Proceedings of the Special Senate Committee on the

Pearson Airport Agreements

Evidence

---

Ottawa, Monday, October 23, 1995

[English]

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

Senator Finlay MacDonald (Chairman) in the Chair.

The Chairman: Come to order, please.

Mr. Rowat and Mr. Desmarais, we are delighted to have you back. Thank you very much for coming.

We welcome you, Mr. Pigeon and Mr. Green. We had a letter this morning - I think all members of the committee have it - from the Deputy Minister of Justice, Mr. George Thomson. He says, in part, Mr. Pigeon and Green, that there no question that you are appearing voluntarily before this committee and that we have every right to ask you to appear.

We are very pleased to have you gentlemen.

If there are no comments from any senator, I'll suggest that Mr. Pigeon and Mr. Green be sworn.

Senator Kirby: The previous witnesses have been sworn.

Mr. John Nelligan, Q.C., Counsel to the Committee: Once they are sworn, they remain sworn.

(Mr. Robert Green, sworn:)

(Mr. Jacques Pigeon, sworn:)

Mr. Nelligan: Senators, as the chairman has indicated, our witnesses today, beginning from my far left, are Mr. Jacques Pigeon, who is General Counsel, Department of Transport; and Mr. Robert Green, Senior General Counsel, Department of Transport. With them for a second appearance are Mr. William Rowat, the former Associate Deputy Minister of Transport and now Deputy Minister of Fisheries; and, on my far right, Mr. John Desmarais, Senior Advisor to the Assistant Deputy Minister, Airports Group. Those last two witnesses were before you previously on August 3rd, 15th, and 16th.

Mr. Nelligan: I wondered if we could begin the examination by having our two new witnesses indicate to us in general terms the nature of their role in the negotiations in completion of the Pearson agreement.

Senator Kirby: Mr. Chairman, for the record, recognizing that we've had people watching this and may wonder how come we changed strategies this morning and are beginning with questions from counsel, that you shouldn't explain that you and I had agreed in advance that there were a pre-set list of questions which it would be advisable and helpful for counsel to ask the witnesses. That's why we're proceeding in that fashion, just because we haven't done it before. It seems to me we ought to have that on the record.

The Chairman: All right.

Mr. Nelligan: If I may just give a further word of explanation, there was some legitimate concern on the part of Department of Justice officials that there might be some accidental interference with the solicitor and client privilege which we do recognize. So I will attempt to go through these questions as best I can without creating any difficulties of that kind.

Senator Bryden: Since we do have a panel appearing, and I realize questions are being directed initially to the two Department of Justice lawyers, is it appropriate for the other two witnesses who are here who have matters to add, or clarification, to comment on your questions?

Mr. Nelligan: I think that the whole panel is available to comment on the questions, though in some cases, of course, they will be more directly pointed to one witness rather than another; but, as experienced responders to questions, I think they'll be able to field them appropriately. If we want to repeat the question to another member of the panel, certainly we can do so.

Can we begin with you, sir, Mr. Green.

Mr. Robert Green, Q.C., Senior General Counsel, Department of Transport: If I might, Mr. Nelligan, I think you're referring to and it's my understanding too that we're here in the context of your correspondence, I believe, with George Hunter in connection with this matter. We were also, I believe, not asked to produce any particular documents. As I suspect, there are more than sufficient documents before this committee already.

Mr. Nelligan: That's the general feeling.

Senator LeBreton: It all depends.

Mr. Nelligan: Could you start, Mr. Green.

Mr. Green: Yes.

Jacques and I were with the department during the currency of this particular transaction and still are at the Department of Transport. We, of course, are employed through the Department of Justice.

Our role was one essentially of heading a team of lawyers on the government side. Their primary function was to provide the papering of the transaction and, as needed, to provide any advice on issues that might arise. We, ourselves, were not directly involved in the drafting of documents in the sense that we had other lawyers designated for that, but we could of course have been consulted from time to time on issues that would have arisen or, of course, would have been involved in perhaps discussions around those particular documents.

We were also involved from time to time in general strategy sessions around the negotiations or in planning for the negotiations, but we, ourselves, did not act as negotiators with respect to this matter, nor generally did the lawyers act as negotiators. There may have been specific issues which they were asked to exchange views on with counsel from the other side, but that would have been the extent of it.

Mr. Nelligan: To what extent would you supervise the actual drafting of the documents?

Mr. Green: It would have been what I would call overview. We were kept generally informed, but, I think, as you recognize from the volume of paper involved, there is no way we could get involved in all the nitty-gritties of each and every transaction. It would have been more in terms of general issues that may have come up to which they wanted our input or perhaps bounce ideas off us.

Mr. Nelligan: Yes. I believe you also had outside counsel?

Mr. Green: Yes, we did. We had outside counsel from the law firm of Cassels, Brock & Blackwell.

Mr. Nelligan: What would their role be in connection with yours?

Mr. Green: Essentially the same as us. We looked to them, though, more to provide the services in connection with the document preparation, particularly since the law defence took place in Toronto. But in any event, they had the resources at their disposal which we didn't to be able to attend to document preparation. They also would have assisted us in terms of any advice we might be rendering. They were agents of the Department of Justice.

Mr. Nelligan: Just so I'll understand "document preparation", is that the drafting or the actual printing and collating?

Mr. Green: Drafting, Mr. Nelligan, and printing ultimately.

Mr. Nelligan: By August 27, 1993, can you tell us just how far outstanding matters had been resolved?

Mr. Green: If I might defer to my colleague with respect to that?

Mr. Pigeon: On August 27, 1993, this is the date when the Order in Council was issued by the Governor in Council on the recommendation of the Minister of Transport as well as the Treasury Board. That Order in Council basically authorized the Minister of Transport on behalf of her Majesty to enter into the lease with T1T2 Limited Partnership, to enter into an option to lease with a numbered company which is 2922797 Canada Incorporated.

It also authorized the minister to enter into a bill of sale pursuant to section 61 of the Financial Administration Act whereby the minister would transfer the moveable properties which essentially was the equipment, the chattels and the consumable stocks that the minister was using in the operation of the airport on the day of transfer; and, finally, to enter into a management services agreement with Terminals 1 and 2 which is an agreement whereby the Crown was undertaking to do work for a period of one year. And there was provision in that agreement for extension contingent on certain happenings or events happening.

So these are the four contracts or the four instruments which the Order in Council authorized. The point I would like to make is that, in addition to those four instruments, there were a lot of other instruments which are not mentioned in the Order in Council which basically served to document the transaction. I believe that the committee already has a closing agenda. And if that's acceptable to you, I would like to refer to that document just for the purposes of convenience so that I can be specific as to what are these other documents.

Mr. Nelligan: That would be very useful. I believe copies of that document was distributed to the committee this morning.

Mr. Pigeon: In terms of just listing what the other documents are -

Mr. Nelligan: Are you now referring to the closing agenda, sir?

Mr. Pigeon: Yes, I am.

Mr. Nelligan: Yes.

Mr. Pigeon: That document essentially has three parts to it. Part 1, which essentially goes from pages 4 to 10, inclusively, basically lists two sets of documents. The first set are the documents of authorization. That's the way they are described in that document and -

Senator Jessiman: We haven't got that.

Mr. Gary O'Brien, Clerk of the Committee: We are getting more copies.

Mr. Nelligan: I wonder if the committee is prepared to go ahead until we have the documents. I asked to have them but it was a matter of getting them printed this morning.

Senator Kirby: Sure, go ahead.

Mr. Nelligan: I asked for extra copies to be made yesterday, but we can - all right.

Senator Bryden: I think we are somewhat familiar.

Senator Kirby: We can share a copy here.

Mr. Nelligan: Of course. Would you go ahead please, Mr. Pigeon?

Mr. Pigeon: Yes. Part 1 essentially is contained in pages 4 to 10. There are two sets of documents in that part 1. The first part relates to documents of authorization. Essentially, you have all the corporate documents basically identifying who are the persons who we're dealing with, showing how they were legally constituted; the fact that they were in good standing, corporate standing, at that time; the fact that - who are the officers of those corporations.

Also in that set of documents, in part 1, you have item 10 which is the Order in Council that I just referred to. And you also have a document, being item number 11, which is a delegation of authority from the minister to William A. Rowat, Chern Heed or Wayne Power.

Mr. Nelligan: Just so that I'll understand, are all of these pre-existing documents? They are not part of the agreement. They are simply documents that existed and that were required to be made available at the closing?

Mr. Pigeon: That's correct. They are not - these documents do not contain any terms and conditions of the transaction between the parties. These are basically documents that needed to be there for closing but are not evidencing any terms and conditions of the deal.

Mr. Nelligan: Good.

Mr. Pigeon: Then you have a second set of documents in that part 1 which basically goes from item 12 to item 35 which are referred to and described in the closing agenda as conditions precedent to closing. Now, in there, you have a variety of documents, some are contractual in nature, some are certificates, some are evidence of one type or another.

Again, Mr. Nelligan, I think this - it would be fair to say that none of these documents again are evidencing the terms and condition of the deal between the parties as such. They are conditions - they are described as conditions precedent to closing, and they had to be - proof of the realization of those conditions precedent had to be supplied or provided as part of the closing procedure before the documents which are really contained in Part 2 and evidence the deal would come out of escrow on the closing - at the time of closing.

Now, if I may just briefly, I'll just go through quickly with you on what they are. Essentially, the first one was a certificate or a letter of confirmation by the National Transportation Agency that, under part 7, which is the part under mergers and acquisition under the National Transportation Act of 1987, essentially that was evidence that the partnership had complied with section 252(1) of part 7.

Then you have the advance ruling certificate from the director of investigation and research for the purposes of section 102 of the Competition Act which is item 13.

Fourteen related - was a binder, essentially, of the coverage, the insurance coverage that - it was the proof that the partnership had insured in accordance with what they were promising to do under the agreements.

Mr. Nelligan: Just so that we'll all understand, all of these conditions precedent, were they referred to in other documents which required them to do this before closing?

Mr. Pigeon: No, sir. I think they were, the place where they were referred to was in the, the document that basically lists the condition precedent to closing was the closing agenda, which reflected the understanding between the parties as to what had to occur before the closing would actually be completed.

Mr. Nelligan: And when was that document prepared?

Mr. Pigeon: Well, there were many versions of that document through the period. I am not sure when the first version of the closing agenda came out, but it came out quite early. This was serving not only as a tool to evidence the, what were the conditions precedent, but it was also used by lawyers to basically keep track of how many agreements had to be entered into and basically plan the closing that was going to take place on October 7.

Mr. Nelligan: This was sort of a score sheet?

Mr. Pigeon: I think, yes, it's probably a checklist, a score sheet, it served as that. But I think it's also served to document the escrow agreement which was the subject matter of another question you may want to ask.

Mr. Nelligan: Well, we'll be coming to that.

Mr. Pigeon: So, from my perspective, this was the arrangement between, in other words, this document was important because it served two purposes. It served as a checklist, yes, but I think also it served to document between the parties what were the conditions precedent that had to be fulfilled before closing would actually occur.

Mr. Nelligan: Just so that we'll understand why they would be in, for instance, number 15, there is a copy of a list of litigation. Her Majesty was to provide that to the partnership. Now, why would that be on and how would it get there?

Mr. Pigeon: Okay. During the negotiations - maybe I should just give the committee a bit of background as to how we arrived at this. You see, I personally I had been involved in the local airport authority transactions which had occurred in 1992, and the point I would like to make at this, at the outset, is the structure of the transaction in the case of local airport authority was different from the structure of the transaction in the case of a T1T2 Limited Partnership, and I'll explain how.

In the case of local airport authorities, it was like a two-tiered, it was structured as a two-tiered transaction. If my memory serves me well, on or about the fist day of April, 1992, if I use Montreal's case for instance, there was an agreement to transfer entered into by the Goverment of Canada with the Aeroport du Montreal, which was the local airport authority that was proposing to take over the Mirabel and the Dorval airports. That agreement was not just a letter of intent, it was a legally binding agreement, and attached to that agreement were all the instruments which were going to be executed on the date of transfer, which was indicated in the Agreement to Transfer. And the only thing that was to occur between the date of the Agreement to Transfer and the date of the actual transfer was the fulfilling of conditions precedent. And to the extent where these conditions precedent were fulfilled, the parties were going to execute all the instruments which were actually settled as to form and there was no negotiation. So in the period in between the agreement to transfer and the date of transfer in the case of local airport authorities, essentially all that basically took place was the fulfilling of conditions precedent.

Now, in the T1T2 transaction, that's not the approach or that's not how the transaction was being structured. The transaction here, as far as I understood, was being structured as a one-tier transaction. In other words, we were negotiating, there was no agreement to transfer here that we, we didn't follow the model, if I may use that expression, that was used in the local airport authority. We negotiated directly the instruments that were going to affect the transfer and, because we were proceeding that way, what I recall having done is basically looked at the local airport authority model and see what was useful in there by way of conditions precedent and basically see if they could be applied in the case of T1T2, recognizing that they are differences, of course, between the two transactions. And to the extent where conditions precedent that we had in the case of local airport authority could apply, we inserted them here on this closing agenda and I think early on the agreement was between the parties that these had to take place before the delivery of documents was going to be done. That was my understanding of what the process was. And the only document in which this would have been evidenced, I believe, is the closing agenda, because we did not have an Agreement to Transfer such as was the case for the local airport authorities.

Mr. Nelligan: And in any event, you were going through this list now and you were referring to the conditions precedent to closing. Could you go on, then, please?

Mr. Pigeon: Yes. Well, without necessarily going through, I'll just maybe - without necessarily - unless you want me to explain each one of them.

Mr. Nelligan: I think if any of the senators want a particular document explained they can do it. It's the process that I'm interested in generally.

Mr. Pigeon: Okay. So this is the, the rest were all conditions precedent and basically the only thing I would draw to the senators' attention is perhaps that some of them are of a contractual nature, like not all of them are of a contractual nature. For instance, number 12, which is evidence, that the provisions of section 252 of the part 7 of National Transportation Act have been complied with essentially is of a non-contractual nature, but if you look at item 30, for instance, Allders, and in particular, 30(c), which deals were a non-disturbance agreement, that non-disturbance agreement of course was of a contractual nature, and was in fact an agreement between the Government of Canada and Allders International Canada, so essentially an agreement between those parties was not necessarily with the partnership but it was an agreement that had to be entered into as a condition precedent for the closing of the deal that the Government of Canada was making with the partnership.

Mr. Nelligan: Just so that I'll understand that type of thing, what would require the government to enter into such agreement? Did they make an agreement with PDC, for instance, that they would enter into such an agreement, or was it an entirely separate matter?

Mr. Pigeon: No, I believe it was discussed. During the negotiations, it was understood by the parties that this was something that was going to take place. It was understood with the partnership, with PDC, that this was going to take place as a condition precedent to closing. And it was on that basis that it stayed on that piece of paper that I'm referring to right now, which is the closing agenda.

Senator Bryden: Mr. Chairman, can I, without hopefully interrupting, but for clarification, this, under 30, when was this condition settled? Was it settled, was it simply a matter of signing it off whenever the closing occurred? At what stage was the negotiations with Allders and Her Majesty, or the partnership?

Mr. Pigeon: Senator, speaking just from memory, I believe that the Allders agreement - the "agreement" let us say - there are many agreements in paragraph 30. You have the lease and the lease amending agreement.

Now, these agreements are essentially agreements between the partnership and Allders International. In other words, paragraph (a) is a sublease that the partnership was giving to Allders International Canada. That lease was executed on the 4th. It bears the date of the 4th of October, if my memory serves me well.

The non-disturbance agreement - in order for the government to enter into the non-disturbance agreement we had to see the sublease executed, the executed copy of the Allders sublease. That Allders sublease is dated the 4th of October. So in response to your question, when was the non-disturbance agreement signed, I think it must have been on or about the 4th or after. It was between the 4th and the 7th, somewhere there. I can't be more specific than that.

Senator Bryden: Mr. Chairman, I have one other on this list.

Mr. Green: If I might, Mr. Nelligan, Bill has advised me that his recollection is that he signed the Allders non-disturbance agreement on the 7th of October.

Mr. Nelligan: I think that was mentioned in earlier testimony.

Mr. Pigeon: In the case of Mr. Rowat, that's correct, but the date that the partnership would have signed it, it would have been between the 4th, it depends which party, between the 4th and the 7th, somewhere, I cannot know that.

Senator Bryden: Mr. Chairman, I'm not really that concerned about those specific dates, but in looking at this list, as someone who sometimes had to deal with lists like this, there clearly are a number of items that are just automatic on any closing agenda, that is, you have to have an affidavit or whatever in relation to litigation, in relation to insurance. Those are basically matters of form that any lawyer has to cover off to make sure. But I think the witness indicated that on the list are also matters of substance. I think he did.

Mr. Nelligan: That's what we're trying to get into now.

Senator Bryden: I was wondering if, when you get to the appropriate point, if you would ask the witness to just indicate which are which.

Mr. Nelligan: I thought that's what we were leading into now.

Just again by way of clarification, on this list it shows the person who is expected to deliver a document and the person to whom - the person who receives it. You've identified a great number down here and the Allders one does show that it's to be delivered by the partnership. But I take it from what you say that sub (c) had to be signed by Her Majesty and delivered to -

Mr. Pigeon: Well, it had to be signed by both parties. The practice was that the other party, in other words, the partnership, or Allders as the case may be, would always sign those documents first. In other words, the Crown's representative, whether it be the minister himself or Mr. Rowat, signed last. That was our practice and that's the practice that was followed -

Mr. Nelligan: That's right.

Mr. Pigeon: - in this case.

Mr. Nelligan: What, in effect, did Her Majesty undertake to do under 30(c)?

Mr. Pigeon: Well, my understanding is that - if I may, for the senators, I think all those documents that you - that are referred to in the closing agenda are all contained in six volumes of contractual documentation which represent the contractual documentation that was put together and evidences the transaction that took place on the 7th of October. So there is seven volumes. This is like the index. This document also serves - besides being a checklist during the negotiation, besides being - it's also an index to that book.

Mr. Nelligan: Yes, Mr. Rowat?

Mr. William Rowat, Deputy Minister, Fisheries and Oceans Canada: I should just add that - I forget the exact date I was looking for. I sent you a document that outlined what was signed on the 7th.

Mr. Nelligan: Yes, I think we have that.

Mr. Rowat: That gives you - there is an attachment there that gives you a one paragraph synopsis of a number of the documents that Jacques is referring to.

So, for instance, when you asked the question, what does 30(c) actually refer to, it's a non-disturbance agreement; and just to give you a synopsis of the paragraph, essentially, it's an agreement between the federal government and Allders that says that if the head lease is terminated between Allders and Pearson Development that the sublease would remain, if we had to step in and take over. So that's all described, though, in that letter of the 7th.

Mr. Nelligan: That's really all I was trying to get at. So that, in effect, this related to what would happen after, if the PDC somehow lost its rights.

Mr. Rowat: You recall in previous testimony we said that 61 million had to flow on the day of the agreement. Allders had a share of that 61 million, and they weren't going to let that share, their share of 61 million flow unless they had a confirmation from us that if the head - somewhere down the line, if an accident happened and the head lease was broken they wanted to make sure that we would honour the lease that they had. That is what they were looking for, some form of assurance.

Mr. Nelligan: Had there been any agreement by the department beforehand that you would give them that assurance?

Mr. Rowat: That's what this document was that I was signing on the 7th.

Mr. Nelligan: All right.

Now, I think Senator Bryden has indicated our concern at this point. Can you indicate what in his terms he calls "matters of substance" that were still to be delivered on that day?

Mr. Pigeon: Well, Mr. Nelligan, if I may, I think it would be more appropriate if we went to the next part because Part II essentially is the list of documentation that basically evidences the transaction between the parties to the transaction that this committee is examining.

Mr. Nelligan: Yes.

Mr. Pigeon: It basically goes from page 11 to page 18. And in there you have a number of agreements which, in my mind, had to be signed between the parties.

Now, I want to just draw the committee's attention to some items in that list were there for information purpose only; that they were not really contractual documentation and, I believe from my review, that some of them were not signed. I'll give you an example, if I may.

For instance, there is a copy of a notice in there to tenants, for instance, advising them - let me see.

Senator Jessiman: Forty-three?

Mr. Pigeon: Yes, you're quite correct; 43, for instance, would not be a document that would be contractual in nature. It was put there for information purposes only. So I'm just cautioning so I don't want to make an over - leave the committee with the impression that each one of them were contractual in nature because I saw that that item, for instance, was there but it was not contractual per se.

I will give you which ones are contractual if you, if that's - like, for instance, 36, 37 and 38 - maybe it's better to go by exception.

Forty-three was not one of the documents that was a contractual document, and there may be around the - I think 66, for instance, 68 and 70 were also documents that had to be produced for securities loss purposes but were really kind of a notice that had to be put on the register and were not signed technically by either Mr. Rowat or - they were definitely not signed by Mr. Rowat.

They were signed by one of the lawyers of Cassels, Brock on behalf of the Crown. It was just for filing purposes.

The other ones are 71, 72 and 73, which are really legal counsel's opinion. These were third-party legal opinions that we obtained from the counsels of the partnership and the consortium we were dealing with to basically prove that they had the authority to enter into the transaction that they were entering into. So these were not again contractual documents per se.

Other than that, I think the other documents were of a contractual nature and were evidencing the terms and conditions of the deal that was being made between the parties.

Mr. Nelligan: Going back to my original question - and I realize you're anticipating, in a sense, what happened in October - my original question dealt with the state of the project on August 27th, and what I'm really trying to get at here is to what extent were negotiations between the principals still outstanding and to what extent was it merely a matter for the legal teams to incorporate existing understandings into formal documents?

Mr. Pigeon: Okay. On August 27, my understanding is that the negotiations were ongoing. Negotiations had started between the parties sometime in March or April and it went right up to the end in August the 7th - sorry, October 7th, when we closed the transaction.

On August 27th, when the Order in Council was made, at that point some high profile issues, which the parties used to refer to as "the blockers", between quotation marks, had obviously been taken out of the way, and otherwise the government would not have gone to seek the necessary authorities that were required. So the blockers were out of the way. When we say "the blockers", I think Mr. Rowat can perhaps elaborate on those, but they would include things as the Air Canada question, the Terminal 1, what had to be done to Terminal 1 during the periods, the leasehold mortgagee's provision, the employees, the stewardship provisions, the non-disturbance agreement with Allders, the rent deferrals, the capacity of the terminal building, the environmental questions and the passenger threshold.

So the blockers were out of the way but I would emphasize though that some of them were out of the way in concept. And there was still negotiations to happen after to basically flesh them out, and to basically define the rights and obligations of the parties around those blockers.

The other point I would make is in addition to the blockers, as you well realize, I think the blockers were not the only issue, the only business issue, that the parties had to deal with. And on August 27th, I believe that some of these other business and substantive issues had been taken out of the way, but there remained a significant number of them that still had to be dealt with during the month of September and were dealt with during the month of September, and right up to maybe the 3rd or 4th of October.

In response to the question, that's how I would respond to the question. The blockers were out of the way but there were still business and substantive issues that had to be dealt with and were dealt with during the month of September.

Mr. Nelligan: At what level would they be dealt with?

Mr. Pigeon: Well, from our side, I believe it was mainly Mr. Desmarais and Mr. Power who were dealing with the remaining issues. In other words, Mr. Rowat had been involved in the blockers, and after August I think it was mainly Mr. Desmarais and Mr. Power.

Mr. Rowat: If I might comment, it was clear from what Mr. Pigeon has said that our negotiations on the major blockers - and you will recall my black book analogy - we negotiated those mainly through the month of July and went through the appropriate cabinet processes, arriving at the Order in Council on August 27th, and then we made our announcement on August 30th that a general agreement had been achieved. And what we meant by that general agreement was a major milestone at that point, that the blockers at that point, as Jacques has said, were largely out of the way. And it was my view at the time that my negotiation of those major blockers was done.

At that point, the negotiations were largely turned over to John Desmarais and Wayne Power to carry out through the month of September referring back to me any problem areas they had. It was clearly understood by the other side that the Order in Council had been attained on the premise that those major blockers had been achieved and were out of the way, and that maybe at least I guess on one occasion it was understood that had any side or any party to that general agreement on August 30th attempted to go back and undo the general concept of one of those blockers; in other words, if they had gone back and said the 33 million threshold level is no longer any good, 35 million is what we're looking for, and tried to undo it, as far as I was concerned that would have required us to go back to the board to ask for further guidance.

