%/ \J V. M

NORTHERN RAILWAY OF CANADA.

STATEMENT

OF THE

RIVATE OHAREH0LDER8' IjASE.

PREPARED BY THEIR COMMITTEE

IN ANSWER TO

MR, CUMBERLAiND'S MEMORANDUM.

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TORONTO:
PRINTED BY HUNTER, ROSE & CO., 86 & 88 KING STREET WEST.

1874.

J..

NOETHEEN EAILWAY

OF CANADA.

STATEMENT OF THE PRIVATE SHAREHOLDERS' CASE, PREPARED BY THEIR
COMMITTEE. IN ANSWER TO MR. CUMBERLAND'S MEMORANDUM.

From the statement given in the Memornndum prepared by the Board, it appears
thai the present liabilities of the Company on capital account are as follows : —

1. First Preference Bonds £250,000 stg.

2. Second do 283,900

3. Third do " A " series 50,000

4. Do do "B" do 100,000

5. Guaranteed Debentures of Northern Extensions 177,600

.£8G 1,500

6. Government Lien 475,000

7. Share Capital 169.27G

£1,505,770
Of the above it is stated that the Government holds £525,000 stg.
But, in page 4 of the Memorandum, the Preference Capital standing in front of the Share-
holders — including arrears oi" interest — is stated at £1,086,000 stg. The arrears of
interest .{ire, of course, chiefly due to the Government. The amount is variously stated.
At the meeting of the Shareholders in Toronto, the General Manager stated it at £.350,000
sterling, wiiile, if the Memorandum above quoted is correct, the arrears amount to
£180,224 sterling.

It is not made clear by the Order in Council of 1 1th May, 1859, that it was intended,
by the settlement then effected, to hold the Company for interest on the Government Lien
from that date, and since no stipulation appears in that order as to the payment of
interest on the lien, we shall dismiss the arrears from the following calctdation, assuming
that it was not the pui-pose of the Government to insist on payment of interest until t(he
earnings of the road became sufficient to meet it.

59638

The Capital Account may be considered under three heads : —

1. Debenture Capital (excluding £50,000 Third Preference

Bonds, B Series, held by the Government for arrears

of interest) £633,900 stg.

2. Government Lien * 475,000

3. Share Capital 169,276

£1,278,176

It is alleged that to the above must be added, for Guaranteed
Northern Extension Debentures, for which legal authority
is said to have been obtained 177,600

Making a total capital £1,455,770

Or in currency $7,079,909

On which the interest is $424,794

Without the £177,600, for which the authority is very questionable, the interest on
the debt is £76,690 lis. 2d., or $373,227.

Leaving out the Share Capital, the interest on the debt — including the Northen Ex
tension— is £77,094 stg., or $375,190 76.

If the earnings are sufficient to meet this interest, and leave a surplus, that surplus
will be the index to the value of the stock. Or : —

If the earnings are insufficient, the value of the stock will depend entirely upon the
extent to which the Government may consent to recede tlieir claim in favour of the stock-
holders, and the saving that can be effected in the cost of working the road by a more
economical administration of the Company's affairs.

LET US FIRST CONSIDER THE DEBT TO THE GOVERNMENT.

It is known that, in 1873, the Auditor reported that the Government claim was not
worth more than $500,000. This includes £100,000 stg. of second and third preference
bonds. The late Government gave notice in the House of Commons of resolutions
authorizing a settlement on that basis. The Auditor's Estimate may have been based
upon insufficient information, but it was accepted by the then Government as equitable,
and may be taken as an indication that a settlement of the claim may be hoped for on
terms considerably short of the strict letter of the bond, and there are good reasons why
such a settlement should be conceded.

The writer of the Memorandum goes somewhat out of the way to belittle the in-
terest of th"5 holders of the stock. He speaks of the shares other than those held by the
municipalities and by the subscribers of £9,300 sterling as having been " a nominal issue
at a margin price " (whatever that may mean) " to the contractors," and by inference
as a matter quite unworthy of consideration.

• Of the £525,000 held by the Government, £50,000 is for accrued interest. This, it is hoped, may be
waived, and is, therefore, omitted in the statement of the Capital Account.

3 .

It is not very material whether the stock was originally issued to the contractors or
to the present holders. What is now to be considered is— 1. Do the shares represent
any value f and 2. Has thai nalue been apded by legislatim ?

