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PROVINCE OF BRITISH COLUMBIA REPORT RE THE PACIFIC GREAT EASTERN RAILWAY British Columbia. Legislative Assembly 1924

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Full Text

 PROVINCE OF BRITISH COLUMBIA
EEPOET
RE THE
Pacific Great Eastern
railway
BY
HON. MR. JUSTICE GALLIHER
COMMISSIONER
VICTORIA,  B.C. :
Printed by Charles F. Banfield, Printer to the King's Most Excellent Majesty.
1921.  COMMISSION.
J. A. MACDONALD,
Administrator.
CANADA:
PROVINCE OF BRITISH COLUMBIA.
GEORGE THE FIFTH, by the Grace of God, of the United Kingdom of Great Britain and
Ireland, aud of the British Dominions beyond the Seas, King, Defender of the Faith,
Emperor of India.
In the Matter of the " Public Inquiries Act," being Chapter 110 of the " Revised Statutes of
British Columbia," and Amending Acts.
A COMMISSION.
To the Honourable Mr. Justice William A. Gali.iher, of the City of Victoria, in the
Province of British Columbia, one of His Majesty's Justices of the Court of Appeal of the
Province of British Columbia,—Greeting.
A.  M.  Manson, ("TXTIIEREAS  a certain political party calling itself " The Provincial
Attorncy-GeneralA '» Party" has represented that a resolution of the said party in
Convention assembled, of 322 delegates from all parts of the Province, was as follows:—
" Resolved, That this Convention of 322 delegates of the Provincial Party from all sections
of the Province demand that a Royal Commission should i^sue to thoroughly investigate the
charges referred to in the petition hereto annexed, and that it be signed by at least ten members
of the Convention and addressed to His Honour the Lieutenant-Governor in Council'':
And whereas the said Provincial Party caused to be filed with the Honourable the Provincial
Secretary, on or about the Sth day of December, 1923, a certain petition addressed to His Honour
the Lieutenant-Governor of British Columbia in Council, which said petition purported to be
signed by some sixty-six persons:
And whereas the prayer of the said petition is that a Royal Commission, clothed with the
fullest powers to secure the attendance of witnesses, and the production of books, papers, and
accounts from both Government officials and private parties, and bodies corporate as well, should
issue to investigate certain charges in the said petition contained:
And whereas His Honour the Administrator, by and with the advice of his Executive
Council, hath deemed it expedient to cause inquiry to be made into and concerning certain
matters as hereinafter provided:
Now, therefore, know ye that, reposing every trust and confidence in your loyalty, integrity,
and ability, we do by these presents, under and by virtue of the powers contained in the " Public
Inquiries Act," being chapter 110 of the " Revised Statutes of British Columbia, 1911," and
amendments thereto, nominate, constitute, and appoint you, the said Honourable Mr. Justice
William A. Galliher, our Commissioner to inquire into the truth or otherwise of the following
allegations, to wit:—
" 1. That in the years 1915 and 1916 the financial affairs of the Pacific Great Eastern
Railway Company having become seriously involved, and the said Company desiring to secure
further funds from the Province of British Columbia, to secure the goodwill of the representatives of the Conservative Party and of the Liberal Party in the Legislature, those interested in
the said Railway Company made gifts of money to W. J. Bowser and William Sloan, representatives respectively of the Conservative and Liberal Parties, as follows :—
"(a.) The sum of fifty thousand dollars of the money of the said Railway Company or its
contractors or persons associated or interested with them was drawn from the Union Bank and
paid to the said W. J. Bowser, then a Minister of the Crown in British Columbia, and now
Leader of His Majesty's Opposition in the Legislature: M 4 British Columbia. . 1924
- "(b.) Aud an approximately equal sum was drawn from the said Union Bank and paid
to the said William Sloan, then a candidate of the Liberal Party interest and now Minister of
Mines in British Columbia.
" 2. That as a result of the two payments aforesaid—namely, to W. J. Bowser and to William
Sloan—the promoters of the said Railway Company were assured of protection in any event of
the then (1916) ensuing general election, and that, as a result of such contribution, protection
and favourable treatment have been fully accorded to the promoters of the said Railway
Company.
" 3. That the acts of the Government of British Columbia and the Leader of the Opposition,
the said W. J. Bowser, in the Legislative Assembly of British Columbia, since 1916, have been
affected by the acceptance by W. J. Bowser and William Sloan of the gifts alleged to have been
made to the said W. J. Bowser and the said William Sloan, as set out in paragraph numbered
1 hereof; and, further, that the people of the Province of British Columbia have been deprived
of the benefit of an effective criticism by the Leader of the Opposition iu the Legislative Assembly
hy reason of his acceptance of the gift of $5O,C00 as alleged in paragraph numbered 1 hereof.
" 4. That in the construction of 213 miles of the Pacific Great Eastern Railway there was
gross waste of public money and the defrauding of the Province, in that:—
"(a.) The contract for the work was not let to the lowest tenderer, and no security was
leceived from the Northern Construction Company, Limited (in the subsequent paragraphs hereof
referred to as the 'Construction Company'), to whom the contract was let.
"(6.)  The contract with the Construction Company was extraordinary in its terms.
"(c.) Additional mileage was constructed by the contractor, the Construction Company,
without further public tender.
"(d.) Notwithstanding the terms of the contract with the Construction Company, based
on unit prices, the unit prices were increased by-the Chief Engineer of the Department of Railways, Mr. A. F. Proctor (in the subsequent paragraphs hereof referred ta as the ' Chief
Engineer'), with the consent of the Minister of Railways, after the contract was executed
under seal, and without any further contract under seal.
"(e.) No proper check was kept upon the expenditures of the Construction Company, and
no proper audit was made of the Construction Company's accounts paid, and when an allegedly
competent and efficient auditor protested he was dismissed from office, though subsequently
reinstated for a short period, and in the end an allegedly incompetent and inexperienced young
man was appointed in his stead.
"(/.)  No books of account were kept by the Construction Branch of the Railway Department.
"((/■) Expense accounts submitted by the Construction Company and paid hy the Railway
Company lacked details and were often excessive.
" (li.) The receipt of material and employment of labour on the construction grade of the
Railway Company was checked very indifferently, if at all.
"(«.) Trade discounts due to the Railway Company were absorbed by the Construction
Company.
"(j.) Personal freight accounts of employees were charged to the Railway Company and
no refunds were given to the Railway Company for freights for employees, which included
personal and household effects of all kinds and descriptions.
"(fc.) Articles from the yards of the Construction Company turned in on the work at
excessive prices, and the prices were not checked.
"(?.) Payments were made on all expenditures of the Construction Company represented by
it to have been made, whereas that was not the result of the contract on its true construction.
" 5. That the Minister of Railways, the Honourable John Oliver, was made aware by one
Edward J. Rossiter, Auditor Accountant in connection with certain construction-work of the
Railway Company, of irregularities in the accounts and payments iu connection with the said
construction, and the only result thereof was the dismissal of the said Rossiter.
"6. That the Minister of Railways, Honourable John Oliver, on the 10th day of March,
1920, and on the 26th day of March, 1920, contrary to the facts, stated in the Legislature as
follows: ' All payments made to the Northern Construction Company have heen made on actual
expenditures duly vouchered and carefully checked by the Pacific Great Eastern Railway Company officials,' which statement the said Honourable John Oliver knew to be contrary to the facts. Royal Commission on Pacific Great Eastern Railway. 5
" 7. That the Minister of Railways, Honourable J. D. MacLean, on the 9th day of November,
1922, stated in the Legislature as follow7s: ' In the ordinary course of routine every account
submitted by the contractor' (meaning thereby the Construction Company) 'is audited by an
official of the Railway Company ' (meaning thereby the Pacific Groat Eastern Railway Company)
' and the quantities checked by an engineer,' which statement, to the knowledge of the said
Honourable J. D. MacLean, was absolutely untrue.