Similarly, if they had attempted to undo our $15 million agreement where they would pay $15 million for the revitalization of Terminal 1, if they had reneged on that or attempted to say, well, we'll only pay up to $10 million, I would have regarded that undoing one of the major blockers.

All of that is to say that while the major blockers were achieved in concept and we knew where we were going, there was still a lot of fundamental and substantive negotiation to go on. That's the kind of thing that at that point essentially I turned over to John and Wayne and, if you want, John could maybe comment on some of the items that were negotiated during the month of September.

Mr. Nelligan: Perhaps Mr. Desmarais could tell us what they were.

Mr. John Desmarais, Senior Advisor to Assistant Deputy Minister, Airports Group: I just listed three here as examples, if you like. The development agreement, which was the agreement of the $700 million expenditure for the new terminal and its construction and how the revenues would flow to pay for that, such as PFCs and so on, was finally negotiated in September. There was a draft available at the time of the Treasury Board submission but it had a lot of issues outstanding, including things like insurance provisions, the PFC clauses themselves if Air Canada went bankrupt, and so on.

We, at August 27th, did not have a management and operations plan. That was a substantial piece of negotiations during September, for the plan and the agreement itself, and in fact at one point we said, on September 20th, that we weren't willing to close unless that was finalized. We had the central heating plant lease which had been drafted in August but had not been considered and was finally negotiated in September.

Those are the three that come to mind right off the top of my head. There were other ones, obviously.

Mr. Nelligan: Can you identify the documents that finally represented the agreement on those three issues?

Mr. Desmarais: If I have a list. Central heating plant lease is number 39 on the closing agenda. Sorry, 44 was also one that came into play in September, the agreement to lease the sewage lift station. In fact, it was not completed on October 7th because we still didn't have the sketch of the sewage lift station and the final legal description of that station because it was three- dimensional legal description.

Mr. Nelligan: Just so I'll understand that, so that it was contemplated at the time of closing that that document would be signed later.

Mr. Desmarais: The document was signed. It just wasn't completed; it didn't have the schedule attached to it, the legal description schedule.

Mr. Nelligan: This was being left to the draughtsmen or someone to put them in there.

Mr. Desmarais: That is correct.

Fifty-one, the apron premises lease, also was in September. This is one where we identified three pieces of the apron that were required for the new taxi-way system and we weren't willing to put that in the final lease and so we gave them a lease with a one-year termination clause in it, such that we could take it back when we put the new taxi-ways into use which were associated with the runway project.

Mr. Nelligan: Just so I'll understand how something like that would incorporate in with the main lease, would there be a reference to this in the main lease?

Mr. Desmarais: No, sir. The legal description of the lease premises they had would have been changed to accommodate taking out these pieces and then we would have entered into another lease for those pieces that were subsequently to be cancelled when and if needed.

Item 53, which is the development agreement which was ultimately finalized, I believe, around September 15.

Item 54, the operation and management agreement, which was basically finalized on October 2nd or 3rd, and there was subsequent negotiation on October 7 to clarify a few points.

The art loan agreement was drafted in August. It was finalized in September.

I believe those were the major ones.

Mr. Rowat just mentioned to me that in the management and operations agreement there are probably three critical issues. One of them is the airline pricing agreement. The other one was how they were going to treat retail operators and their retail pricing policy, and the airline access agreements.

Those were all negotiated in September. While we had some idea of the pricing agreement from the draft Air Canada agreement to lease, we didn't have them in detail, and those didn't materialize until around the third week of September.

Mr. Nelligan: I take it during this period, Mr. Rowat, that you had more or less stepped back and had left it to the active negotiating team and, in turn, the lawyers were busy drafting as these negotiations continued; is that what was happening?

Mr. Rowat: Yes, that's correct.

Mr. Nelligan: Yes. And then we have - in a sense, we've anticipated a great deal of this. In my item number 3 in the letter we provided you is to the actual physical execution of the documents and so on. I wondered if Mr. Pigeon can tell us, if he's the appropriate witness, just how you went about the general execution of documents over that period in October.

Mr. Pigeon: Okay. I believe that, at that time, the preclosing was scheduled to start on October 5; and as evidenced by the preclosing agenda on page 1 you will see that preclosing was scheduled to begin on October 5.

My recollection is that on the Saturday before I did place a call in accordance with the usual practice that we had followed when we did the local airport authorities to the Minister of Transport's office to see his availability for signing the documentation. Now, in accordance with the procedures we were usually following, if the minister was going to - and the minister's office gave me an appointment at the minister's - the federal minister's office in Montreal, for Monday, October 4, at 2 o'clock, or thereabouts.

So we knew that the minister was available at that time frame, and we had discussions internally and we decided and we talked it over with the partnership and the partnership agreed to basically advance the signature - or their signature to those documents to October 3.

My recollection is that the partnership did sign certain documents on October 3. Now, I'll be specific as to what they are because I know which one I have taken to the minister and I can tell you right now by referring to item numbers - precise item numbers on the closing agenda.

Mr. Nelligan: I wonder if it would assist, Mr. Pigeon, I believe we received from Mr. Rowat during the course of these proceedings a list of all the documents with an asterisk against those which were signed after October 5 and, perhaps, if we can refer to that document then we don't have to put another list in and it would be right in front of you. Would that help?

Mr. Pigeon: Yes. I'm afraid, though, that I may not have the list with the asterisks that you're referring to. If you had an extra copy I could basically - I have seen the document you are referring to but I don't have a copy with me.

Mr. Nelligan: Sorry, I was trying to get it last night. It was hard to get it on -

Senator Bryden: Mr. Chairman, were you just going to run through these documents that are listed on the closing agenda and indicate which ones went to Mr. Corbeil?

Mr. Pigeon: Yes.

Senator Bryden: That wouldn't take very long.

Mr. Nelligan: All right. I just thought if he had the asterisks it might have helped him, but we can go through the agenda list and do it just the same way.

Mr. Pigeon: Because it is the same document - I'm sure it's the same document -

Mr. Nelligan: Yes.

Mr. Desmarais: - it's just that I don't see the asterisks here. It won't conflict because I know what the other documents are.

Thirty-six on page 11, document 36 called the "Representation and Acknowledgment Agreement" was one of the documents that I took to Mr. Corbeil.

So all the documents that I took to Mr. Corbeil had been signed by the partnership and/or the numbered company before I left.

Mr. Nelligan: Okay.

Mr. Pigeon: Thirty-seven (a), which is the long form of Terminals 1 and 2 complex lease, was one of the documents I had with me.

Thirty-eight, which is the option to lease; 39(a), the central heating plant lease, long form; 41(a), which is the assumption - assignment, assumption and indemnity agreement. Then the next one was 48(a), which is the sublease of the administration building. The other one was 49(a), the sublease of the taxi limo compound; 50(a), which is the sublease of the central workshops; 53, which is the Terminals 1 and 2 complex development agreement; 54(a), which was the management and operations agreement; 55, the art loan agreement; 56, the management and services agreement; 58, employee transfer agreement; 59, bill of sale; 62, insurance trust agreement; 63, the guarantee of obligations of partnership - T3LPCO Investment Inc. plus subsidiaries; 64, postponement of claim from LAH Limited; 65, which was the assignment of goods and services contracts security agreement for Terminals 1 and 2 complex; 67, which was the security agreement re landlord's right of repurchase of chattels; 69, the assignment of plans and contracts security agreement for Terminals 1 and 2 complex; 74, which was the adjustment agreement; 75, which was the closing agreement.

Mr. Nelligan: Could you just explain that to me? What do you mean by "closing agreement"?

Mr. Pigeon: Before I will explain, if I may just add one more document, Mr. Nelligan, which is very important. It's number 11 on the list, which was not a contractual document but which was a delegation of authority from the minister to Mr. William Rowat, Chern Heed and Wayne Power, which I had with me and which the minister signed at the same time.

To come back to your question, again, I believe that the closing agreement, Mr. Nelligan, and just speaking from memory, was an agreement - the parties recognized that, when the deal closed on October 7th, the Crown was going to be into a binding arrangement with the partnership and the other parties at that time. But the commencement date, which was provided for under the contract, was later. And if I recall correctly, that closing agreement was an agreement which was trying to address what would happen if certain mishaps - you know, what was the Crown going - how was the Crown going to operate between those two dates? And also, what would happen in case of fire destruction or other forms of destruction that could happen? What happens to the risk? Who takes the risk during that period?

At least that's my recollection. I don't have the document in front of me, but that is the recollection I have from -

Mr. Nelligan: It's probably the chronic legal problem where you convey something but retain possession for a given period of time and you have to set out the various responsibilities during that interregnum.

Mr. Pigeon: That's my understanding, yes.

Senator Bryden: I hesitate to interrupt but hopefully this will mean that I will be much briefer when you're finished.

Just so I'm clear, the documents that you took to Mr. Corbeil had been signed by the partnership.

Mr. Pigeon: Yes.

Senator Bryden: And they were signed by the partnership on or about when?

Mr. Pigeon: My recollection, they were signed late on Sunday, the 3rd of August.

Mr. Green: October.

Mr. Pigeon: Sorry. I keep referring to August. The 3rd of October.

Senator Bryden: You'll give me a heart attack.

Mr. Pigeon: Sorry.

Senator Bryden: So the partnership basically signed on the 3rd of October and then Mr. Corbeil signed on the 4th of October.

Mr. Pigeon: Yes.

Senator Bryden: Then there was a clean-up signing that occurred on the 7th of October?

Mr. Pigeon: On the 7th of October, Mr. Rowat signed after - as he explained in his letter, signed the other documents that had not been signed by the minister and which had to be signed by the Crown.

Senator Bryden: One more question and it relates to page 3 of the document we've just been referring to which is the closing agenda. It's the escrow, the page dealing with escrow. The last paragraph of that says:

The various transactions contemplated by this Closing Agenda are not severable from each other and shall constitute one transaction. None of the transactions contemplated by this Closing Agenda shall occur unless all of the transactions contemplated by this Closing Agenda occur.

So is what basically you mean by this being a one-tier deal, that everything had to happen or nothing happened on this closing agenda?

Mr. Pigeon: No. I was not referring, Senator Bryden, to that portion of it. What I was referring to is that, in the T1T2 transaction, unlike what had happened in the local airport authority transactions, there was no agreement to transfer which preceded the actual execution of the instrument that accomplished the transfer. I was not necessarily, at that point, addressing the question of whether all of them - from my perspective, I think the document which you are referring to reflects the arrangement between the parties and speaks for itself.

That document indicates that all - and it is my understanding that Part II contains all the documents that had to be signed on closing to evidence the transactions between the parties.

Mr. Green: If I might, senator, I believe one of the questions that Mr. Nelligan may be coming to deals with this particular document or deals with the escrow arrangement.

Senator Bryden: Okay. Well, I'll defer to that.

Mr. Nelligan: Have you finished, Mr. Pigeon?

Mr. Pigeon: I believe I have, Mr. Nelligan.

Mr. Nelligan: Yes. I think we had finally identified that closing document. You had explained that. I just wondered if you had any other documents you were going to identify beyond that, if there were such.

Mr. Pigeon: No.

Mr. Nelligan: So these were the documents that you took to Montreal on that Monday morning and the minister signed them at that point.

Mr. Pigeon: Yes. And these documents were given to me by the firm of Cassels, Brock who was the escrow agent, Mr. Guthrie and his representative Mr. Peebles. And I basically - they were given to me for the specific purpose of taking them to the minister, receiving and witnessing his signature and taking them back to the firm of Cassels, Brock to be dealt with in accordance with the escrow arrangements.

Mr. Nelligan: Yes. Again, Cassels, Brock were the counsel appointed by your department to act as your agents in this matter but they were also the escrow agent for both sides.

Mr. Pigeon: That is correct, Mr. Guthrie was.

Mr. Nelligan: Yes, and that you physically took them down and returned them?

Mr. Pigeon: That is correct.

Senator Lynch-Staunton: How long did that signing take place? How long did it take?

Mr. Pigeon: My recollection, it would have taken about an hour. There were quite a few pieces of paper to be signed. I had - you can see the number of documents that I have taken. Now, I don't recall exactly how many numbers of copies we were making on each one.

Senator Lynch-Staunton: No, that's all right. It was quite a lengthy process.

Mr. Pigeon: It was a lengthy business, senator.

Senator Lynch-Staunton: I don't want to get on fragile territory here, but did the minister show any concern about his - if he hadn't signed the documents, did he discuss with you the - was it a fait accompli when you said, look, here they are, you've got to sign, you have no choice. Or, as you say, well, what happens if I don't sign? We're in an election campaign here. This thing is becoming an issue. It's starting to heat up. Maybe I should back off.

Mr. Pigeon: I took them - this was not the first time I was taking the documents like that to the minister. I had dealt with Minister Corbeil on similar exercises before for the local airport authority. I was the one who had him sign those documents. And also I believe there was one more transaction during the month of July which I had to do with him where he did sign.

It was in accordance with the usual, what we were doing normally.

Senator Lynch-Staunton: There was a normal -

Mr. Pigeon: Yes, and I basically presented to him - he knew I was coming there for that purpose. I presented the documents and he signed. And there was no question that he was not going to sign. It was not discussed.

Senator Lynch-Staunton: So there was no - it was just a normal activity, another contract, another signature or a series of signatures in this case?

Mr. Pigeon: Yes.

Senator Lynch-Staunton: Thank you.

Mr. Nelligan: With regard to outstanding documents, were there any discussions at that time as to what would happen vis-à-vis the minister at that time with regard to documents which were still unsigned?

Mr. Pigeon: Well, when I put each document in front of the minister, and particularly when I put in front of him document income 11 on the list, which was the delegation of authority, I explained to him that he was signing a delegation of authority in favour of Mr. Rowat so that Mr. Rowat could sign the document that I had not with me on that day, on his behalf. He signed the delegation of authority at that time.

Mr. Nelligan: With regard to some of them, I'm curious, for instance, the short forms of leases; correct me if I'm wrong, but this is really a short form of getting a minimum of paper on the official registers. Was that the purpose of the short forms of leases?

Mr. Pigeon: The short form of leases were done for the purposes of a registration, as I recall. And I think again in the, that is indicated in the summary that was attached to Mr. Rowat's letter. I think it was for purposes of keeping confidential certain provisions that the partnership may not have wished to disclose to - that don't need to be in the register, necessarily. It's a commercial, confidential arrangement between two parties. But they were done for registration purposes and at the request and for the convenience of the partnership.

Mr. Nelligan: And why weren't they delivered with the other documents?

Mr. Pigeon: Well, as in the case of all the documents, I can't be absolutely sure. I would have taken whatever documents, on the Monday morning, had all the documents been in final form, it's my belief that I would have taken them, everything to the minister on that date. It's just that there was some prioritization, and you have to remember that the preclosing was supposed to take place on October the fifth. So now that we had an appointment with the minister on the fourth, I basically took whatever documents were in final form and had been signed by the partnership at that time. But I don't recall exactly why certain documents were not ready. I mean I couldn't be specific on that, Mr. Nelligan.

Mr. Nelligan: Fair enough. And then dealing - sorry.

Senator Bryden: Mr. Chairman, can I ask one question?

Were there documents for the partnership to sign after the third of October? They had done most of their signing, I think you indicated, on the third. Were there still documents for the partnership?

Mr. Pigeon: What I indicated, senator, is that they had signed on the third the documents which I took to the minister and were signed by the minister. That I am sure of.

Senator Bryden: Yes.

Mr. Pigeon: The other documents, I can't be absolutely sure when the partnership signed them. It presumably would have been between the fourth, on the fourth and the seventh, in that time frame.

Senator Bryden: Perhaps generally, Mr. Rowat might answer. Do you know? Or Mr. Desmarais.

Mr. Desmarais: We're just trying to turn on the mike, that's all.

Mr. Rowat: In the letter that I sent to you, and I think you all have copies of that, it lays out the final agreements that I signed on behalf of the Government of Canada. In fact in there, Jacques, I think there were a number of acknowledgements that had to be signed by the partnership in favour of the federal government, if that's the right way to express it legally.

Mr. Pigeon: Yes.

Mr. Rowat: For instance, I think 45(a), (c), (d), (e), and 46(a), (b), (c), were all letters from the partnership acknowledging, just as an example, acknowledging that the provisions of the ground transportation permits would be honoured and that another one, 45(e), that they would honour the space available for the Canadian Museum of Nature, space available for the RCMP, space available for RCMP for a temporary building and so on, a number of those things that were largely acknowledgements.

Mr. Desmarais: Just to further clarify, on the morning of October seventh, Bill signed most of his agreements that he had to sign, and I vaguely recall, although I can't give you the documents, that the partnership also signed some documents on that day, but I can't tell you which ones.

Senator Bryden: Thank you.

Mr. Nelligan: We're now going to deal with this question of escrow. If you can describe - sorry.

Senator Jessiman: You were talking about 45(a), (c), (d) and (e). These are letters of acknowledgement by the partnership. Did you have to sign it as well, Mr. Rowat?

Mr. Pigeon: Some of them, senators, I believe were signed by Mr. Rowat and some were not. I'll just try to - I believe that's indicated in the letter -

Senator Jessiman: Yeah, it did indicate. I'm wondering what is it he signed. I was concerned. There are about ten of them that are required to be signed. I don't know what - what's Mr. Rowat signing? Is he signing that he acknowledges that they acknowledge?

Mr. Pigeon: I believe he was signing for the purposes of accepting their acknowledgement and promise that they would honour those MOUs or those arrangements as if they were a contract. The letter was done - like there are different scenarios or there are different - look at, for instance, 45(a). The 45(a) was essentially a letter from the partnership acknowledging that the partnership would honour the provisions of a Memorandum of Understanding between Her Majesty and the Government Services of Canada, as if it was a contract. And I believe in that case Mr. Rowat signed to basically accept their undertaking, so that it would form a binding agreement.

Senator Jessiman: You mean he acknowledges that they acknowledge? Is that what you are saying to me?

Mr. Pigeon: No, he's accepting their promise.

Senator Jessiman: But what the partnership is doing is acknowledging something. Now my question - and there are about ten of these - I was going to ask him, but because it's now I want to find out now, what is the wording of Mr. Rowat's signature? What do you say on the letter; "we acknowledge receipt of the above," or what is it? I want to know how important this is, his acknowledgement.

Mr. Pigeon: The letters are in existence, are very short letters. Maybe the best -

Senator Jessiman: I'm not asking for the letters. I'm asking for what Mr. Rowat signed. He didn't sign these acknowledgements. They are signed by the partnership. But Mr. Rowat said in his letter that he did sign these. What I'm asking is what did he sign. Is there a notation below the letter or a stamp or something saying, "I, on behalf of the Government of Canada acknowledge receipt of a document," that you acknowledge? That's what I'm asking.

Mr. Pigeon: Senator, I do not recall what the wording was at the bottom but I know that he did sign 45(a) -

Senator Jessiman: 45(c), 45(d), 45(e), and a number of others.

Mr. Pigeon: That's correct. But I do not recall the exact wording, the way it's worded before his signature. I could provide that to the committee.

Senator Jessiman: Would you provide that for us please? I would like to see on those ten documents, that are acknowledgements by the partnership, what did Mr. Rowat sign. That's all I'm asking.

Mr. Pigeon: Yes, I could provide that, senator.

Mr. Nelligan: Perhaps if I could suggest, senator, I was coming to that on the next section as we went through, and if there's any confusion on the part of the senators' minds we can always have the witness send us copies and we can look at them on our own.

Senator Jessiman: Yes.

Mr. Nelligan: Now we're dealing with escrow.

I wondered if the two legal witnesses can explain to the committee this concept of escrow and what documents were to be placed in that state and what were the general conditions for their release.

Mr. Green: If I might address that, Mr. Nelligan. The escrow arrangement in general is as set out on page 3 of the closing agenda, which I think was referred to earlier. It's my recollection that all documents were in essence put into escrow that are referred to in the closing agenda and that boxes would be made up with the appropriate documents in the box; there would be one for the Crown, there would be one more the partnership.

The idea of this is that certain things occur before the official closing, before the closing itself, because it's just simply the nature of the transaction, the volume of the matters involved and, in order to expedite things, parties will sign documents in advance, not with the intent of binding themselves at the moment they sign them but rather simply as a matter of administrative procedure so that they would be ready for the closing, assuming all other conditions precedent to that closing are met, or the parties otherwise agree to the closing itself. And that in a sense is what this statement here evidences at that point. And we've heard that those were being held by Mr. Guthrie in Toronto.

Mr. Green: They were. They were held by Mr. Guthrie of Cassels, Brock as the escrow agent, with the agreement of both parties I think, as you alluded to earlier.

Mr. Nelligan: And I take it that both parties in turn acknowledged in a document on October 7th that in their view, the escrow conditions had been met and authorized the release by him to the other of their respective documents.

Mr. Green: That is correct. There was a very formal closing held by which, if I could summarize it, Mr. Guthrie asked the parties in essence to speak now or forever hold their peace and went through the release at that point at which appoint, Bill signed, I believe, on behalf of the Crown - and I'm not sure who signed on behalf of the partnership but - the documents were signed in essence authorizing Mr. Guthrie to now officially recess or, in a sense, deliver the documents to the respective parties.

Mr. Nelligan: So far as you were aware, was there anything on the part of PDC required under the conditions of escrow that was not completed by the time of delivery?

Mr. Green: The only thing that comes to my mind that was not complete at that time was item number 16 in the closing agenda, which, I believe, may have been referenced before, before this committee, but I'm not sure and that is copy of non-arm's-length agreements between the partnership and others. I don't recollect which or what, but I would say there were seven or something of that ilk. There may have been three delivered but not all were and that particular condition, precedent was waived and we proceeded with the closing.

Mr. Nelligan: Just again, because I'm trying to recall the evidence before, we heard some evidence that some non- arm's-length agreements had not been completed as of that time. Was it a requirement that - the suggestion was that they would have been done later and then would have been subject to the terms of the agreement.

Mr. Green: That's my understanding.

Mr. Nelligan: Were there specified non-arm's-length agreements that were supposed to be delivered before closing or was it just all the existing ones had to be closed?

Mr. Green: No, my understanding, I believe that there were specified ones. But I'm not sure. Maybe John is in a better position to speak to that detail than I am. But that is my recollection that there were certain known agreements that were being looked for and certain of those, for whatever reason, couldn't be fully provided at that time and I believe arrangements were made to then cover off that contingency and then proceed.

Mr. Nelligan: All right. Do you remember, Mr. Desmarais?

Mr. Desmarais: The only one that we had asked particularly for was the Allders agreement because we were citing a non-disturbance on that one.

Mr. Nelligan: Yes?

Mr. Desmarais: And we expected them to deliver the rest, or whatever they had available at that date, subject to having a good look at whatever came later.

Mr. Nelligan: All right. So the Allders agreement, was it delivered?

Mr. Desmarais: Yes, it was. To clarify's Bob's remark, there was two other agreements delivered, both with Bracknell Incorporated: One for designing construction and one for the management and operation of the heating and utilities.

Mr. Nelligan: Okay. Now, if we can go through - and perhaps Mr. Rowat can come in on this as well - just to deal seriatim with those agreements that Mr. Rowat actually signed on October 7th. I'm referring to the list we've provided with before. Is the first item number 29?

Mr. Pigeon: Sorry, senators. I am just looking for my copy of the closing, which is here.

The documents that Mr. Rowat did sign on October 7th in the morning, after having refused instructions from the deputy minister, were the item number 29 on the closing agenda, which is not a contractual document per se but is part of the conditions precedent that had to occur before the closing would take place. That was the certified copy of a direction from Her Majesty to the partnership to rebate air carrier occupant rents.

Now all of these documents I'm going to refer to are summarized, I believe, in one of the attachments to the letter that Mr. Rowat has sent to the chairman on September the 22nd.

Mr. Nelligan: Yes.

Senator Jessiman: It's schedule D. It would be 21 and the other says 19.

Mr. Rowat: Mr. Nelligan, do you want us to go through the paragraphs in appendix D?

