^. IMAGE EVALUATION TEST TARGET (MT-3) 1/ ^ A ^/ ^ Vj .«\^ ^^ 1.0 I.I 11.25 121 12.5 *^ 1^ 12.2 li u u ^ *^ »v 0% ■/» A /. ■V Hiotographic Sciences Corporation 23 WEST MAIN STRUT WEBSTER, N.Y. MSBO (716) 872-4503 %S CIHM/ICMH Microfiche Series. CIHM/ICMH Collection de microfiches. Canadian Inatituta for Historical Microreproductions / institut Canadian de microreproductions historiquas Technical and Bibliographic Notas/Notes tachniquas at bibliographiquaa Tha Instituta has attamptad to obtain tha bast original copy availabia for filming. Faaturas of this copy which may ba bibilographlcally uniqua. which may altar any of tha imagas in tha raproduction, or which may significantly changa tha usual mathod of filming, ara chackad balow. D D D D D □ Coloured covers/ Couvarture de couleur I I Covers damaged/ Couverture endommag^a Covers restored and/or laminated/ Couverture restauria et/ou pelliculte □ Cover title missing/ Le titre de couverture manque I I Coloured maps/ Cartes giographiquas an couleur Coloured Ink (i.e. other than blue or black)/ Encre de couleur (i.e. autre que !!j>orne out by the Acts, that the Province, prior to the Act of 1856, were first nwrtijayees, and had i\\e first claim on the receipts of the line. These, then, are the rights which thi^ Preference Bondholders took when they assumed the position of the Province. • Previous to the issuing of the Report of the Directors, dattd 26th October, 1860, no one doubted that the Preference Bon> s, as had been always represented, and a£ their name implied, conferred on the holders a first charge ; and so late as April, 1860, subscriptions were solicited for the Second Preference Bonds, on a representation that a certain amount of gross traffic would, after deducting working expenses, leave sufficient to pay tlie interest on the First and Second Preference Debentures, showing clearly that, at tliat time, it was not supposed that un- secured creditors could, by obtaining judgments, interfere, witii the rights so repeatedly asserted to be possessed by the secured creditors. In the Directors' Report of the 26th October, 1860, an announcement was, however, made, which very greatly alarmeil the Preference Bondholders. It was as follows : — "In the present embairassed state of the Company's aflUiifj^ and the uncertainty of relief from the Governmuut adequate to meet its liabilities, Messrs. Baring, Brothers, and Co., and Messi-s. Glyn, Mills, and Co., have obtained a Judgment against the Company for debts due to them and others whom they represent, which vests in ihar ctgmta the power of teizwre of tlie rolling ttoek of tlie road, but this measure has been adojited for the general benefit of all present creditors, to guard against hostile prosecution of individual claims, and for the protection of the Company's intej-ests." Among prenent creditors, the London Board, on being ap- pealed to, stated they did not include the Preference Bond- holdertr. The above announcement was the first intimation by the Directors that any legal proceedings had been taken against the Company. In order to ascertain whether the Judgment Creditors really possessed the "power^' which the Directors asserted in their Report, a case was laid before eminent Equity Counsel (Sir Hugh Cairns, Q.C., Mr. Amphlett, Q.C., and Mr. Westlake), accompanied by all the Canadian Acts relating to the Company, to advise thereon, and also as to the rights and remedies of the First Preference Bondholders, and the following is a copy of their opinion : — " 1. We are of opinion that by the terms of their Bonds and of the Canadian Statutes, the First Preferential Bondholders of the Grand Tnink Railway Company of Canada possess an hypothec, mortgage, charge or lien, of the same nature, covering the same kinds of property, and ranking in the same order of priority, with that which the Province had previous to the Act of 1856, st. 19 and 20 Vic, cap. Ill ; and that such charge extends to the rolling stock and plant of the Company as well as to the road and works, and is a first charge thereon. " 2. We are of opinion that the said First Preferential Bond- holders are entitled, in case of any danger to their security, to have Receivers appointed, or such other means employed as by the laws of the respective jurisdictions through -'. whioli thf) llailway paHNes may be provided fur protecting and making available thu property included in their charge ; and, aasuming that there is an evident proMitect of the revenue of the Company proving insufficient to pay 'he intereflt becoming due on their bonds, and that judgmentH to large amounts have been obtained against the Com|>any in Upper (-anada, we consider that an aj (plication to thu Court of Chancery in Upper Canada for a Receiver, and an Injunction to restrain the judgment creditors from issuing execution, would be successful." This opinion, in effect, amounts to this : that the Firwt Preferential Bondholdera are in the position of First Mort- gagees on all the projHsrty of the Company, including thu rolling stock, and that, consequently, no jr.dgment against the Company can be enforced, except subject to the Preference Bondholders' prior claims. This view of the construction of the Acts has been con- firmed by the opinion of eminent Counsel both in Upper