" 8. That many thousand dollars' worth of stores were taken illegally from the stores of
the Construction Company on Pacific Great Eastern Railway construction and improperly
charged up by the said Construction Company as part of the construction cost of the said
railway under its contract with the said Railway Company during the whole time of the said
contract. The process of the illegal taking was that certain contractors' employees were
improperly allowed board in addition to their salaries and given anything they required for
themselves and their families in the way of food, clothes, etc., from the store of the Construction Company without account of same being taken or payment made therefor; and,
further, that a similar practice was also carried out by employees of the Railway Company.
" 9. That material and equipment to the value of many thousands of dollars were supplied
by the Construction Company to the Pacific Great Eastern Railway from the ship-building yard
at False Creek of the said Construction Company and from other places, without any of said
material or equipment being passed upon in any way by any one in the employ of the Government or the Railway Company as to price or quality of such material or equipment, in fraud
of the Railway Company by reason of the fact that the Construction Company charged for the
said material and equipment supplied as aforesaid prices in excess of the actual value of the
same.
" 10. That construction material such as lumber, feed for horses, and general material used
for construction, to the value of many thousand dollars, were supplied on account of the Construction Company and charged to the Railway Company without independent check being made
on behalf of the Government or the Railway Company as to price, etc., in fraud of the said
Railway Company by reason of the fact that the Construction Company charged for said
material prices in excess of the actual value of the same.
" 11. That the Chief Engineer refused a certain lumber firm—to wit, the Consumers Lumber
Company—any business in connection with the construction of the Pacific Great Eastern Railway by the Construction Company, though it was allowed to quote prices on certain lumber,
because of the fact that it quoted better prices than another firm, and the said Chief Engineer
interfered as to where business should be placed by the Construction Company in connection
with its contract for the construction of the said Pacific Great Eastern Railway, and stated to
the aforementioned Rossiter that no ' outsiders' were going to get. any business in connection
with the contract except those he, the said Chief Engineer, approved of, and the Minister of
Railways, Honourable John Oliver, though cognizant of the foregoing facts in this paragraph
mentioned, refused to interfere with the decision of the Chief Engineer.
" 12. That expense accounts of employees of the Construction Company and of the Railway
Company amounting to some thousands of dollars were dishonestly charged as a portion of the
cost of the construction of the Pacific Great Eastern Railway by the Construction Company,
and certain ' Head Office expenditures,' amounting up to the 31st December, 1918, to $12,300
per annum, and from that date to $17,100 per annum, were dishonestly charged by the Construction Company as a portion of the cost of construction under its contract for the construction
of the Pacific Great Eastern Railway.
" 13. That the aforementioned Rossiter, Construction Accountant in the Construction Department of the Railway Company in connection with the construction of the Pacific Great Eastern
Railway by the Construction Company, was by an act of treachery, tricked into vouchering
accounts which no reputable firm of accountants would have passed for payment, the said act
of treachery being that he, the said Rossiter, was induced to vouch and did vouch accounts
totalling somewhat less than $110,000 on the strength of the statement to him of the Chief
Engineer that the said accounts would be finally passed upon by a firm of chartered accountants.
" 14. That the Construction Company illegally and improperly were permitted to include
as a portion of the cost of construction payments to the Workmen's Compensation Board in
connection with Pacific Great Eastern Railway construction.
" 15. That the Premier, the Honourable John Oliver, failed to investigate matters referred
to in a memorandum from the said Rossiter bearing date the 16th day of December, 1919, and
2 British Columbia.
also failed to interest himself or interfere in the matter of complaints contained in the said
memorandum, and the memoranda, copies of which were attached to the said memorandum;
and the said Premier, though, as it is alleged, fully cognizant of the alleged unsatisfactory
conditions and alleged irregularities in the estimates of the Construction Company, took no
steps to investigate the same, though he promised so to do.
"16. That the sum of $54,659.49 was improperly, dishonestly, and illegally paid to the
Construction Company in connection with certain culvert and cribbing work done by P. J.
Finnerty and Murdock & Company, sub-contractors under the Construction Company in connection with the construction of the Pacific Great Eastern Railway, which said sum was twenty-
one times what the Construction Company was actually and legally entitled to receive for the
said work under the terms of the contract between the Railway Company and the Construction
Company."
In Testimony Whebeof We have caused these Our Letters to be made Patent, and the
Great Seal of the said Province to be hereunto affixed.
Witness, His Honour James Alexandeb Macdonald, Administrator of the Government of
Our said Province of British Columbia, in Our City of Victoria, in Our said Province,
this twentieth day of February, in the year of our Lord one thousand nine hundred
and twenty-four, and in the fourteenth year of Our Reign.
By Command.
[Seal.]
W. H. SUTHERLAND,
Acting Provincial Secretary. Re
PACIFIC GREAT EASTERN RAILWAY.
Report by Hon. Mb. Justice Galliheb, Commissioner.
To His Honour the Administrator of the Government of
the Province of British Columbia.
May it please Youb Honoub,—A Commission under the Great Seal, and bearing date the
20th day of February, 1924, was issued to me directing and empowering me to hold an inquiry
into certain charges made by a body known as " The Provincial Party."
The charges comprised sixteen in number, with several subclauses, which are dealt with
seriatim in the following pages.
The exhibits submitted in evidence during the proceedings numbered 319, being records and
correspondence from the files of the Departments of Railways and Finance. It not having
become necessary, for the purposes of my Report to Your Honour, to set out any of these
exhibits here, they have been returned to the departments to which they respectively belong.
The transcript of the shorthand notes of the evidence, contained in six books, are herewith
submitted, together with my findings in this my report.
By virtue of such Commission I did on the 25th day of February, 1924, in the Members'
Room of the Legislative Buildings in the City of Victoria, proceed to inquire into the several
matters set out in said Commission, all parties interested being represented by counsel.
The first matters dealt with by me were concerning the following charges:—
" 1. That in the years 1915 and 1916 the financial affairs of the Pacific Great Eastern Railway
Company having become seriously involved, and the said Company desiring to secure further
funds from the Province of British Columbia, to secure the goodwill of the representatives of
the Conservative Party and of the Liberal Party in the Legislature, those interested in the said
Railway Company made gifts of money to W. J. Bowser and William Sloan, representatives
respectively of the Conservative and Liberal Parties, as follows:—
"(a.) The sum of fifty thousand dollars of the money of the said Railway Company, or its
contractors or persons associated or interested with them, was drawn from the Union Bank and
paid to the said W. J. Bow7ser, then a Minister of the Crown in British Columbia, and now
Leader of His Majesty's Opposition in the Legislature.
"(6.) And an approximately equal sum was drawn from the said Union Bank and paid to
the said William Sloan, then a candidate of the Liberal Party interest, and now Minister of
Mines in British Columbia.
"2. That as a result of the two payments aforesaid—namely, to W. J. Bowser and to
William Sloan—the promoters of the said Railway Company were assured of protection in
any event of the then (1916) ensuing general election, and that, as a result of such contribution,
protection and favourable treatment have been fully accorded to the promoters of the said
Railway Company.
" 3. That the acts of the Government of British Columbia and the Leader of the Opposition,
the said W. J. Bowser, in the Legislative Assembly of British Columbia, since 1916, have been
affected by the acceptance by W. J. Bowser and William Sloan of the gifts alleged to have been
made to the said W. J. Bowser and the said William Sloan, as set out in paragraph numbered 1
hereof; and, further, that the people of the Province of British Columbia have been deprived of
the benefit of an effective criticism by the Leader of the Opposition in the Legislative Assembly
by reason of his acceptance of the gift of $50,000 as alleged in paragraph numbered 1 hereof."
Mr. L. G. McPhillips, K.C., Mr. McTaggart appearing with him, for the Provincial Party,
proposed to direct evidence to an inquiry into campaign funds generally.
This I ruled out as not within the jurisdiction given me under the Commission, and he then
proceeded with regard to the specific charges.
Mr. McPhillips intimated that he had several witnesses to call, and proposed to call Mr.
Bowser, one of the persons accused, first intimating that he had prepared along that line, and
could best conduct the inquiry in that way. British Columbia.
I intimated to Mr. McPhillips that, in my view, that would be unfair to the accused, and
that he should at least call some evidence, showing that there was some ground for bringing the
charges.