Mr. Nelligan: I just thought if we could identify in some way the significance of each of those documents and what role they played in the closing.

Mr. Rowat: Well, maybe I can just give you a thumb nail sketch and ask Jacques and John to jump in.

Twenty-nine pertained to the 15 per cent rent reduction to airlines that we had negotiated with Air Canada, but applied to all airlines. That was a condition precedent. Thirty (c) was the non-disturbance agreement for Allders, which we referred to before. In other words, if the $61 million was to flow, Allders wanted an assurance from us as a precondition that if the head lease was terminated for any reason, that the sublease then would remain.

Thirty (f) is an acknowledgement to the Royal Bank. I think that was essentially a letter of comfort for the bank, if I'm not mistaken.

Thirty-three was a fuel facilities corporation agreement which we had signed shortly before the deal had closed. And, essentially, it was getting the partnership to agree that they will honour that particular agreement.

Senator Jessiman: Then we could assume that you didn't sign it that day, then?

Mr. Rowat: Pardon?

Senator Jessiman: You didn't sign it that day, then?

Mr. Rowat: No. That agreement, I think - if I'm correct - that agreement had been signed by us with Fuel Facilities Corp. The letter from the partnership was, to us, a condition precedent to us saying that they would honour that agreement that we had signed previously.

Mr. Nelligan: So your signature was basically to acknowledge receipt of that letter.

Mr. Rowat: It was a condition precedent which we insisted on.

Mr. Pigeon: I am sure that Mr. Rowat signed. Again, senator, I may include maybe that letter in the package that I will send to the committee.

Mr. Nelligan: That's fine. I just notice that it doesn't shown itself as being delivered or received by anyone in the original precedent that was sent.

Mr. Pigeon: You're right, yes. But it was signed.

Mr. Nelligan: Yes.

Mr. Rowat: So those three were the condition precedent.

Thirty-seven (b) was a short form of the T1T2 complex lease. As you had mentioned earlier, Mr. Nelligan, that was largely to simplify matters for registration purposes that Jacques had referred to.

Mr. Nelligan: Yes.

Mr. Rowat: Thirty-nine (b) was, again, a short form of the lease of the central heating plan. Again, as I understand it, as I recall, it was to simplify the registration process.

The utilities services agreement. You may or may not recall that T1T2, or the partnership, was to have control of the central heating plan. And what they were agreeing to here was that they would provide services to other areas of the airport than just the T1T2 or the partnership property because the central heating services, the utilities services, applied to more than just the area that they were on, but that's where it was.

Interim escrow provisions, 41(b). Maybe you will want to explain that one.

Mr. Pigeon: Yes, I believe that one - there was a box of pre-existing contracts which was ultimately going to be turned to RM Trust so that the parties could know what - you know, could have, with certainty, what were the pre-existing agreement as of the date of transfer. I believe the agreement setting out the terms and delivering of pre-existing agreements into escrow had to do with this RM Trust and also the interim arrangement that was being made with Cassels, Brock to keep the box until it was going to be delivered to RM Trust.

Mr. Nelligan: That was like establishing an official archive?

Mr. Pigeon: Yes, for evidentiary purposes, for future purposes.

Mr. Nelligan: Yes.

Mr. Rowat: The next one, 44, agreement to lease the sewage lift station. The sewage lift station was on the property that in essence they would be taking over but it supplied services to the rest of the airport as well. So, in essence, we were renting that service for one dollar so it would be available to other users in the airport.

Then 45(a), a letter of acknowledgement that the partnership honour the provisions of the MOU between Her Majesty and the Government Services Canada.

Paragraph 45(c), same thing, a letter acknowledging that they will honour provisions of the contract on metropolitan parking and Her Majesty.

Paragraph 45(d), same thing, letter of acknowledgement. In fact 45(d), 45(e), 46(a), all pertain to their acknowledgements to supply services and space to those various ones listed, mainly - 46 is pertaining to the Royal Canadian Mounted Police.

Senator LeBreton: Just a supplementary, Mr. Chairman.

So these are all letters of the partnership acknowledging. So did you just have to initial the receipt of the acknowledgement? What form did it take?

Mr. Rowat: That's what we were getting at earlier, and I think Jacques said that he would supply those documents.

Senator LeBreton: It seems to me that the onus was on the partnership and it was simply an acknowledgement function that you were performing in these particular issues.

Mr. Rowat: I think that's what...

Mr. Pigeon: The letters will speak for themselves, but I believe that in some cases Mr. Rowat was accepting the undertaking of the partnership. In some others, he may be just acknowledging receipt or something. But I believe I undertook to Senator Jessiman -

Senator LeBreton: I heard that, but whether in fact there's another piece of correspondence or whether it's just an initial on the bottom of there.

Mr. Pigeon: I can't be sure at this point.

Mr. Desmarais: Can I make a comment on these agreements?

Mr. Nelligan: Yes.

Mr. Desmarais: These memoranda of understanding were in place of leases with other government departments. Government departments don't enter into leases with each other. If they did, then these would form part of the assignment and assumption agreement and the escrow, but because we didn't have leases with those particular departments, this was an arrangement whereby they would honour the memorandum of understanding as if it was a lease under the assignment and assumption agreement. And that's what these are driving to. I think there was more than just an acknowledgement of receipt. It was almost a signature like the assignment and assumption agreement.

Mr. Rowat: Okay, where were we?

Mr. Nelligan: Forty-seven.

Mr. Rowat: Okay. The force majeure clause, 47. Basically we were attesting to them that if, for any reason, for instance, one of the other departments, Customs Canada or something, refused to cooperate such that they could not proceed with construction activities, that that would constitute a force majeure; we wouldn't hold them to the agreement if we or the federal government, the Crown, were responsible in some way.

Mr. Nelligan: I'm curious why a document like that or a clause like that wouldn't have been in the main lease. I wonder if the lawyers can help us on that.

Mr. Pigeon: There was a force majeure clause, Mr. Nelligan, in the main lease. I think this was just an additional assurance letter because the other departments - you see, the contract was being entered into on behalf of Her Majesty by the Minister of Transport. The other departments, although it's Her Majesty that is a party to the contract, were not represented. I think the purpose of this letter was basically just saying, as Mr. Rowat has indicated, if the other departments, for whatever reason, were to make the redevelopment activities difficult or impossible, that this would be covered by force majeure. But the force majeure clause, there was a force majeure clause in the lease. I'm sure of that.

Mr. Nelligan: This is just out of excess of caution.

Mr. Pigeon: It was a "for greater certainty".

Mr. Desmarais: It was for greater certainty, senator, but you will also recall that we structured the lease so that it could be transferred to a local airport authority, and therefore the force majeure clause read, as normally it would, "acts of government". Once this facility is transferred to a local airport authority, what are those acts of government? Are they against the local airport authority or against the T1T2 Limited Partnership became the question during September, and this is why this came out, that there were certain acts of government directed to T1T2 that may not be directed to the LAA, and that's why that was put in there.

Mr. Nelligan: I see.

Would you go on, please.

Mr. Rowat: Number 51, apron premises lease. Essentially they had some fairly tight apron space as part of the agreement. We had two small slices, I think is the best way to put it. We couldn't maintain them anyway. We didn't need them, so we agreed to lease them to the partnership on a year-to-year basis for a dollar, I think it was.

And then the final one, 76(b), authorization to release the escrow documents and funds.

Mr. Nelligan: And I take it that at the same time there were a number of documents that were signed by PDC and there was an exchange of those two sets of documents.

Mr. Pigeon: I'm sorry, Mr. Nelligan?

Mr. Nelligan: I'm simply saying, were there any documents not identified here that were signed by PDC and exchanged on that date?

Mr. Pigeon: Yes, except for the one that I indicated that nobody signed, which is the form of notice to the tenants there. I believe all the others - there were other documents that were unilateral documents that were signed by PDC but may not have been signed by Mr. Rowat at that time. An example would be 45(b), for instance.

Mr. Nelligan: 45...?

Mr. Pigeon: 45(b).

Mr. Nelligan: Yes. Okay.

Now there have been some discussions before the committee with regard to seeking directions from the Prime Minister. We have heard from Mr. Rowat and Mr. Desmarais and I wondered if you, Mr. Green and Mr. Pigeon, can tell us whether you were aware of or took any part in that approach.

Mr. Green: Mr. Nelligan, I became aware that the direction was being sought, I think, when Bill came to Toronto on the 7th. I learned of it in the morning of the 7th. Otherwise, we did not participate in that direction.

Senator Lynch-Staunton: Did you know that the Prime Minister was being consulted?

Mr. Green: As I indicated, senator, yes, I became aware on the 7th when Bill was in Toronto and advised me at that time.

Senator Lynch-Staunton: But had you not been planning to go to Toronto anyway for the closing?

Mr. Green: I was in Toronto. I had been in Toronto since the 30th of September.

Senator Lynch-Staunton: Were you made aware at any time that the closing might not take place?

Mr. Green: No.

Senator Lynch-Staunton: No. So you went there on the assumption that the closing was taking place?

Mr. Green: I went there on the assumption that I'd always been operating on, senator; we were proceeding to a closing.

Senator Lynch-Staunton: Yes.

Mr. Nelligan: I wonder if Mr. Pigeon can make any comment on that same point.

Mr. Pigeon: I would agree with Mr. Green. Mr. Nelligan, I did not participate in any way in request for directions from the Prime Minister.

Senator Jessiman: Where were you located?

Mr. Pigeon: I have been in Toronto with Mr. Green at least since the 30th of September. I went to Montreal - except for that brief period where I went to Montreal, and then I returned to Toronto and I stayed in Toronto until the closing was done.

Mr. Nelligan: I take it from what you say that the physical operations by the end of September had transferred to Toronto.

Mr. Green: Yes. That was the locus where events were taking place and we were down there to help out in that regard because, as you can well anticipate, there's a lot of work to be done.

Mr. Desmarais: Just to clarify, Mr. Nelligan, the locus of operation had shifted to Toronto in early September for the negotiations and legal matters because all the lawyers from Cassels, Brock were there. The head offices of PDC were in Toronto. So we were doing everything out of Toronto at that time.

Mr. Nelligan: And in effect you were the departmental representative there and then these other two witnesses were the legal representatives from the department and you were working as a team with Mr. Guthrie and his team in Toronto?

Mr. Desmarais: We were basically working with Mr. Guthrie and his team on the negotiations - or not Mr. Guthrie, Mr. Gordon Dickson who was in charge of negotiations. We were basically working with Mr. Dickson and his lawyers on finalizing the agreements and negotiating the agreements, and towards the end of September, Mr. Pigeon and Mr. Green came down and started reviewing documents as they were finalized and prepared, getting ready to move to escrow.

The Chairman: I think, Senator Jessiman, you had a question.

Senator Jessiman: Yes, just one question of either counsel, and I assume it is Mr. Pigeon. But you will note in the letter of October 20, 1995, to Mr. Hunter, a copy of which you have, number four, it says:

With regard to the signing of the major documents by the Department, how were the physical arrangements made for Minister Corbeil to sign on October 4 ...

And you explained that, but:

... was the possibility -

And this is the part, and I assume it is no, but I would like you to just say so.

... was the possibility of not signing by him ever discussed with him to their knowledge ...

Mr. Pigeon: It was not discussed with me, Senator Jessiman.

Senator Jessiman: And you don't know whether it was discussed by anybody else with him?

Mr. Pigeon: Well, I was alone with him.

Senator Jessiman: I understand.

Mr. Pigeon: Essentially, I took the documents to him on October 4. And when I say I was alone, he probably had an administrative assistant with him, but from our side, none of the negotiators or Mr. Green was not there. I was with the minister.

Senator Jessiman: That was never discussed.

Mr. Pigeon: That's correct.

Senator Jessiman: Thanks very much.

The Chairman: There was a discussion. I think it started with Senator Bryden. And I suppose you call it one of the blockers, but let's refer to the Allders' lease. It is quite obvious from the testimony of Mr. Stehelin, who was with us a few months ago, or weeks ago, that Claridge, the dominant partner in the arrangement, certainly did not want a conflict in their partnership agreements, certainly between a tenant and an airport.

Did they not have a structure in their partnership agreements to deal with that, and were you aware of it? Did that not assuage your concerns?

Mr. Green: Senator, I cannot recall the contents of the partnership agreement per se. I can recall that I had discussions, particularly towards the end, with representatives of the partnership to determine at that stage once and for all who constituted the partners, because there was some reorganizing going on for purposes that the partnership felt appropriate, not changing the overall thrust of the partnership but rather some of the detail and the way they structured themselves.

We had specified in the ground lease - it's my recollection - that the partnership in terms of the key players that a certain control factor be maintained amongst those key players, and that was a thing we were primarily concerned about, the key players being loosely expressed as the Matthews Group, LAH and the Claridge, and we wanted control maintained amongst those for a specified period of time. We were not necessarily specifying at that point how the partnership would be after that, but we were certainly concerned as to what the partnership was at the time after entering into the transaction.

The Chairman: But you would be tracking any changes in the partnership agreements that you might think was material and might cause a return to the Treasury Board.

Mr. Green: I would have to hazard a guess, and I'm not sure that would be appropriate, but I believe we tried to address changes in the partnership through the ground lease and our being advised that there was appropriate changes.

The Chairman: Are you aware of any clause in the partnership agreements that deals with the Allders situation even now or even then?

Mr. Desmarais: Senator, I believe there was a section in the partnership agreement - I believe it was Annex D - indicating that the partnership would enter into non-arm's length contracts with certain of the partners, but that is the only thing that I can recall out of the partnership agreement.

The Chairman: You don't know whether they did that or not?

Mr. Desmarais: We know they entered into an agreement with Allders, the lease agreement. We know they entered into two agreements with Bracknell. We know they had intentions of entering into agreements with people like NORR who were a partner and would have been the consulting architect and engineer on the job and so on, but that's all we knew at that time.

The Chairman: You don't know when they did that?

Mr. Desmarais: I know they didn't have contracts - except for the three I mentioned that were delivered to us as pre-closing, they didn't have contracts with any of those individuals as of closing day.

Mr. Nelligan: If I may go on, gentlemen, dealing now with my questions at item 8, I think you have in front of you some handwritten notes which are document 002417, which we are told are notes made by Mr. Goudge during a meeting at which you two, Messrs Rowat and Desmarais attended, along with Wayne Power. The first page is the agenda, and on the next page it indicates there was a meeting on November 1, '93 with Transport Canada showing your names. And then if you turn to the second page of those notes, and in the middle of the page, it says "legal issues". Have you found that, sir?

Mr. Green: Yes. I am looking at Mr. Rowat's copy.

Mr. Nelligan: It says:

a) Bob Green gave verbal advice of maybe legal consequences of cancellation pre Oct 7.

My first question is to Mr. Rowat or Mr. Desmarais. Did you state that at the meeting with Messrs. Nixon and Goudge?

Mr. Rowat: I certainly don't recall saying that, or actually either one of those two that follow there. In fact, can I just make a comment on these notes? Can you turn to page 7 of 7?

Mr. Nelligan: Yes, the next page.

Mr. Rowat: Next page. It says, with a little asterisk beside it:

Ask about the relationship between growth in base rent and gross revenue...

That note, plus a number of others through those notes, lead me to believe that this was his going-in agenda, so I suspect that he asked his questions along these lines, and I certainly don't agree - certainty don't recall having made any statement to that effect to him. I do not know if John can comment further on that.

Mr. Desmarais: My comment on those two items were that the questions were asked, and we agreed to put Mr. Goudge in touch with Mr. Green because we had nothing to offer him in that regard.

Mr. Nelligan: Well, have you any explanation, then, as to why he would distinguish here between verbal advice on pre October 7 and written advice on post October 7?

Mr. Rowat: I do not have any idea.

Mr. Nelligan: There was nothing in your conversations with him which would lead to that?

Mr. Rowat: No.

Mr. Desmarais: No.

Mr. Nelligan: Are those statements in fact true?

Mr. Rowat: With respect to giving legal advice before the pre-October 7, I do not recall having asked for advice, nor having any discussion with Mr. Green on the issue.

Mr. Desmarais: On that one, senator, on October 4, I got a call from the Privy Council Office. The Committee of Concerned Residents was threatening an injunction against government to prevent proceeding with the transaction. I asked Mr. Green, off the top of his head, what were the implications of that. He told me that he did not believe that an injunction would be successful against the federal Crown.

My next question was, "Well, if it stops for any reason, what do you think might happen?" We had a quick conversation that there may be some damages apparent, such as the money they had spent getting to that point. That was the end of the conversation, and it never went any further. I didn't ask him for any written legal advice or any other type of -

Mr. Nelligan: Is that possibly what they might have been referring to?

Mr. Desmarais: I don't even recall mentioning that in the meeting with Mr. Nixon.

Mr. Nelligan: Do you remember that conversation, Mr. Green?

Mr. Green: I don't recall I had one with John, no, but it's quite possible I did. I think at that time, senator - sorry - counsel -

Mr. Nelligan: I keep getting promoted, but only by people who can't do it.

Senator Kirby: We should be promoted to his rate.

Senator Lynch-Staunton: All of us, collectively.

Mr. Green: When we talk about "advice", I sometimes get concerned about what people might understand by that word.

As you might appreciate, anyone involved in these types of transactions over time or involved in situations analogous to those may well become aware or appreciate that when you enter these types of situations, that if anything goes awry, it is often the other side, or one of the sides will claim against the other in some way to try and recover their costs, particularly if there are substantial amounts of money involved. You know, that's just an awareness factor. It is quite possible because of this, at that time, that that kind of thing came up. It may have well been, "Well, yeah, that's a possibility out there."

It may also - if my memory serves me correct, the same type of a very general, you know, passing comment type of conversation may have come up on the 7th when we got into the situation and heard, for example, that directions were being sought before we proceeded to closing. I do know or I do recollect at that time asking counsel at Cassels, Brock to take a quick look, for example, at preparing a postponement agreement because it was a possibility, just something you would do.

When we were faced with that at that juncture, there were three alternatives. Either we were going to proceed, which of course we did and which has always been my understanding of where we were going; the other would have been a possibility of not proceeding; and the other would have been a possibility of trying to seek from the other side concurrence to postpone.

I do recollect in a general sense asking somebody to take a quick look at postponement in case that became a possibility, but by around, I think, 11:00 or so in the morning, that all became academic because we were clearly instructed to proceed.

Mr. Nelligan: Mr. Desmarais, having had this conversation with Mr. Green, did you then discuss it with senior officers in your department?

Mr. Desmarais: No, sir.

Mr. Nelligan: So it went no further than you.

Mr. Desmarais: It went no further than me.

Mr. Nelligan: In any event, I'd like you to look at document 2420, which is a letter to you, Mr. Rowat, on November 2nd, which appears to be the following day. In paragraph one, he says:

In the view of the Department of Justice, is there in fact a binding agreement with PDC as of October 7? The legal opinions you left with me begin with that as an assumption. I would be grateful if I could have not just an assumption, but a legal opinion to that effect.

By way of context, I believe that in your briefing of the Nixon team you did make some reference to possible damages, and that's on the record.

Mr. Rowat: We had - in the deck that we had used to brief them dated - the deck was dated October 29th, which we used to brief them on November 1st. There are references to a range of possible requested damages by the other side.

Mr. Nelligan: Yes, but then he goes on:

As a sub-text, 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.

Did you pass that request on to the legal team?

Mr. Rowat: I passed his whole letter on to the legal team. I did not meet with him again. I think we had a phone call with him, with Goudge, on November 4th, which I at least started out as part of that phone call. I think Bob Green, Jacques and John were party to that phone call. I think there was a subsequent meeting with Goudge November 15th.

Mr. Nelligan: We will come to that.

In any event, I understand that, probably as a result of that correspondence, document 2558, which I believe you also have in front of you, is a letter that you, Mr. Green, sent to Mr. Rowat dealing with this topic. You have said, in the first paragraph:

...you have asked me to confirm in writing verbal advice we rendered with respect to this transaction as to whether there was as of October 7th...a binding agreement.

What verbal advice were you referring to?

Mr. Green: As best I can recall, it would have been a discussion with Bill at that time possibly flowing out of the letter that Bill had received.

Mr. Nelligan: And it does not refer to the earlier conversations which the Nixon notes would seem to suggest pre-dated November 1st.

Mr. Green: No.

Mr. Nelligan: Was there any reason why you did not deal with the other part of Mr. Goudge's request, the sub-text reference?

Mr. Green: Myself?

Mr. Nelligan: Yes.

Mr. Green: It was not a matter that we had to deal with because from our point of view, and given what we were facing, it was our view that we had, as of October 7th, agreement. That was what the two parties or presumably Mr. Goudge would be looking at.

Mr. Nelligan: When you met with Mr. Nixon and Mr. Goudge, did he raise the topic again?

Mr. Green: I never met with Mr. Nixon.

Mr. Nelligan: Sorry, Mr. Goudge.

Mr. Green: We met on the 15th with Mr. Goudge, and as best I can reconstruct, no, that topic was not raised. What was raised, I believe, was some questions around control, both in the sense of the corporate structure of the partnership and our means of controlling through the lease, and information of that sort. But he did not raise, as I recollect it, that topic.

Mr. Nelligan: Well, when you were with Mr. Goudge, did he go through the technical aspects of the contract with you?

Mr. Green: He went through, I believe, the technical, in the sense of release from escrow. He may have made some references to the agreements in general, but I'm not - I cannot recall the detail of that. Maybe others could speak to that, but I certainly don't - I do recall that he was looking at some documents, but I don't recall the detail.

Mr. Desmarais: What Mr. Goudge had asked is how the documents protected the public interest. Mr. Gordon Dickson had prepared a binder of the clauses and all the agreements, where in the agreements the public interest was protected. We presented that to Mr. Goudge and had a discussion around that on the 15th.

Senator LeBreton: How long was this meeting between yourself and Mr. Goudge on the 15th? Do you recall?

Mr. Green: I don't think any more than a couple of hours, if memory serves me correctly. Mr. Goudge was in a hurry to be on to something else.

Senator Lynch-Staunton: Sounds like him.

Mr. Nelligan: This binder that you referred to from Mr. Dickson, has it been produced?

Mr. Desmarais: I have no idea, senator. All of our information was presented to Justice for this committee, so I'm not sure whether it has been produced or not.

Mr. Nelligan: Can you suggest any reason why it should not be produced to us?

Mr. Desmarais: No, but I stand to be corrected by the Department of Justice on that one.

Senator Lynch-Staunton: The gum shoes.

Mr. Nelligan: Because my feeling is - and I don't want embarrass the two representatives of the Department of Justice on such a delicate topic, but is there any suggestion that this brief, which was submitted to Mr. Goudge, is endowed with solicitor-client privilege?

Mr. Green: I couldn't answer that question because I'm not familiar with the document. If it is simply a recitation of sections from an agreement - I have difficulty that it would be, but if there was more to it than that, then that issue might very well arise.

Mr. Nelligan: I would, too. Perhaps we might be able to resolve that over the noon recess. And we won't ask you gentlemen to come back, but, Mr. Desmarais, you're familiar with the document?

Senator Desmarais: Yes, sir.

Mr. Nelligan: Yes. All right. In your view, having read the Nixon report, Mr. Desmarais, does it deal with the answers made in that report by Mr. Dickson?

Mr. Desmarais: To be perfectly honest, senator - This is the second time I've promoted you. I can't recall in the Nixon report where he discussed the protection of the public interest. So, as I can't recall, I don't know how he handled the information.

Mr. Nelligan: All right. Some of the things that concern me was that there are technical criticisms in the document. For instance, Mr. Goudge has said that it does not provide for a consent by Her Majesty where there is a sublet of any part of the lease. I wondered, Messrs Green or Pigeon, were you asked why there was or was not a sublet consent required?

Mr. Pigeon: I don't believe that matter came up on the November 15th discussion that we had with Mr. Goudge. But there was a subsequent meeting at which John Desmarais and I met Mr. Goudge a second time the week after November 15th. I can't recall the exact date. I believe it was November 24th, but I would not want you to hold me to that date. I could confirm that date with you. I think it was November 24th. And we, at that time, had a discussion with Mr. Goudge of certain matters, and one of the matters, I believe, was the kind of restrictions that there was around assignment and subletting. And I believe that we distinguished - We tried to make him focus on the distinction that there was prior to the completion of the development and after the completion of the development, because there are some very important distinctions in the lease agreement on that topic, and I believe that was discussed.