As a matter of fact, the shares were paid to the contractors in the same way and at
the same rate as the bonds were paid to them— tiiat is, at par, as a consideration for
building the road. Whatever terms, therefore, maybe j istly used to characterize the
issue of the shares, may with equal justice be applied to the issue of the bonds. If the
shares were " a nominal margin issue," so were the bonds.

We are under the impression that the shares held by the municipalities are a portion
of the amount of stock which the contractors were bound by the terms of their contract to
dispose of, and that they received the bonds of the municipalities in exchange for them ;
but, inasmuch as the books of the Company were at that time kept very much in accord-
ance with the wisher, of the contractors, this may not appear in them.

In like manner, others became shareholders by the purchase of shares that were
originally issued to the contractors. Much of the right of way was paid for in stock, and
it will not, we suspect, be denied that the iron with which the road was first laid, as far as
Barrie, was paid for to a great extent, if not wholly so, with contractors' stock. This is
the stock now held in the United States.

This vindication of the share capital from the epithets " bogus," " fictitious," " nomi-
nal," &c., has been mafle necessary by the studied attempts of the writer of the Memo,
randum to belittle the interest of tlie shareholders, by the remarks of the General Manager
at the Toronto meeting, and by the misapprehension of many persons as to the circum.
stances under which the stock was originally issued, and the manner in which it came into
possession of private hohiers.

It seems necessary in this place to consider what is implied by the word " Company,"
which is so frequently used by the writer of the Memorandum. Usually that word is un-
derstood to imply the shareholders as quite apart from the boiulholders ; but in this in-
stance it appears to have been used in quite a different sense ; and where the writer of
the Memorandum speaks of the interests of the " Company'' he evidently means some-
thing quite different from the interests of the shareholders.

It may be true that the Company, using the word in its ordinary sense, is hopelessly
insolvent, and that it was very far gone in that direction when the Act of 1859 was
passed; but it may reasonably be asked how far has the possibility of making the property
worth something to the original proprietors, been impaired by legislation assented to in
the interest of the public at large. If it can be shown that the legislation, approved and
promoted by the Government of the day, has had the effect of sacrificing the interests of
the shareholders in order to promote the convenience of the public, that fact should— in
equity— be taken into account in any further adjustment of the relations of the stock-
holders with the Government lien.

THE NATURE AND EFFECT OF THAT LEGISLATION MAY, THERE
FORE, BE BRIEFLY CONSIDERED.

It has been suggested that when the Legislation of 1859 was effected, the sharehold-
ers had become bankrupt through their own mismanagement of the property, and princi-

pally in consequence of their having accepted incomplete and imperfectly constructed
works from the contractors. This is hardly just. The works were constructed under the
Bupervisiou of an engineer who was impo.sed upon the Company by the Govemment of
the day, and the settlement of the contractors was made upon his certificate. If the works
were then in such '•n incomplete or imperfect state that their early reconstruction was
necessary, it was the fault of the engineer whom the Government of the day had nomi-
nated.

The Act, 22 Vic, Cap. 88, pa.ssed in 1859, and confirmed by the Act, 23 Vic, Cap.
105, while settling the terms upon which the claim of the Government should be postponed
in favour of new capital, gave to the holders of first and second preference Bonds the same
right to vote as the shareholders. The power thus given to the creditors of the Company
of controlling its affairs, is not limited to the time during which the interest on their mort-
gages or any part of it remained unsatisfied, which would have been reasonable enough,
but it is given in perpetuity, a circumstance unexampled in the history of Railway Legis-
lation, and in striking contrast with the course pursued towards the shareholder!? of the
Grand Trunk. The effect of this has been to take all semblance of control out of the hands
of the shareholders, and to place it unconditionally and absolutely in the hands of paitics
whose interest in the economical working of the line ceased so soon as the surplus earn-
ings became sufficient to satisfy the interest in their Bonds.

It may be true tiiat " by usage the Government holding has been recognized by two
seats (in the directory) representing the Dominion lien," but practically these seats
as well as those held by representatives of the Municipal Stock, have invariably been oc-
cupied by persons who have been more the representatives of the Municipal and Com-
mercial interests of the locality, than of any hope or design to make the Government lien,
and the stock standing behind it worth something. As a rule their personal interest has
been nil. There can indeed be little doubt but that they have been influence*! by the con-
viction that the interests they are supposed to represent, have long since been hopelessly
ruined.

