

Senator Lynch-Staunton: Well, it does. If you don't know who signed what, obviously you don't know that they signed.

Mr. Goudge: The important point and the only important point, senator, is that on October the 7th, there were a number of documents required to be signed. They were signed by the person who was authorized to sign them. That's -

Senator Lynch-Staunton: You told me that -

Mr. Goudge: Let me finish, please. Can I finish, please?

Senator Lynch-Staunton: Yeah.

Mr. Goudge: Let me go back to the beginning, then, senator.

My understanding is that on October the 7th, there were a number of documents signed necessary to conclude the contractual package. They were signed under the direction of this memorandum. If you tell me they were all signed by Mr. Rowat, I'm quite prepared to accept that. The important and, indeed, only point, is that it was necessary that those documents be signed after the contract was created.

Senator Lynch-Staunton: Mr. Chairman, I suggest that if Mr. Goudge doesn't know who signed the documents, he's obviously not aware of the significance of the documents that were signed. He's told us of the importance to him of the October 7th signatures. Surely that is based on a reading of all the documents that were signed and who signed them.

Mr. Goudge: I can tell you, senator, that -

Senator Lynch-Staunton: And obviously you did not do that.

Mr. Goudge: I can tell you, senator, that my information - if you can tell me I'm wrong, you can me I'm wrong. My information is that there were documents signed on October the 7th, which were documents of importance, documents which were being discussed up until October the 7th -

Senator Kirby: And we have evidence of that.

Mr. Goudge: - and documents which were necessary in order to create the contract.

Senator Lynch-Staunton: I am sorry to Senator Kirby for intruding on his time. We don't dispute that. What we are asking you is what is the significance of all of these documents, which are all listed here, which you are aware of?

Senator Kirby: I didn't ask him that. You maybe asked him that.

Senator Lynch-Staunton: Well, I've asked him over and over again.

Mr. Goudge: Do you want me to answer that, senator?

Senator Lynch-Staunton: No. You're coming back, and we'll get into it when you come back.

Mr. Goudge: The significance of the documents is that they need to be signed in order to conclude the contract. Simple. That's the one point.

Senator Lynch-Staunton: That we agree on, and the contract had been -

Mr. Goudge: I thought you were taking the position that the contract existed before that?

Senator Lynch-Staunton: That's right, and I maintain that.

Mr. Goudge: Then you do not agree with me.

Senator Lynch-Staunton: And I maintain that.

Senator Kirby: Mr. Chairman, in fairness, I haven't hassled anybody for two days. The position that I asked the witness, and his answer was very clear, my question was - and to avoid any arguments about the 4th, 5th, 6th and 7th, I went to 22 days before the election instead of 18. So I was trying to get out of the argument of the 4th versus the 7th. I said, "Am I correct on October the 3rd, with my reading of the act, that there was absolutely nothing binding on the government?" Your answer was categorically "yes".

Mr. Goudge: Yes. That's correct, sir.

Senator Kirby: That's what I was trying to establish.

I wonder, then, if I can ask Mr. Nixon a followup question beginning with the 4th or the 3rd or whatever. The exact date doesn't matter.

Mr. Nixon, I would like to read you a quotation which was presented to this committee on Monday morning in a brief from one of the three political science experts who testified before the committee.

Senator LeBreton: Mr. Wilson.

Senator Kirby: Actually, I'm going to read one from all three, but since you prefer, I will do the one from Mr. Wilson first.

Senator LeBreton: I'm sure you picked Mr. Wilson.

Senator Kirby: I'm happy to do all three, so it doesn't matter.

Mr. Chairman, since Senator LeBreton would like me to do the Wilson one first, I'm happy to do it. In his testimony, we were told -

Senator LeBreton: He was your guy.

Senator Kirby: Your guys didn't help you very much either.