Mr. McPhillips did not accede to my suggestion and pressed for a ruling, which I gave in
accordance with my views.
He then asked for a short adjournment to consult with other counsel appearing for the
Provincial Party in the general inquiry, and upon returning, stated that, in view of my ruling,
they would assume no responsibility for the outcome of the inquiry, but would stay and assist
me in questioning witnesses, a list of whom he handed me containing a dozen or more names.
I, of course, accepted, and was appreciative of their assistance.
Whether Mr. McPhillips accepted or did not accept any responsibility, there was a responsibility cast upon me from the very first, and which continued throughout, and that was to conduct
the inquiry in a fair and impartial manner tow7ards all parties concerned.
In a Court of law in civil actions where certain rules and procedure have been so long
established and followed, I would not for a moment consider interfering with the order in which
witnesses should he called; in fact, a plaintiff could examine a defendant for discovery before
trial, and put that evidence in at the trial, or he could at the trial call the defendant as his
witness at any time and in any order he chose.
On the other hand, if it were a criminal trial, he could not call the accused at all.
My reasons for ruling against Mr. McPhillips were, shortly, these:—
There do not appear to be any specific and definite rules laid down as to procedure in
matters of this kind.
It is largely in the discretion of the Commissioner which course he should pursue, and in
such a case one will meet with different views expressed by different Commissioners.
But there is one view which I think should be taken by all, and that is that no unfairness
should be permitted against any person accused, for, after all, it is a good principle to follow
that an accused should not be presumed to be guilty simply because he is charged with an offence.
The charges laid here were of a specific and particular nature—the parties alleged to have
paid, as well as those alleged to have received, were named; the specific amount was stated and
the bank from which these sums were allegedly drawn, named.
In view of all this, it seemed to me only fair that some evidence should have been tendered
to show bona fides in laying the charges before calling on the accused in an attempt to convict
him out of his own mouth, and to have ruled other than I did would have been ruling against
my own strong convictions.
The inquiry then proceeded, Mr. McPhillips and Mr. McTaggart assisting me by examining
certain witnesses called.
When Richard T. Elliott, a solicitor, was called, privilege was claimed and a ruling was
asked.
In an action brought by the Attorney-General of British Columbia and the Minister of
Finance against Timothy Foley, Patrick Welch, John W. Stewart, Pacific Great Eastern Railway
Company, D'Arcy Tate, E. F. White, F. Wilson, Pacific Great Eastern Development Company,
Limited, and Pacific Great Eastern Equipment Company, Limited, and in the Statement of Claim
filed therein on the 1st September, 1917, in paragraph 47 certain charges of fraud and corruption
were made against the defendants, among them the dishonest and corrupt payment of moneys
to members of the then Government and members of the Legislature, and included in which
would be the sums in the specific charges under inquiry.
Mr. Elliott was retained as solicitor by the defendants to prepare their defence and conduct
their case, and asked to be excused from answering any questions pertaining to private communications with his clients, or information he had acquired in the course of preparing their defence.
This privilege was also claimed by his clients, whose privilege in fact it is.
The same Government that brought the action has now directed the present inquiry affecting
the same parties as to these specific charges, so that the subject-matter and the parties to that
extent are the same.
Mr. McPhillips relied chiefly on this:  that where fraud is charged there is no privilege.
With respect, I think that is stating the law too broadly. *
I think there is this distinction between where fraud is charged and where it is not: that
in the case of fraud, where it is something done or obtained in furtherance of fraud, then no
claim for privilege can or will be allowed. Royal Commission on Pacific Great Eastern Railway. 9
The text-books give examples, and one example would be: Where " A " goes to his Solicitor
" B " and they devise ways and means and acquire information and employ methods by which
" A " may or does commit a fraud upon " C "—e.g., depriving him of his property—then in such
a case there is no privilege, and it would be unthinkable that there should be.
If for no other reason than on grounds of public policy this would be held wrong.
The case before me was entirely different, and I ruled in favour of the claim for privilege.
After making this ruling, Mr. McPhillips announced that he could be of no further assistance
to me, and he and Mr. McTaggart withdrew.
With the assistance of Mr. Taylor, who appeared for the Government, I proceeded to
examine certain other witnesses, and counsel for Mr. Bowser and Mr. Sloan tendered their clients
for examination without my suggesting it.
With a view to preventing any possible equivocation, I put certain definite and comprehensive questions to each of these witnesses and received a definite denial to each.
There being then no evidence to support the charges, the whole evidence being a denial of
same, the charges must necessarily fail, and I so hold.
The other charges, Nos. 2 and 3, linked up with 1  (a) and (6), of course fall with them.
I next proceeded to inquire into the charges contained in paragraph 4, which begins as
follows :—
" 4. That in the construction of 213 miles of the Pacific Great Eastern Railway there was
gross waste of public money and the defrauding of the Province, in that"—and then follows
a number of subparagraphs, (a) to (I), inclusive, setting out the manner in which such moneys
were wasted and the Province defrauded, and which I will deal with seriatim.
At the outset, Sir Charles Hibbert Tupper, K.C., and Mr. A. H. MacNeill, K.C., who represented the Provincial Party, with whom was associated Mr. D. S. Tait, stated that they were
not making and had not made any charge of fraud against the Government.
As the charge is laid in the Commission, it was necessary to go into all the evidence, and
if fraud on the part of the Government could have been shown, it would have been my duty to
so find.
I find that nothing from which such inference could be drawn appeared in the course of
the inquiry, and I, as Sir Charles and Mr. MacNeill did in the beginning, absolve them from
any such charge.
Then, as to the gross waste of public money as set out in the respective subparagraphs:—
In approaching an inquiry of this nature, much depends upon the mental attitude in which
it is undertaken.
If one approaches it with a suspicious mind, then matters that on their face, as ordinarily
viewed, would create little or no suspicion, might, under such a state of mind, loom suspicious.
On the other hand, if one views it in the light that a Government can do no wrong, many
occurrences would not be given due weight.
The proper way is to approach it with an open mind, and I think it only fair to assume that
a Government elected by the people to carry on the public affairs of the people, and to represent
them in that capacity, may be reasonably expected to carry on efficiently and honestly until
the contrary is shown.
They have to answer to the people, and if they fail, the remedy is in the hands of the
people.
It is not my purpose to quote to any great extent from the evidence, which would render
the report burdensome and would serve no good purpose. Much of it has been already published
in the press, and it will all be on file with my report.
I have sifted it out and formed my conclusions upon it.
With this preliminary digression, I will proceed to deal with the different paragraphs:—
(a.) The contract for the work (the first 42 miles) w7as not let to the lowest tenderer, and
no security was received from the Northern Construction Company, who were awarded the
contract.
This is not unusual; in fact, most requests for tenders now contain the provision that the
lowest or any tender is not necessarily accepted.
In passing upon tenders, the Government would be guided largely by the advice of their
Chief Engineer, and Mr. Proctor's evidence on this satisfies me, and should have satisfied the
Government. The same remarks apply to why no security was demanded from the Northern
Construction Company. 10 British Columbia.
(6.) The contract with the Construction Company was extraordinary in its terms.
This has reference chiefly to the fact that it was what is known as a cost plus bonus
contract.
I do not think I can do better than include in my report the findings of Mr. J. G. Sullivan,
Consulting Engineer, whose views on such matters would carry great weight.
Mr. Oliver, while Minister of Railways, employed Mr. Sullivan to make a report on the
Pacific Great Eastern Railway.
The report is dated June, 1922, and at pages R 17 and R18 of the report, under the heading,
" Was the work carried out, since the Government took charge, economically performed,' we
find the following:—
" To answer this question fully would require a detailed study away beyond the scope of.
my investigation. As the work was performed on a cost plus percentage basis, it would involve
an investigation of the methods and organization in detail of the contractor's operations.