Such a settlement as this was hardly reasonable, and it may be deemed a fair matter
for consideration, whether if it can be shown that the property is now capable, under
economical management, of meeting its liabilities, the control should not revert to the
proprietors, who may be considered as holding an equity of redemption, upon their show-
ing that they have a reasonable hope of meeting their liabilities, and that they can pay off
such of their debenture capital as may be held by parties who object to surrender the
franchises to which it entitles them.

It has been suggested that the shareholders could be effectually disposedof by a fore-
closure since there are mortgage bonds outstanding, upon which interest has not been
paid. Perhaps such a course of proceeding will be tried. It would be in strict accord-
ance with what has preceded it. It is true, we believe, that the managers have failed to
pay interest on some of the bonds, but we shall be able to show that that failure has not
been on account of deficient earnings, but of misappropriation of funds.

When the Acts above referred to deprived the shareholders of all control over their
property, and when the creditors accepted the position assigned to them by those Acts,
they became in effect the trustees fov the proprietors, and in equity accountable for the

manner in vihir.h they adminhtereA flint tniM. Tf, tliovnforo, the throuttMieil ftireclosure
JH attempted, tho sliiiroholdciH may consider tlie nxiK-dicncy of ii defouce, which, if it <lid
nothing else, might hi'conie tlio means of making eleai' a good (h'al that in now ol>8curo as
to the manner in which tlie earnings of the ]»rojiei"ty have been disposed of.

IT IS NOW NECKSSARY TO REFKR TO THK LEGISLATION OF ISfiH,
which proceechid upon tlic ]ietition of tlie parties wlio, under the pnivious Act, had
assumed control of the Company's alVairs. Tiie :U Yic, cap. 8(5, authorized the CJompany
to ro-open the caj)ital account, and to place a further sum of £150,000 sterling in front of
the Government lien, and, of course, in front of th(! stock. In so far as obtaining the
means of capitalizing overdue interest was concerned, there could be no objection to this
new issue, though, in stipulating for the ])ayment out of it of £50,000 of the overdue in"
terost on the Government lien, the Government hai'dly acted in a generous s})irit towards
tlie shareholders. If. is q'lifr. otherwise, Iwirever, with reference to tlie bonds ismed for the
building of new elevators, which have be(;n constructed on so extensive a scale, and of so
iixpensive a character, as to make a return of interest on their cost entirely out of the
ipiostion — es[)ecially as they were j)aid for by a most improvident sale of bonds to the
contractor, who, when he made his bargain, wiis a Director.

The allegation that this expenditure was necessary for the profitable working of the
line cannot be sustained. The business of storing grain during considerable periods is not
necessarily the busiiKiSS of a Railway (Jompany ; and the provision of api)liances for doing
such business on an excejitionally expensive scale, by a Company alleged to be insolvent,
and unable to pay interest on its bonds, can not bo justified on any business jirinciple.
Would such an undertaking have been entered upon if it had been likely to interfere, in
the most remote degree, with the j)ayment of interest on the bonds held by those who con-
trolled the aflairs of the Company ]

The creation of this new debt, therefore, was adverse to the interests of the share-
holders, and was only necessary, as the writer of the Memorandum truly says, " in the
[lublic interest," — meaning by that public, the grain-dealers of Toronto. If in that interest
such an expenditure was desirable, and such as the Government of the Dominion deemed
it necessary to satisfy, then the shareholders should receive some comj)ensation.

But tho most unfortunate legislation for the shareholders is that of 1871 and 1872.
By the 34 Vic, cap. 45, authority was given to the Com{)any to lease the Noi-thern Ex-
tension lines ; but it was expressly jn-ovided, b}' section 3 of that Act, that no liability
sliould be thereby created that would take ])reoedence of the Government lien, or, by
inference, of the share cajjital. But, notwithstanding this, an agreement was en-
tered into with the jirojirietors of the Extension lines, afterwards sanctioned by tlie
Act of 1872 (35 Vic, cap. (16), which assumes to create a further preference liability
of XI 77,000 sterling — thus effecting, by a side-wind, that which the promoters of the Act
did not dare to propose openly. Such legislation would not be allowed to prevail against
the rights of the Crnvn ; but whether it was advisedly sanctioned by the Government, as
baing in the public nterest, or the result of an oversight, it is not likely to be contested
or repudiated. It i i no more than reasonable, therefore, that the creation of this new
liability should not h allowed to militate against the value of the stock.