We were told that the Australian convention - and this is documentation coming from the Prime Minister's Office in Australia. This is part of the actual report of the Department of the Prime Minister, which is roughly their equivalent of the Privy Council Office. They talk about Australian conventions during the period between the issuing of a writ and an election. So we're not talking about the period post-election. We're talking about the period between the issuing of a writ and an election. I'll read from page 8 of the brief. It says the following:

The Australian conventions are described in the following way:

The basic caretaker conventions require a Government to avoid implementing major policy initiatives, making appointments of significance or entering into major contracts or undertakings during the caretaker period...

That is a documented convention in Australia.

We also heard from Mr. Wilson and indeed the other two experts' evidence that there has never - and I use the word "never" - been an occasion where a British government made any other than routine decisions in the period following a dissolution of Parliament, ie., during an election period, and similar evidence that the same thing has existed in Canada.

Senator Jessiman: Not true. That's wrong, Senator Kirby. No, that's wrong.

Senator Kirby: My question to you, is that consistent - I'm not trying to get here into a political science definition of the word "convention". Let's call it "tradition" so we don't get hung up on routine words.

Is that sort of convention the kind of thing that you have referred to in your report? Indeed, in your opening statement, you said at the bottom of page 12:

It is a well known and carefully observed tradition that when governments dissolve Parliament, they must accept a restricted power of decision-making during an election period.

That was your statement. I have sort of given you the Australian and the British experience and the Canadian history. Is it the breaking of that convention or tradition which bothers you? Maybe you would want to enlarge on why it did.

Mr. Nixon: Yes, it bothered me very deeply. We don't have a written convention or anything established in our Constitution or the laws of the province of Ontario or any other province in that regard, but it's a tradition that is understood and, in my opinion, generally accepted by everyone who is understanding of the democratic process and associated with the political process.

My own experience, which is extensive - I must say more extensive in opposition than government - is that it very rarely, if every ever, occurs because the senior public servants who have a continuing responsibility as governments come and go normally understand this very well in addition. In my opinion, this is what might have led the Deputy Minister of Transport and the Associate Deputy to request specific guidance on the time that had previously been agreed upon for the final signature of the contracts that we are discussing.

The idea that the head of the government did not have any choice in this regard is, in my opinion, unacceptable. The Prime Minister of Canada has, as far as I know, always got the choice to make whatever decision he/she decides is appropriate for the public good.

Whatever moved the Prime Minister to authorize this course of action is of course her business. We had a brief discussion of this earlier in the day as to the inadequacy of her advice and the problem that she might have experienced with her inexperience. I'm not prepared to comment on that further other than to say that I believe the tradition in Canada is strongly established and respected, that once the writs are issued, the moral position of the government to undertake significant initiatives is removed and that they carry on, through the public service, the day-to-day administration of public events.

Senator Kirby: When you say significant -

The Chairman: Is a supplementary indicated now or -

Senator Kirby: For you?

The Chairman: Yes.

Senator Kirby: I'll always give you a supplementary.

The Chairman: Mr. Nixon, one might argue about prudence; one might argue about liability. But when you use the word "tradition", you really mean a convention, a custom, something which has been agreed upon over a period of time. We have, as senators, no legal and constitutional rights to veto the House of Commons. We have a legal right, but convention has overtaken our constitutional rights, which were embodied in the British North America Act.

Now, then, we had three academics here, and it was a case of "our academic can beat your academic". So there was a question asked of the three academics. There was no convention restraining the Campbell government from reaching these contracts relating to the Pearson Airport. There was no convention restraining them, whether founded upon precedent or arising from constitutional principles. Professor Heard and Professor Mallory agreed with that question put to them. Professor Wilson, the third academic, disagreed.

Senator Stewart: But in fairness, Mr. Chairman -

The Chairman: Just let me finish my question, Senator Stewart.

Senator Stewart: All right, but then I would like to comment because I think you are making a mistake in your use of the word "convention".

