Alberta and Great Waterways Railway scandal

Alberta's first years as a province were optimistic ones. This optimism manifested itself in a desire for railroads. The public, media, and politicians all called for the rapid development of new lines and expansion of existing ones. Rutherford's Liberals had set up a framework that allowed almost anybody to enter the railroad business, but few firms had done so by 1909. The opposition Conservatives called for the government's direct entry into the industry. Rutherford's government instead opted for a regime of loan guarantees: the Grand Trunk Pacific Railway and the Canadian Northern Railway (CNR) had their bonds, which were to pay 4% per year over their thirty-year term, guaranteed at a rate of $13,000 per mile of railway constructed. The legislature had the right to increase this to $15,000. In exchange, the railways were subject to a minimum rate of line construction: the CNR was required to build and the Grand Trunk Railway before the end of 1909. Guarantees to the A&GW were more generous than to the established companies: $20,000 per mile for and $400,000 for its Edmonton terminal. The bonds also paid better interest (5%) over a longer term (fifty years) than those of the established companies. Upon the bonds' sale, the money was to be placed in a bank account controlled by the government, and paid to the railway as the line was constructed. ==The scandal==

The Rutherford government had just been resoundingly re-elected in the 1909 provincial election, winning 36 of the legislature's 41 seats, when the new legislature first met in February 1910. There was initially no sign of controversy in relation to the A&GW Railway: William Clarke, A&GW President, had several months earlier announced that the line would be completed by the end of 1912, ahead of schedule. When the A&GW bonds went on sale in London in November 1909, the issue was oversubscribed. The following month, the contract for ties was awarded. Everything seemed to be progressing as planned when, at the beginning of the new legislative session, Liberal backbencher John R. Boyle asked the government a series of innocuous questions about the company and the guarantees made to it. Rutherford, Minister of Railways as well as Premier, responded to the questions in writing. Before he did so, however, a rumour began to circulate that William Henry Cushing, Minister of Public Works, had resigned from the cabinet. Boyle and Conservative leader R. B. Bennett questioned Rutherford about the rumours, but Rutherford initially refused to make any announcement. The next day, however, the rumour was confirmed when the Premier read Cushing's letter of resignation in the legislature. In this letter, Cushing gave his reasons for resigning as disagreement with the government's railway policy, which he claimed was developed without his involvement or consent. Rutherford disagreed with this claim, and expressed his regret for Cushing's resignation. J. R. Boyle's resolution On February 21, Boyle gave notice of a resolution to expropriate the rights of the A&GW and build the line directly. He asserted that the government had guaranteed to the A&GW more than was necessary, as a line of , barely two thirds what had been guaranteed, was sufficient. The next day, Boyle further alleged that Deputy Attorney-General S. B. Woods had tampered with the government's files on the A&GW before Boyle and Bennett had viewed them. Attorney-General Charles Wilson Cross strongly disputed this allegation. He claimed that he had taken ill at a time that this understanding was still in place, only to have Rutherford move responsibility for railways from Cushing's Public Works department to a new Railways department, headed by Rutherford himself. He recounted his discomfort with Rutherford's refusal to consult with Public Works engineers on the actual costs of constructing the line, and his relief at Rutherford's assurance that Cushing himself would be consulted. He claimed that Rutherford had not followed-through on this pledge, and that, upon seeing the completed agreement between the A&GW and the government, Cushing had decided to resign. Rutherford disputed this version of events, noted that Cushing had been at all relevant cabinet meetings, and cited the report of government engineer R. W. Jones in disputing that the line could be constructed for less than $20,000 per mile. Boyle followed, alleging that Rutherford had privately committed the government to the $20,000 figure as early as November 14, 1908, before a government engineer had even been appointed. He also accused the government of negligence in failing to verify the paid in capital of the A&GW before committing $7.4 million of government loan guarantees to it. He closed by repeating his demand that the government expropriate the company's rights and build the line itself. Cross rebutted for the government, questioning Cushing's sincerity and quoting a March 1909 speech in which the then-Minister of Public Works had defended the government's railway policy against Bennett's attacks. Cross also reminded the legislature that no money was to be paid to the A&GW until tracks were actually constructed. Independent Edward Michener attacked the government for receiving only par value for the bonds when they had been sold at ten percent above par. McDougall voiced his support for Michener's argument. Though McDougall had seconded Woolf's pro-government amendment, his reasons for doing so were less support for the government than a principled aversion to the province using its law-making power to extricate itself from inconvenient contracts. Opposition to the government came to a head March 2 when Conservative leader and Calgary MLA R.B. Bennett spoke. Bennett was renowned as one of the province's finest orators, and the five-hour speech he gave on this occasion earned plaudits. The Liberal Edmonton Bulletin praised its "splendor in diction [and] the physical endurance of the orator" and called it a "high water mark for parliamentary debate in Alberta". Bennett lashed out at the government's handling of the A&GW file, accusing it of culpable negligence in failing to properly oversee the company's activities. He claimed to have been approached directly by "great financial interests" intent on preventing