Notwithstanding tlie large expenditures that have been made on this Railway un<ler
the present management, i)artly and largely out of New Capital, but also very largely out
of surplus revenue, it is now alleged that a necessity has arisen for a further large ex-
penditure. Of course, " in the i)ublic interest," and " for the promotion of expanding
tratle."

This necessity is considered in the Memorandum under tioo heads :
1st. Chanije of Gauge.
2nd. Additional Equipment and Works.

Tt may be OB8EKVE1) WITH REGARD TO THE FIRST, that no ncccssity for a change of
gauge has been made out. To justify such an expenditure as the proposed change involves, it
should be shown that there would result a natural interchange of traffic with connecting
lines. If such a result were probable, it might be exemplified by reference to what
took place before the break in the gauge was made by the changes on the Great Western
and Grand Trunk Railways. These changes are very recent. There is no evidence that
any important interchange took place before that date, and we apprehend that if a return
were made of the amount, the figures would be exceedingly small.

Nor is this surprising. The nature of the traffic in the Northern is such that there
is very little prftbability that any considerable portion of it will be carried by rail beyond
Toronto.

Timber, which forms one great item, will inevitably be rafted at Toronto ; and the
great bulk of the sawn lumber will as certainly be shipped at the same place, chiefly to
Oswego.

Then as to grain, if it is likely to go forward to any great extent by rail without
transhipment, of what use are the existing elecatms, or what necessity is there for build-
ing new ones 1 There never has been any tendency to forward the grain arriving i c To-
ronto by railway either east or west. It is almost exclusively the property of Toronto
grain dealers, and is mainly stored at Toronto, either for local use or for Spring shipment
to Oswego.

Again, it is notorious that imported and manufactured goods for the supply of
the country, served by this railway, are almost exclusively purchased in Toronto.

Looking therefore at the question of change of gauge, as a matter affecting the profits
of the Company, there is no necessity for such a change. On the contrary, the proposed
expenditure wonld be most unwise, inasmuch as it cannot add one penny to the earnings
of the line, and miglit have the very opposite result, for it is notorious that when there is
an interchange of traffic, the shorter line invariably suffers in the deterioration of its rol-
ling stock on the longer lines, and from other causes. It k the true interest in short of
s"uch a line as this to keep its stock at home.

But we by no means desire to assert that the change is not desirable as a matter of
public policy. On the contrary, we believe it is most desirable that all the railways in Canada
should have the same gauge. This is especially desirable in a military sense, so that in
case the public peace is disturbed — as it was by the Fenian]troubles of 1866 — or in case of
war, all the railway-carrying stock in the Dominion may be available on all the railways.
But we cannot find in thifs any reason for requiring the shareholders of the Northern who

built their road — much against the opinion of their professional adviserb— on the gauge
required by the general law of Canada, then in force — to submit to an expenditure that
will ruin all hope of their property ever becoming worth anything.

THE PROPOSED ADDITION OF ROLLING STOCK— if necessary at all -is
only necessary for the equipment of the extension lines with which the managers have been
allowed to encumber the concern ; and this equipment it will be time enough to supply
when the leased extensions have been completed by their promoters, in accordance with
the agreement.

The statements as to the requisition for cars, which it is alleged the Company has
been unable to supply, have but little value. It is no new thing for the shippers — as is
suggested by the autlior of the Mi'inorandum — to make requisition for double the number
of cars they are likely to load. This practice is as old as the road itself, and such ima-
ginary requirements would be speedily cured by a rigid collection of demurrage.

Before attaching much consequence to the alleged wants of the grain trade, it wo; Id
be well to know whether grain has, as a rule, been promptly removed from the cars on
their arival at Toronto, and whether the cars of the company have been frequently used for
storage purposes rather than for purposes of transport.

The annual report forl873does not contain the statistical statements of the Company's
operations necessary for forming a just estimate as to the degree of economy with which
the rolling stock of tht Company has been used. It is not stated whether the omission
of these returns has been authorized, but it is certain that their absence, whether designed
or not, is an insuperable bar to any satisfactory determinaMon respecting the sufficiency of
the stock now on the line. Sucli information as is available goes far to justify the opinion
that the proposed augmentation is not a real necessity.