I would not be justified in undertaking such an extensive detailed investigation without further
instructions, and I cannot see any object to be gained by going further into this matter, other
than to state that I do not believe that the cost plus percentage basis is an economical method
of performing work unless you can introduce into the contract a bonus clause that will act as
an incentive to the contractor to keep cost of the work down. No matter how honest or efficient
your contractors may be, the foremen and the labourers will not work efficiently when they have
the idea that the more the work costs the more the contractor will make, and the less they will
do the more work there will be. In the case of the Pacific Great Eastern Railway contract this
feature teas taken care of by the contractors submitting a schedule of the estimated cost of the
work. With an understanding that the sum on which a percentage would be paid would not
exceed the sum the work would cost if figured at the unit prices in the schedule, and a further
stipulation that if the actual cost of the work was less than what the work would have cost,
figured at the schedule price, then the contractor was to receive as a bonus 25 per cent, of
such saving in addition to their agreed percentage on the cost. This agreement, coupled with
the fact that the company engaged a firm of contractors with a national reputation, would
indicate that the work should be performed as economically as it was possible to do the work
in 1919 and 1920, when prices were uncertain and wages at the highest point they have ever
reached and the efficiency of labour at the lowest ebb in our time. Under such conditions it
would have been impossible to do work under any plan that would be considered economical.
If you had decided to have the work done on straight unit prices, I believe the contractors, to
protect themselves, would have tendered a figure so high that the work would have cost even
more than it did under the plan adopted by the company. If there is any criticism to make
on the action of the Government management it would be for proceeding with the work when
construction costs were from 50 to 100 per cent, higher than normal, and when the rates paid
for money was at least 25 per cent, higher than normal, and at a time when practically all
other industrial expansion was at a standstill.
" O.—Weee Decreases and Incbeases in Unit Pbices of Original Contract justified?
" I do not believe in the principle of altering the terms of a contract, for the reason that
if the possibility of changes in conditions of a contract becomes public, the result is that
irresponsible contractors will take all kinds of chances in order to get work, depending on
their being protected against loss by their ability to get changes in the contract. In this
particular case there were many extenuating circumstances. In the first place, the schedule
of prices was only an estimate of cost in which the percentage and possible bonus was based.
Second, the original schedule was for a considerably less amount of work than what was
finally accomplished under the original agreement. Third, in the spring of 1919, when the first
reduction was made, it was generally believed at that time that the peak of high prices had
been reached. The first of these reasons does not seem to be fully understood; as a matter
of fact, the contract itself is a unit price form, and it is only by a study of the tender attached
to the contract that one can determine the type of contract as between a unit price contract aud
a cost plus percentage contract. There is no doubt whatever as to the class of contract; it
is a cost plus percentage contract with a bonus clause, and some criticism in the Legislature
to the effect that the contractors were paid some $700,000 more than they were entitled to by
the original agreement is not a fact.   The increase in unit prices in 1920 for percentage purposes Royal Commission on Pacific Great Eastern Railway. 11
had this effect: Under that schedule the work estimated by the engineers' figures at the
increased prices increased the total on which a percentage of 5% per cent, was calculated by
$644,335.44, thus increasing the amount the company paid the contractors by $35,434.45, and
up to date the cost of the work to the contractors has been some $300,000 greater than the
engineers' estimate of the work computed at the revised unit prices; therefore, to date, the
question of bonus has not entered into the question. Another criticism was that the head
contractors let the work to stationmen and small contractors at prices less than the schedule
in force at the time. This practice was perfectly justified and a most economical method. In
the spring of 1919, when prices began to drop, it certainly looked like good business to reduce
the schedule prices on which a bonus would be calculated, and the company had an opportunity
of doing this when they were ordering more work under the original agreement; however,
having made this reduction in 1919, when prices rose in 1920 the only logical action the company
could take was to follow the precedent they had themselves established. The results so far
are as follows: The lowering of the schedule in 1919 lowered the amount on which percentage
was calculated by $16,924.46, making a saving to the company of $930.85. The net loss to the
Government to date on account of change in schedule is $34,503.60. How these changes in
schedule will affect the bonus is yet to be determined, while the cost of work performed to
December 31st, 1921, is some $300,000 greater than the amount of the engineers' estimates.
Multiplied by the schedule prices, the crediting of stores on hand and the final estimate may
\ ery materially affect these figures. The present information at hand is not sufficient to warrant
my passing an opinion as to whether or not there should be any bonus under the terms of the
agreement. I may suggest that on account of the nature of some of the work, cleaning out
mud-slides, etc., where the cost is out of all proportion to quantities handled at usual unit
prices. The cost in such cases might be the controlling factor rather than measurements in
estimating amount of material moved; the Government would be well advised to carefully
look into these features before paying any bonus on this contract."
In addition to this, there is the evidence of Mr. Proctor and Mr. Swan, both experienced
engineers, as to the advisability of entering into such a contract under the conditions then
existing.
All this satisfies me that there is nothing unusual or extraordinary in contracts of this
kind.
(e.) Additional mileage was constructed by the contractor, the Construction Company,
without further tender.
This is admitted, and, shortly, the reasons given are that where a contractor is under
contract to perform a certain work for which tenders have been called, and his showing is
satisfactory, and where further work is contemplated in connection with the same undertaking,
he, having his plant, equipment, and following on the work, and where acceptable terms can
be obtained from him, it is deemed advisable to continue w7ith the original party rather than
call for tenders, break up the organization, and run the risk of, in the end, probably increasing
the cost.
That sounds like common-sense business tactics to me, and is done hy large railway
corporations.
(d.) Unit prices were increased by the Engineer with the assent of the Minister of Railways after the contract was signed and without further contract.
This is covered by correspondence put in.
Again, in this connection, I would refer to the extract quoted from Mr. Sullivan's report,
under the heading, " Were decreases and increases justified? "
There was no increase on the first 42 miles.    (Page 1647 of the evidence.)
In the spring of 1919, when conditions were easier and prices began to drop, the Government entered into correspondence with the Northern Construction Company, they in turn
taking it up with Murdoch & Company, and these negotiations led up to a reduction being
asked and acceded to on schedule prices.    (See page 1648.)
In 1920, when conditions again changed and prices rose, the Northern Construction Company
and Murdoch & Company asked for a revision upwards, which was granted.    (Page 1648.)
Then in 1921 a revision downwards was again made by the Government.
The reasons for doing so are all set out in the evidence, and are, in my opinion, sufficient.
(See also pages 1839, 1845, 1856, 1859, and lS67.)m 12 British Columbia.
This was discussed from every angle by the Premier and the Chief Engineer. (Page 1862.)
(See further reasons in evidence of Mr. Oliver, pages 2315 and 2316.)
It wyas suggested that it was no concern of the Government whether Murdoch & Company
went broke on their contract as it stood or not.
It was the people's money that was being disbursed and the Government could have taken
over the work themselves, and that is true to a certain extent.
Leaving aside the question that the Government had first revised downwards the schedule of
prices under the contract, and the fairness or unfairness of refusing to revise upwards when
conditions changed so as to warrant it, and whether they were obliged to do so or not, there
was this question for them to consider (and that is dealt with by Mr. Oliver towards the end
of his evidence, and, I may say, was present to my mind from the first) : that by exacting their
pound of flesh (assuming that they were entitled to) they might not find in the end that the
work would cost much more.
If what would appear to be reasonable arrangements (and I think these were) could be
made, I doubt if the Government, iii the interests of the people, would have been justified in
embarking on the experiment of carrying on the work themselves or breaking up the existing
organization.
Subclauses (e) and (g) deal with no proper check kept on the expenditures of the Construction Company and no proper audit made of their accounts; lacked details and were
excessive.
As to these, see evidence of Proctor at pages 1693, 1694, 1700, 1713, 1717, and 1718; also my
remarks later on in the report.
DeLacey's evidence, which I will refer to later, is also applicable to (e).
The evidence referred to in dealing with paragraph 12 is in part applicable to this also.
These charges fall.
Subclause (/) : No books of account kept by the Construction Branch of the Railway
Department.
This is admitted, but except that it might have been more convenient for reference, I can
see no object in this, as these books would be compiled from the very files in the Department,
which were always there for reference.
Major Swan, an independent engineer, says he does not do this in railway-work of which he
is in charge. Mr. Gyles, at page 1414, says it is a matter of opinion—would have involved a lot
of employees.