The Chairman: You make reference to the initiatives that may be taken or should not be taken or the restraints which should be exercised between the issuance of a writ and election day. I don't think there's any argument. It's a time of prudence. No major undertakings should be introduced; no new initiatives should be taken.

I suggest to you that Glen Shortliffe, who was the Clerk of the Privy Council at that time, has said in effect just that, that there were no new initiatives taken by the Kim Campbell government between the issuance of the writ and election day respecting the Pearson Airport. There were none. There were none, which would seem to suggest to any reasonable person that all that had been done, had been done, and that all documents were laid to rest in escrow. Nothing else was required - no return to the Treasury Board; no extra information required, just the information that was required on the date agreed upon in July with regard to taking these things out of escrow. That was required. That was asked of the Prime Minister on October 7th: "Do you wish to release these documents from escrow"? Nothing was done. Nothing was done. No initiatives; no action; no nothing!

Senator Kirby: Mr. Chairman, just in fairness, I wasn't asking him any question. I deliberately tried to stay away from October 7th so we don't get into our usual hassle. I deliberately stopped at October 30 in order that we could talk about the situation which legal counsel has very clearly and categorically said that there was nothing binding on the federal government as of October 3rd, to which I then said to Mr. Nixon in light of the comments both in his opening statement and in a couple of places in his report, obviously he felt that was inappropriate behaviour. I was deliberately staying away from the word "convention" so we didn't get into classical political science.

The Chairman: I'm sorry, Senator Kirby. I'm coming back to a very important point which Senator Stewart can question me on in a moment.

Senator Kirby: How did I lose the floor?

The Chairman: The word was "tradition". The number one thing you mentioned of the 10 things that concerned you was the timing. "Immoral" said somebody, immoral that this should have been signed in the dying days of the what you call it. There was nothing that would deter an existing Prime Minister, undefeated in any election, undefeated in the house, possibly anticipating defeat, but nothing to do with her powers of making a decision and whether or not a decision to allow the documents to be released from escrow.

Senator Stewart: But the implication of your comment -

Senator Kirby: I wasn't even talking about Prime Minister Campbell.

Senator Stewart: But, in prudence, she could have decided not to do so.

The Chairman: Of course. I started my question by saying I'm not talking about liability, and I'm not even talking about prudence. I'm not even talking about political common sense! I'm not talking about any of those things! I'm making the question, did she have the power of a Prime Minister to make that decision?

Why do you dwell on the fact of dying days, unpopular governments? We might even concede all of these things, but do not, for God's sake, tell me that there was no prerogative on her side to make such a decision!

Senator Kirby: Mr. Chairman, in fairness, I don't think the witness ever said that.

Look, what the three political science experts said was - one described it is a reckless disregard for propriety; the second one said it is not in keeping with past political practices; and the third says that it was imprudent. Now they aren't our words and they aren't Mr. Nixon's words. Those are the three experts who actually understand what the Canadian political system has historically been about during an election period. What I was asking Mr. Nixon was whether or not he agreed or disagreed with those kinds of comments from the political scientists, and if so, why. I was asking him whether or not he agreed that even though there is no formal, written, political convention in Canada - I didn't ask him whether, legally, the Prime Minister was formally, legally constrained from signing those documents. That's never been an issue before this committee. The issue that has been an issue before this committee is whether it was appropriate, whether it was proper, whether it in fact should have been done in the broad public policy sense of providing Canadians with responsible as opposed to irresponsible government. That has been the issue, and that is the issue that I was asking Mr. Nixon to comment on, none of the things you raised.

Do you mind commenting on the question I was trying to ask you before I made the mistake of giving the chairman a short supplementary that was not relevant to what I was asking?

Mr. Nixon: If I may, Mr. Chair, perhaps my comments would provide some satisfaction to the chairman.