Mr. Nelligan: Well, then, if we may just ask not by way of solicitor-client privilege but as straight legal drafting, in a contract of this kind, would there, in your view, normally be a requirement of a consent by the landlord to a sublet, to a subtenant?

Mr. Pigeon: Mr. Nelligan, I believe that that question would call on me expressing an opinion on a matter that I didn't have expressed an opinion before, and I don't think it would be appropriate for me to answer that question.

Mr. Nelligan: Well, I don't want you to - I'm just talking about -

Senator Bryden: Mr. Chairman, you know, I think we need to be a little bit cautious of asking for gratuitous legal opinions as to what is normal and what is not normal. We're proceeding very carefully through your list of questions, counsel.

Mr. Nelligan: All right. Let me just put it in broader terms. In the normal course, who would be responsible for inserting a clause of that kind in the contract?

Mr. Pigeon: Well, my understanding, Mr. Nelligan, would be that that is a matter which is subject to the negotiations between the parties. This is a business issue, first and foremost, and I think it was a matter of discussion. Certainly, it was a matter of negotiations between the parties at the business level. And when I say that, it's not just a discussion between lawyers. Although it's reflected in a legal document, this is an important business matter that is reflected in the agreement that reflects the agreement between the parties as negotiated between the negotiators, and I think that is a matter for the client department, in the case of the government, and with the partnership on the other side, to make agreements around.

And that is, as far as I am concerned, what happened here. There were distinctions made between the period that occurred before the completion of the development and the period after. And what we did - the lawyers did in this case - was reflect the agreements of the parties in the legal documentation.

Mr. Nelligan: And there has been another comment by Mr. Nixon that it was a hastily and poorly prepared agreement.

I wonder, as persons participating in the drafting, if you can just give us your views?

Senator Bryden: Mr. Chairman, I don't know how you expect these gentlemen to say "We prepared a hasty and poorly prepared agreement". I mean, what are they going to say? They're damned if they do and they're damned if they don't. That is an opinion of Mr. Nixon-

Senator LeBreton: No, they're not. They're not damned for telling the truth.

Senator Bryden: - and we're the people who are charged with determining whether that is true or not. I don't think it's fair, if I were sitting in their chair, to say, "Senator Bryden, did you do a lousy job of preparing this document or not?" My answer is, obviously, going to be "no". And I just think it's an unfair question.

The Chairman: Witnesses, do you have any comment to that?

Mr. Green: The only comment I would make is that we proceeded with what we put forward in a professional manner.

Senator Lynch-Staunton: Unlike the Nixon report, which was written in the most unprofessional manner.

Senator Bryden: Speaking about gratuitous comments!

Senator Lynch-Staunton: Well, you started. You won't even have them answer it because you don't like the answer. Of course, it was done professionally. These are professional people.

Mr. Nelligan: All right. If I may, then, go to the other element in this - and perhaps Mr. Rowat or Mr. Desmarais can answer this question.

Was there any view in the department regarding potential liability to the PDC in the event of the unilateral termination of the process by the department, say, following approval by the Treasury Board or, again, after the execution of the documents on October 5th?

Mr. Rowat: I think, as I mentioned before, if you're asking whether I had asked for professional advice on that or discussed it with them, the answer would be "no".

If you're asking, did I, as the negotiator, have a view on potential liability, I guess I would have to say, as a layman, my view was one of incremental exposure at every major milestone. So we had a milestone, let's say, in June, when we signed the document, the status document. We would have another major milestone when we got the order in council. An expression of that major milestone would be the general agreement that was announced on August 30th, and so on. So if you see what I mean, as you step through the process of negotiation, my view as a layman is that we had incremental exposure in terms of liability. That's not to say that there was an agreement of any sort until the final closing. It's been my view, then and now, that the deal only closed on the 7th. But there's probably - the idea of incremental exposure on liability is something quite different than whether there was a deal on the 7th.

Mr. Nelligan: Thank you, senators. Those are all the questions that I propose to ask at this time.

The Chairman: Mr. Rowat, you wrote me a letter on September 22nd. It was a letter - it was a good letter. It was about two months after your first appearance. And the reason that it piqued my curiosity is that it came from the Department of Justice. And it says:

Dear Senator:

Attached is a letter from Bill Rowat.

Yours very truly,

Rory Edge

I found it kind of unusual that a letter coming from the now Minister of Fisheries and Oceans would come to me through this circuitous route - unless there's a new Purolator system going through the government that I don't understand.

Mr. Rowat: I have an easy answer for that. Given the discussions in this committee throughout the summer about the appropriate channels of communications, I wanted to make it absolutely clear that it was being formally -

The Chairman: You can understand why, as a Cape Breton boy, I never had conspiratorial instincts until I got involved with this committee. What facts or events occurred which, taken together, resulted in you writing me this letter?

Mr. Rowat: As I recall, around that period there was some question of calling me back to talk about these events and exactly what I had signed and what I had not signed. And I was right in the middle of the NAFO negotiations at that point, or just completing them, and was up to my ears in other things. So I begged mercy and asked if I could prepare you a letter instead to lay out the events around that time frame and the documents that I had signed. And apparently that was permissible. So that's why I prepared that letter.

The Chairman: That's all the significance you attach to the letter. You weren't telling us something that you believe we don't already know?

Mr. Rowat: No, the letter was in place of request for my appearance to discuss those matters.

The Chairman: Well, I can certainly understand. Did you take advice from the Department of Justice?

Mr. Rowat: I discussed the nature of the documents with Jack Pigeon upon preparing this letter to make sure that everything that I said concerning the documents was accurate.

The Chairman: So I guess it has reached the point now where not only do we have to get permission to get documents but you have to get permission to write us, even just a letter.

Mr. Rowat: No, I was not seeking permission to write you, but I wanted to make sure that what I wrote to you, you wouldn't be back later telling me that I was factually incorrect in conveying the information. I don't think there was anything further than that.

The Chairman: We certainly did not get the impression from your testimony, Mr. Rowat, quite the contrary. So your letter was not meant to contradict or support anything we've heard?

Mr. Rowat: No.

The Chairman: Senator Jessiman, or anybody over here? Senator Lynch-Staunton?

Senator Lynch-Staunton: Are the witnesses back this afternoon, Mr. Chairman, the four of them?

The Chairman: Not necessarily the four of them, but certainly Mr. Rowat and Mr. Desmarais.

Senator Lynch-Staunton: Will they be available in case we can't get through before noon? Are we imposing on them? Thank you. Not that I have anything of great length, but I would not want to feel pressed, because I do feel the questions are pertinent.

I gather, Mr. Green and Mr. Pigeon, that you were both involved in the transaction fairly closely at an early stage. Can you tell us at what stage you got involved?

Well, I will plead guilty of always putting the answer in the question. Were you involved at the request for proposal stage? Were the two of you, or either one of you, involved in the transaction at that stage, as the RFP were being prepared?

Mr. Green: I was involved in a peripheral way. We were not the locus of advice being sought at that time.

Senator Lynch-Staunton: So the design of the RFP, you didn't have anything to do with it; the content or the legal language?

Mr. Green: If memory serves me correct, we were asked some questions about that document, yes.

Senator Lynch-Staunton: So legal advice as to whether it was probably structured -

Mr. Green: I don't know about legal advice in the strict sense.

Mr. Desmarais: In the drafting of the request for proposals we used Ms Carla Lyon, who is a lawyer with the Department of Justice in Toronto. She provides advice to the department in Toronto and that was the locus of the legal advice at that time.

Senator Lynch-Staunton: And then when it came down for the submissions and the evaluation process, was it the two of you, either together or -

Mr. Green: I'm sorry, I missed your question, senator.

Senator Lynch-Staunton: When it came time, July- September, 92', during the evaluation process of the submissions, were you involved at that stage?

Mr. Green: I have a bit of difficulty in that the questions are a bit outside of the scope of what I was preparing for today. I was not quite anticipating these. But as a factual matter, no.

Senator Lynch-Staunton: No?

Mr. Green: I was not involved in the evaluation process.

Senator Lynch-Staunton: Were you, Mr. Pigeon?

Mr. Pigeon: I became involved -

Senator Lynch-Staunton: All I want to establish - I don't want to catch you by surprise - I'm leading up to something, obviously - is how involved you were in the whole transaction from beginning right till the end. I think we've established you were there from the middle to the end.

I also want to know whether you were - all right, you weren't prepared, and I won't -

Let me then get on to the August 27 Treasury Board and Order in Council. Now, as Mr. Rowat pointed out, that was another turning point and, in his opinion anyway, the incremental exposure had increased by another notch. However, he does say, and we all agree - we all agree that the agreements were concluded on the 7th of October, 1993. We all agree on that. Where we are not unanimous is how committed the two parties were to each other as the process was reaching October 7th. And Mr. Rowat mentioned the August 30 announcement, which I have in front of me, and which has already been discussed here, so copies are already available to senators. This is a press release dated August 30, headed "Agreement reached with consortium to redevelop and operate Terminals 1 and 2".

So here the Government of Canada, through Transport Canada, is announcing on August 30, 1993, "Agreement reached with consortium to redevelop and operate Terminals 1 and 2".

And the text reads in part, "A general agreement was reached today with the consortium", et cetera.

I am extracting, but I'm not taking away from the general thrust by just selecting highlights.

Work will begin this year and will be completed in four phases over several years.

Note that this is all in the present tense, very positive; an agreement has been reached. Work will begin this year and will be completed over a certain period of time.

The transfer of the terminals from the federal government to PDC (a consortium of T-3 Ltd. Partnership Investment Inc. and Paxport Inc.) will be finalized this fall under the terms of a 37-year lease which includes an additional 20-year option.

Again note that this is very positive and in the present tense.

Senator Kirby: Can I just clarify? Maybe we went to a different schooling system, but "will be finalized" was always, in my view, a future tense, not a present tense.

Senator Lynch-Staunton: Well, I'm not here for grammar lessons, but I am here to -

Senator Kirby: It doesn't say it has been finalized. It says it will be done in the future.

Senator Lynch-Staunton: If that's all we have to quibble on, I will bow to your grammatical superiority.

Go to page 2, where Mr. Corbeil said, in the present tense:

Today's agreement provides an excellent return to the taxpayers.

He also went on to say:

I am pleased to report that the agreement provides for the transfer of the 160 affected Transport Canada employees.

He also announced on the same day that the agreement will be finalized in the fall.

Attached to the press release is a backgrounder giving the highlights of the agreement and a table outlining the development stages.

Now, I know I'm going on at length here, but I think it's important to establish that on the 30th of August the Government of Canada had announced that an agreement had been reached, so much so that they were able to, in the press release, outline the development phrases, Stage 1-A, November '93; Stage 1-B; Stage 2; Stage 3/4; the amounts of money involved; the dates based on current passenger projections; and the type of development at each stage. And it states:

The attached graphic shows the stages of development.

Now, if the government was able to announce this in such categorical positive terms, heading, "Agreement reached with consortium" - and obviously the consortium was in agreement - can we not say that on that day, at least, a binding agreement had been reached between the two parties?

Mr. Green: Senator, I was not asked at that time to give a view on that. I never formed a view on that and I have no view today except that there was an agreement on October 7th which I've expressed in writing to Bill on November 3rd.

Senator Lynch-Staunton: After what I've read to you, or perhaps you'd like to take it with you and come back and give us your view -

Mr. Green: With respect, senator, I think that's traipsing into an area that was not supposed to be dealt with here. You're asking me to express a view on something where I never formed a view. The document speaks for itself in whatever language it uses in the circumstances in which it was issued.

Senator Kirby: Mr. Chairman, may I just ask a question?

Senator Lynch-Staunton: I am asking Mr. Rowat, then. Maybe he could answer us.

The Chairman: One at a time.

Senator Kirby: It is just one short supplementary on this point, that is all, just on the particular extract - or excerpt, I should say, that Senator Lynch-Staunton read.

I notice that the first sentence of the press release that Senator Lynch-Staunton read begins with, "A general agreement..."

Senator Lynch-Staunton: That is right.

Senator Kirby: I have two questions, I guess, to Mr. Green. One, were you in fact consulted before the press release was issued, either you or Mr. Pigeon; and, secondly, why the adjective "general"?

Mr. Green: People in my office were consulted about this. It was shipped over quite often as material for general comment. At that time, I do remember asking that the word "general" be put in because I did not - was not aware that an agreement had been entered into, did not think one had and understood this to be, as Bill already alluded to it, simply a strong statement that the minister wanted to make.

Senator Kirby: Thank you.

Senator Lynch-Staunton: So you are saying, then, that this is erroneous.

Mr. Green: I am saying the document, sir, speaks for itself in the context and circumstances in which it was issued.

Senator Lynch-Staunton: Yes, but you are interpreting it as not saying what it says. You are saying the agreement was not reached.

Mr. Green: No, senator. I am saying that I did not form a view as to whether or not there was an agreement. At that point in time I was not asked to form a view and, quite candidly, I'm not in a position to form a view.

Senator Lynch-Staunton: I thought, and I apologize if I misunderstand, I thought you said you insisted the word "general" be put in here, a "general agreement". Is that not what I heard you say?

Mr. Green: Yes.

Senator Lynch-Staunton: So, you were a part of the drafting of this. What's the difference between a general agreement and an agreement? What is a "general agreement", then?

Mr. Green: As I understood at that time, the message I was trying to convey to that was simply that there was no agreement. There was maybe an understanding, but I don't know.

Mr. Rowat: I wonder if I can just respond on that?

Senator Lynch-Staunton: This is becoming as confusing as Mr. Goudge's notes.

Mr. Rowat: It is very clear that a major milestone had been reached on August 30th. As I said before, we had solved what we considered to be the major elements of the agreement, the major blockers. And, on the basis of those major blockers having been sorted out, we got the appropriate approvals which resulted in the Order in Council of the 27th of August.

But having said that we achieved that general agreement, and that's what the word - in my view upon the advice of Mr. Green "general" meant that we had the general agreement on the major elements of the deal.

As I said before, we still had a lot to negotiate, and that's when I, in essence, handed it off to John and the others to negotiate through September to bring it to a close on August 7th.

I think it may be a bit of a stretch to say that we actually had achieved a legal agreement on August 27th. I think, as somebody referred to before, it is very clear that only do you have an agreement, a deal when it is actually signed and all the elements came together, and that only happened on October 7th.

So, yes, we had reached a major milestone. Did we have an agreement, a final agreement, a deal? No, that only happened on October 7th.

Senator Lynch-Staunton: The one date on which we have no differences, it is what the significance of October 7 was all about. Where we appear to be in disagreement is what was the significance of the June date, the August 27 date, the confirmation of August 27 through August 30. Now, we are being told it wasn't a general agreement, it was an understanding.

This is an official document of the government presented to us, numbered 00269, and the government seems to be backing off on some of the assertions.

Senator Bryden: Mr. Chairman, in fairness, what it is is a press release released by a government running up to an election. The fact that it would make categorical statements and put them in the best light is not surprising at all.

No one disagrees with the fact that there was incremental exposure as the parties went down the line here.

Senator Lynch-Staunton: That's the first time you admitted that.

Senator Bryden: No. And the fact is if additional costs were being incurred, those would have to be taken into account. But there was no contract until the contract documents were signed on the 3rd, 4th, 5th, 6th and 7th of October. And there was no liability arising out of the contract. Now, if somebody could sue because they were misled, they could sue for restitution, they could sue for incurred costs or maybe some lost opportunity, there was no contractual liability in anybody's view until those documents were signed. And even the escrow agreement says this is a single document, they all must happen or none happens, we are back to square one and go look for your costs - well, it doesn't say that, but that's a little editorializing, sorry.

Senator Lynch-Staunton: Can somebody explain to us what "incremental exposure" means and can somebody explain to us what Ms Bourgon meant when she said the liability increased at every step of the way? What are we talking about here?

We are trying to establish, rightly or wrongly - hopefully, rightly - that as the weeks and months went by the government - both parties - were being exposed to a liability if they decided to back off unilaterally without the approval of the other.

Now, we have gone as far as having one witness say, confirmed - repeated by Senator Bryden that there was no liability until on and after the 7th of October. We had other witnesses who will tell us that the government's liability started as soon as Paxport's proposal was accepted subject to certain conditions. So you go from one extreme to the other.

Some of us feel that the government reached a point by the end of August where it could not turn back without being exposed - without being liable, that it had established a liability by the Treasury Board approval, by the government approval, by the Order in Council and by the minister's confirmation of all that had taken place three days before on the 30th of August.

Now, is my interpretation of incremental exposure and increased liability wrong?

Mr. Rowat: I will answer that, but first I want to say that this is my view. I never at the time, nor do I recall having discussed it at the time, asking for legal advice on what incremental exposure - that was the term I think I came up with 20 minutes ago. But it is very much in line with what Madam Bourgon discussed earlier on increasing levels of liability throughout the process.

From my layman's perspective, my view was then and is now that in this kind of an arrangement that you're going through a number of the steps, and you're going through those steps in good faith at the table, and as you go through those steps of negotiation in good faith at the table you are leading the other side to incur costs, money, time and so on, commitment, that - and particularly when you reach various milestones that you have achieved in good faith negotiations that, yes, your exposure to liability from the other side increases at every milestone.

If you ask, then, how much is the liability, I would say I can't answer that, nor would I. I would just say two things on it. Number one, you always know that the other side is going to ask for as much, and probably a hell of a lot more, than what a court might in the final analysis award them. So it would be up to the courts to decide on what the actual level of liability to be awarded was to be.

But, in my view, during that period, obviously there would have been increasing levels of liability as we went along from one step to another.

Senator Lynch-Staunton: Mr. Green, I think you told us, and again correct me if I am misinterpreting you, that on the morning of the 7th you had three possibilities in mind: sign, don't sign, or postpone the deal by mutual agreement.

Mr. Green: Yes.

Senator Lynch-Staunton: Okay. What prompted you to go through these scenarios?

Mr. Green: Simply that when I learned from Bill that we were awaiting instructions it struck me as self-evident that there was three possibilities coming out of that. Even though I assumed that the one would be to proceed, there were three others and so I, on the postponement, took quick action and may have done some blue-skying around the other issue.

Senator Lynch-Staunton: And did you, as you were thinking of the possibility of postponing - of the deal being postponed by the government unilaterally, did it occur to you that this might cause a legal problem, and that the liability exposure would then reach a peak?

Mr. Green: Only in the context that I have indicated before, I think from experience or exposure these types of situations you have an awareness that if something goes wrong the other side might very well - particularly if there is a lot of money involved - take an action. Had I reached a conclusion? No. Was I aware of the possibilities to exposure? Yes.

Senator Lynch-Staunton: Did you discuss with the consortium any damages or any negative fallout arising from -

Mr. Green: At that time?

Senator Lynch-Staunton: Yes.

Mr. Green: Before closing? No.

Senator Lynch-Staunton: Before or at the closing, or on the day of closing, did you have any discussions with any member of the consortium?

Mr. Green: I don't recall any such conversation, senator.

Senator Lynch-Staunton: You didn't have any?

Mr. Green: I don't recall any.

Senator Lynch-Staunton: You don't recall any. What if the consortium had decided that they didn't want to close and backed off the deal? What do you think the government's reaction would have been if they just walked away and said, "No, all the conditions have been met, but -"

Mr. Green: I have no idea. That would be purely hypothetical and speculative.

Senator Lynch-Staunton: It is, but still, it was a possibility. You had three in mind: one, sign; one, the government doesn't sign; one, both sides mutually agree to postpone the signature or the closing; and now there is a fourth one, the consortium decides not to sign. That was a possibility too.

Mr. Rowat: It's a hypothetical question. You'd have to go on and explain the exact scenario. For instance, why wouldn't they sign? Was it a mere postponement on their part? Were they completely backing out of the deal? And if we start to get into that conjecture, I think we could probably spend more time than any of us would like to care about.

Senator Lynch-Staunton: That is quite right, so let's get back to why would the government not sign. Why would it not conclude on that day? What legal argument did it have to stand on to unilaterally say, "We are not going to conclude the deal today," without exposing itself to a liability which, we all agree, without quantifying it, had started to exist weeks if not months before, and would have, as I say, in layman's terms, reached a peak on that day?

Mr. Rowat: The issue, I think, as come out in testimony before, was not a legal one. We were there on that day ready to sign as officials. I don't think there was any question about that. We showed up pen in hand, ready to conclude the agreement.

The issue was one based on the circumstances at the time that were not legal in their fundamentals, and that was that during that week, it had become a very contentious issue; that the then-leader of the opposition, just the day before or on the 5th -

Senator LeBreton: On the 6th.

Mr. Rowat: - had made comments about putting the deal on ice or possibly asking for a review. So that in that context, there was a decision to be made as to whether to politically decide to set the deal aside, whether to ask for a postponement in the closing, or, as Bob said, the other alternative would be to cancel it entirely. But there were clearly some options and a decision to be taken at the political level.

Senator Lynch-Staunton: So the decision to postpone would have been a political decision.

Mr. Rowat: Correct.

Senator Lynch-Staunton: We can assume, since the request to Ms Campbell was based on the political realities of the day. There was no legal reason to postpone. There might have been a political one.

Mr. Rowat: In my discussions with Madam Bourgon -

Senator Lynch-Staunton: There was no legal standing.

Mr. Rowat: In my discussions with Madam Bourgon, and hers with Shortliffe, and Shortliffe I assume with the Prime Minister's Office, was not based on the weaknesses in the legal documentation.

Senator Lynch-Staunton: Well, I think we have established one thing, and we can go to the transcript and confirmed what we've heard, and I won't go any further because I certainly want to try and get through this before lunch.

I want to, if I may be allowed, quote from Mr. Nixon when he was before us on the 26th of September. We were discussing the request for proposals. He told us that he had heard that the fix is in. He was told that by one of his so-called witnesses. A Morrison Hershfield group representative told him that. These are his words:

The phrase "the fix is in" was used.

This was in developing and putting out the RFP.

Did any of you four gentlemen get any wind or get any feedback from any bidder or potential bidder that the process that the Government of Canada was using to design and put out the request for proposals was such that it was going to favour one bidder in particular and, in effect, the fix is in, as Mr. Nixon told us?

Senator Bryden: Mr. Chairman, at least the two lawyers have indicated they were not involved during the RFP possess.

The Chairman: The witnesses are all big boys. They can look after themselves.

Senator Bryden: They were also asked to come and direct their attention to ten questions.

The Chairman: The witnesses don't have to answer the question. They can limit it, say "no", or do whatever they need to do. They don't need to be protected.

Senator Bryden: Mr. Chairman, in all fairness, I understand what Senator Lynch-Staunton is trying to do. He is trying to get on the record with somebody as to certain positions. Whether there is an answer to the questions, what seems to be important is the question. If that's what you want to have go on, then that's fine.

Mr. Rowat: My answer is that these issues happened before my tenure, so I've heard or have no evidence of any statement like that. It was before my time.

Mr. Desmarais: And my comment on it would be that I was around at that time, and I did not hear that comment. And in fact Morris and Hershfield was one of the bidders, and their bid was excluded because they didn't meet the terms and conditions of the RFP, the bidding conditions, if you like. I never heard that the fix was in, to use the quotation, at any time during that period or after.

Senator Lynch-Staunton: And I won't ask the lawyers, because they were advised by their confrère that they're not to answer questions like that, but if you had heard, you certainly had an obligation to report it, and I assume you didn't hear anything like that.

Mr. Nelligan: I think I must say in terms of the lawyers that I don't think they ever received any instructions on not answering questions of that kind. That is a factual matter, and I am sure if they knew or anything, they would give you the information, but I don't think they know.

Mr. Green: At some risk, stepping out, senator, the only understanding that I had with respect to Morris Hershfield or whatever is that they had submitted a document which didn't meet the criteria, and it was withdrawn.

Senator Lynch-Staunton: Yes. Now, I'm going to quote from you from the Province of Ontario brief which Mr. Nixon quoted to us the same day, and I quote it to you because your professionalism here is being challenged, so I do it to allow you to respond.

The brief that he quotes from says - there is also, talking about - well, you'll know what it's talking about after I read it.