To have done this, according to Proctor's evidence, would have entailed a large extra
expense.    (Considered at the beginning page 1692; page 1693.)
Subclause (h) : Receipt of material and employment of labour on the construction grade
of the Railway Company was checked very indifferently, if at all.
Subclauses (e), (g), and (h) are more or less interwoven, and in addition to what I have
already said, I wish to refer particularly to the evidence of DeLacey, who was an employee of
the Northern Construction Company as book-keeper on the work.
I think no one can read that evidence without being impressed with the absolute honesty of
the witness, and the careful, thorough, and impartial manner in which he discharged his duties,
not only to his own employers, but as he saw it, as well in the interests of the Government.
It is seldom I have been so favourably impressed by a witness in the box, and I am, fully
convinced that everything in his charge was absolutely accounted for and properly dealt with.
Subclause (i) : Trade discounts due to the Railway Company were absorbed by the Construction Company.
The evidence is to the contrary. (Pages 1721 and 1722 of the evidence.) The Government
received the benefit of these.    (See also Rossiter at pages 913 and 917.)
Subclause (j) : As to personal freight accounts of employees.
This fails absolutely, except as to certain personal effects of married employees who moved
their families out to the work, and this I hold not unreasonable.
•Subclause (k) :  This is dealt with in my finding as to paragraph 9 of the charges.
Subclause (I) : Payments were made on all expenditures of the Construction Company represented by it to have been made, whereas that was not the result of the contract on its true
construction.
The whole battle on this point waged around the interpretation to be placed on the words
" actual cost " in the contract.
I Royal Commission on Pacific Great Eastern Railway. 13
Mr. MacNeill's position was that the Northern Construction Company should have dealt
directly with stationmen, thus eliminating sub-contractors, and that the cost should have been, so
far as work was concerned, the actual cost paid the stationmen.
Construed in a narrow sense, that might be so, but in view of the evidence given as to the
custom and practice of railway corporations and others carrying on works of any magnitude, of
employing sub-contractors to intervene between the original contractors and the stationmen, and
the advantages of so doing, and taking a reasonable view of what would be in the minds of
the parties to the original contract respectively having knowledge of such, " actual cost" should
be construed to mean actual cost to them, and that that would include the method adopted here
for carrying on the work.
Any other construction would, I think, be too narrow.
Paragraph 5 of the charges is disproved by the evidence so far as the actions of the Minister
are concerned.
Paragraphs 6 and 7, as to the statements made in the Legislature by the Hon. the Minister
of Railways, John Oliver, on the 16th and 26th of March, 1920, and by the Hon. Minister of
Railways, J. D. MacLean, on the 9th of November, 1922, respectively, may he dealt w7ith together
in a few words.
Little or no stress was laid upon these in the inquiry, Sir Charles Tupper, as an old
parliamentarian, stating that he was aware these statements were prepared for the Minister by
some official in the particular department and brought dow7n by the Minister, and as they were
not charging that these statements were untrue to the knowledge of the Ministers, they might,
as I think he expressed it, sleep easy on that score.
Moreover, it depends just how broadly or narrowly one construes the words used.
Paragraph 8, relating to the supplying of board, food, clothes, etc., to employees and their
families without charge, is absolutely disproved by DeLacey.
Paragraph 9: Charging that large quantities of material and equipment from the yards of
the Construction Company at False Creek were supplied to the Railway Company without same
being passed upon in any way as to price or quality by any one in the employ of the Government
or Railway Company.
Subparagraph (fc) of 4 is also dealt with in this.
Reference is made to the evidence of Proctor, at page 1706:—
The shipments of materials from the shipyards or other places of the Northern Construction
Company went through the same checking as the others.
Personally went over each of these vouchers, and satisfied himself that the prices were fair
and reasonable.
Bright also went over the material on arrival, and in many cases put values on them
himself.
Murdoch, in this connection, pages 2111, 2113, 2114:—
2111: Was superintendent for Northern Construction Company in 1918. The first shipments
of material and equipment sent front Kamloops, Port Alberni, and other* points. Value was
$10,000 to $16,000. All were invoiced. Was present when values placed upon them by Captain
Bright, representing the Government, and Murdoch as Northern Construction Company. Took
shipment as men knowing their business, and if did not agree, did not fight, but argued the
point.    One of them put the figures on paper.
2113: Smith was on the work checking up material as it went in. Belbeck was there
later, checking the material and looking after the supplies and material, but particularly the
heavy material.
2114: Captain Bright kept as close check on that work as Murdoch did. Apparently duplicating each other's work in this regard.
Also DeLacey, pages 1496, 1498, 1499, 1500 to 1505, inclusive, 1508, 1510, 1512, 1513, 1515,
1520, and 1528:—
1496: Was with the Northern Construction Company at Chasm in September, 1918, accountant at headquarters in the field.
149S: Captain Bright came to the Northern Construction Company office every day and went
over all the work done before. Looked upon Captain Bright as my boss; gave him all the information he asked for, and also what I thought he might want, so that he would have a thorough
understanding of what was going on. Always had a summary before him of labour, classification, supplies issued. 14 British Columbia.
1499:  Sub-contractors' advances and statements were always available.
1500: Everything listed at the warehouse door as it came in and then checked with the
invoices.
1501:  Everything going out went on written order, checked off, and priced.
1502: Each line of goods, supplies, material, and equipment kept under separate heads, and
charges and credits made thereto, so that each branch was clear as to how it stood.
1503: Pay-rolls were kept made up daily, and checked over at end of month. One man
assigned specially to check the pay-rolls.
1504: Was personally held responsible for this, and had to make up errors on two occasions
from his own pocket for overpayment to men.
1505: Books audited every three months, and Mr. Boyd and Mr. Steel were also there. If
any more thorough system could have been devised, would have put it in practice.
1508: Murdochs got their supplies from the Northern Construction Company the same as
any other sub-contractor.    No one could get anything for nothing.
1510:  Saw Rossiter there; gave him all information and he was satisfied.
1512: When DeLacey went over to Murdochs, followed out the same plans. Northern
Construction Company continued the same plan of accounting.
1513:  No settlements made with sub-contractors or stationmen except in his office.
1515: Married men on the job were allowed to have their household effects freighted in.
Other freight items all collected in cash.
1520:  Destroyed books after approval of the income-tax returns.
1528: Goods and material all certified, and especially the heavy equipment by Captain
Bright.    In short, worked on that job the same as if I was employed by the King of England.
This is not qualified to any extent in cross-examination and entirely disposes of the charge.
Paragraph 10: Excessive prices paid for lumber and horse-feed.
Not borne out by the evidence.
Paragraph 11: Charges that tender of Consumers Lumber Company was rejected, and a
higher tender accepted for the same class of material from another firm.
Proctor deals with this and shows that Consumers Lumber Company tender was f.o.b. at
the mill in Vancouver, and the latter tender for lumber at the mill on the line being constructed.
With freight added to former tender, prices not so good as the tender accepted.
Proctor also denies any such reason for declining Consumers Lumber Company tender as
Rossiter alleges.
The charge fails.
Paragraph 12: Charges that Head Office expenditures improperly charged as a part of the
cost of construction.
This has reference to Head Office on the work, and were made up by a certain allowance
for superintendent, linemen, stenographer, etc., no names being given.
There was, as a matter of fact, no Head Office, as such, on the work.
What was done was this: The Northern Construction Company, being a large contracting
concern, were engaged in carrying on several contracts at the same time.
They had offices and a large staff at Vancouver, and what was really done was that, instead
of installing offices on the work, they performed the services that would have been rendered at
such office through their staff at Vancouver (including the sending-up from time to time of
superintendents and linemen), and charged up a proportionate part of the expense of their
Vancouver office to this particular work.
This decision was reached at a conference held at the beginning of the work.    (Page 1692.)
The amount of this varied from time to time according to the amount of work being done
on the construction.
The evidence is that this was at all times a fair proportion, and by doing it in this way
there was no greater cost to the Government; in fact, less.
I see no reason to complain of this system and class it as a proper charge.