I have to tell you that having said what I said - and I stick with it, and I don't intend to repeat it. I don't want to indicate the fact that I felt that the Prime Minister of the day used bad judgment. I've already said that or that she had been ill-advised. But, I was asked to look at the situation as it was not now, wherein this luxurious committee room the senators have an opportunity for sober second thoughts as to what may or may not have happened almost exactly two years ago. I was asked to review it a couple of weeks after the times that we are referring to. I don't recall even the most erudite supporter of the Conservative Party then trying to argue with the electorate that in fact the decisions made by the Prime Minister had no impact on the decision to privatize Pearson Airport and hand it over under the circumstances that we have described.

The argument that you are making now is an important and philosophical argument and very much in order as we are two years from the event. I was asked by the Prime Minister to look at the situation as it then was, and this was in response to the strong feelings of the issue during the election campaign pertaining to the award of the Pearson contracts. I can assure you that one of the things that focussed the objection among the voting public and those who were commenting publicly was the fact that the Prime Minister of the day, knowing full well that this was a significant political issue, knowing full well that the Leader of the Opposition, who in the course of events became the Prime Minister, had warned about it and in fact did call the situation "immoral" - in case the chairman has forgotten who did say that - and that it was on that basis that I reflected that view, which is my own view, that is, that the ultimate decision should have been postponed in light of the fact that they were well into the writ period in a policy area which was highly volatile in the election campaign.

Mr. Goudge: Let me say, senator, for my part, just to respond to Senator Kirby's question, speaking from a legal perspective, I have never asserted that the Prime Minister had no legal right to conclude this contract. My point is, and I would part company with Mr. Shortliffe, that the undertaking of legal obligation, which is what happened on October the 7th, is indeed a very important, new step in this proceeding because, in my view, that's what seals it. The political ramifications of that and the political tradition that one brings to bear on it is what Mr. Nixon has recited.

From a legal perspective, I simply would indicate that the taking on of this legal obligation to proceed with this substantial project was one that was done on October the 7th. From my perspective that, indeed, is a very important event.

Mr. Nixon: However, the senator was asking about what happened October 3rd and 4th.

Senator Kirby: Yes, I was.

Mr. Nixon: I was just going to point out that all of the information that came to me during my review - although the finer political point from my point of view that has been discussed extensively here was understood by Mr. Goudge and described to me - but my perception was that the signature of the deputy and associate deputy at the time of final approval of the contracts constituted accepting the responsibility for the contract, and that if it had not been signed, we may very well not have been here discussing the matter now.

Senator Kirby: I want to ask one followup. I know Senator Jessiman has a supplementary.

To get back to my point about what is appropriate political behaviour, again I want to go back to the 3rd, deliberately leaving the Prime Minister out of this. Just thinking of the signing by the minister, now, on the 4th, which started the ultimate four-day signing process, what is your view of the minister - in fact, even the minister, prior to getting to the Prime Minister on the 7th - proceeding to sign documents 22 days before an election, when the government was, as I've checked the polls yesterday, about 22 or 23 per cent in the polls, what is your reaction to - leaving the Prime Minister aside for a moment - to the minister in fact proceeding to do that under these circumstances, particularly given the fact that the Australian convention explicitly talks about entering into major contracts or undertakings?

Mr. Nixon: I'm surprised, in fact, that a cabinet minister would undertake that responsibility under those circumstances.

I don't want to sound facetious, but my own experience is that at that stage of an election campaign, ministers are not spending a lot of time in their offices considering matters of state, that the running of the government is pretty well automatically in the hands of the civil service, led by, in the instance in Ontario, the Secretary of Cabinet, in this instance, the Clerk of the Privy Council Office. I think that's an appropriate way for the business of the state, whatever it happens to be, to be conducted.

I can only assume that the minister, under the circumstances, was responding to the concerted will and decision of the government to proceed with this before the end of the election campaign.

Senator Kirby: Would you agree with one of the academics, Professor Andrew Heard of Simon Fraser, when he described such action as "not in keeping with past political practices"?

Mr. Nixon: Certainly the past political practices that I'm familiar with, it would not be in keeping with those.