his participation in the debate. He argued that the discrepancy in the sale price of the bonds and what the government had received for them meant that Clarke and his associates had realized a profit of between $200,000 and $300,000 at the government's expense. He closed with an accusation that Cross had sent an emissary to a telephone company that wanted to install an automatic telephone system in Calgary agreeing to reverse his opposition to the deal in exchange for a $12,000 contribution to Cross's campaign fund. These charges, corroborated by Cushing but hotly denied by Cross, were not related to the A&GW affair but were designed to damage the credibility of the government's de facto house leader on the eve of the vote on the Woolf-McDougall amendment. The government side adopted similar tactics: Agriculture Minister Duncan Marshall accused Boyle of being motivated by bitterness over having been denied the solicitorship of the A&GW; Boyle admitted that he had applied for this position but denied an accusation by Peace River MLA James Cornwall that he had requested Cornwall's assistance in lobbying for it. The Woolf-McDougall amendment came to a vote the evening of March 3. In a victory for the government, the amendment passed twenty-three votes to fifteen. In addition to Michener and the legislature's two Conservatives, the amendment was opposed by twelve of the legislature's thirty-seven Liberals, including Cushing. Charles M. O'Brien, the legislature's lone Socialist representative, voted with the government. Cabinet confusion (bottom left) and Charles Wilson Cross (top right), though both Liberal members of the provincial cabinet, found themselves on opposite sides of the Alberta and Great Waterways debate.On March 9, Cross suddenly resigned. His resignation was quickly followed by that of Woods, his deputy. The next day William Ashbury Buchanan, Minister without Portfolio, did the same; though he had voted on the government's side on the Woolf-McDougall motion, he harboured considerable doubts about the government's railway policy. Rumours circulated that Agriculture Minister Marshall and Minister without Portfolio Prosper-Edmond Lessard had also resigned, though these proved false. Buchanan, Marshall, Lessard, and Rutherford made no comment on the situation to either the press or the legislature, but Cross was more forthcoming: he said that Rutherford had told him that Cushing had been asked to re-enter cabinet and had accepted, leading Cross to conclude that, in light of his public conflict with Cushing, he "could not, under the circumstances, remain a member of the Alberta government." He directly accused Cross of having fabricated his claim that Rutherford had told him that Cushing had agreed to re-enter cabinet. Rutherford held his silence until March 11, when he told the legislature that he had not accepted any resignations. He said that the only vacant cabinet post was the ministry of Public Works previously held by Cushing, and that he hoped to fill it soon. In the meantime, he intended to continue governing. While he eventually acknowledged Buchanan's resignation March 14, Cross remained in cabinet. The board would have the power to discharge any government responsibility under the Alberta Railway Act. Stocks, however, publicly repudiated the resolution, and announced that he would have nothing to do with it. On March 11, government supporter Charles Stewart attempted to disclose a scandalous rumour about Boyle in the legislature, but was ruled out of order by Speaker Charles W. Fisher. The allegation was quickly printed in the Edmonton Bulletin instead: Boyle, who expected to be named Attorney-General in the event that Cushing formed a government, was accused of approaching Lucien Boudreau and Robert L. Shaw, two government supporters who were hoteliers in their extra-legislative careers, and offering them immunity from prosecution for liquor license violations in exchange for their support of the insurgency. The government was also encouraged by the motion of dissident George P. Smith to strike an apolitical commission to supervise the construction of the A&GW, since it corresponded closely to its own proposal to appoint a royal commission. The Alberta and Great Waterways Railway scandal was, for the time being, out of the legislature's hands. ==Aftermath==

The commission's inquiry The commission first met in Edmonton March 29. The three commissioners—Justices David Lynch Scott, Horace Harvey, and Nicholas Beck—were joined by counsel for the insurgents (including Bennett himself), Cross, Rutherford, the A&GW, and Cornwall (who had been accused of using his involvement with the Athabasca Railway for personal benefit during the scandal). but when these proved unwilling he acquiesced with Rutherford, the choice of Alberta Liberals. Now, with Rutherford reeling, Bulyea saw his initial doubts validated and began the search for potential successors. (in this opinion he was supported by other Liberal Party luminaries, including Frank Oliver, federal Minister of the Interior and proprietor of the Bulletin). He continued to prefer Talbot, but found that the insurgent Liberals, who favoured Cushing, would not accept him. Oliver was also a possibility, but he had no interest in leaving Ottawa. The question was answered May 26, when the legislature reconvened. Bulyea entered the house and announced that he had accepted Rutherford's resignation and that he had asked Sifton to form a government. Sifton had accepted. The arrangement had nearly fallen apart at the last moment; MLAs loyal to Cross indicated on May 25 that they would accept Sifton only if Cross remained the Attorney-General, which Sifton refused. It appeared for a time that Rutherford would not resign; after considering the matter overnight, Bulyea decided the morning of May 26 that he was in a position to force the Premier's hand, but it proved unnecessary when Rutherford stepped down of his own volition. Its findings were split into two reports: a majority report from Justices Scott and Harvey, and a minority report from Justice Beck. The majority report traced the origins of the A&GW scandal to 1905, when a number of Albertans, including James Cornwall, were federally incorporated as the Athabasca Railway Company, chartered to construct a railway from