Paragraph 13: As to Rossiter's being tricked into vouching accounts is, in the light of the
evidence, not worth discussing.
Paragraph 14: That payments to the Workmen's Compensation Board were not legally and
properly chargeable to the work. Royal Commission on Pacific Great Eastern Railway. 15
Under the system prevailing under the " Workmen's Compensation Act," by which the
employers of labour are assessed by the Board, all the sums paid under such assessment would,
in my opinion, be properly chargeable as a part of the cost of the work.
The Pacific Great Eastern Railway were not the employers of the men working for the
Northern Construction Company or Murdoch, or any other of the sub-contractors, and would not
be assessed by the Board, and the only record the Pacific Great Eastern Railway would have
would be that contained in the pay-rolls attached to the monthly estimates.
This is really a question of law and not of evidence.
Paragraph 15: As to the failure of the Premier to investigate matters referred to him by
Rossiter.
This is disproved by the Premier's own evidence and letters filed.
Paragraph 16 is based on the affidavit of one P. J. Finnerty, who took a sub-contract for
excavating for and putting crib timbers in place.
Although there was a great deal of evidence given under this head, it narrows down to a
very short point, and that is: Was the spread between 17 cents per lineal foot which Finnerty
received for putting the timber in place in the cribs, and 40 cents, which was allowed Murdoch &
Company for the complete cribs, being a difference of 23 cents, a fair and proper spread to allow,
or were Murdoch & Company overpaid on this?
On the part of the Government the following witnesses were called, and their evidence
(which I do not cite) is to be found at the following pages: Murdoch, 2097 to 2104, inclusive;
Swan, 1555 to top of 1565; Proctor, bottom of 1730 to 1739, inclusive.
Vassar, at page 1928, says the 40 cents covered both Finnerty's 17 cents and the filling; there
was no duplication in prices for grading and filling.    (See also page 1929.)
This latter point was raised by Mr. MacNeill and is denied as well by Murdoch.
Campbell, pages 1898 to 1908: Mr. Campbell was a member of a rival firm who tendered for
the work.   Swan was an independent engineer.   Proctor and Vassar were Government engineers.
On the other hand, there is the evidence of Cartwright, an independent engineer, and of
Finnerty, the man who put some of the cribs in place.
Finnerty believes, and I think honestly, that he was not fairly dealt with on his contract,
and, I believe, gave his evidence honestly from his standpoint; but that is not really the point
in issue, and on the question of spread his evidence cannot be given an equal value with that of
experienced engineers, no matter how honestly given.
Mr. Cartwright is an experienced engineer and his evidence is to be found at pages 1335
to 1343.
Mr. Cartwright fixes the spread at 3 cents and adheres to it in cross-examination.
Where I do not refer specially to cross-examination, it is not because it was not most
searching and skilfully handled by counsel on both sides, but I have read it, and it does not
materially affect the evidence in chief.
I can only determine this point upon the preponderance of evidence, and it is largely in
favour of the spread allowed being a reasonable one.
With regard to the yardage, Finnerty and Murdoch were allowed the same yardage and the
same classification on the excavation done by Finnerty, and if you subtract the yardage on work
done by Murdoch & Company on this work, and not done by Finnerty, from the total amount
allowed Murdoch & Company in respect of cribbing and culverts, it tallies with the amount
allowed Finnerty.
Finnerty claims that the yardage allowed Murdoch was given to him as his own yardage by
Vassar, and that a memo, of the amounts w7as taken by him at the time and is produced and
put in as an exhibit.   Vassar denies this absolutely.
Finnerty got the right figures, wherever they came from; but the matter is, after all, on
that head, one between Murdoch and Finnerty, and I cannot overlook the evidence as to the
extra work done by Murdoch, nor can I find on the evidence that the Government overpaid on
this yardage.
Dealing generally with the audit: There was no Government auditor during the construction of the work who made any audit of the books of the Northern Construction Company.
These books were audited annually by their own auditors, Marwick, Mitchell, Peat & Company.
They were, however, under the terms of the contract, at all times open to inspection by any
one on behalf of the Government, and Rossiter, while in their employ, went over frequently to 16 British Columbia.
the office of the Northern Construction Company at Vancouver to check up. Mr. McAfee, who
succeeded him, also did the same. (Proctor, page 1710.) Rossiter's work was extremely satisfactory.    (Proctor, page 1695.)
Mr. Proctor made the monthly distributions for Buttar & Cheine, auditors of the Pacific Great
Eastern Railway Company (the Government), to satisfy them for the purpose of their returns
to the Board of Railway Commissioners.
DeLacey, page 1505: The Company's auditors would come up (on the work) about every
three months and Mr. Boyd and Mr. Steel were there also to check him.
On examining the items contained in the monthly estimates 1 to 39, indications are that they
were all carefully checked, but in a great number of instances they are not certified.
This is dealt with by Gyles.    (See extract from page 1403, which I quote later.)
It also appears in evidence that a number of items which Rossiter refused to certify at the
time were later on certified by him after explanations had been made.
Estimates were paid where all items not certified to, but these were all finally adjusted, and
it would not be reasonable to hold up payment of an estimate because certain items of no great
consequence had to be further investigated; and there was always ample work in hand and not
paid for to protect all this.
The Pacific Great Eastern accounts after the Government took over the road were audited
by Buttar & Cheine, starting with 22nd February, 1918, and following on to the 30th June, 1922.
These are in as Exhibits 241, 241a, 241c, 241d, 241e, with which is also connected up 241b, being
Marwick, Mitchell & Peat audit to 28th February, 1917.
Full explanations of all these appear in the statements of the auditors at the beginning of
the respective reports.
Then follows the final audit of Price, Waterhouse & Company, Exhibit No. 203, on behalf of
the Government.
I would refer to the comprehensive nature of this audit, as expressed in the statement at
the beginning.
When a chartered accountant of the ability and standing of Mr. Young can find no criticism
of this audit other than that by reason of some books and warehouse sales-sheets being missing,
it could not be deemed to be a " probe to the bottom " as requested by the Premier, and must
necessarily to that extent be a qualified certificate, it would be idle for me to comment further
upon it.
Mr. Gyles' evidence that I am taking extracts from is in point on this matter:—
The outstanding point of contention was centred on the submission:—
(1.) By the Provincial Party counsel that a complete audit was not possible, owing to the
loss or destruction of:—
(a.) Northern Construction Company ledger, cash-book, and certain warehouse sales-
sheets for five months in 1919:
(6.) The destruction of Murdoch's books for 1920 and 1921:
(e.) Absence of settlements with sub-contractors.
(2.)  By counsel for the Government that:—
(a.)  The loss or destruction of the books and sales-sheets did not affect the audit:
(6.) That all the "underlying details"—viz., the cheques, vouchers, invoices, and payrolls—supplied the material in detail, which would appear only in summary form
in the ledgers and cash-books:
(c.) That the settlements with the various sub-contractors were not a necessary element
to the audit:
(d.) That the absence of the sales-sheets could be overcome, and was overcome, by a
test of the operations of the surrounding months in line of comparison.
P. 421:   Mr. Boyd states that all the vouchers, except some warehouse sales-sheets for 1919,
are available.
P. 424 : Price, Waterhouse had all the invoices, pay-rolls, cash disbursements, and warehouse
sales-sheets (with the exception of the five months in 1919) to go on in their audit.
P. 1386, Mr. Gyles: As to the warehouse, proved out everything by a general proof of the
stores, and that general proof was satisfactory.
P. 13S8: The general proof was that no large amount, or any material amount of materials
or supplies went on to the road that was not properly accounted for.   Items, not of original Royal Commission on Pacific Great Eastern Railway. 17
record, that were missing, were certain distribution-sheets from the headquarters warehouse
in 1919.    (Referred to by Mr. Boyd.)
P. 1389: It could not avail the Northern Construction Company to have done away with
these sheets.
P. 1391: The loss of the ledgers, was annoying, in that it entailed more work, but do not
attach a great deal of importance to cash-books or ledgers if we have the original records, such
as vouchers and cheques.   Made " comprehensive tests."