The Chairman: I am just getting to one word, one word alone, and that word is "immoral". I am saying to you that there is evidence that she had all of the powers of a Prime Minister of Canada at the time that she made the decision. She was prepared to bear the consequences of political failure, but she was not prepared to bear the consequences of liability to the Crown.

I want you to tell me if you can define the word for me, because I thought I knew. What is immoral about that?

Mr. Nixon: Mr. Chairman, I am not going to undertake a semantic discussion on the basis of the word. I didn't use the word. You raised it, and you can pursue it as you see fit. I have used other words to describe the decision, and that was "ill-advised." That was the main one. And I believe that the Prime Minister of the day was ill-advised.

I believe that Prime Ministers are usually ill-advised when they decide to take an action by saying that they can do no other, because I think Prime Ministers have essentially the power and the responsibilities to make their minds up on matters of crucial importance and then to take the appropriate action. In this instance, I feel the Prime Minister of the day was ill-advised.

Senator Kirby: You're saying, Mr. Nixon, that the statement, "I had no option," is not a terribly desirable statement to say under these circumstances, which appears to be the position that it's being advocated that the Prime Minister Campbell faced; is that correct?

Mr. Nixon: That's correct.

Senator Kirby: I think I heard that line before somewhere.

Mr. Nixon: I have too.

Senator Kirby: I'm not sure why it rings a bell.

Mr. Nixon: It's part of an experience in politics that a person under those circumstances should beware of using it. The remedy, of course, when Prime Ministers or others make inappropriate decisions or ill-advised decisions, certainly Prime Ministers, is in the hands of the electorate.

In this instance, I say again, and I can't imagine that you would disagree, that in the last days of the election, this was a principle issue, a matter of substantial concern, and the electorate found they had a remedy and they used it.

Senator Jessiman: There were the three academics before us, but there were many before them that came before the Legal and Constitutional committee, and they were divided. They were divided only, though, that some said that if a government was defeated in the House of Commons or defeated at the polls, after either of those, it became a caretaker government under those circumstances. They all agreed with the exemption of Mr. Wilson the other day, and he said it was the first time he'd ever written anything about this. He had no precedent to follow on. The other two disagreed with him. Mr. Wilson said - and quoted the Australia case. Now, I read it, his paper, after he left, and I would like to argue this with him later. There were exceptions to the caretaker role even in Australia. It says you shouldn't enter into major contracts.

I'm suggesting from a constitutional point of view that that contract was entered into, as far as the politicians were concerned, on August 30. They could have, but they didn't, but they could have authorized Rowat or whomever on August 30, August 27 actually, authorized someone else to have signed those documents. No one would have had to come back. The politicians didn't make any decision. The politicians made no decisions that were required except because the deputy minister and Rowat thought at the last moment, "Well, there is all this publicity, and we'll ask for it."

But that wasn't necessary, and I argue that not only in the conventions in Canada, which there is some that say there is no such thing. Even defeated in the House, they are still the government. They can carry on. Some say because they're defeated, they can't, but definitely never, never can they say there is a convention that they can't carry on government if they're not defeated. That's all I have to say.

Senator Stewart: In the absence of the chairman, may I say a word on the problem of the word "convention"?

Mr. Nelligan: In the absence of the chair, I'm sure you will all be able to regulate yourself.

Senator Kirby: You look enough like a senator that you can do it.

Senator Stewart: There is a real difference of definition with regard to this term. The classic use of the expression "convention" meant that there was a practice which gave effect to what was called the law of the constitution. Let me give you an example.

It's a law of the constitution that a government can't take money out of the Consolidated Revenue Fund without appropriation. If a government is defeated, let us say on a no-confidence motion in the House of Commons, that has no legal implications, but it is a convention of the constitution that, in that circumstance, the government will either resign or bring on an election, because if it does not it will very soon be breaking the law of the constitution. It can't carry on without money. That is the old classic definition of "convention".