and Lower Canada. ' , No contrary opinion of English or Canadian Counsel has been produced ; and we have reason to assume, from what has pas8ed,'[that none has been obtained which can justify the claim of the Judgment Creditors to "the power of seizure of the " rolling stock." In accordance with the opinion of Counsel, proceedings have been commenced in Canada to have the rights of the Preference Bondholders settled and determined, and also to protect the property by the appointment of a Receiver in case of attack by Judgment Creditors, and those proceedings are now going on. Although the interest on the First Preference Bonds, which became due on the 1st January, 1861, was not met, the Direc- tors, in their recent Report, dated 29th December, 1860, stated \ that they were applying the uot earningii, beyonrl working expenBes, in meeting pressing olaimn for pud ^xpenditwe in trolling stock, &o. Conceiving that they weri) not juitiflud in that course, we communicated with the Solicitor to the Company on the subject, and tlie following is an oKtiiust from a letter received from him in reply, dated the 17th January, 1861 : — .^ , .^. , ^ , ♦' I am instructed by the London Directors of the Grand Trunk Company to inform yo\i, in reply to yours of the 5th and 14th inst., that they have passcnl a reHohition calling niion the Canadian Board to apply the earnings of the under- taking in conformity with the opinioiiH of Uir Hugh Cairns and Mr. Lloyd, and to remit tJm hiUmuse to Eii/gland 1.1 totoarda payment of tl^e iiUer&tt to the Preferrnce Bond' liolders ; which course they trust will be oatisfactory to your clients." ^ - , •.'■> t. r « • f . 'r By the resolution of the London Directors referred to in this letter, they admit that the Preference Bondholders ha\ e a first charge on the net proceeds, and that the Directors are Jieceivers of stick net proceeds in trust, in the Jirttt plaoe^for tfis Preference Bondlwlders. This shuts out any dispute between the Preference Bondholders and the other clasneM interestefl in the Railway, and nari'ows the controversy to the question between the Preference Bondholders and the Judgment Creditors, who are outside claimants. The interests of the Preference Bondholders and of the ordinary Bond and Shareholders are identical, in keeping the road open and developing its resources, while the necessary effect of enforcing the claim of the Judgment Creditors by seizure of the rolling stock would be to stop the roatl and m do irreparable damage to all classes iuterested, whether as Shareholders or Bondholders. ;, . v ' v\ I • t Tht (ilaiiii of the Judgment Crtxlitora goeo to the very roit of the (security of the Preference Bundholdertt. If the pretent Judgnieut Creditor >) can Reize the present rolling sttKsk, then, if they wore i>aid off, what is there to prevent fresh Judgment Oreditorn Hpringing up hereailer and claiming the same rights J In thi« way, the ordma/ry Bonds as they become due, which they all do before the First Preference Bonds, might, by obtain* iug judgments, get what would practically be a priority over the Preference Bondholders ; fur nothing can be clearer than that whoever, for the tima heiiig, has the power of seizing the rolling stock and plant, can coerce the other classes into terms, and so get paid in preference to any one else. A large pro{)or- tion of the ordinary Bonds and the whole of the Unsecured Debt have been created aince the issue of the First Preference Bonds, and vnth full notice, therefore, of the Preference Bond- holders' first charge. ': ?? 1' V .a " , , The Directors, in recommending the raising of a million and-a-half sterling, in March, 1360, pr>. posed to do so by the issue of Bonds for short periods, but "toitfufut interfering vnth the eadsting preferential rights of end on the character of the opposition; but remembering who are the principal Judgment Creditors, and the large interests involved, it is assumed that no difficulty will be thrown in the way of a speedy decision. In the present embarrassed state of the Company's affairs, the Directors have applied to the Government of Canada for fur'^her aid, and we have been asked to suspend proceedings until the result of that appeal shall be known. It is of course proper that the Judgment Creditors should be paid, if the Company can raise the money without prejudicing vested rights. To facilitate that object, our Mr. Morris, on his own responsibility (and, having been recently in Canada, he had some means of forming an opinion of what was likely to be acceptable there), suggested an aiTangement scheme which goes to the verge of such concession as +1 e Preference Bondholders can be advised to make, but tlie Judgment Creditors art* not prepared at present to entertain it. We cannot advise the Preference Bondholders to delay proceedings on the chance of what the Government oi' Canada may do. Our Agents, in a recent letter, say (to use their own \\ ords), " the expediency of the Preference Bondholders at once naeei'ting their rights ceases to be an expediency," and they give good grounds for that opinion. The Preference Bondholders, if rightly advised, have already a first charge over everything. They, therefore, can gain nothinj by legislation ; while the J udgnient Creditors, on the other