P. 1395: If had to call for the books of all the people the contractors did business with,
the work would be interminable.
P. 1396: Analysed in detail all the estimates, and ascertained that all the expenditures
included in those estimates were properly accounted for.
P. 1401: Northern Construction Company officials certified as to the goods received on the
work, the prices and accuracy, and in some cases the Engineer.
P. 1403: The invoices and vouchers in Victoria generally lacking in proper certification,
but the duplicates retained by the Northern Construction Company bear actual evidence of that
having been done.
P. 1406: But the front page, or summary of the accounts in each estimate, is either certified
or checked by Rossiter during his time, and afterwards by McAfee.
P. 1411: All the charges to the Government for material and supplies were proven to have
gone on the work. And where there were invoices for material, that material was traced on
to the work.
P. 1412: Had he been in Mr. Rossiter's position, he would have gone monthly over to the
Northern Construction Company and done many things which perhaps some one else might
not do, but that is a matter of opinion.
P. 1412: It is also a matter of opinion that the Pacific Great Eastern should have kept
an independent accounting system.
P. 1413:  They should have kept accounts of the advances to the sub-contractors.
P. 1417: The work (of checking) as carried out affords a reasonable measure of supervision
and check.
P. 1426: Agrees it was not the general practice of the Government officials to go and
examine goods as they were received.
P. 1427: Generally the vouchers were approved before payment. The Government's approval
came through the engineer on the line, and also through the Chief Engineer.
P. 1430: Took the final estimate as a basis. Did not take the single estimates for the
purpose of seeing whether there were overpayments or underpayments.
Unless a chartered accountant had been employed by the Government to go over and check
monthly the books of the Northern Construction Company with the estimates and data in the
hands of the Government to make assurance doubly sure, I can see no more comprehensive system
that might be employed than w7as.
In view of the auditing and checking that have been shown in evidence which did take
place, and the final checking, before final settlement, of all items, it does not appear to me that,
aside from perfection, which we do not expect to find in any Government or body of men, any
reasonable precaution was omitted in this respect which would render it probable that any loss
was occasioned thereby.
Under the general heading of gross waste of public money:—
Mr. Young, a chartered accountant, representing George A. Touche & Company, a well-known
firm of chartered accountants, was called by Mr. MacNeill and put in a statement, Exhibit No.
315, prepared by him on the assumption that no part of the commission of 0Y2 per cent, was
payable to the Northern Construction Company until the work was completed, and showing that
on such an assumption the Government having paid this commission, or, in other words, added
it to the monthly statements from time to time, and assuming that the Northern Construction
Company was properly chargeable with interest at 6 per cent, on these payments from time
to time, it would have amounted to approximately $43,000.
In construing the clause regarding the payment of the 5% per cent, commission where it
appears first in the contract for 42 miles, the Government might have been justified in strictness
in holding back any part of the commission until that work was completed, and the same may
be said of the subsequent contracts to which it applied. 18 British Columbia.
As pointed out by Mr. Taylor in cross-examination of Mr. Young, there were five contracts:
First, the 42 miles; second, work to April 1st, 1919; third, to Soda Creek; fourth, to Fort
George; and fifth, work orders.
Mr. Young's calculation is based as of no payment of commission on any of these until all
were completed.
This is not as I would interpret the contract; hence the amount arrived at by Mr. Young
would be very materially changed if the contractors were entitled to commission as each and
every contract was completed.
The clause is found at K 13 of the returns brought down to the Legislature, showing the
contract, and is as follows:—
(2.) The following schedule of prices represents our estimated cost: "If on completion
of the work it is found that the total cost exceeds our total estimated cost (exclusive of our
commission)—the brackets are mine—which would be arrived at by computing the final measurements at the following schedule of prices, then in such case we to receive 5^ per cent, on the
estimated cost only."
It seems to me that the Government might reasonably construe this, and it may he the true
construction, as if the words "if-on completion of the work" had relation more particularly to
the final basis on which commission would be allowed, rather than the time for payment of the
commission, and any difference in commission that might be paid from time to time would then
be adjusted on that basis; and this would be amply taken care of by the amount due on the
final payment for the work.
With respect to the lack of Orders in Council for moneys expended under the second " Loan
Act," it appears that, with the exception of three Orders at the beginning for comparatively
small amounts, no Orders in Council for each payment made were forthcoming, which was the
procedure carried out under the first " Loan Act."
What was done was what I will term an omnibus Order in Council was passed turning
over the proceeds of the second loan, some $4,000,000, to the Railway Board, composed of the
Piemier, the Minister of Finance, and the Attorney-General, with Mr. Campbell as Secretary,
for the purpose, among others, of being expended in the construction of the road.
This does not, perhaps, come strictly under the inquiry, and is more a matter of comment
on the businesslike methods adopted.
As I understand it, the money was handed over to the Board to be by them applied to
certain specified purposes, and the Board would have to account to the Government for the
carrying-out of this trust. I do not think that it necessarily carried with it the applying to
the Lieutenant-Governor in Council for an Order for the payment of each account, though
I think such a practice would have been better and would have at least prevented this discussion.
It is not suggested that by reason of this any moneys were improperly expended.
'       A matter developed during the inquiry which, though not covered by the specific charges,
was so connected up with the general statement of gross waste of public money and the defrauding of the Province that I considered it only proper that it should be dealt with.
This was in connection with an allowance of 100,000 yards of earth to Murdoch & Company,
as shown in the final profile, Exhibit No. 309, covering 10 miles on the Quesnel revision.
This profile was prepared, or at least the earth quantities which are in question were filled
in on the profile by the Government engineer, Vassar, whose duty it was.
Murdoch & Company were paid for this the sum of $40,000, being the proper allowance if
such quantities existed.
The suggestion is that they did not, and that they were deliberately filled in by Vassar to
give Murdoch & Company the benefit.
This is, of course, a very serious charge.
Mr. Cartwright was called on this by the Provincial Party and his evidence is to be found
between pages 2359 and 2368. In this evidence he explains why he comes to his conclusion,
and swears that his conclusion is that the allowance is crooked.
A young engineer of less experience, a Mr. MacRae, was called on the same side and gives
his reasons between pages 2371 and 2378, and while he declines to say it is crooked, he points
out a number of changes in figures, and other alterations, which he says should- not appear in
any final profile, and would say that the earth had been added after the quantities had been
put on. Royal Commission on Pacific Great Eastern Railway. 19
This evidence is based on the profile itself and the quantities that were turned in in the
estimates before the final profile was prepared, which do not agree.
I have examined the profile carefully, both with the naked eye and under a glass, and
I must say frankly that if I had to determine the question on the appearance of that alone,
I should have doubts as to its genuineness.
However, there are other things »I have to consider in this connection.
First, these quantities are certified to as correct by Vassar, the Chief Engineer, Proctor,
and Bright, the Assistant Engineer.    (Exhibit No. 307.)
As to this certification, Cartwright says : " It is just possible Mr. Proctor took his (Vassar's)
figures."
In view of the fact that Proctor's attention would be challenged by the difference in the
figures as between the estimates and the profile, this could hardly be so. It would be a direct
breach of his duty, and no engineer of any reputation would do such a thing. Besides, he says
in his evidence and in his letter to Bright (Exhibit No. 313) : " I discovered this error myself
in going over the details with Vassar."
As to Bright, Cartwright says at page 2368: " Captain Bright declined the responsibility,
signed the estimate, and left it to Proctor and Vassar to account for the error that they found."
Unfortunately, Captain Bright, who was in attendance during a part of the inquiry, was
taken suddenly ill and was taken to the Vancouver Hospital to undergo a serious operation,
which, I am informed, was postponed owing to his weakened condition, and we have not been
able to have the benefit of his evidence.
In view of this, and lest I might be doing Captain Bright (whom I have known favourably
for many years) an injustice, I will simply consider the fact that he signed the final estimate,
but without the added force that would be given to his signature if I had proof which he could
supply that he had checked up finally with his own.
I would, from my knowledge of him, certainly expect he would, but without proof I cannot
so find as a fact.    .