Now, if you start using "convention" to mean continuous practice, then the people who use the classic "convention" will obviously become pale and say, "No, no, you're misusing the word. It's not a convention." So it's a bit like the kind of battles that we see among the lawyers. It's a dangerous word to use because of that reason. I am sure that the chairman will have made notes.

Senator Kirby: Mr. Nixon, I wonder if I can get to a point you raised a couple of times in responses to questions which said that this issue was an issue during the campaign. I want to just give you two excerpts from Question Period in the House of Commons, the first being from March 13, 1992, page 8183. It's a question from Mr. Manley which said as follows:

Madam Speaker, the minister knows very well that the numbers come from the association -

It turns out the previous question dealt with the airport association, sorry.

- association and the airlines themselves.

He then goes on to say:

Why does the minister not remove the foul odour of political favouritism and opportunism from the timing of the announcement of this project and do what Mr. Sinclair from the airline association suggested and simply wait until 1993 when we see how the airline industry shakes down?

That was a question, as I say, posed to Mr. Corbeil when he was Minister of Transport immediately following the issuance of the RFP.

And then nine months later, immediately following the awarding to Paxport of the right to negotiate the contract, again, Mr.<#0104>Manley said as follows. This is December 8, 1992, page 14855 of the Commons Debates. Mr. Manley said as follows:

Mr. Speaker, my question is for the Minister of Transport who yesterday in announcing that the government was proceeding with terminal redevelopment at Pearson airport said that he wanted assurances "that changing financial realities are addressed fully before any construction begins".

The minister knows that the airline industry is in a state of turmoil. Why did the government not show some progress on the problem of overcapacity in that industry before contributing to the problem by creating additional capacity at Pearson airport?

And then going on, several other questions in that same vein from other members of the opposition at the time, including Stan Keyes, the member from Hamilton West.

Mr. Nixon, obviously the issue of the privatization of Terminals 1 and 2 had been an issue for the opposition going back as far as when the RFP was called for back in March of 1992. You also spend a fair bit of time in and around the Toronto area. Was it your view that this was a political issue or a growing political issue in '92 and '93, or is this an issue that, as Senator LeBreton would have us believe, came out of thin air on the 6th of October, 1993?

Senator LeBreton: Point of clarification. I said there was five questions.

Senator Kirby: You've also said repeatedly that it became an issue only on the 6th of October. Just because you live in the area and because you know - sorry, I realize Brant County is not part of Toronto, and I realize you find that offensive, so let me change it slightly to say that because you were familiar with the politics of the metropolitan Toronto region and public policy issues in the area in general, is it your view that this was an issue that just came out of the blue or in fact had this been a building issue or issue around for some time?

Mr. Nixon: After the economic recession period early in 1980s, '81, '82, '83, the economy began to grow very rapidly and the utilization of Pearson grew very rapidly. The extensions of projections for passenger use indicated that there would soon be substantial crowding and other difficulties at Pearson, and linked to that were complaints made about Terminal 1 where structural weaknesses having to do with the parking facility were brought more and more to public attention, particularly when chunks of cement fell on people's cars.

Also, many people using Terminal 1, which was in its day one of the best designed in the world, were complaining about the fact that entering Canada there were a lot of steps, and it was very expensive to obviate the use of those with more modern facilities, and Terminal 1 became more and more an object of criticism.

But the big thing that was driving this, and these were the days when I was in government, is we were being pressed to provide more and more handy access to Pearson from the City of Toronto and Highway 401 and other highways that were planned, that the idea was that this growth was going to be continuing on a geometric slope and that we could make plans so to do.

You could say, I suppose, that it's unfortunate indeed, but if there is a small glimmer of light in the misfortune of the recession that began in 1990, that is that the utilization of passenger through-put fell off quite dramatically.

While everybody thought it would have been very nice to continue to spend money and improve the facility, it was generally thought that with $120 million extra spent on Terminal 2, that had opened to some criticism, we now had a facility in Terminal 2 that was as good in general terms as you'd find anywhere.