There was also some considerable belief in the business, aviation and government communities that the federal government either blatantly broke its own contracting rules or demonstrated a degree of unfair consideration of one terminal development bid.

Now, this is from the Government of Ontario of the day in a brief dated November, 1993, presented to Mr. Nixon, which is a challenge to the propriety and integrity, if not to say honesty, of officials of Justice, Treasury Board and Transport, not to mention other departments.

And Mr. Nixon says:

This committee can dismiss it ...

This comment.

... or call these people in or take whatever action they deem fit, but this is the sort of material that was presented to me.

And I asked him:

And it's on that that you based your conclusions?

And Mr. Nixon replies:

In part.

So obviously - not obviously, by his own admission - he bases a key conclusion in his report on a study prepared for him by the Province of Ontario in which just about everyone involved on the government side in the preparation of the RFP and the whole process leading to October 7 is indicted and condemned. So I cite you this to ask you to hopefully reject as violently and with all propriety this terrible, terrible allegation which is a slight on the civil service of Canada.

Senator Bryden: Mr. Chairman, with all due respect, that report was not prepared for Mr. Nixon. It was provided to Mr.Nixon, but it wasn't prepared for him.

Senator Lynch-Staunton: It was provided to him, but the authorship doesn't change. It was cited by Mr. Nixon and formed part of his conclusion.

Senator Bryden: We had this discussion earlier, and what that is saying, what the Nixon report says, is that that is the information that was provided to him from various sources.

Senator Lynch-Staunton: Exactly. That's right.

The Chairman: I think I would jump in at this point and say that point that John makes is that it wasn't prepared for him. That's what he wanted to get on the record.

Senator Lynch-Staunton: Well, whoever it was prepared for, the allegation, the terrible conclusion, remains, so I would still like your comment on it.

Mr. Rowat: My comment is that we've spent three days prior to this one testifying before you that - I forget your exact quote, but I don't think that I would agree with them if they bring into question the professionalism or the commitment of the federal civil servants who were involved period.

I don't think that we need to go back over all of our earlier testimony, nor were we prepared today to get into that or we would have prepared probably more thoroughly. We had received two letters, one to the lawyers as to what would be covered today, and then I had received another letter from Mr. Nelligan outlining what John and I were liable to be questioned on today.

Senator Lynch-Staunton: I wonder -

Senator Kirby: Mr. Chairman, I am sorry. Did you get a letter from Mr. Nelligan? As deputy chairman, if he sent such a letter, I have never seen such a letter. The letter I have seen is the letter that you and I talked about, which was the letter to the lawyers. I do not have a letter that you sent to Mr. Rowat if it deals with testimony from Mr. Rowat and Mr. Desmarais.

Mr. Nelligan: All it deals with, senator, are the documents which I believe I told you I had sent, which were the memorandum he prepared -

Senator Kirby: So it deals with the documents; it doesn't deal with a list of -

Mr. Nelligan: Just the list of documents.

Senator Kirby: We did discuss the documents; that's correct.

Mr. Rowat: My mistake.

Senator Kirby: I thought it was similar to the form of the letter -

Senator Lynch-Staunton: One of our main responsibilities here, according the mandate, is to study all matters leading to the cancellation of the agreements. One of the things we are finding out is that it was based on a report which is so flawed, it is a tragic farce based on this hearsay. Now, there may be some truth in this. If the government blatantly broke its own contracting rules, let's fund out; but, so far, it's the contrary. They behaved in an extremely professional, experienced manner. All I am asking the witnesses, did they hear any of these rumours? Was anything brought to their attention regarding the fact that the word out there was that the government wasn't playing fair? So far, Mr. Rowat and Mr. Desmarais have already answered us. I am asking Mr. Pigeon and Mr. Green if they, in their respective roles as legal advisers to the Department of Transport, had heard or had gotten wind of anything along these lines?

Mr. Green: As a factual matter?

Senator Lynch-Staunton: As to the suggestion that the government was not behaving properly in the whole, what I will call, Pearson process from the RFP right to October 7th.

Mr. Green: I had heard no comment to that effect.

Mr. Pigeon: Same.

Senator Lynch-Staunton: Mr. Green, did you meet with Mr. Nixon?

Mr. Green: No, I did not.

Senator Lynch-Staunton: You met with Mr. Goudge.

Mr. Green: Yes.

Senator Lynch-Staunton: And, Mr. Pigeon, did you meet with either one?

Mr. Pigeon: I met twice with Mr. Goudge, but I did not meet Mr. Nixon during the review.

Senator Lynch-Staunton: So this brief by the province of Ontario was not brought up in your discussions with Mr. Goudge at all.

I will stop there for now, Mr. Chairman.

The Chairman: I think we will take a break now.

Mr. Nelligan: I was hoping that the two legal witnesses could be excused this afternoon. I wonder if there are questions that any other senators -

The Chairman: You can have five.

Senator Jessiman: I can't do it in five minutes. They've got to come back. No. This is very important. If you can give me more time now, I will do it now.

The Chairman: If you can do it in that time, rather than bring these gentlemen back this afternoon -

Senator Jessiman: Sure.

The Chairman: Okay, 10 to 15 minutes.

Senator Jessiman: Are you both familiar with the Request for Proposals?

Mr. Pigeon: I have read the document, yes.

Mr. Green: Yes.

Senator Jessiman: Did you have some input into drawing it? No?

Mr. Pigeon: Personally, I did not participate in the drafting of it, but -

Senator Jessiman: You are familiar with it.

Mr. Pigeon: - I was familiar with it, yes.

Mr. Green: I believe, at the time, it did come into our office for very general comment, but I don't remember anything very specific on it. It may have been around the usual clauses that you get at the end of the thing about time periods and liabilities and so on.

Senator Jessiman: You do know, though, both of you, that when the proponents made their offer and submitted their million dollars, that that became an irrevocable offer by the proponents. You know that.

Mr. Green: It was an offer made in the context of the RFP process.

Senator Jessiman: Right, and it says here that each proponent is invited to submit one proposal which constitutes a firm, irrevocable offer to the government. So that's what you got when the proponents submitted their proposals and made their deposit or gave a letter of credit for a million dollars; isn't that right? I mean, the document speaks for itself.

Mr. Green: That's all I can say, senator.

Senator Jessiman: Right. So it is obvious. All I am saying to you, both of you, that throughout the whole piece, from the time they submitted their proposal, the proponents had given to the government an irrevocable offer. So that's one part of the contract. Once we get an acceptance on the other side, we then have a contract. If you have an offer and you have the acceptance and you have the proper parts of the contract, consideration, whatever, you then have a contract.

Senator Bryden: Just as a point, Mr. Chairman, it is interesting that neither of those irrevocable proposals was the one that ultimately ended up in the contract.

Senator Jessiman: Not true. Not true.

Now what was the right to accept? On page 52 of the Request for Proposals, and I will read it:

The government has the right:

i) to reject any or all of the proposals -

didn't do that -

ii) to accept any Proposal; and

iii) to elect not to proceed....

Those were its three choices. It chose, on December the 7th, 1992, to write a letter to Paxport, one of the proponents, signed by Victor W. Barbeau.

I ask you both, did either of you have any input into this letter? That's the letter saying that their proposal was the best, overall, acceptable response. Do you know whether you had any input into drawing this particular letter to the Paxport group?

Mr. Green: Yes, we did.

Senator Jessiman: You did. Fine.

This is what the letter says on page two. Now, you have got to understand you have got an irrevocable offer out there, and this is what you gave them. You haven't accepted it yet, but we said -this is what government said, and the Minister of Justice had some input into this -

We are prepared to enter into negotiations to reach an agreement....

Now, there is no doubt that an agreement and a contract are one and the same thing; is that not correct?

Mr. Green: If you are talking in the context of that particular situation, I'm not prepared to comment. If you are commenting in terms of a manner of a general agreement, people use "agreement" and "contract" quite often as interchangeable expressions.

Senator Jessiman: Thanks very much. All right.

It says:

...within the framework of the Request for Proposals -

okay, we're going to have an agreement -

- provided that -

and there are two conditions. I am going to deal with the second one first, that Paxport -

- demonstrate to the satisfaction of the government by February 15, 1993 -

and I understand that was extended sometime in March -

- that your Proposal, in the circumstances, is financeable.

I understand, from the evidence that has been given to us, that that condition was complied with; is that correct?

I can direct it to Mr. Desmarais, Mr. Rowat, or any one of the four of you.

Mr. Green: I haven't given evidence to that effect here. This is my first appearance here, sir.

Senator Desmarais: That condition was subsequently met.

Senator Jessiman: In May; is that correct?

Senator Desmarais: Late March, early April.

Senator Jessiman: Late March, early April. All right.

Senator Bryden: That was Mergeco.

Senator Jessiman: The next thing:

...certain changes required by the Minister are made to your Proposal in order to accommodate the government's concerns;

Now from August 27th, the date of the Treasury Board order, the Order in Council, until almost the day of the closing, is it not true that the minister was not involved in this file whatsoever; that all matters that were dealt with from that date forward, August 27th, 1993, until the minister actually signed on October 4th, 1993, and the minister was not involved in any of the negotiations, was not requested to make any decision in respect to this transaction; is that correct?

Mr. Rowat: I wonder if I can respond to that first? I think that Madam Bourgon's testimony indicated - I wasn't there, I think I was away at the time - that she had sought the minister's direction on whether to proceed. I may be wrong on this but I -

Senator Jessiman: On the signing I only went to October 4th.

Mr. Rowat: She was not there on October 4th. But I think that someone might check her testimony on this issue, that I think she testified that in fact she had discussed the matter with the minister. She didn't have an exact date.

Senator Jessiman: Before he signed.

Mr. Rowat: Before October 4th.

Senator Jessiman: Before he signed.

Mr. Rowat: Before he signed, right.

Senator Jessiman: Yes, and it was for the purpose of his signing, not for the purpose of doing anything different as far as the conditions that were set forth in the letter of December 7, '93? Isn't that correct?

Mr. Rowat: I'm not sure what -

Mr. Desmarais: Senator, when we did that letter, we had a list of probably four or five pages of concerns that were with the agreements and the proposals, which were all conveyed to the minister, and he agreed that we should look at them. We used some examples in that letter. We did not use all of them obviously. And all those items were not satisfied by August 27th. They were not satisfied until October 7th.

Senator Jessiman: Was the minister brought in to determine any of those matters between August 27th, '93, and whenever he had the discussion with Madam Bourgon? He was not brought in, was he?

Mr. Desmarais: Not to my knowledge.

Senator Jessiman: And Mr. Rowat, you agree with that?

Mr. Rowat: Yes. Just a point so I am clear in my own mind. The minister was not part of the negotiations at any stage. We carried out the negotiations. We briefed him. We sought direction from him.

Senator Jessiman: But had you to get premission from Treasury Board to have the documents actually signed, the major documents? Isn't that correct?

Mr. Rowat: Certain of them required an order in council, a Governor-in-Council approval.

Senator Jessiman: Well, I am going to suggest, at least, that there's a good argument here that as of August 27th, 1993, by virtue of the request for proposals, by virtue of the fact that the proponents made an offer, and by virtue of this document, it is an irrevocable offer outstanding. And when you gave this letter back to them, and they performed those conditions, you've got a binding contract. That's my suggestion. At least I suggest to you it's arguable. Do you not agree? Mr. Green?

This is a lawyer's question, I agree.

Senator Bryden: Well, I can answer it. You are just wrong, senator.

Senator Jessiman: That's not true. You've got an irrevocable offer out there, and I'm saying you've written a letter to the proponents, which said we'll agree, we are going to have agreement, you meet these conditions and once they're met -

Senator Bryden: That letter is an agreement to make an agreement and, Senator Jessiman, you know that that is not enforceable.

Senator Jessiman: You don't have to answer it but if you would I'd like to hear you.

Mr. Green: I think I've already stated my position, that we reached an agreement on October 7.

Senator Jessiman: Now, Mr. Green, I would like you just to recall, because you couldn't remember and I've been told, and maybe when I give you the name of the person maybe it will come to your mind.

I am told on or about October 7, that you advised Mr. Vineberg - and you know who Mr. Vineberg is?

Mr. Green: Yes, I do. I assume you mean Robert Vineberg?

Senator Jessiman: Yes. Who is legal counsel for Pearson Development Corporation. On the Crown's liability prior to release of the documents. Did you discuss that matter with -

Mr. Green: I do not recall that conversation at all. Mr. Vineberg phoned me a few days ago to tell me of that conversation. I could not recall that conversation. Checks were made to see, and as you have heard about the testimony as to whether such advice was given, that the thrust is that that advice, such advice was given? No. Did I have the conversation? I do not recall.

Senator Jessiman: But it's possible that you had?

Mr. Green: If I don't recall, yes, it's possible. It's...

Senator Jessiman: Are you doubting Mr. Vineberg's word to you? I mean we haven't had -

Mr. Green: If I don't recall, I would neither deny nor affirm. I mean I just don't recall.

Senator Jessiman: Thank you.

I'm just looking at some notes, Mr. Chairman.

That's fine. Thanks, Mr. Chairman.

The Chairman: Now, I think I heard at the break, the last break we had, in the washroom, somebody said, few are chosen but - some are chosen but few are summoned.

I want to thank you, Mr. Green, Mr. Pigeon, for being so willing to come here. We now can release you from your burdens. Thank you very much. You've been very forthcoming.

Mr. Desmarais, we are delighted to see you. You were in Washington over the weekend, you had short notice. I pleaded with Mr. Rowat to bring you with him today and I am glad he did. And you will come back this afternoon, Mr. Rowat and Mr. Desmarais.

Senator Bryden: Mr. Chairman, just before we break, in order just to schedule some time, do we - what sort of timing are we talking about this afternoon?

The Chairman: Two o'clock until - well, Senator Kirby wants to get away at four. But I can't - I'm in the hands of the committee. We're starting at two, anyway. We will see you this afternoon.

Thank you again, Mr. Green, Mr. Pigeon. Two o'clock.

The committee adjourned until 2:00 p.m.

Ottawa, Monday, October 23, 1995

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

Senator Finlay MacDonald (Chairman) in the Chair.

The Chairman: Thank you, Mr. Rowat and Mr. Desmarais. We will begin. First, a small technical question from Mr. Nelligan and then we will begin with Senator LeBreton.

Mr. Nelligan: Bearing in mind the strictures on cabinet confidences, I wondered if you can both give us an outline as to the procedure followed by persons like yourselves when a Treasury Board submission is required. What type of materials do you contain in the submission and to what extent do you set out alternative positions with regard to the possible merits of the proposal?

Mr. Rowat: Let me back up further than that. In preparing for decisions of this kind, the process that you go through as ministers and as civil servants is to - at various decision points, you take the decisions to cabinet.

And in cabinet - and I'm describing this in terms of the overall process. This applies to any large policy or project issue.

You take the proposal to cabinet, through the economic development committee in this case, or, if it's a social issue, you take it to the social development policy committee. So for economic issues or projects, they go through the economic policy committee. They then pass - assuming they pass the economic policy committee, that committee recommends the policy issue or the project to full cabinet. It then goes to full cabinet possibly a week or 10 days later at a regular interval. And the full cabinet then will deliberate on it and, if they choose, they would pass it at that point; endorse the recommendation from the economic policy committee.

Once the cabinet evaluates all of the policy issues involved in a major project or a major policy, it then - and assuming they pass it - it then, as a next step, if it's close to closure, would then go to the Treasury Board. And that's when a Treasury Board submission would be prepared by the sponsoring minister and his department.

Now, the factors that - just offhand, the factors that you're going to the Treasury Board for are quite different than what you're looking for from the cabinet policy and full cabinet consideration, even though Treasury Board is a committee of cabinet. But you're looking for things like endorsement of the overall legal basis of the document. And, in a case like this, for instance, if it required a recommendation from the minister to the Governor in Council, he would also have to have the Treasury Board make a recommendation to the governor in council.

The Treasury Board would want to know that all of the aspects of a policy or a project are consistent with overall government policy. Is it consistent with the Financial Administration Act? Is it consistent with the government's work force adjustment policy? Is it consistent with other personnel policies and so on?

I guess, thirdly, you would - as an example, you would be looking for the Treasury Board to look at the financial implications in the context of the department's A-base budget. In other words, what are the financial implications of a particular project on the budget of the department? Does it cause it to go up? Does it cause it to go down and so son? And that gets built into the Treasury Board framework, overall framework of all departments, and allows them to balance the books across government and to basically debit and credit the departments' forecasts over the following three to five years accordingly.

So those are the kinds of issues that the Treasury Board deals with, rather than the major policy issues that the full cabinet would deal with. I don't know if that answers your question.

Mr. Nelligan: I just was trying to clarify the extent to which you present, in these documents, potential difficulties or problems.

Mr. Rowat: Okay. In Treasury Board submissions that deal with major projects, they would be very extensive in their nature running to 100 to 200 pages quite often. There would be, in the body of the Treasury Board submission itself, a statement of the degree of risk involved in the project overall. And that statement - I don't know how to give you an example. It might say something like, "The degree of risk in this project overall is manageable," and then it would refer, in all likelihood, to an annex. And in those annexes - in the normal course of events, those annexes would lay out, in some very clear detail, exactly what the particular risks were associated with the project.

And, again, as a normal course of events, these risks are laid out fairly clearly and fairly bluntly and, I hesitate to say, sometimes slightly exaggerated because you want ministers to be very clear that, if anything does happen, that you had explained to them very clearly what exactly was the possibility of risk.

But then that annex which, by its very nature, tends to scare some ministers, is summarized, as I said, in the body of the document itself where there's an overall assessment. "Well, in our view as officials, are these manageable risks or not?"

So that is, in general, the kind of way that a Treasury Board submission would be crafted to deal with the measure of risk.

Mr. Nelligan: Right. And then on a slightly different topic, did you have occasion to read two articles in The Ottawa Citizen in late September 1993 by Mr. Greg Weston?

Mr. Rowat: I did, and I think John did, too.

Mr. Nelligan: Yes. And as a result of reading those articles did you prepare a document for review by your fellow officials in the PCO and Treasury Board?

Mr. Rowat: We prepared it for use by our minister at the time, Mr. Corbeil, and we consulted with both the Treasury Board and PCO, and I think Finance, although the paper in question here does not seem to reference Finance.

Mr. Nelligan: All right. I believe that's document 001266.

Mr. Rowat: Yes.

Mr. Nelligan: Yes. I'm in the hands of the senators. I wonder whether it is better to let the witness go through this document on his own first and then you can ask questions of him on it, or whether you would rather ask him questions directly.

Senator Lynch-Staunton: I think Senator LeBreton would like to ask questions.

Senator LeBreton: Yes.

The Chairman: One question, Mr. Rowat. When you say "economic" as opposed to, say, "social", et cetera; when you say "economic" do you mean commercial as well?

Mr. Rowat: Yes. Just an explanatory factor. In government, as it's structured now, there is full cabinet and then there are a number of cabinet committees which report to it. And currently structured there is a committee on economic and development policy, which would include commercial policy. There is a committee on foreign policy and there's a committee on foreign and defence.

So whatever issues are coming forward from sponsoring ministers usually get funnelled into the full cabinet via a review by one of those cabinet policy committees, and they each have different a chairman and vice-chairman.

For instance, now, under the current government, Mr. Ouellet is the chair of the economic policy committee, and then that committee recommends to full cabinet.

The Chairman: All right, colleagues, with your permission - yes, Senator Bryden?

Senator Bryden: I have one question arising out of counsel's question. What is the role of the Treasury Board secretariat, if any, in the Treasury Board submission sample case you were speaking of?

Mr. Rowat: The Treasury Board secretariat is the professional group of civil servants that prepares opinions and evaluations for the full formal Treasury Board, which is made up of ministers. The secretariat, in large projects, would work with the department during the period of preparation of the Treasury Board submission.

Generally how government works is rather than preparing a great, huge document of who knows how many hundred pages and walking in and flopping it on their desk and saying, "Start now analyzing this", it's done over a period of time and the Treasury Board is involved at most stages doing their evaluations so that when it comes time to actually submit the document the Treasury Board secretariat, the officials, have a very good understanding of the substance of the document and, hence, can prepare their advice to the Treasury Board itself, the ministers themselves, in relatively short order rather than waiting a number of weeks to go through yet another round of analysis.

The Chairman: All right. With your agreement, colleagues; Senator LeBreton.

Senator LeBreton: Thank you Mr. Chairman. Just before I start my questioning of Mr. Rowat and Mr. Desmarais - and thank you for coming back today because I know you particularly, Mr. Rowat, and I'm sure you as well, Mr. Desmarais, have a lot on your plate at the moment with other activities - but this morning Mr. Desmarais referred to a binder that was prepared by Mr. Dickson - and I wrote it down quickly - about the protection of the public interest.

We got it, okay. I was just wondering.

Mr. Nelligan: That was in fact in the Nixon materials and we were able to find it over the noon hour. In addition, Mr. Desmarais was good enough to have another copy printed for us and that's available any time you want to look at it.

Senator LeBreton: So it would be interesting to see if in Nixon made any reference to that. Thank you, counsel.

Well, Mr. Rowat, counsel started off on the question of certain documents. Certainly there's been a lot of discussions in this committee and in the media about these documents and, more specifically, the documents produced as a submission to Treasury Board in August 1993.

As of this date, even though there is little mystery as to the public exposure of these documents and in fact what is actually in a portion of the Treasury Board submission, we have been unable to officially obtain them from the government. This has put us in a small quandary but not too difficult since most of this is public knowledge. But since you are here today, it seems to me that it is appropriate to deal with the allegations that have been printed elsewhere, and I, of course, have got the newspaper articles in question.

But we did previously have tabled with this committee a memorandum to the President of the Treasury Board, Mr. Edwards, document 001360, and signed by Ian Clark, referring specifically to the Greg Weston articles on September 25th and 26th. And I'll just quote the first two paragraphs of this memorandum to Mr. Edwards - and it's entitled, "Memorandum to the President, Press Reports on Terminals 1 and 2 Pearson International Airport, Toronto".

The Ottawa Citizen carried headline stories on Saturday and Sunday on the Terminals 1 and 2 redevelopment project. There were also a few related stories in the Toronto Star on the weekend and the Globe and Mail on Monday.

Apparently, a reporter for the Ottawa Citizen obtained copies of confidential government documents on the T1 and T2 deal.

Then there was something whited out under s. 69(1)(g)re(a). Then, "Steps Being Taken by Transport Canada" as a subhead.

Yesterday Transport, PCO and TBS officials met to discuss the material that was covered in the press articles. After a review by officials, it would appear that all the information reported was primarily already a matter of public record.

And just as you stated a moment ago, Mr. Rowat, I mean, with all of the Treasury Board documents that worked its way through the piece that we received before this committee, in fact that's proven to be quite true.

Then the memorandum continues on with Treasury Board secretariat comments.

It is unfortunate that any confidential government documents have been leaked. From our point of view, however, we consider it worth noting that:

Transport followed normal government approval procedures on this file (i.e. Cabinet and Treasury Board), and obtained independent legal and financial assistance in negotiating the terms of the redevelopment project;

Then of course there is something whited out and it says:

We will keep you informed of any further developments.

What I would like to do this afternoon, Mr. Rowat and Mr. Desmarais, is to put these allegations to you to ascertain whether you think they were fair and balanced. And, as alluded to earlier, this line of questioning will serve as an interim approach in assisting this committee in dealing with the Treasury Board document in question.

Now, you have already stated that you were familiar with the newspaper articles written on September 25th and 26th, 1993 by Mr. Weston of The Ottawa Citizen. I think you answered the question a moment ago: How large of a document are we talking about? Specifically here you said 100 to 200 pages. Would that be a fair characterization of the complete submission that was given to Treasury Board with regard to the privatization of Terminal 1 and Terminal 2?

Mr. Rowat: Obviously I won't comment on the Treasury Board submission, but I was indicating that in projects of this size that would be the normal course of events, normal thickness.

Senator LeBreton: Yes. So how many pages of a document, normally - not specifically, but generally speaking - would outline the risks? And I think you partially answered that as well by referring to the annexes. But did you indicate that there was a summary page, and is this the normal practice? And I think you've indicated that as well, but is this the normal practice in the production of all Treasury Board documents?