It is stated as one of the reasons for not moving grain more rapidly away from the
local depots, that the Company's " Elevator and storage capacity in Toronto is totally
inadequate to the trade." This might have some force if it were desirable that the Com-
pany should act as tvurehousemen as well as forwarders, but the expediency of so acting
may reasoi.\ably be questioned, and we believe it should not assume to do so beyond what is
necessary for aifording reasonable time for the removal of the goods carried by it. It is
absurd to suppose that the Company is under any obligation to furnish storage for all the
grain produced in the country through which it passes ; much less can it be expected to
find winter storage for foreign grain arriving at Collingwood.

THE CONSTRUCTION OF SIDINGS for the accommodation and private use of
millowners appears to hav Ssorbed a large share of the Company's means, and the supply
of this kind of service appea. .. to ha\ e been extended to the leased line&. It is now alleged
tha* the Company must expend more capital for similar purposes. According to the
statements which accompany the Directors' Report for 1873 (page 28), nearly eight miles
of sidings have b <r. constructed for the 'i^e accommodation of various mills along the line.
We are told in the Mewmnndum that the Directors now propose to expend some
$18,000 or $19,000 of additional capital on this service, for which no reason is assigned
beyond the requisition of the millowners. It is submitted that such an expenditure by a
company alleged to be bankrupt is wholly unjustifiable.

FOR THE REASONS ABOVE STATED, IT IS BELIEVED THAT NO NE-
CESSITY HAS BEEN MADE OUT FOR THE RAISING OF NEW CAPITAL

It is quite certain that if the Government determines to maintain its lien in the Com-
pany's property to its full extent, and to permit the management of that property to remain
as it now is in the hands of those who have no direct interest in the provident admi-
nistration of its affairs, then the shares may be considered worthless. And it is also
clear that under such management as has prevailed during the past eight years the
Government lien will be equally so. But if the Government, in consideration of the
manner in which the shareholders have been sacrificed to public policy, will consent to
modify its claims to such an extent as the equities of the case will justify, it can be shown
that both the shares and the lien may become, under a judicious management of the
concern, of considerable value.

IN ORDER. TO SHOW THIS, IT IS NECESSARY TO CONSIDER THE QUES-
TION OF WORKING EXPENSES.

The writer of the Memorandum (page 7 and 9) considers that 62^ per cent, of the
gross earnings " is an economical average standard for the working exj^enses of a Canadian
railway " ; and in support of this he cites the expenses of the Grand Trunk, which he
says were 73 per csnt., and of the Great Western, which are stated at 67 per cent.
But he omits all reference to the working expenses of the Northern in former years,
especially in 1869, when the working expenses are stated as having been 50.37 per cent.,
or in 1870, when they are stated at 58 per cent., though the earnings in the former year
were only fG71,07G — not much more than two-thirds of what they now are — and in the
latter year, $733,507.52, or about 18 per cent, less than they were in 1873.

To the conclusions arrived at by the author of the Memorandum as to what may be
considered economical working expenses, we must take exception, and propose to show
that the examples cited have no \alue. A large proportion of the Graud Trunk Railway
extends through territory that is quite unproductive, and cannot yield sufficient revenue
to i)ay workuig expenses; its most productive portion is always in competition as to
through traffic with lines of railway more favourably situated, and during the open
season it is in competition, both as to freight and passengers, with the Lake and River
Navigation. The Great Western Railway is, as to its^hrough traffic, in active competition
with other lines ; and, as to its local traffic, it is in competition, especially at London,
with the Grand Trunk. It is, moreover, encumbered l)y unprofitable branches and con-
nections. The main line of the Northern has scarcely any competition to contend witli,
and every mile of it passes through a highly productive ami well settled country, while,
at its northern terminus, it receives tribute from a vtist Lake region.

It is evident that the per centage of gross earnings necessary for working any line of
Railway must depend on the amount of traffic available, and the rates that can be charged
for carrying it, and since the Northern Railway by the shewing of the Memorandum is
overbtirthened with business, and is not exposed to competition, it follows that it should be
able to work its traffic at a much lower rate than the traffic of either of the Railways
above referred to can be worked at. Hence the comparison ivith them is fallacious, and
there is no reason to doubt but the traffic of the main line, i. e. from Toronto to Colling-
wood, could be worked for 50 per cent, of the gross revenue now attainable.

THIS WE BELIEVE CAN BE PROVED FROM THE PAST TRANSACTIONS*
OF THE COMPANY, as we shall now proceed to sliew.

It has already been said that, putting aside the overdue interest on the Government
lien and the share capital, the total interest for which it is necessary to provide, including
the liabilities in connection with the Northern Extension lines, is $375,190.70.