Terminal 1 was spruced up a bit, and since Air Canada was no longer using it to the same extent the charter airlines and a couple of American airlines were making use of it, that we were in reasonably good shape.

As a matter of fact, testimony before this committee and from my own reading in this regard would indicate that probably our facilities there now will serve the travelling public for some years in the future, although obviously we need better facilities for the new routes to the United States, particularly is the one that has been raised.

So that it was definitely an issue in the area. Politically, people were concerned about the extension of runways. Number one, they didn't like them if the planes were going to take off and land over their homes. And if they did like them, they thought there was going to be a hold-up in their flights because the runway facilities were inadequate.

I notice that the CEO of Air Canada either said to this committee or in a recent speech that there were something like 32 flights cancelled in one day, and when you look at the reasons for that, at least as I understand them, it's because under certain wind conditions they must use the north-south runway, which is a single runway, and they have to leave the rest of the facilities unused. It's true that once Pearson gets jammed up for that reason, the tail back or whatever you might call it, the line-up, extends right - I wouldn't say across Canada, but deeply into Canada and down into the United States.

So there is a continuing argument about what the facilities should be, how they should be improved, and to my personal knowledge, that goes right back into the early days. I think the first time I ever went to that airport was to meet my brother when he was flying home from Rivers, Manitoba, in 1939, and landed at the terminal which was called Mountain, and the terminal was a converted chicken coop, to all appearances.

So what did you say the question was?

Senator Lynch-Staunton: Are you suggesting, and I think Mr.<#0104>Nixon is agreeing, that redevelopment of Terminal 1 and 2 should wait until the passenger threshold reaches a certain level?

Senator Kirby: No, that wasn't the question I asked. The question that I asked was whether or not, in your opinion, the issue of the privatization of Terminals 1 and 2 was an issue which came out of the blue on the 6th of October, or whether or not, in the metro Toronto area, opposition from wherever to the privatization of Terminal 1 and 2 had been expressed.

I'm trying to deal with the issue. It's been suggested repeatedly by senators opposite that - I think the exact phrase that they've used frequently is, "Suddenly it became quote a political issue unquote." I don't know. Apparently a political issue has a negative connotation. In the midst of an election campaign, I have difficulty understanding how any issue is not a political issue, but in any event, the senators opposite take the view that it was suddenly a political issue as of the 6th of October.

I don't live in Toronto, and you are there a great deal. I wonder whether, from your point of view, just on the basis of your political experience in Ontario, whether or not the issue of the privatization of Terminals 1 and 2 came out of the blue on the 6th of October or whether or not it had been in issue for some months or some period of time before then.

Mr. Nixon: It had been an issue for a long period of time because there was many thoughtful people who, in principle and on the basis of their philosophy, feel that a facility of that size serving the public in general ought to be operated by a government emanation and should be operated at no profit; that traditionally, the Government of Canada has provided these facilities and it has worked reasonably well.

Now, the whole concept of privatization was given a big lift by Mrs. Thatcher's policy which she carried so rapidly and in many respects with some substantial advantage to conclusion in the United Kingdom. That certainly sparked a good deal of interest, and it appeared to many people in government that this is a good way. As far as the revenues that the U.K. received from privatization, I was interested as treasurer at the time to see that they were allocated to the bottom line of the budget in which they were received and had a good deal to do with the record of the Thatcher government in controlling its deficit, because they simply sold the family jewels and put that money on the bottom line and used it directly. There is nothing improper about that as long as people understood that these were one-time revenues of very great significance indeed but which had a big impact on the financing of the government of the United Kingdom.

There were many of these areas which were open to public discussion. My own view, frankly, as an admirer of Ontario Hydro over the years, has always been based on the fact that the provision of electrical energy in the province of Ontario was well founded as a public institution actually inaugurated by a Conservative government back in the early days of this century. The fact that now governments at all levels are looking at utilities like Pearson and like Ontario Hydro with an eye to privatization I don't find objectionable at all. I believe it has to be considered in each case as to how practical they are and how beneficial.