Both Proctor and Vassar swear that Exhibit No. 307 shows the correct quantities, and not
the estimates, as they were only progress estimates, always subject to revision, and might contain
much larger or smaller quantities than would appear on the final profile.
Vassar's evidence under a searching cross-examination by Mr. Tait is to be found between
pages 2014 and 2054, and perhaps more directly in point, between pages 2038 and 2054.
Of course, it is too burdensome to quote all this evidence, but in order that some idea as
to its nature may appear in the report, I quote a number of questions put by myself, and the
answers thereto, which I think show the general trend of the evidence. (Pages 2046 to top
of 2049.)
" The Commissioner: You say the hundred thousand yards are accounted for from Mile 8
to Mile what?
" Mr. Tait: From the beginning to the end of this profile, right from 10 to 1, practically,
the figures have been changed and read so as to account for an additional one hundred thousand
cubic yards of earth.    That is the suggestion.
" The Commissioner: Your suggestion is that there is one hundred thousand cubic yards of
earth more given to Murdoch & Company in this.
" Mr. Tait:  Murdoch & Company.
" The Commissioner:  Than they should have got.
" Mr. Tait: Than they should have got; and that that having been done, this profile has
been doctored up to correspond with it.    And that, flatly, is the suggestion.
"The Commissioner: Yes; I quite see what your suggestion is. Now, Mr. Vassar, your
attention has been drawn by Mr. Tait to these different changes, and you say, yes, those changes
have been made;  you say also that they have been made in the hard-pan and the solid rock?
" A.—Yes;  changes made all the way through, Your Lordship.
" Q.—And the summary has also been changed. Now you say, then, as I understood your
evidence, those were not made at a different time?
" A.—No, no;  that was all put in at the same time.   All at the same time, Your Lordship.
" Q.—Now, do these figures we are dealing with now, that is entirely as I understand with
earth—do these figures and these changes that have been made, both in the summary and the
final summary as I take it at the end—do they or do they not represent the true quantities?
"A.—Absolutely the true quantities? 20 British Columbia.
" Q.—Wait a minute until I finish my question; the true quantities of earth excavated by
Murdoch & Company on this contract?
" A.—Yes, Your Lordship, absolutely.
" Q.—Beyond any question?
"A.—Beyond any question of doubt; taken from the field-notes and field-books of my
resident engineers. *
" Q.—Now, how do you account, then, for so many changes having been made on this profile?
" A.—The profile is full of changes, Your Lordship, made possibly in copying the notes from
the books.
" Q.—It may be full of changes, but how do you account for that fact; give me some reason
why the profile should be so.
" A.—Well, it is quite easy to make a mistake in figures in copying from a book to a profile.
Unfortunately, I am a very poor draughtsman.
" Q.—That may be; you may make a mistake in figures; but would you make a mistake
in taking this one here—evidently this started clearing, and then grubbing?
" A.—Yes; well, that is purely a draughting error.
" Q.—That may be a draughting error. But then comes excavation, hard-pan, rock, cribs,
and so on. Now, while you might make mistakes in figures, how do you account for an earth
item, and another item under the heading of earth, being left out altogether?
" A.—This possibly was made after some profiles that had been made before, when the
earth item did not enter in at all;  and you are very likely to overlook it.
" Q.—Wait until I see. That would be a profile then really—if anything, where earth would
not appear on it at all?
" A.—Yes.
" Q.—Because earth had not at that time been classified?
" A.—The Cottonwood profile—I think there are miles of that that no earth appears at all;
and the same thing appears on the other profiles; that Mile 12, I don't think earth appeared on
it at all.
" Q.—However, we have the profile before us with these changes; and can you give any
other explanation of it than what you have given?
" A.—I think that is all that is necessary, Your Lordship.
" Q.—I am not putting it all that is necessary, but asking you, can you?
" A.—I think that is all the explanation I can give.
" Q.—All that you can give. And in the face of all that, you are definite and positive in
your statement that these quantities of earth were excavated and were properly allowed for?
" A.—Absolutely, Your Lordship.    Absolutely.
" Q.— AP right."
Then follows Proctor's cross-examination by Mr. MacNeill along the same lines, to be found
between pages 2062 and 2134, with some evidence of Murdoch and Cowie interjected.
It is a little difficult to follow Mr. Proctor's explanations in some instances, but in several
places he is emphatic in stating that only the correct amount of earth was paid for, and I can
understand, although not clearly demonstrated, how these differences could occur.
Murdoch swears he did not receive payment for a yard of earth that he was not entitled to,
and that if he had been looking for an increase he would not have sought it on earth excavation.
Beyond all this, I find myself faced with this condition: that if, as alleged, a fraud was
perpetrated, Murdoch & Company must have known of it; Vassar, Proctor, and Bright would
know of it;  and the Northern Construction Company would know of it.
In other words, five distinct parties would be parties to that fraud, and I would in effect
have to consider the probability of such being the case.
I have given this a great deal of thought and consideration, and have spent considerable
time in perusing the evidence and checking up the figures, and my view is that I would not be
warranted in coming to such a conclusion on the documents alone, and against the evidence.
Moreover, it would hardly be fair to charge this as against the Government, they having
before them the certificate signed by their three engineers as to the final quantities.
During the inquiry considerable comment was made on certain books of the Northern
Construction Company and Murdoch & Company being missing. 14 Geo. 5     Royal Commission on Pacific Great Eastern Railway. M 21
These were the books of the respective companies, and after the transactions recorded
therein, were closed, unless some sinister motive can be imputed, in destroying them, there is
no point to it.
Boyd and McLennan, two of the officials of the Northern Construction Company, were called
on this point, and their evidence is to be found: Boyd, pages 405 to 433, inclusive; McLennan,
pages 618 to 634, inclusive.
DeLacey and Murdoch were examined as to the missing books of Murdoch & Company, and
their evidence is to be found: DeLacey, pages 1519 to 1531, inclusive; Murdoch, pages 2139 to
2141, inclusive.
This evidence, I think, disposes of any such imputation.
I have read Mr. Fairweathcr's evidence, partly directed to showing that there was no reason
for increase in prices, and partly to showing an enormous profit made on this work.
Like all estimates of this kind, where all details are not available, and where many matters
are left out of consideration that might entirely change the aspect of things, any computation
of figures could be of little use in face of the evidence, and, what would really be required, a
complete audit.
It may be right, mathematically on the premises on which it is based, and yet be far from
the actual facts.
The affidavits upon which these charges are founded, like all affidavits which do not disclose
all the facts, tend to create in the public mind impressions which may disappear entirely on
investigation, and which w7ould not be created if the full facts were known.
I was asked to admit as evidence an affidavit by a Mrs. Bell, the widow of one of the tie
contractors.
I refused the application. I didjnot see the affidavit and do not know its contents, but it
must, I think, necessarily be founded on hearsay, and, speaking generally of affidavits of that
nature, I think it would be a most mischievous practice to admit them.
Any one would be at the mercy of an unscrupulous person who (on information that might
not be founded on fact or maliciously, aud founded ou no information at all) might make certain
statements on affidavit, and still' more so if not present for cross-examination.
To sum up in a few wrords, I find nothing in the evidence in this inquiry to w7arrant the
imputation that there was anything dishonest, or any dereliction in duty, or disregard of the
public interests, or waste, extravagance, or incompetence in the carrying-out of this work by
the Government.
In conducting a work of this magnitude, it would be astonishing if some errors or mistakes
were not made, and perhaps I might say, more thorough methods in some instances might have
been adopted; but, on the whole, considering the handicap that those carrying on railway-
construction during these years laboured under, it is not surprising that the work has cost
the country large sums of money.
If my report has been more lengthy than I anticipated, my excuse is that in dealing with
an inquiry into the expenditure of the people's money, I think it is due to the people that
I should give to them the reasons for my conclusions, aud in doing so I find it difficult to
curtail it.
All of which is respectfully submitted.
Dated at Victoria, British Columbia, this 22nd day of April, 1924.
W. A. GALLIHER,
Commissioner.
VICTORIA,   B.C. :
Printed by Charles F.  Banfield, Printer to the King's Most Excellent Majesty.
1924. 

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