The earnings of the line in 1873 are stated by the Directors to have been $901,811.00.
If, therefore, the working expenses can bo reduced to 58A i)er cent, of the earnings, a
I)oint will have been reached at which the shareholders may consider they have touched
bottom.

It haa also been shown that in 1869, when the earnings were 25 j)er cent, less than
they now are, the working expenses were only 50J^ per cent, of tlie gross earnings ; and
that in 1870, when the earnings were 18 per cent, less than they were in 1873, the work-
ing expenses, according to the Directors' Rejjort for the yeai", were only 58.08 per cent.

Tlie increase in the cost of working a Railway due to the increased cost of labour and
'*ui)plies has not been greater since 1870 than the increased earnings of the road would
fully compensate. 7/, therefore, the present Management were to exercise as much economy
now as they did in 1870, the shareholders could — with the exception of the overdue
interest on the Government lien — look their liabilities full in the face. And if, by the
exercise of such economy as might reasonably be expected on the pait of persons directly
interested, a saving, as compared with the ratio of 1870, to the extent of .$50,000 could be
effected, they would receive interest on their investment. The proluibility of such a result
can, we think, be made out with svifficient clearness to justify them in seeking permission
to resume the management of their ju-operty. But to enable them to make such financial
arrangements as might be necessary to satisfy the claim of the Government, it would be
necessary that they should be able to show such a margin as would induce capitalists to
take up the new stock that it would be necessary to issue.

Going back a decade in the history of the Comjjany, w(^ tind that, in 1804, the earn-
ings were $467,266 — being equal to $4,866 i)er mile on 96 miles, in which the liarrie and
Bellewart Branches ar« included. In that year, the working expenses were $244,144, or
54 per cent, of the gross earnings.

In 1873, as above stated, the earnings were $901,811, or $5,933 per mile on 152
miles — in which mileage all branches and extensions are included. But the working
expenses absorb 05 per cent, of the gi-oss earnings ; while a large sum is stated to have
been expended on capital accoimt, which brings the whole expenditure up to $704,824, or
/iiore than 78 per cent, on tlic gross earnings.

It will at once occur to any one familiar with railway management that on a line free
from serious competition, and in which paying rates can b(! had for the business done, an
increase in the revenue from $4,866 to $5,933 per mile should haVe carried with it a
reduction in the percentage of the gross earnings necessary for meeting the v/orking ex-
penses. But we find that, instead of a reduction, there has been an increase in the propor-
tion of earnings absoi-bed by the cost of working, from 54 to 65A per cent.

Tfie reason for this is not far to seek. It may be found in a contrast between the
charges for services not necessarily greatly affected by increased traffic, as they appear in
the respective Reports for 1864 and 1873. Some increase it was reasonable to anticij)ate ;
but on examination of the items wliich go to make up the totals charged under the heads
of "Terminal Station Services," '-Miscellaneous Charges,'' and *' General Charges," lb

each of the years referred to, it will be obvious that there has been a most impromdent
crpenditure of money.

Exception may fairly be taken to placing so large a sum as $8,383 under the head of
" Contingencies," to exjjending $11,023 for stationery, and to the expenditure of $6,000 —
lacking 32 cents — for travelling expenses.

So, also, we may ask, why it was necessaiy, at a period when there appears to have
been no legal contention in which the Company was interested — at least no mention is
made of such contention in the Directors' Report — to expend $8,853 under the head of
'• Legal and Parliamentary Expenses," a service for which $2,147 was sufficient in 1864.

The charge of $18,809 for interest and discounts is especially objectionable. This
charge appears to have arisen in connection with a loan obtained for the construction of
new works, and for obtaining equipment partly, if not chiefly, for the Northern Extension.
Tlie money apj)ears to have been raised at improvident rates, and it is clear that the
engagements which made such a loan necessary ought not to have been undertaken. The
following compamtive statements will give a general idea of how these expenses have
increased.

SCHEDULE I.

Comparative Statement of the Cost of Working and Management in 1864 and 1873.

1864. 1873.

Maintenance of roadway $43,469 24 !!^129,283 78

Works and buildings 12,532 89 22,601 51

Motive power, machinery and rolling-stock .... . ... 61,656 60 103,808 30

Trainservice 31,144 45 74,718 73

Way station service 13,126 29 31,087 22

Terminal station service 18,999 54 47,749 74

General supplies 32,194 62 89,894 06

Miscellaneous charges 16,516 66 61,658 68

General charges 14,504 08 29,221 88

Exceptional charges 34,568 31

$244,144 37 $624,592 21

Percent, of gross earnings 54.1 69.2

Per train mile cents 68.3 114.6

Per mile of road worked $2516 95 $4109 16

Increased cost per train mile 111.8 per cent.