Edmonton to Fort McMurray. The legal work for the incorporation had been done by the law firm of Charles Wilson Cross, Cornwall's close friend and personal solicitor. In October 1906 Cornwall sold the ARC's charter to a syndicate of Winnipegers for $2,500 and a one-sixth share in the syndicate. At the end of 1906, syndicate members visited Alberta, where Cornwall introduced them to members of the cabinet. Negotiations between the syndicate and the government continued for several years. During this time, new construction estimates prepared by the syndicate placed the cost of the railway at between eighteen and twenty thousand dollars per mile. February 2, 1907, Cornwall entered into an agreement with the syndicate whereby he would receive $544,000 in stock in the resulting railway company if he could secure the necessary loan guarantees; this amount was later changed to $100,000. The majority report was critical of Rutherford and Cross for this, and also for setting the bonds' interest rate at 5 percent rather than 4 percent. The stated reason for this discrepancy was that the proposed railroad was likely to be difficult and expensive to build, crossing hundreds of miles of wilderness; in response, the report pointed out that the provincial guarantee of $20,000 per mile took this difficulty into account, and that there was thus no need for a higher interest rate to lure investors. The majority report also took a dim view of the exemptions from the province's railway legislation that were built into the A&GW's charter: unlike the province's other railways, the A&GW was not required to have directors resident in Alberta and was exempt from the requirement that railway companies not commence business until 25% of their capital was subscribed and 10% paid up. The A&GW was held to a figure of less than 1% for both, The majority declined to find Rutherford and Cross guilty of any wrongdoing beyond poor judgment, though its findings were hardly flattering: "As there is room for doubt that the inference of personal interest is the only reasonable inference to be drawn from the circumstances related, and in view of the positive denial, it can only be said that, in the opinion of your commissioners, the evidence does not warrant the finding that there was or is any personal interest on the part of Dr. Rutherford or Mr. Cross". Its findings with regards to Cornwall were similar: his receipt of $14,500 and his expectation of $10,500 more constituted "suspicious circumstances", but these "point to no definite conclusion; and he has denied that he received any other benefit, or was interested in any other way in the enterprise, and it must be held that the evidence does not establish the contrary." Long-term effects Sifton was selected Premier in an effort to restore party unity, and his first cabinet reflected that. There were three ministers in addition to Sifton. Charles R. Mitchell had been, like Sifton, a judge during the scandal, and was therefore unattached to either side. Duncan Marshall had been a Rutherford cabinet minister, but not one identified strongly with its railway policy. Archibald J. McLean had voted with the rebels, but not been a leader among them. The cabinet thus included members of both factions, but none of those who inspired such strong opinions as to be overly divisive. 's ascendancy to the premiership was intended to provide a break from Rutherford's scandal-ridden government and smooth over divisions within the Liberal Party.In late 1910, the new government introduced legislation to revoke the A&GW's charter and confiscate the proceeds from the sale of bonds, which were still held by the province. In introducing the bill, Sifton made no commitment as to what would be done with the funds once confiscated. Many northern MLAs, including Cornwall and Cross, suspected that the Premier's plans for the money did not include construction of a northern railway, and opposed the bill on that basis. Clarke re-surfaced in Winnipeg to deny Sifton's charge that the A&GW had defaulted on any of its obligations, and Conservative leader Bennett opposed the confiscation out of stated respect for private property: "Clarke I despise but Clarke I am bound to respect because this province gave him a right by charter and if I know the United States I do not think it will allow this province to take his property 'without due process of law'." Once the legislation was signed into law by Bulyea, the government immediately wrote cheques drawing on the bond money. The Royal, Dominion, and Union banks, where the funds were deposited, refused payment. The government sued, and the provincial supreme court ruled in its favour in 1912. The Royal Bank subsequently requested that the federal government use its power of disallowance to invalidate the legislation and appealed the supreme court's decision to the British privy council, at the time Canada's highest court of appeal. While the federal government declined to act, in 1913 the privy council found that the provincial legislature did not have the authority to confiscate money that had been raised from investors from outside of the province. In its objective of smoothing over Liberal divisions, Sifton's succession was only partially successful. Rutherford himself became increasingly distant from the party, and ran in the next election as an independent Liberal, opposed to Sifton's government. In addition, he offered to stump for the Conservatives across the province if they would agree to not run a candidate against him in his own riding; the Conservatives declined his offer, and Rutherford lost his Strathcona seat to Conservative Herbert Crawford. He went on to campaign for the Conservatives in the 1921 election. On the other side, Ezra Riley, a leader of the insurgency, resigned his seat in protest of Cushing's exclusion from the new administration. He ran as an independent in he ensuing by-election but was defeated by a pro-Sifton candidate, Liberal Archibald McArthur. It is possible that supporters of Cross would have also resigned, but Sifton brought him back into cabinet before the next election. With the noisiest dissidents neutralized, the Liberals enjoyed a period relatively free of intra-party strife, until the Conscription Crisis of 1917 once again split the party. ==Notes==