Mr. Rowat: Well, Treasury Board documents - and you really should have an expert on this - but having done a number of them, Treasury Board documents can vary quite widely from things that are quite rudimentary, run-of-the-mill, and they, when they go to Treasury Board, would go on a separate agenda which would be passed quite quickly. Basically, those are the ones that the Treasury Board secretariat officials say, "We've reviewed it; they are in accordance with all the rules, regulations and procedures" and they can go through it quickly.

So those Treasury Board submissions would not necessarily have all the documentation that a very large project would have.

So if I could talk about the normal large projects, like the fixed link, like Hibernia, and so on, those would have a fairly significant section annex outlining the risks. They would also have a summary in the body of the Treasury Board submission itself which would try in some way to scope out what the overall risks were taken together as a whole.

Senator LeBreton: As you said a few moments ago, these are laid out clearly and bluntly and, to use your words, "slightly exaggerated", to make it very clear to the minister, which is understandable, what risks, you know, and even though they may never happen, it makes it very clear to them if such and such happens this is the position the Crown will be in; is that how it's done?

Mr. Rowat: Usually. In preparing a section like this within the department you would pull together the relevant group of people and debate what are the kind of risks you'd be exposed to and start to flesh them out. When you say "risk", inevitably, everything is a risk, and then you try to discuss amongst your colleagues, "Well, what is the degree of risk?" and then you try to size that up and see if you can convey to ministers whether it's a very serious risk, a modest risk or hardly any risk at all.

But you normally try to list out a fairly complete assessment of what the risk could be and then attach some degree of possibility to them.

Senator LeBreton: But it would be safe to say that no major government transaction would go forward without pointing out the possibility of risk because otherwise - there will always be risks.

Mr. Rowat: No, exactly. There is always risk associated with large projects.

Senator LeBreton: Yes.

Mr. Desmarais: I just wanted to add something. In the normal course of events, even for small Treasury Board submissions, the standard form of Treasury Board submission requires a risk analysis.

Senator LeBreton: That is a requirement?

Mr. Desmarais: When you look at a Treasury Board submission, it usually has to be confined to three pages plus annexes. So, in the body of the report where you have a risk section, it's usually fairly small and refers you to an annex where you have more room to discuss things.

Senator LeBreton: Did you say it is a requirement of Treasury Board?

Mr. Desmarais: Yes, it is.

Senator LeBreton: So it is not that in this particular case this departed from the normal, then?

Mr. Desmarais: No.

Senator LeBreton: Specifically dealing with the two articles in question on September 25th and 26th in which our counsel referred to that you dealt with by memo, did you feel that the newspaper articles were an accurate account - or an accurate comment on the risks, without commenting on whether the risks described are valid, because my questioning will follow. My questions following will deal with the specific points that were made in the articles. But did you feel the articles accurately commented on the risk?

Mr. Rowat: I think the best way to respond to that is to say that we did our assessment of the various observations and allegations in those articles and that the best way to deal with that would to be look at the document.

Senator LeBreton: Okay. Well, then, I'll do just that, Mr. Rowat.

In the newspaper article of September 25, 1993, it is alleged that the documents show the new owners, Pearson Development Corporation, plan to charge already cash-strapped airlines higher fees for using the air terminals. Those increases are almost certain to be passed along to air travellers. That was one of the allegations.

Would you comment, please, on that particular one? And it was on the 25th, 1993.

Mr. Rowat: Okay. How do you want to proceed with this? If the - I think everybody has the document which lays out an allegation section and then lays out a fact section. Do you want us to read the fact section into the record or - I should have brought my reading glasses.

Senator LeBreton: Sorry, Mr. Rowat. I would appreciate it if you would.

Senator Bryden: Mr. Chairman, if I just might, it's been filed and looked at by all of us. Would it not be fair to ask the witness if they have anything to add to what they have stated in the document, and they may very well have?

Senator LeBreton: Well, it's just that - and you mentioned it yourself, Senator Bryden - we're dealing specifically with a Treasury Board document. This specifically deals with the so-called risks, which we now know are standard Treasury Board practice. So I think it's important that we have on the record, since we have a motion before the Senate to try and get the actual Treasury Board document - this is the only avenue we have at the moment to deal with these - Mr. Weston has clearly - and he even gave us a road map a week or so ago. So, I think for the record, and in view of Mr. Goudge and Mr. Nixon's late seizure on the Treasury Board documents - although I personally believe they looked at the Treasury Board documents no more than they looked at anything else that was given to them - I think it's important to have it on the record.

Senator Bryden: Mr. Chairman, can I make one more attempt at abbreviating, perhaps, Senator LeBreton's wish to have it on the record? In other instances we have incorporated documents into the actual record. Is there any problem in doing that?

The Chairman: Not at all, senator. We will append these to the record and we will let Senator LeBreton carry on.

Senator LeBreton: Perhaps, you know, because I didn't follow every -

The Chairman: Have I got a motion to append these documents to the record that we are referring to?

Senator Bryden: Yes.

Senator LeBreton: Yes.

The Chairman: All right, then, Senator LeBreton, please continue with your questions.

Senator LeBreton: And I don't expect you, Mr. Rowat, to read into the record, just perhaps summarize because in some cases I didn't necessarily - I was following the allegations in the actual articles, although I did match them up. So I would not expect you to read the whole thing, but perhaps just summarize, if you can, if you wouldn't mind.

Mr. Rowat: Okay. It was actually John and his staff who prepared the bulk of this and he's got better reading glasses than I do, so I am going to ask him to -

Senator LeBreton: That would be just fine.

Mr. Desmarais: My eyes are failing me after 300,000 pages of litigation.

Senator LeBreton: I'm sure.

Mr. Desmarais: On that allegation, in a sense, it's right that there will be higher fees, but our contention was that no matter who developed the airport, or who undertook development, there would be an amount of capital expended that would be charged back to the airlines and that charge back would be consistent with an ICAO policy which says the developer can - or the airport operator, however you want to characterize that - the airline will pay their fair share of operating maintenance costs, capital expenditures and a reasonable return on investment.

So this was in keeping with international guidelines and a cost recovery policy that we had struck going into the deal.

So, yes, you would pay more, but it was all within international guidelines and Canadian guidelines, if you like.

The other point he makes is that increases are almost certain to be passed along to air travellers. We worked extremely hard to get rates charged to the airlines on a per passenger basis down to the same rates as Terminal 3. We didn't see any increases in charges to the airlines because they started using Terminal 3, for passengers, because they started using Terminal 3, and we had an expectation that those costs wouldn't be passed along here either.

I think that was alluded to in the press conference by Air Canada when they indicated that they would get an upgraded facility, it would be stronger, they would be able to attract more passengers, put more people through it, to keep the costs.

Senator LeBreton: So you are looking at the Terminal 3 example as well as the international?

Mr. Desmarais: Yes.

Senator LeBreton: Point number two, it was alleged on the same date, September 25, 1993 - it was alleged that these documents warned the government that if the airport's new owners ran into financial trouble the result "would impact severely on the operation of Pearson" leaving Canadian air travel in chaos and probably putting the airport back into the government's lap.

Mr. Desmarais: I think we were looking at some of the risks involved if there was any default on the lease. You will recognize that in the lease we had default clauses and if the developer defaulted, then we could have a period of non-development, if you like, at the airport while we found someone to replace him or the leasehold mortgagee replaced him and so on. So there would be a period of non-development.

In the meantime, the terminals would keep operating and be operating at a level consistent with the passenger demand at that time, although if it went on for any period of time, say over two to three years, passenger demand could exceed the capacity of what was developed at the time. So, yes, there was some risk, and if it went on too long it could be a severe impact because you wouldn't have the facilities to handle the passengers.

Senator LeBreton: But it wouldn't have automatically gone back to the government.

Mr. Desmarais: They would have gone through various steps before it came back to the government.

Senator LeBreton: And, perhaps, another developer.

Mr. Desmarais: That is correct.

Senator LeBreton: Am I correct in believing that should this risk have ever come to pass, the government would have also - I think I saw testimony - perhaps it was you, Mr. Desmarais - about Terminal 3.

Mr. Desmarais: You have my testimony that if the developer ever defaulted to the extent where we had to step in and take it back, we would also get Terminal 3.

Senator LeBreton: Okay. And the next point, also on the 25th of September, the documents, according to Mr. Weston, contained no mention of job creation, at least so we are told. But jobs were to be created, I believe. Could you indicate how many jobs were to be created and how many would have been new positions?

Mr. Desmarais: I think we had gone through in our analysis of the policy issues and indicated that roughly 14,000 jobs would be created over the period of the development. At the present time, I can't remember how many we thought of those would be permanent jobs. It was I think up around 5 or 600, but I won't swear to that right now without having had a chance to review the records on that.

The other point is that that's a policy consideration, not a Treasury Board consideration, generally speaking.

Senator LeBreton: So it wouldn't have been something that Treasury Board would have - it wouldn't have been in one of the -

Mr. Desmarais: It wouldn't have been a question they asked us.

Senator LeBreton: Or a risk that doesn't fall in that risks part of the document.

Mr. Desmarais: Yes.

Senator LeBreton: Also on the same date - and I'm going to combine three different points that Mr. Weston raised. It was stated in the Weston column on that date just mentioned that the government claimed that the 57-year lease at Pearson will put more money into government coffers than by continuing to have the government run it, but then it alleges later on that this claim is wrong and in fact government figures show that the government was going for lose money. And the figure that Mr. Weston used was tens of millions a year.

Could you describe the return to the government and what it was projected to be in future years?

Mr. Desmarais: The total return to the government on a net present value basis, I believe, over the 57 years was in the range of $820 to $850 million. If we had've continued operating the terminal as a government entity, I believe the numbers were in around the $600 to $700 million dollar range. Again, I haven't checked the figures before coming to this meeting. So there was a material difference between private sector payments and what it could cost us to operate, assuming we built the same type of facility, i.e. expended $686 or $700 million to build a facility. That's a false expectation because the government didn't have the money to build the facility, so it's very hard to compare what it would cost the government to operate it versus - or what the government would get out of it versus the private sector.

But, generally speaking, the terminals, when this was done, were earning a net revenue of about $23 million a year, and $23.6 is the number I think we came to for the project, which included the terminals and the aprons and the central heating plant and all that stuff. And we started off at $28 million return on that, and we continued from there, if you like.

And there were various conditions in the lease on the rent that if their revenues improved, that our revenues would improve as well. And there was a threshold above which the government started to get roughly 45 per cent of the gross revenue out of the terminal buildings, return to government. So when those types of things started to kick in after development, the major return to the government showed up.

Senator LeBreton: And then on that same point, could the profits earned, as Mr. Weston suggested, if Pearson continued to be run by the government, could the profits earned have paid for the renovation?

Mr. Desmarais: I doubt very much it could have out of the profits retained. The way the Department of Transport airports group was funded is on a vote netted basis, if you like, and any profits from Toronto were used to fund the rest of the system. So that the government wasn't giving us too much money, and it had been our direction to get that amount down to zero that we had received from the government, so we were looking at how to cross-subsidize the whole system as we went along.

One of the things we looked at out of Pearson and privatizing it was that we would get more money to cross-subsidize the system. If we had taken the money after having developed it, we would have taken those profits and used it to fund places all over the country, Charlottetown, St. John's, Newfoundland, wherever money was needed, because those airports at the time were not showing a profit. There was only three airports in the country showing a profit.

Senator LeBreton: At that time?

Mr. Desmarais: At that time, and that was basically Vancouver, Calgary, and Toronto. And so we were trying to build our profits to subsidize the whole system.

Mr. Rowat: I wonder if I can add one comment on the theory of Treasury Board submissions, and this is theoretical. Treasury Board submissions tend to focus on a three to five-year time-frame because that's what affects the planning horizon, the immediate planning horizon, of the department, and that's the period within which governments tend to balance their books. So Treasury Board submissions, by their very nature, focus on five years.

Now, theoretically, if there are certain kinds of things that are an extra hit in the first three to five years and one were to project that out, you could make some very serious errors.

Senator LeBreton: Very interesting point. Thank you, Mr.Rowat. That's something I'm going to make a note of.

Okay. Again on the 25th of September, in this same article, it is alleged that the documents contained serious reservations as to the urgency of this development at Pearson. Of course, we've heard all kinds of theories and views on this, but this allegation, in light of things, seems to be patently false given the evidence of Air Canada before this committee.

However, would you comment on this particular allegation in the Weston column referring to the timeliness necessary to develop an airport?

Mr. Desmarais: What we were looking at here is - I think I have characterized it many times as a window of opportunity. Yes, passenger levels were down at Pearson. They were projected to grow annually year by year I think at the rate of roughly 3 per cent, and to reach the magic number, if you like, of 33 million around the turn of the century. The terminals themselves that we had in place, Terminals 1, 2 and 3, would accommodate roughly 26 or 27 million passengers a year, which was a 1997-98 time-frame.

We looked at a development period, because there is a airport in use, and I think everybody has experience with Ottawa when we redeveloped Ottawa several years ago. It took several years, and there was all kind of passenger inconvenience in using things. So we looked at, if we had low passenger numbers, we'd minimize the inconvenience to passengers. It was going to take six, seven, eight years to fully redevelop this. At the end of that time, we would be pushing that envelope of 28 to 33 million passengers that this facility was designed to accommodate.

Senator LeBreton: I don't know if you saw or heard the testimony of Air Canada, but as a credit to yourselves, you were right on. They were saying 1993 would have been the ideal time because of the coming out of the recession and the passenger level being down.

Could you explain the allegation that the government agreed to hand over $70 million to Air Canada and some foreign companies using T1T2?

Mr. Rowat: You will recall from our earlier testimony that this concerns the agreement with Air Canada and extended to other airlines that were using the Pearson airport that, as part of the overall arrangement, we agreed that rents would be reduced by 15 per cent. And in order to strike the deal, that's what we agreed to as the federal government. Air Canada agreed to pay the extra because it was still a fairly significant hit on Air Canada and other airlines. And as part of the overall arrangement, we testified before, there was also an agreement by Pearson Development Corporation to reduce their rate of profit down to roughly 14 per cent and to share some of the commercial rents, commercial returns, with the airlines. So that all of that taken together is reflected in the answer that you have before you.

Mr. Desmarais: Could I add something to that?

Senator LeBreton: Certainly, Mr. Desmarais.

Mr. Desmarais: The structure of how that was set up was very important. We, the government, were giving the rebate, not the PDC group.

In the rental rate agreement, if you will recall it, there were certain deductions allowed from gross revenue, including discounts and rebates. So it couldn't be done through lowering the gross rent without materially impacting the return to the government. So it had to be outside that, and that's why there was a specific direction in the lease for PDC to rebate money to the airlines, and it was this $17 million or 15 per cent.

Mr. Rowat: That was one of the agreements that we referred to this morning of us instructing the airlines to -

Senator LeBreton: So it was wasn't PDC; it was in fact the government.

Mr. Rowat: That's correct.

Senator LeBreton: Is there anything else you wanted to add, Mr. Rowat?

Mr. Rowat: No.

Senator Kirby: It's more a process question than on detailed substance. The so-called "allegations" that Senator LeBreton is extracting from the newspaper article, assuming for the minute - without asking you about the specific Treasury Board document that you have - that some of those allegations or even all of them actually appear in the document - let's make the assumption for the moment that they did - how would they have gotten into the document? Clearly Transport is not going to write a document with a whole series of negative allegations in it. How does a Treasury Board document appear with this kind of a critique in it?

Mr. Rowat: Again, theoretically, this kind of information wouldn't necessarily be included in the risk section. It could be included -

Senator Kirby: No, I wasn't talking about the risk, just in the document generally.

Mr. Rowat: Likely in the document to Treasury Board, it would be included in one of the annexes as, ie., we've talked with major blockers, and so on - how were they resolved and how were they going to be reflected in the followup, legal documentation; what was the resolution to the overall issue. So there would be a fair degree of information on the key elements of the agreement. The Treasury Board, in any large project, could then go on to recommend to Governor in Council that, indeed, this was something that the minister should be given authority to sign.

Senator Kirby: But the fact that these - I do not even like the word "allegation" - points are made somewhere in a document, does that mean that some individual civil servant or groups of civil servants somewhere had this view of the issue in hand? I mean, I realize they're conflicting views. You're obviously expressing those quite well, but I guess what I'm trying to understand is how -

Mr. Rowat: Okay, I understand.

Senator Kirby: - they could ever get in there in the first place if some people didn't believe them.

Mr. Rowat: The best way to express this is that something like this would not be in the document as an allegation.

Senator Kirby: That's why I'm trying not to use the word "allegation".

Mr. Rowat: Or it would not even be in there as a worry or a concern. It would be in there as a specific section as an explanation of a key component to the agreement.

Now, if you were a reporter that was looking for things that you might want to criticize, you might pick up something and write it up in a way that was never intended.

Senator Kirby: But the issue itself, am I right, would have only gotten into the document if some civil servant in some department was in fact concerned about it? It might not have gotten in in this form. I understand that.

Mr. Desmarais: Let's go back to generic risks, if you like.

Senator Kirby: Right.

Mr. Desmarais: The risk analysis is usually done by the proponent. In a case where I am writing up a Treasury Board submission, say, for a runway, I will do a risk assessment, and I will have that challenged by members of the board or members of Finance who are sitting in.

Senator Kirby: Central agencies.

Mr. Desmarais: Central agencies who are sitting in on the discussions. They will bring up stuff, and they will challenge me on the risk side. But, generally, I would be the author of those risks and put them in. Yeah. So the department would put those risks in.

Senator LeBreton: And then you'd have to defend them.

Mr. Desmarais: And I would have to defend them.

Senator Kirby: And the issues are risks that would have been raised conceivably by you, but quite conceivably by central agencies or others commenting on it.

Mr. Desmarais: Right. That would be in some of the risk sections.

Senator Kirby: Right, okay.

Thank you, Mr. Chairman.

Senator LeBreton: It's like I have a house with a large ash tree. If a strong wind comes, the risk is the ash will blow the tree down on my house. I mean, that is a risk I live with.

Senator Kirby: How do you spell that?

Senator LeBreton: Ash, A-S-H!

In the same article, although there were some in the 26th article, most of them were in the 25th article. The documents are alleged to say that the government will only make money in the first year of the lease, and that is by selling furnishings to the new owners at less than what was paid for them. Could you comment on this particular point or allegation?

Mr. Desmarais: Speaking generically again, if you go back to Mr. Rowat's discussion, a Treasury Board submission generally shows only the first years of any project.

Senator LeBreton: Yeah.

Mr. Desmarais: In this project, we are saying that we had some expenses up front, like paying off employees under the work force adjustment policy, which was a government policy. We had to pay them. We had agreed to make a loan of $11 million over three years, which would be paid back over - starting year five - the subsequent 10, and so on. So when you cut things off at five years, you miss everything. You also have to recognize that the Air Canada lease, an agreement to lease that I think you've seen here, indicates that the new rental rates won't come into effect until 1997. We're doing a submission to the board in '93. You're looking at -

Senator LeBreton: Four years.

Mr. Desmarais: - four years hence. So all the money starts to flow after year five.

What can I say? Yeah, it looks like we lose money in the first five years, except when we sell the chattels, but it all starts flowing back after year five when the new rents come into place and they start paying back the loan.

Senator LeBreton: That's very clear. That's a very good explanation.

Could you discuss with us the part of the transaction whereby Pearson Development Corporation agreed to make repairs to Terminal 1, but the government agreed to pay one-third of the cost over $15 million? I know that you did this before, but I am dealing with this article and this so-called Treasury Board document.

Mr. Desmarais: I don't know where the $30 million dollar figure came in this allegation. When we set out with the RFP from Paxport, Paxport's proposal was to demolish Terminal 1 in year one. We believed that they needed Terminal 1 as a cushion because they were going to have to move Air Canada around to do their redevelopment, and so on. They needed some facility. So we ultimately agreed that they had to keep it open until roughly year five of the development plan. They had not proposed to do that in their proposal. They said, "That could cost us extra money."

We did some analysis and figured that to keep Terminal 1 - and when I say "Terminal 1", I'm speaking of the passenger portions only. I'm not speaking about the parking garage.

Senator LeBreton: No.

Mr. Desmarais: We did some calculations and said that the life safety upgrades and a few other things have to happen in that building to keep it open for six to seven years would cost roughly $10 million. We negotiated with them, and they agreed that they would fund the first $15 million. They would pick that up. That would have been more than adequate money spent on that terminal to keep it open for six or seven years. However, if the traffic didn't materialize - because this stage was dependent on traffic forecast happening - if that traffic didn't materialize at the airport for whatever reason, they weren't obliged to tear down Terminal 1 and do something else, but we would have liked it kept open. So, we agreed to share two-thirds/one-third at that time.

Senator LeBreton: So, in other words, you have a $5 million cushion -

Mr. Desmarais: Yes.

Senator Hébert: - because you estimated $10 million.

Mr. Desmarais: That's correct.

Senator LeBreton: And then you agreed to pay a third if it was over 15 million.

Mr. Desmarais: And only on the passenger processing portions. As I say, the parking garage, if they wanted to keep that open or close it, that was their business and they would pay the money.

Senator LeBreton: That's right.

I know we have been through this on your previous visit, but since it is alleged by Mr. Weston as a negative in the Treasury Board documents, I thought I might ask you to comment on it. I refer to the partial rent deferral to Pearson Development Corporation - you alluded to it earlier - which is described as taxpayers helping the consortium finance the deal by the government cutting lease payments by $33 million over the second, third and fourth years. Would you care to on that?

Mr. Rowat: While it may not have been in the original RFP, by the time that we were actually in the negotiations, the financial fiscal situation of the airlines had deteriorated considerably, including Air Canada, which was the major tenant.

They did have a lease that extended to '97, so that after discussion through the appropriate cabinet committees, and so on, the decision was taken that in fact in those circumstances the rent would be deferred for three years and paid back over the following ten.

Senator Bryden: Mr. Chairman, can I just ask how close Senator LeBreton is to a break point here?

Senator LeBreton: Ten more minutes, I suppose, depending on the length of the answers. Was there some particular reason?

Senator Bryden: Well, no, it's just I'm always being held to my time limit. Then if it's ten more minutes, just if it was going to be another two hours...

Senator Lynch-Staunton: You'll have the same time.

Senator Bryden: Pardon?

Senator Lynch-Staunton: You'll have the same time.

Senator Bryden: Not this afternoon I won't.

Senator LeBreton: Well, we only started at two and I don't think I've been any more than a half, 35 minutes, but...

Senator Bryden: No, that's fine, it's just that if there was -

Senator Lynch-Staunton: We're dealing with the questions, not the time. The content.

The Chairman: Okay, Senator LeBreton.

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

It is alleged that the government will get rent in the neighbourhood of 28 million, while Pearson Development Corporation gets to pocket the lucrative fees from the airline terminal concessions and parking totalling around 77 million.

Would you care to comment on that, Mr. Desmarais, or Mr. Rowat?

Mr. Desmarais: We were going do get rent starting at $28 million, I will agree with that part of the statement. I don't know where the $77 million comes from. I have no idea.

Senator LeBreton: Very interesting.

It is further alleged that the Pearson Development Corporation will be making profits around $70 million in year 20. Is this accurate and how would the stewardship clause impact on this?

I think you dealt with it actually in point number 15, I believe, of your -

Mr. Desmarais: Yeah, I am looking at point 15. We have looked at the profit figures for the developer over time and on a net present value basis if you like. Those turned out to be roughly a 14 per cent return on equity, which is 2 per cent higher than typical utilities. The problem with that 14 per cent, obviously, is that it's over 57 years, and you build your equity as you go along. In the first 15 to 20 years most of this is funded by debt, not equity, so you have a very high return on equity and it's lowering over time. And so that in year 20 it probably was around $70 million but by that time they had invested their 686 plus another 2 to $3 million a year that they had programmed and they had the first class or...

Senator LeBreton: World class.

Mr. Desmarais: First class I think is the way it's worded in the lease; the stewardship provision that they had to keep everything in a first-class condition, and I'm not sure that that was ever factored into the financial statements of anybody that we saw.

Senator LeBreton: Because it would be impossible to put a dollar value on what that actually meant, would it not?