hand, have everything to gain and nothing to lose by legislative interference. The Government of Canada are pledged to introduce some measiore as to the Grand Tinink in the coming Session ; it hus been openly suggested (although we do not believe that the suggestion will or can be adopted), that the 11 Ooveminent nhotild advance the two millious and a halt Htorling, which in said to be wanted to pay off th*^ floating debt and provide additional rolling stock, and take a first charge for it. It is a first principle of legislation not to interfere with vested rights without the consent of the parties whose interests are to l>e affected. We can hardly suppose that the Govern- ment of Canada would, in any case, depart from that principle ; Htill lem would they do so under the special circumstances of this case. The Act of 1856, under which the Preference Bonds were issued, was a Government measui-e ; it was, both in form and substance, a compact between the Province, the Company, and the Preference Bondholders, under which the money subscribed by the last-named passed through the luxnda of tJie Government, and was applied, under its direction, in the several works s}>ecified in the Act of 1856, which works were deemed of public and general importance to the interests of the province. The Act provided that " the proceeds of the said Bonds shall be dci)08ited with the provincial Agents in London, and released to the Company on the certificates of the Receiver-General, upon proof, to the satisfaction of the Governor in G^ancil, of progress of the several works hereinafter mentioned." The people of Canada have therefore had, and still enjoy, the benefit of the Preference Bondholders' money in these works. The Government and peopie of Canada not only therefore cannot dispute, but are bound to support, the Preference Bond- holders' claim. If the Government Act of 1856 should (although we do not admit that it does) fail to give effect to what was the admitted intention, the Preference Bondholders would have a right to call on the Government to remedy the r his claim. If ten persons lend £1,000 on the Heourity of ^-n estate, each advancing .£100, and taking a Mepiirate charge for it, could it bo contended, because nine out of the ten agreed to a reduction in principal or interest, that Mich agreement should be binding on the tenth ? No such principle would be acknowledged in England, and Caiiadii will, we apprehend, be guided by English rules. We have noticed the particulars of this suggested measure ftt HOme length, because it is obviously desirable that if the Government are to bring forward any measure of relief, it 14 should be one which can command the supiiort of tha Preference Bondholders, without whose consent no scheme can properly be carried out. It has been suggested tha. the Government postponed their first charge on certain conditions, one of which was that the Line should be maintained and worked, and that, if those con- ditions be not observed, the Government lien will revive. The title of the Preference Bondholders rests upon the Act of 1856. The relinquishment by the Province of its iien in favour of the Preference Bondholders by tliat Act was absolute, and not oon- ditimuU. Whether the mthseqitent postponement by the Pro- vince, by the Acts of 1857 and 1858, of its claim for interest in favour of the ordinary Bondholders and Shareholders, was con- ditional or absolute, is another question which can in no way affect the absolute and unconditional titJe of the Preference Bondholders under the previous Act of 1856. Tt is only by confounding the case of the Preference Bondholders with that of the other classes that any doul)t could have been raised as to the Preference Bondholders' claim being fi^ee from any conditions. It has likewise been suggested that the Government may come in as " salvors," treating the Grand Tmnk as a " wreck," and so get a first charge for what they may advance to save it ; but this is at least premature. The Grand Trunk is not yet a wreck, and, whoever else may abandon it, tho Preference Bond- holders do not intend to do so, as the proceetlings they are now taking sufficiently indicate. Of the 1,788 Shareholders in the recently published List, there are not more than four with an address in Canada ; while recent inquiries by our Agents on the spot lead them to the conclusion that there ia scarcely a single bondholder of any class in Canada. The Bondholders represent nearly three times the interest of the Shareholders, reckoning the same according to the nominal value ; while, at the present prices, the interest of the 1 5 # Bondholderb of all classoa is about ten times that of the Share- holdeifi. Yet, according to the present constitution of the Company, its domicile is in Canada, no legally constituted meeting of Shareholders can be held out of the province, and the Bondholders have no voice i'" the management. In conclusion, and in reply to numerous inquiries, we know of no conflict likely to arise between the First and Second Preference Bondholders ; their title and interest appear to be identical, with this distinction orly, that, as between themselves, the first ranks iu priority to the second. ASHUllST, SON, AND MORKIS. (5, Old Jewry, London, E.C. 1th February, 1861.