Senator Kirby: Okay. The latter expressed your personal political philosophy or political point of view, small "p" political in the sense it's a political theory point of view. But am I correct, I want to make sure I understood what you said in the first part of your answer, which is that the issue of whether or not T1T2 ought to be turned over to private hands, to private owners, was in fact a public - because "political" has different connotations - a public policy issue -

Mr. Nixon: It was.

Senator Kirby: - in the metropolitan Toronto area long before the actual election, and certainly long before October 6.

Mr. Nixon: It definitely was.

Senator LeBreton: Senator Kirby, I've already put that on the record. Mr. Bandeen made it very clear it was an issue with the group that was supporting the LAA. I have never said it wasn't.

Senator Kirby: I knew it was an issue of support. Thank you, Senator LeBreton. I was really asking in the broader context. There is no question the LAA wanted it.

Was it your view that in fact in the broader public policy debate, whether in the media or elsewhere, this was an issue on which there were, for philosophical reasons, much of which I think you outlined quite clearly a few minutes ago in response to my question when you described the Margaret Thatcher approach, that in fact philosophically there were substantially differing views on this question?

Mr. Nixon: That is correct. I wouldn't characterize them as being hot topics on the front page of The Toronto Star or The Ottawa Citizen, but the media at all levels and of all types would have continuing stories, particularly when the decision was made by the Government of Canada to move toward privatization. I was interested to read the letter that you handed around from Mr.<#0104>Blenkarn. There was the paragraph on page 3 that you brought to our attention which indicated some concern about the government policy in this regard. But otherwise, other places in the letter, which was a fairly lengthy and very thoughtful one, he points out that there were some substantial objections to the privatization policy itself, or concerns which he felt had not been properly plumbed by the government before they announced what their policy was.

Senator LeBreton: He was also concerned with the GST.

Senator Kirby: Therefore, in your view, it is not an accurate description to describe the privatization of T1T2 as quote a political issue which arose on October 6?

Mr. Nixon: No. It was a well discussed issue of political principle, perhaps, and it was generally joined by people interested in matters of this type and by the media.

Senator Kirby: Mr. Chairman, I was then going to switch into asking Mr. Crosbie a number of questions which are fairly technical in nature on the basis of his analysis. Since it's about three minutes to three, can we call it three o'clock? It seems to me to be an appropriate situation.

Hon. Senators: Agreed.

The Chairman: Mr. Nixon, I think we owe it to you to tell you why some of us want to ask you to come back. You reflected the mood of those with whom you had talked, with whom you had selected, without holding their feet to the fire, without questioning the facts behind their allegations, denying yourself the information coming from the overwhelming number of public servants who were on the firing line during all this period, and apparently completely insensitive to the fact that your political background might cause your report to be suspect. That's the reason we're calling you back, and to get more into the technical aspects of your report which we have not had an opportunity to do. I just owe you that explanation as to why we're calling you back. I hope that a convenient time may be arranged with the counsel.

Senator Stewart: You're certainly not speaking for me, chairman.

Senator Kirby: He knows he's not speaking for me either.

Mr. Nixon: Mr. Chairman, I just want to say that you asked me to set aside two days, with a possible third day. I think I was contacted by the clerk six weeks or perhaps two months ago. We were able to do this, and we will be glad to return at your convenience, whenever that can be worked out. We are prepared to provide whatever information we possibly can, although I'm not naive enough not to think that, whatever that information, it will be convincing to all of the committee members. I don't expect that to be so. So we'll thank you for a very interesting experience, and I appreciate your leadership as chair of the committee. We'll look forward to hearing from you in the future.

The Chairman: Thank you Mr. Nixon, Mr. Goudge, Mr. Crosbie. We'll adjourn at the call of the chair.

The committee adjourned.

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