Mr. Desmarais: Well, it may or may not be, but for, we know that, let's take this redevelopment. Terminal 1 is 30 years old. It's ready to be demolished within four to five years. So roughly, looking at 35 years out, you may be into another $600 million type of expenditure to refurbish it. It's those types of considerations that weren't factored into some of the numbers that were in the Treasury Board submission or any place else.

Senator LeBreton: That's understandable.

It is apparently alleged in the Treasury Board document that the government could borrow the money required for improvements at a rate less than that which would be paid by the Pearson Development Corporation. If this were true, would have that not been a sufficient incentive to the government to do the renovations themselves? I suppose it is a double-barrelled question I'm asking here, but is it true and if it were true would the government not have considered?

Mr. Desmarais: It's typical that the government can borrow money cheaper than private sector people. I mean you do it through savings bonds and many other ways. The problem with borrowing this money is that it becomes part of the national debt, which one of the things we were doing here is trying to reduce the national debt or not increase it by getting the private sector to do things. So the policy imperative was not to increase the debt. So to put something like this in front of us and say, well, the debt would have been cheaper than the private sector is not on because the policy direction was "Don't increase the debt."

Senator LeBreton: And of course it would have been on the public ledger instead of the -

Mr. Desmarais: Yeah, that's correct.

Mr. Rowat: I think Mr. Stehelin also factored this kind of thing into his analysis, if you will recall the document that he brought forward.

Senator LeBreton: Yes, yes he did actually.

It is alleged that the promised improvements to Pearson may be a long time coming. The documents are said to show the developers are only committed to $96 million in immediate improvements to the airport terminals, a third of which is being financed by a government loan. This is also in this article on the twenty-fifth of September 1993.

Future phases of the development would only take place as increased air passenger traffic warrants, possibly not within the next five years. Even then redevelopment is planned in stages which could span another decade. It is also alleged that three terminals at Pearson were sitting half empty and these confidential cabinet documents show the government was not expecting any major expansion in air traffic before the turn of the century.

Could you comment on how the final three stages of development were to occur?

Mr. Desmarais: The development was to occur in four stages. There was a stage 1(a), a stage 1(b), stage 2, and then a fourth stage called stage 3-4. Stage 1(a), which cost roughly $98 million, was to commence within 30 days of them taking possession, if you like, of the facility, which in our case would have been November 1st after the October 7th signing.

Stage 1(b) - and I'm trying to remember - I think cost roughly $296 million. It was to commence within 19 months of the signing, or of the November 1st date, and it had no strings attached to it, i.e. it was just a passage of time, 19 months.

Stage 2 had a passenger trigger and a financing trigger attached to it, and the passenger trigger, I think, was 22 and a half million passengers, 22.6, in that range, for Terminals 1, 2 and 3. And it had a financial trigger that the government or the developer had to have signed leases for roughly 75 per cent of his required revenue to finance that. Sixty-seven per cent of that revenue was covered by the Air Canada lease, or agreement to lease. So he had roughly an 8 per cent differential to cover for stage 2. He had roughly three to four years to get those agreements. But the first two phases, which would total roughly $400 million, $350 million, were not covered by any type of agreement except passage of time. So the developer was committed to go ahead on that much expenditure. So the numbers you see there in the allegation are not correct. The allegation that they were sitting there half empty is a bit misconstrued. We were running about 19 million passengers at the time with capacity of 26, 27 million passengers. So we're getting close to 70 per cent full.

Senator LeBreton: Yes.

Mr. Desmarais: Running 70, 75 per cent, and passenger traffic was projected to grow at the rate of three per cent a year and not occur in one lump in 1999. So by 1999 the capacity of the three terminals would have been exceeded. And we were looking at Terminal 4 or some other solution at that time. So, again, the allegation here that we're sitting half empty and not expecting major expansion is not correct.

The Chairman: What year, 1999?

Mr. Desmarais: 1999 we would have surpassed the 33 million passenger mark with projections available at that time.

The Chairman: I see.

Senator LeBreton: Just as a matter of interest, what is it right today, Mr. Desmarais, do you know?

Mr. Desmarais: I think we are looking at 33 million at about 2001, 2002. It just turned around. The recession lasted longer at Toronto Airport than we expected.

Senator LeBreton: But like as of like today the passenger...

Mr. Desmarais: The passenger numbers as of today I think are around 20.5 million. I won't swear to that. I haven't looked at the numbers for a long time.

Senator LeBreton: No, I was just kind of curious as to what they were.

Now, we get into Mr. Weston's column on the twenty-sixth. All those other questions of course were in the twenty-fifth, and on the twenty-sixth he makes a statement "In the end Canada is about to become one of the only countries in the world with its major international airport in private hands and all that could mean to the future of the nation's transport system." And therefore, he is leaving the impression that Canada in fact is one of the few countries, or perhaps the only country in the world, to have a major international airport in private hands. Is this a justifiable claim?

Mr. Desmarais: Well, at the time we were doing this London Heathrow, Gatwick, Stanstead and four other airports belonged to British Airports Authorities which was a fully privatized company.

Manchester, England was looking at privatization, basically was privatized.

There was Athens, Hong Kong, Germany, Frankfurt and Berlin were all looking at certain levels of privatization.

Since this time Copenhagen has become a publicly traded company, airport company, and so has Vienna Airports.

So we weren't a world leader in privatizing airports to the extent of moving into the private sector. The major difference with all of these was that they were the full airport and not portions of the airport.

Dealing with portions of the airport not operated - or owned and operated by the airport operator, I can think of several U.S. examples such as John F. Kennedy where most of the terminals are owned by the airlines, and so on.

So we weren't alone in going on to this and, as somebody said, we can be innovative, too.

Senator LeBreton: Actually that's right. What's the matter with being innovative? Actually, it was a point I wanted to make earlier. Mr. Weston seems to be confused - he talks about the privatization of airports. He never did kind of differentiate between these privatization of airports and, of course, terminals.

An item which was raised again on September 26, 1993, which is apparently raised from the Treasury Board documents, which Mr. Nixon and his cohorts make a great deal of, is the fact that this airport did not follow the LAA route, which was the policy of the government. Could you comment on this policy? And was privatization of the type which took place at Pearson, i.e. privatization of terminals, included in the policy?

Mr. Desmarais: I think if you go back to some of my earlier testimony in August, we went through the policy and the policy basically had a part in the front end talking about the total airport; and it said that the exact form of organization, excepting a transfer, could vary according to suit local needs. Options in this regard would include provinces, municipalities, local authorities or commissions. It goes on, "In addition, private sector leasing would be considered." That was dealing with the total airport.

There was also a portion of that policy on the last page which said, "Where the airport stayed in government hands, the government would pursue innovative solutions to providing facilities and seek more commercialization of the airports."

So, in both respects, I think this privatization of the terminals fell within the ambit of the policy.

Senator LeBreton: And, of course, Terminal 3 -

Mr. Desmarais: Terminal 3 was already out there.

Senator LeBreton: - was the first example.

It was alleged that the documents stated that the environmental assessment board concluded that with the slump in air traffic and projections of only modest growth over the next decade, new runways at Pearson wouldn't be needed at least until the next century. I wonder if they looked at what's going on in Toronto airport today. Nor was there any immediate threat of overcrowding in the terminals either. Could you comment on this?

Mr. Desmarais: The environmental assessment board looking at the runways did conclude that air traffic, i.e. the number of airplanes using Pearson, was increasing slowly and we probably wouldn't need major east-west runways until around the turn of the century. The minister announced that in, I believe, April of '93 when he announced his intentions vis-à-vis the - or May 4th, when he announced his intentions vis-à-vis the runways that, yes, definitely air traffic was slowing down and he would look at providing the east-west runways when air traffic warranted. But that's as far as the environmental impact statement went. It didn't comment in any way, shape or form that we know of on terminals and the utilization of terminals.

Senator LeBreton: They were two different issues, nothing to do with the terminals.

It was further alleged that the precise monopoly situation that Paxport had been warning against could lead to higher prices and lower service at the airport and was now well on its way to fruition with - now with Paxport's participation. Is this an accurate statement and what would be the effect and would you comment on that?

Mr. Desmarais: Well, I think Mr. Hession did write some letters at one stage saying that they were prepared to compete and the government should select them because they would be a competitor to Terminal 3, but the RFP itself and the government's intentions in entering into that RFP did not preclude Terminal 3 from bidding and creating, if you like, in quotes, a monopoly situation. And there were safeguards built in, including the requirement to go to the Competition Bureau under its Competition Act to get their ruling on whether or not this was a monopoly situation and how it would be controlled. That was done.

The proponents in October delivered to us an advance ruling certificate saying that it met the conditions that the Competition Bureau had set.

So, yeah, we were getting into the situation where we had one operator of three terminals but Bureau of Competition policy seemed to have minimal concerns with that at the time.

Senator LeBreton: Actually, I was just going to make a comment: What else is the point of Mr. Hession at that time when he was making that argument, of course, was the president of Paxport, so it is quite understandable he would make that argument supporting his own proposal.

It is alleged that the number one issue - and this was on the article on September 26, 1993 - the number one issue - "The documents indicate the number one issue on the government's agenda was for a quick start to construction and redevelopment of the terminals." Is this true? Was this the number one agenda item - number one issue, I should say?

Mr. Desmarais: At the time when we were looking at this, the government was looking at this investment to create jobs in the Toronto area, Toronto was fairly well into a recession and looking for - they were looking for any type of investment opportunities to make work in Toronto. So this was one of the projects they looked at.

Both proponents in their proposals had recommended quick starts to the government, and I think over the course of time through policy committees and so on it was agreed that some type of quick start would be utilized so as to create employment as quickly as possible in Toronto. So it was one of the policy considerations of the government, if you like.

Senator LeBreton: You'll forgive me if I ask this question because I see a thread running through all of this and in this article on the 26th of September it states, "Robert Bandeen is the former president of the Canadian National and the head of the Toronto group formed specifically to take over Pearson" - which is interesting. He says, "The group had the backing of all area municipalities and had arranged all the necessary financial backing to redevelop the airport."

Would you care to comment on that particular point in Mr. Weston's article in view of the fact that we know today that - I actually think they - I don't know whether they are up and running or not, but I think they've just hired a general manager. Have you any comments on that particular statement of Mr. Weston?

Mr. Desmarais: Basically, I think at the time that we were getting into this and through July and August there were conditions expressed by, especially Mississauga, on the formation of an LAA, that they wanted Toronto Island Airport included in that LAA. So, at best, during the summer of '93, we can interpret that they had conditional approval from the municipalities and that we had asked them to go back to the municipalities and remove that, and I believe that in July '93 Minister Corbeil met with Hazel McCallion and asked her specifically to have that condition removed. It wasn't at the time. And by August - October we were still left with conditions on the formation of an LAA.

So that was the point that - where he expressed that he had backing of all municipalities it was conditional. Whether he had the financial dollars, I am not sure.

Senator LeBreton: He hasn't got it yet, so I can't imagine he had it then.

Mr. Desmarais: I think, to be fair, that both PDC and the government recognized that an LAA was inevitable at Toronto. They would eventually get unanimous backing, and the leases and all the agreements were set up to make that transfer. And if they had have been recognized before the signing date, they would have been brought into the process.

Senator LeBreton: Her Worship Mayor McCallion certainly - and I think not only did the evidence show, not only did Minister Corbeil meet with Her Worship, but he also wrote a letter to that effect asking her to withdraw the condition.

The Chairman: She didn't give a condition until 1994.

Senator LeBreton: That's right. She finally waived it in 1994, long after this, and we were gone.

It was alleged that the government could not transfer its employees to anyone without an act of Parliament. He claimed one was attempted, but it failed.

Can you comment on this particular? This was in his - I think - yes, in the 26th of September, 1993.

Mr. Desmarais: There is nothing in law preventing the government from transferring its employees to another entity, and so no legislation was necessary to do that. What we look to do in legislation is provide successor right to the public service unions representing those employees so that they would continue to be represented by the same union, and also to enforce the official languages by dint of law rather than by contract. The Official Languages Act was in the contract, but people felt it would be better if it was enacted through some legal instrument, although it wasn't necessary.

So the government was really trying to do at Pearson terminals what it had done with the LAAs, and that was to give successor rights to the unions which could only be done through legislation. It wasn't necessary to do that, but it was felt it was opportune and a good thing to do.

And if you look at the management services agreement that was set up to do that, and it had a one-year term with a six-month extension. If the legislation hadn't been passed at the end of 18 months, the employees would have been transferred without union protection or without union successor rights.

Senator LeBreton: That is all the questions. I have one final question from myself. This is all the questions dealing with - we've covered every point in Mr. Weston's two columns.

But with regard to his columns and with regard to this whole obvious seems to me selecting out of certain portions of the Treasury Board document with regard to the so-called risks, were either of you at any time during the whole negotiation period warned off by Treasury Board, Privy Council Office, Department of - your own department, Transport, Finance or Justice, with regard to the risks involved in this? At any point did any of these risks seem so insurmountable that they couldn't be dealt with? Or as you've explained, often you wrote them yourselves in terms of just - like, was there anything in - and as Mr. Weston has pointed out, was there anything there that would have warned you off of the whole project as a result of these so-called risks?

Mr. Desmarais: I don't think we would have submitted it to the board if we thought the risks were insurmountable, and I don't think we would have got to conclusion on October 7 if we thought the risks were insurmountable.

You have to recall that one of the reasons for the merger was, to quote Peter Coughlin, the deep pockets of Mr. Bronfman, and we had always indicated to the partnership, and I believe one of the agreements calls for it, that if they couldn't borrow, they would provide the equity. So the equity would have shown up. So our biggest risk here was default by the partnership, and we think that was covered by the ability of Bronfmans and whoever to raise equity.

Senator LeBreton: Yeah. And I just close by quoting from this Treasury Board document, that Transport Canada followed normal government approval procedures on this file, i.e. cabinet and Treasury Board, and obtained independent legal and financial assistance in negotiating the terms of the redevelopment project.

That's all the questions I have, Mr. Chairman. Thank you, Mr.Desmarais and Mr. Rowat.

The Chairman: Senator Bryden, did you have your hand up?

Senator Bryden: Sure, I have a few questions.

Senator Jessiman: I have too, but I'm easy.

The Chairman: Senator Bryden, please.

Senator Bryden: Maybe I can do a little bit of a preamble as well. I find this very difficult to do as a member of the committee. I'm on the record, and I meant it then and I mean it now, that the members of the public service who were involved in this process at all times conducted themselves professionally and carried out the direction of their political masters as they're expected to do, and so therefore, even though there are a good number of points in this that perhaps on cross-examination could be forced, I'm not going to do that. Maybe a little bit with a couple of you.

But I do have a few questions to try to put this in the type of perspective that I see the functions that the senior public servants were performing in relation to this negotiation and the contract.

First of all, I would like to ask, Mr. Rowat, the memorandum is from you to a number of people in PCO and Treasury Board, and your name is on it so it's your document. Who assisted you in developing it?

Mr. Rowat: Mr. Desmarais and his team in Ottawa.

Senator Bryden: That would include Mr. Jolliffe?

Mr. Rowat: Keith Jolliffe, correct.

Senator Bryden: And did you create this of your own volition, or were you requested to create this document?

Mr. Rowat: No, the direction would have come from me as a civil servant upon seeing these kinds of stories come out in the press to do this kind of evaluation, do it quickly, and consult with our other colleagues in Ottawa in the federal service who were also implicated in some way, and then to put a document to the minister very quickly for his use. However, he would choose to use it. Some ministers choose to be very aggressive with this kind of information; others tends to use it on a responsive basis.

Senator Bryden: I see on the cover document that it says, "For your information, number 1 is modified media lines", but I don't think that's included. Maybe they are and I just missed them.

Mr. Nelligan: I believe, senator, there is another document in our material which was in a question and answer form, which were typical questions which might be expected from the press. That I think is the same number actually. I'm sorry, I don't know if it's right in front of us now.

Senator Bryden: Was it the same?

Mr. Nelligan: It was in the same enclosures, I believe.

Senator Bryden: It refers to it.

Mr. Nelligan: That's right. That is available in the standard material.

Senator Bryden: Do you recall, was that putting in question and answer form your rebuttals here, or was it additional?

Mr. Rowat: I think, if I recall correctly, it was part of this package. It was just five or six bullet-form, very concise statements on the overall arrangement, on the overall agreement.

Senator Bryden: What some governments refer to as talking points?

Mr. Desmarais: I'm not sure you can classify it as talking points per se because talking points usually end up looking like a speech with bullets in them. This was just a bullet, for instance, financing, and then some explanation vis-à-vis Greg Weston, what our media line would be if asked questions on that.

Senator Bryden: So this would have gone to these people and then at some point would have been forwarded to the minister?

Mr. Rowat: Correct.

Senator Bryden: Just something that is curiosity more than anything else. I noticed that the fact sheet is headed "T1T2 Development", and it's dated September 28, '93 at the very top.

Mr. Desmarais: T1T2 redevelopment project?

Senator Bryden: And it's got a fax number. My fax machine prints out my number.

Mr. Desmarais: The fax number - That would be our fax number at the top, T1T2 Redevelopment, which was what we were calling ourselves for fax purposes. And then I'm not sure, I think the F-45 T-O9 P-009 are express fax numbers to the individuals we sent it to.

Senator Bryden: Okay. So they're programmed in and you hit a button and they all go.

Mr. Desmarais: That's correct.

Senator Bryden: So you had basically a fax number dedicated to T1T2 development?

Mr. Desmarais: That's correct.

Senator Bryden: Okay. I'm not going to go through all of these in trial rebuttal fashion, but the allegation number 1, the reply of the document, says no matter who undertakes the development of Pearson, they only pay to the developer their share of the operating and maintenance capital expenditures and a reasonable rate of return on investment.

That is the airlines agreement. Do you know whether the operating and maintenance capital expenditures referred to here would have included the payments of things like the $3 million consulting fee to the Matthews Group, the $4 million to the Paxport International Inc. to promote Canadian airport development, the fees to NORR Partnership?

Mr. Desmarais: I believe some of those were soft costs, what we classify as soft costs on the capital side, i.e., the NORR fees. We had not seen the NORR contract at this time, so it's very difficult to assess what those fees would be. But, generally speaking, they're soft engineering and architectural costs as they're alluded to. So they'd probably show up in the capital costs.

The other ones, I'm not sure where they show up, sir. You'll recall that from - If you've seen some of the financial statements or the August 23rd projections, there is a line in there for a company called PAMI, which is Pearson Airport Management Inc., with 3 per cent and 6 per cent. Three per cent of net revenue, 6 per cent of grows, I believe it is - or the other way around. I stand to be corrected on that one. But that money was flowing to Pearson Airport Management, who was providing management services. So some of that money may have been used to fund people like Paxport International, and so on. We just have no way of determining that, except in the August 23rd figures that we looked at, we don't find those numbers any place within those numbers of O and M or capital. So I'm making an assumption of where they were.

So, but when you go to that August 23rd number, you'll have operating and maintenance costs, and a portion of that was allocated to the airlines. You'd have capital costs, which were allocated back to the airlines on a basis of a fixed percentage, if you like, of those capital costs over the years. And that number was determined by the interest rate long term borrowing plus half a per cent, and so on. And all those terms were defined within the agreement so, yes, they were - the airlines were paying a share of operating and maintenance, a share of capital expenditure, a share of the ground rent, and they were providing some type of a return to the developer. Now, whether that was reasonable or not is open to conjecture.

Senator Bryden: It's been a curiosity for me as to when these non-arm's-length agreements payments came out at what stage and, indeed, what has turned out to be side agreements. There's only one source of cash that anyone has been able to identify and that's the revenue stream coming into Paxport. But there is at least seven non-arm's-length agreements that have been identified that were really part of the agreement and then we've identified during these hearings at least three contracts by T1T2 partnership to pay $3.5 million to Matthews Investment, $2 million to Fred Doucet and an $83 million lifetime pension to Mr. Hession. And at what stage do those payments come out of the cash flow before you calculate the return on investment?

Mr. Desmarais: As I'm indicating to you, senators, in the cash flows that I have seen, I have not seen any payments to a lobbyist particularly. I have not seen any payments to Mr. Hession. I have not seen any payments to Paxport International. So, I'm assuming that those come out of their profit line or out of the money they are paying to Pearson Airport Management Inc. I have no way of knowing.

Senator Bryden: So you just don't know?

Mr. Desmarais: That's correct.

Senator Lynch-Staunton: Do you?

Senator Bryden: That's why I ask questions is to find out.

Senator Lynch-Staunton: Yes, but you always told me you're supposed to know the answer before you ask the question. That's the second time that you've -

Senator Bryden: You've tripped me up.

Senator Lynch-Staunton: No, no, no. Don't let the thing hang there, which you enjoy doing.

Senator Bryden: In reference to, "if there's financial trouble", then a receiver could be named and a new investor found. Did the Crown have any say over who the receiver would be or who the investor would be that the receiver might find under the contract?

Mr. Desmarais: I'd have to go back and review the contract, senator. I'm not sure. I don't think so, but I would stand to be corrected. I haven't looked at that area of the contract now in a year and a half.

Senator Bryden: Okay. When - One of the discussions that came up during the questioning on this report is that the funds from Pearson Airport was being used by Transport Canada to finance under-performing airports or ones that weren't-

Mr. Desmarais: That's correct.

Senator Bryden: And so now the government, the Crown, was going to get $28 million instead of the $25 or -

Mr. Desmarais: $23.5.

Senator Bryden: But as you said, it was a recession and there had been at one point, I think, 65.

Mr. Desmarais: I didn't say that, senator. I don't know where the number 65, 77, or any of those numbers come from. Looking at the bottom lines, the number was 23. I mean, a 77 number could be total revenue -

Mr. Rowat: Forecast revenue.

Mr. Desmarais: I mean, it's forecast revenue for the terminal buildings. And now we've got to take out the operating and maintenance cost and normal annual capital costs, and so on, all out of that because of the way the government funds itself. And you get down to $23.5 million relatively rapidly.

Senator Bryden: So, presumably these other airports still need to be funded. Where was the cash going to come from to do that?

Mr. Desmarais: I was getting the cash from these rental payments to fund these other airports.

Senator Bryden: You were going to take them out of the rental payments from the T1T2 partnership -

Mr. Desmarais: To the government.

Senator Bryden: You would take $23 million.

Mr. Desmarais: It would come to the Pearson airport, for openers.

Senator Bryden: Yes.

Mr. Desmarais: Pearson airport at that time was running a profit account on its terminals, on its air side and on its ground side, which was the other leases. So it would have a profit figure in the range of $40, $45 million a year including the 23, which would be drawn back into the government and used to finance on a vote-netted basis, as they say, other airports.

Senator Bryden: Okay. So what was the net position, then, after?

Mr. Desmarais: In Transport Canada, the net position after all is said and done is zero or negative.

Senator Bryden: So you were neither better off nor worse off once you funded the other airports?

Mr. Desmarais: That's correct. Sorry, senator. We were a bit better off with the contract than where we were the day before we signed the contract. The day before was 23, the day after was 28. There's a $5 million difference that would have gone against the deficit of the department.

Senator Bryden: That's what I had thought, too. But I -

Mr. Desmarais: So the -

Senator Bryden: - was trained as a lawyer not as a mathematician.

Mr. Desmarais: Excuse me. I missed that. I was trained as a mathematician, so I miss the subtle legal point.

Senator Kirby: You and I have a lot in common.

Senator Bryden: It is getting to be mid-afternoon.

One other point that - and I, you've explained this so many times. The initial payment was for $96 million. And then there were further investments of $236, and so on. And I guess my question is: When the deal was signed and the $96 million is paid, the contract is for 37 years plus 20. Right? If the $236 million - that was to be paid how far out? Four years?

Mr. Desmarais: That's about it, four years.

Senator Bryden: If it had not been paid, did the lease revert back to the Crown?

Mr. Desmarais: They would have been in a state of default if they hadn't expended that money. Yes, the lease could have reverted back to the Crown.

Senator Bryden: The lease would have reverted back to the Crown because we have had evidence that said there's nothing specifically in the lease that makes that happen.

Mr. Desmarais: If you go to the lease, sir, you will find that the development agreement is cross-defaulted to the lease. So if you default on the development agreement, which is where the money was to be expended, you also default on the lease. So, if that type of default occurred and couldn't be corrected, everything would revert to the Crown, including Terminal 3.

Senator Bryden: Now, I just have a couple more, Mr. Chairman.

The Chairman: Let's be clear on that. A couple of times it has been confusing, that answer. It reverts to the Crown?

Mr. Desmarais: That's correct.

The Chairman: No question about that?

Mr. Desmarais: No question.

The Chairman: Including Terminal 3?

Mr. Desmarais: Yes.

Senator Bryden: You indicated that the Treasury Board normally does its assessments on about a five-year plan. I think Mr. Rowat indicated that.

Mr. Desmarais: Yeah.

Senator Bryden: But you also indicated that the benefit to the Crown would be approximately $850 million over the term of this lease. This is obviously over the 57 years, not 5 years.

Mr. Desmarais: That's correct.

Senator Bryden: What was the benefit over five?

Senator Desmarais: It's over 57 years at net present value, I believe. I think that was listed in the October 29th briefing note that you may have had that was given to Mr. Nixon.

Senator Bryden: But if Treasury Board made its assessment on five years, what was the benefit to the Crown over that period?

Mr. Rowat: I can't comment on the Treasury Board submission, obviously, but the calculation over five years would have probably shown a loss because of the payment to employees, the $5.6 million to pay employees out because we had deferred the $33 million in years two, three, four and paid back over the following ten. I think there may be a couple of others, but those were the big ones.

Mr. Desmarais: I think, again, that the Treasury Board is not making its analysis of the deal based on the five years. When I do a Treasury Board submission and I put it in those five years, it's really to show them the impact on the reference levels that I have out for five years - ie., what they've agreed I can spend for five years. So I'm doing the impacts of that so that they have some idea of the impacts. Those impacts are sometimes negotiated. We may say that the Treasury Board should pay this, and they say, "No, you're going pay it." But that's not the deal. That's just the impact on the reference levels.

Mr. Rowat: Reference level of the departments, our total departmental budget.

Senator Desmarais: So when they assess the deal, they would assess the eight fifty, not the five years.

Senator Bryden: But for your reference point, you would have had a loss for your five-year period.

Mr. Desmarais: That's correct.

Mr. Rowat: Just a comment on that. When John says that you negotiate with the centre, for instance, in many situations like this, you literally negotiate with the centre to borrow against a central reserve, which you would then pay them back later. So, in fact, you're not carrying the cash loss in the department itself because we have other obligations - we would have had other obligations in the Department of Transport as a whole.

Senator Bryden: I think that it's correct that to realize the projected $850 million, certain conditions had to exist, certain increases in passenger levels and volumes; is that not correct?

Mr. Desmarais: Yes. If you like, from 1993 onwards, there had to be - to realize the 850, the total development had to be completed, ie., all four phases, and the passenger numbers had to get up in all three terminals to around 33 million passengers, which was projected to occur at some stage, whether it was 1999 or to the date 2001, 2002. It was going to happen some time was the thing. So the 850 was conditional upon finishing the development within the seven-year time frame, hitting the 33 million and so on.

Senator Bryden: And were you going to be operating even at a bookkeeping loss for five, and the realization of this $850 million revenue was dependent on some pretty significant favourable conditions occurring; is that fair?

Mr. Desmarais: It was conditional upon basically passenger growth. The development triggers were passenger growth triggers. We felt it was rational and reasonable that those numbers would be met within a year or two of what they were projecting. So we had no qualms about the 850. It might have been 800; it might have been 900, depending on how quick passenger growth - but 850 seemed a reasonable number.

Senator Bryden: Has anyone done the calculation of - if in fact the passenger figures were what they currently are and your 3 per cent figure is added to it - what impact it would have on $850 million?

Mr. Desmarais: I'll decline to comment on that one, senator. I'm in litigation.

Senator Bryden: Oh. That's the first time we've used that one. Believe me, I understand that, but it seems to me that you've based the calculations and part of the recommendation on a 3 per cent passenger growth. That obviously has not been achieved to this point.

Senator Desmarais: It hasn't been achieved to this point.

Senator Bryden: And we are currently at, I think you said, about 20 million.

Mr. Desmarais: 20, 20.5, some place in that range.

Senator Bryden: Since you are the mathematician, if you apply a 3 per cent growth to 20 million starting in 1995, when do you hit your 33 million?

Senator Desmarais: As I say, the numbers I'm looking at right now say about 2001, 2002, about eight years out.

Mr. Rowat: Can I just make a comment, senator?

If you're applying those assumptions, those assumptions would apply to any of the models. I'm assuming, if you follow your logic, that if you look at the government-operated model, government would have faced exactly the same assumptions. If you look at somebody else operating it, they would have faced it, and the same thing with Pearson Development Corporation. They would have faced the same growth assumption. So the relativity between them, if that's where you were headed with it, would not change.

Senator Bryden: No. I don't question the fact that in developing these models, everybody looks at what happened in the past and assumes that somehow it will continue in the future indefinitely, and it never does. Nevertheless, people continue to do it.

Senator LeBreton: Would they base this on just what happened in the past, or wouldn't they take into consideration the population growth and the hub and the fact that it is connecting in other population areas, such as the northern United States? They wouldn't just base it on the past, surely, on the population of southern Ontario and Toronto.

Mr. Desmarais: Airport passenger forecasting, as far as I'm concerned, is a black art. It takes into account economic growth. It takes into account a lot of areas. It takes into account demand between city pairs and propensities to spend, and so forth. It is a black art. I mean, you can either hit the number, or you can be below it or above it. In the eighties, we projected some numbers and were well above them. In the nineties, we are projecting some numbers and are below them. I mean, the historic record in Transport Canada is plus or minus 7 per cent, I think, on that number over time. Obviously, for the first three years, your number is much better than for the next five years, and so on.

Senator LeBreton: So on an area like Metro Toronto or southern Ontario, you just could not possibly do a forecast based on past numbers in view of the increasing population.

Mr. Desmarais: You look at some history, but you're looking at projections of many, many things.

Senator Bryden: Your reference to that type of projection as being a black art makes me think of the projections of economists. They have an opinion, not because they know, but because they're asked. It may be the same thing in projecting airport passenger levels.

Mr. Desmarais: Well, to be honest, the record of Transport Canada in projections is probably one of the better ones in the world in terms of passenger forecasting at airports when we compare it to the Americans and the Europeans and so on, but it's still a black art.

Senator LeBreton: Just as another supplementary to that, would you, in terms of the projections, did the impending Open Skies Agreement, was that factored into the projections as well?

Mr. Desmarais: Not in 1990, not the projections we were using at the time. So they are being factored in today but not at that time. Open Skies was just a dream at that point. There had been some discussions and it had been put off and put off.

Senator Bryden: Mr. Chairman, that's basically all I have unless there's something to clean up.

The Chairman: All right, Senator Jessiman you had a...

Senator Jessiman: Yes. Mr. Rowat, and Mr. Desmarais, when you were here last you had filed, there was filed before you, a letter or a memorandum from you to a Brad Wilson enclosing what's termed Terminal 1 and Terminal 2 Privatization. It was a memorandum drafted and it was dated, both the memorandum and the document attached, as October 29th. And you said later that the document, because there was another document when you were here, which was dated November 4, also called Terminal 1 Terminal 2 Privatization, that you said you thought, and the minister had said in the house, that this was the document that was given, that's the November 4th one, to Mr. Nixon. And Mr. Nixon, in his testimony, agreed to that as well. So we did find since you were here last that there were two others, and I'm not going to confuse you with them, but what I do want to know is when you did discuss Terminal 1 Terminal 2 Privatization document with Mr. Nixon, and/or Goudge, or whomever, how was it done? Did you sit down and go over it page by page? Did you have a projector, or how did you deal with it with him? I know Mr. Desmarais spent 18 hours in total and you not quite as long.

Mr. Rowat: Well, I can speak to the meeting that John and I and Wayne Power had with them on November 1st. We had sent the early version of that document to them, the October 29th version of it and, as I recall, we took them through it page by page.

Senator Jessiman: The earlier version?

Mr. Rowat: The earlier version, yes, the October 29 version. I never met with them again after that.

Senator Jessiman: I see. Mr. Desmarais, what about you? Did you meet with them again? Because you did say, Mr. Rowat, that he did have the November 4th version and he had, he did say, because in the first version there's no, there's nothing in it that says there's damages somewhere between -

Mr. Rowat: Five hundred and 1.2 billion should be the number.

Senator Jessiman: Or 2 billion. It's actually, it says "PDC would seek damages between 500 million to 2 billion range for lost profits and other damages."

Mr. Rowat: That's on October 29th or November 4th?

Senator Jessiman: No, that's - well, there's one on October 29th but it's not the one that went with your document that was given. All right. There are four in total. One has some handwriting in it. All I want to know, really though, about, from you people - and obviously, Mr. Rowat, you didn't discuss it with him - because I want to know, did anyone, other than just handing him the document, go over the actual damages, how that 500 million to 2 billion might come about?

It's here in black and white, there are five parts to it, and he has admitted, he knew and he discussed with someone the 500 million to 2 billion, but I didn't ask him and I will, but I'm now asking you because you're the likely people that did discuss this with him or Goudge. And if you didn't, you didn't, but the document is here to speak for itself. But was this ever discussed; did they ever appreciate, you know, these damages are real damages? These are things these people thought they would, there's a possibility they're talking about, and this is your document, this is the government's document.

Mr. Rowat: Can I just comment for a second on this?

Senator Jessiman: Sure.

Mr. Rowat: I don't know if the estimate of 500 to 2 billion was in the October 29th document. I haven't got it in front of me.

Senator Jessiman: It is in one of 29th documents, not the one that's attached to the letter or the memorandum that you sent, no.

Mr. Rowat: We had clearly been doing some work on it at that point. The expression of a 500 to 2 billion, you should understand that any work that we had done on that was with a view to what the other side might ask for, not necessarily what a court or anyone else would assess that they were entitled to. That's the basis, it's a possibility of what they might ask for.

Senator Jessiman: I understand that, right.

Mr. Rowat: I don't recall taking him through the numbers specifically but if they were in the document that we discussed with him on November 1, which I think was dated October 29th, that document, then undoubtedly we would have taken him through it because I recall us going through page by page by page.

Mr. Desmarais: I can recall, senator, discussing the numbers generally on November 1st and promising him a copy of Mr. Stehelin's memo that discussed the numbers, and which we subsequently did. And didn't go into much detail with him at that time, we just sent him a copy of Mr. Stehelin's memo.

Senator Jessiman: I guess the difficulty I have is this is a document dated October 29th, 1993, it, as I said, the one I received didn't have the other memorandum on it saying herewith, you know, handed to Nixon same date, and you people do this, and it has all the five parts that shows how you make up the claim, it's not just out of the blue, they've got actual claims, third party claims, business that they're trying to do, you're saying all this. And what I would like to know is was this discussed with Mr. Nixon to point out to him, now look, this is where we're at, this isn't just pulled out of the air, there's some claims here. And if you didn't discuss it, fine.

Mr. Desmarais: I think it was mentioned, as I say, and I believe we promised to provide him Mr. Stehelin's memo to that effect of how those numbers, where they came from, and that was the end of the discussion.

Senator Jessiman: That's both Goudge and Mr. Nixon?

Mr. Desmarais: That's correct.

Senator Jessiman: Thanks very much. I have no further questions.

Senator Lynch-Staunton: Yes. That rebuttal to, rebuttal or the answer, the point-by-point responses to the Citizen articles, were they just for internal consumption or were they sent to Mr. Weston? The author of the articles, was he alerted to the inaccuracies in those two articles?

Mr. Rowat: Documents like this are prepared for the minister and the minister's office and individual ministers deside on how agressive they are going to be in using this kind of documentation. I don't recall that these were formally sent to the reporter, to the reporter Weston. They were used on a responsive basis by our staff in dealing with them I understand.

Senator Lynch-Staunton: Yes, well, following Senator Bryden's advice I anticipated the answer that you probably know since Mr. Weston repeated more or less the same arguments not too long ago, so perhaps if I may be allowed by the chairman I will send him a copy of this document and hopefully he will read it and react accordingly.

It's important to know about this document and his answer to it because Mr. Goudge, in his reluctance to discuss it, hiding behind the confidentiality agreement, did admit that it played a key role in the Nixon Report on Thursday, the 20th of September, in answer to a question from the chairman, page 0800-3 he said:

Did I derive support for some of the things, the support for the Treasury Board 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 it ever relied heavily on what was in the Treasury Board submission.

Does that not argue for our being allowed to see a document which everybody else has seen except people around this table? Can you support us on that? Can you speak to somebody somewhere and advise them we're having a great deal of problem, a, in having conclusions based on hearsay, as we had confirmed this morning, and conclusions based on documents that we're not allowed to see as we're finding out again this afternoon?

It's a bit of a rhetorical question in getting rid of my frustrations, but you can see what we're up against and I hope the rest of the people who are following this hearing are also seeing what we're up against.

Mr. Rowat: As I've seen, I think your chairman has made a very eloquent case along those lines already and I don't know what more we could add to those arguments.

Senator Lynch-Staunton: I just wanted to get that out of my system.

Finally, Mr. Rowat, this morning you made mention to Mr. Goudge's handwritten notes and you took us to page 3 and, if I recall your comment, or if I can summarize your comment, you alerted us to the fact that this seemed to be more of something written prior to a meeting than a conclusion following a meeting. Am I right in -

You see, we're being given these handwritten notes, and we can only assume that they are conclusions, and now you're alerting us -

Mr. Rowat: It just seemed to me, and John and I had a look at this when it was sent over to us, it seemed to me that it was more of a check list, as many of us do going into a meeting. These are the highlights. These are the kinds of things I want to make sure that I touch on during the discussions. And that's what it struck me as, because even on page 1, where Transport Canada, Bill Rowat, John Desmarais and Wayne Power, then he's got list of documents, but there's nothing after that. Then he's got a list of people, something or other Keith Jolliffe, Victor Barbeau. Well, during the discussions, he asked us about Victor Barbeau, and I think we indicated that Victor was in India on a special assignment or course or something, and none of that seems to show up. So I would conclude that if he had been keeping notes on here, maybe some of that might have been there, might have been copied in.

And then as I pointed out this morning, I think the last page, if I can find it here, the last page, page 7, he puts a little note to himself with an asterisk saying to ask about the relationship between growth and base rent and so on, which seems to be kind of a mental note to say, "When you meet with these guys, make sure you ask about thus and so." That's all I'm going on.

Senator Lynch-Staunton: Yeah. And again, you can share our problem, because these documents are selected by high-priced gumshoes who are obviously trying to take us off the trail, but despite all that, I think we're on it, and I want to certainly thank you for coming back again and confirming testimony you gave some time ago and make it clearer to us exactly what we're talking about and the tragedy that we're going have to put into a report, which will not be happy information to the Canadian public. Thank you, Mr. Chairman.

The Chairman: Nothing here, nothing there. Mr. Nelligan, would you like to -

Mr. Nelligan: Yes. Mr. Rowat, the concerns expressed by Senator Lynch-Staunton I think are the concerns of the whole committee, and not knowing what's going to happen with the committee motion, all we have are allegations in the Weston documents and comments in the Nixon documents which suggest that there were negative elements which were somehow in the Treasury Board submissions.

Knowing the strictures on the questions you can answer with regard to Treasury Board submissions, may I put this to you: That apart from negative comments which you have read in the Nixon document and apart from the comments which you have dealt with now in the Weston articles, are there any other risk factors which at the time you did the comments on Weston, you would have at that time, if asked to prepare a new Treasury Board submission, put them in as elements for the Treasury Board to consider?

Mr. Rowat: You're asking now in hindsight whether I would include certain things?

Mr. Nelligan: In other words, are the negative elements that we've discussed in Nixon and in Weston, are there any other facts that you feel would have appropriately been put into a Treasury Board submission at that date, not the one that you did in August, but the one you might have done in September, to bring to the attention of Treasury Board further risk which would have had any material weight in the Treasury Board making its decision?

Mr. Rowat: Can you allow John and I just to consult for a few seconds?

Mr. Nelligan: Yes.

Senator Kirby: Monday the 6th seems to be okay for everybody.

The Chairman: I think Senator Kirby has a breakthrough here. I thought we were at an impasse.

Senator Kirby: I was trying to find a date that would work.

The Chairman: For the sake of the audience and media, et cetera, we were worried about having Nixon and his group down on the day of the referendum. It just seemed to be completely inappropriate, but we couldn't work it around. We couldn't get another date, couldn't fix it up until today.

Senator Kirby has indicated he has a message from Mr. Goudge, who had called him to say that he, Nixon, and Crosbie are available on Monday, November 6. Then Senator Kirby will move his appointment, so we can have Mr. Nixon and all on November 6, as long as Senator Kirby can get a six o'clock plane. We'll miss you if we go over the next day.

Senator Kirby: So the 6th it is?

The Chairman: It will be the 6th of November at nine o'clock in the morning.

Senator Lynch-Staunton: Just for one day, Mr. Chairman?

The Chairman: We'll see, senator. That's good news.

Senator Lynch-Staunton: We may need them for two days.

The Chairman: I know, but we'll see.

Senator Lynch-Staunton: Or three.

The Chairman: That's a lot better than it was a half hour ago.

Senator Lynch-Staunton: I wonder, chairman, while they're consulting, do you see any need now to push your motion, since we've apparently got all the details of the Treasury Board submission anyway? The non-mystery.

The Chairman: It's a matter of principle, Senator John Lynch-Staunton.

Senator Lynch-Staunton: I agree to that, sir, and I hope that our friends across will support you on the principle.

The Chairman: They have no alternative.

Senator Bryden: Maybe you should make an offer to whoever it was supplied the document. He probably has a copy.

Senator LeBreton: Who supplied the document to Mr. Weston? Do you want to speculate on who it was?

The Chairman: Order, please. Gentlemen.

Mr. Rowat: I think there was one that we probably haven't touched on, at least today, but it is something that we've touched on before with you in our earlier testimony and has to do with the concern over the precedents vis-à-vis other airport authorities, both those that were in existence at the time and those which we were under negotiations with, and I'll ask John just to comment further on that.

Mr. Desmarais: We looked at this deal, if you like, as a transfer of the airport to the private sector, and we looked at the LAAs as a transfer not to the private sector but to a non-profit entity, and it was to remain a profit entity or a non-profit entity even through its leasehold, mortgagees and so on, so what you have in here is a difference in this deal and leasehold mortgage clauses as compared to an LAA, and it was the policy perspective we were looking at.

In this deal, you were transferring the airport to the private sector, and if he defaulted and it ended up in the hands of the leasehold mortgagee, who was private sector, that wasn't too bad, because again, they were both profit-driven entities, whereas an LAA, if there had been a default by the LAA, we didn't want it to end up in the hands of the leasehold mortgagees who may be then driving the airport for profit. So there were different conditions.

And there was some fear that the LAAs would come back and look for some type of modification of their leasehold mortgage provisions and - because they were more beneficial in the sense to the Terminal 1 2 group than they were to the LAA group as written. So yes, we had some concerns that that would happen if this became a well-publicized lease and LAAs looked at it very seriously. So that was one other risk that we thought might be out there at some stage.

The Chairman: You mean that future LAAs would settle for nothing less?

Mr. Desmarais: That's correct, or the existing LAAs would come back and ask for their agreements to be changed to reflect.

Now, in this deal, we had used two sets of leases as models, if you like: The Terminal 3 lease, which was a straight private sector lease, and the Vancouver LAA lease. So we mixed and matched, if you like, to get what we considered to be the best deal with the private sector in terms of conditions and so on. And the leasehold mortgage conditions of this one closely paralleled the Terminal 3 model rather than the Vancouver model, whereas the environmental conditions closely followed the Vancouver model, not the T3 model. So we got some benefits, and we gave up on some points because of the model they had and the lenders they had and were going to use in T1T2.

The Chairman: There is nothing to prevent in your LAA agreements a passenger facilitation charge.

Mr. Desmarais: That is correct.

The Chairman: But there is -

Mr. Desmarais: In this one.

The Chairman: - in this one. So that if you followed Vancouver's example and you charged everybody who was getting aboard an aircraft in Vancouver, for whatever reason, you charged them a thousand dollars each, you could pay for the airport pretty quickly.

Mr. Desmarais: That is correct.

Mr. Rowat: The question, chairman, from Mr. Nelligan was, theoretically, were there certain other elements that you would include in this kind of risk analysis, if you were indeed sending something to the Treasury Board. So we were answering in theory that this is the kind of thing that would be identified.

If you further ask would we have an appropriate response to somebody coming in arguing that kind of a precedent, then you should be working for us, because I think these are the kinds of arguments that would be used to say that this is an agreement that pertains to terminals, not whole airports, number one, and that there were other differences in the fundamental agreements between an LAA and this agreement that in essence you would argue they were apples and oranges.

You ask whether we would identify it. The answer is yes, we would identify it as a risk.

Mr. Nelligan: That is the only other risk that we have not discussed either here or in your earlier testimony, for instance, the 30 million, 33 million factor which I think you gave testimony on some months ago.

Mr. Desmarais: This is the pass-through diversion clause?

Mr. Nelligan: Yes.

Mr. Desmarais: There may be some risk associated with that, senator. I don't know how much I would put in a document.

Mr. Nelligan: The only reason I mention it is because it was alleged by Mr. Nixon, and you don't have to comment, that it was in the Treasury Board submissions. I just wanted to cover all the possible risks that you thought might conceivably go into a Treasury Board submission if you had to do it as of the time you were writing the Rowat - the critique for Mr. Weston.

Mr. Desmarais: You will recall, Mr. Nelligan, in the last time I testified here I said that there were probably some clauses I would like to change.

Mr. Nelligan: Yes.

Mr. Desmarais: One of them was - what I was speaking of was the passenger diversion clause. One of the problems I had with it, and I don't know if it is in the Treasury Board submission or not, was the fact if the partnership did anything - entered agreements or did anything that prevented them from reaching 33 million passengers, and I - the department or whoever had to go out and build another terminal to accommodate passengers over whatever level, they could end up paying money to the partnership.

Mr. Nelligan: Yes.

Mr. Desmarais: That is a risk, yes.

Mr. Nelligan: All right. Otherwise you feel we have covered them all now openly in this hearing?

Mr. Desmarais: I believe so.

Mr. Rowat: I think we have today and what we haven't covered today I think we have covered in previous testimony.

Mr. Nelligan: Thank you. That is all I wanted to know.

Senator LeBreton: Mr. Chairman, since we are talking about the Nixon document, Mr. Desmarais, did you say in previous testimony that Mr. Nixon had given you certain pages of his document to critique and did you critique them and/or did he follow up on it? Like what was the end result of that? I don't know whether we ever had any response to that.

Mr. Desmarais: I believe I indicated to Mr. Nelligan on the last day I was here previously that we did see two or three pages of something. I believe it was two or three pages of his report in the end. Mr. Pigeon alluded to it as well this morning.

Senator LeBreton: That is what made we think of it this morning.

Mr. Desmarais: We sat down and were given these pages to look at and make comments on and we did do that. What the comments were, I can't remember at this time because I scribbled all over the page and we made the comments to Mr. Goudge and Mr. Goudge took the pages back.

Senator LeBreton: You don't remember what pages they were, do you?

Mr. Desmarais: I attempted to identify them in the last piece of testimony. They were basically the pages that dealt with the deal itself and not anything else.

Senator LeBreton: That is right.

Mr. Desmarais: But the one that comes to mind that I did correct was in Mr. Nixon's report he says something to the effect of $26 million. I know I had changed that and asked him to change that to 23.6 based on the information I had and it wasn't changed in the final report. So I leave that with you have.

Senator LeBreton: Do you remember the date of that because I think we should ask Mr. Goudge to produce these documents?

Mr. Desmarais: I believe it was around the 24th of November. I could confirm that if you like.

Senator LeBreton: Okay. After about five drafts of the report. That is fine.

The Chairman: Anyone else?

Well, Mr. Rowat, Mr. Desmarais, we have had a great number of public servants who have testified before us whose testimony we greatly appreciate and who have been very forthcoming. I can assure you that nobody whose testimony we appreciate more and respect more than the testimony that you have given us. Thank you very much for coming back.

We adjourn now until 9:00 o'clock on November 6th. Thank you very much.

The committee adjourned.

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