Increased cost per mile of road 63.2 percent.

1864. 1873.

Earnings per mile of road work $4,804 $5,932

Increased earnings per mile 23.5 per cent.

SCHEDULE II.

Compwrative Statement of sxu^i Expenses (,» are not necessarily increased in proportion to the

amount oj Traffic.

1864. 1873.

Office expenses $5,256 43 $8,313 74

Contingencies 1,427 09 8,383 83

Travelling expenses 302 50 5,999 68

Agencies and Commissions 8,022 84

Stationery and Advertising 2,547 61 11,023 42

London Agency 1,703 36 2,433 32

Legal expenses 2,147 24 3,861 22

Parliamentary expenses 4,992 45

Direction 5,680 74 10,003 24

Auditors , 600 00 1,220 GO

Postage and Telegraphs 463 35 1,220 90

Water and Gas, Head Office 726 07 2,033 14

Interest and discount 1,147 51 18,809 76

Way station service 13,126 29 31,087 22

Terminal station service ; 18,999 54 47,749 74

$54,127 73 $165,160 50

Per centage of gross earning t 11.5 18.3

Pertrainmile cents 15.18 26.13

Per mile of road worked $558 00 $1,086 51

GENERAL SUMMARY.

I. Considering then : —

1. That the original works were constructed under the supervision of an engineer
nominated, and imposed upon the Company, by the Government of the day.

2. That the Company's contractors were settled with, the works taken off their hands
and the money derived from the Government aid, paid them upon the certificate of the
engineer so appointed, who certified, that the contracts which he had previously assured
the Company and the Government, were sufficient for all i)urposes, had been faithfully
fulfilled.

3. That the disastrous state of the Company's affairs, prior to 1859, notwithstanding
the assurances . i certificate of the Government engineer, was mainly due to the faulty
construction of the works, and to their insufficiency.

4. That the original shareholders raised the money for preliminary expenses, without
which, a work of great and unquestioned public utility would not have been initiated
for many years ; and that they have not, for a period of twenty-two years, received any
return whatever upon their invesment.

5. That the engineer aijpointed. as above stated, repreeeiited to the shareholders that
the whole coat of road, with sufficient equii)raeut, would not exceed £593,407, currency,
or $2,373,628.

6. That the Government lien in the property of the Grand Trunk Company was
placed behind the share capital of the concern : — ^

IT IS SUBMITTED THAT THE SHAREHOLDERS WERE, EQUITABLY-
ENTITLED TO A MORE FAVOURABLE CONSIDERATION AT THE HANDS
OF THE GOVERNMENT THAN THEY RECEIVED WHEN, IN 1869, ALL
CONTROL OVER THE ADMINISTRATION OF THEIR AFFAIRS WAS TAKEN
AWAY FROM THEM.

II. Considering also : —

1. That the Legislature of 1859-60, removed the control of the property from the
shaieholders, and placed it in the hands of their creditors, without providing that it
should be returned to them when the lawful claims of the creditors had been met.

2. That, as a consequence of such legislation, the road, has been managed by the
representatives of bondholders who, for many years:, have had no interest in its economi-
cal management.

3. That in assuming the management of the property, the creditors accepted the posi-
tid.i of trustees —

4. That the Government aMowed the shareholders to retain their franchise.

IT IS SUBMITTED THAT THE CREDITORS, AS TRUSTEES, SHOULD, IN
EQUITY, BE HELD TO ACCOUNT FOR THE MANNER IN WHICH THEY
HAVE MANAGED THE TRUST, AND THAT THE ORDER IN COUNCIL,
UNDER WHICH THE SETTLEMENT WAS MADE, RECOGNISES THE RIGHTS
OF THE SHAREHOLDERS TO RECOVER POSSESSION OF THEIR PROPERTY
SO SOON AS IT BECAME POSSIBLE TO MEET THEIR LIABILITIES, AND,
THEREFORE, THE RIGHT TO CALL IN QUESTION THE MANNER IN WHICH
THE TRUST HAS BEEN ADMINISTERED.

III. Considering moreover : —

1. That while the creditors have controlled the management of the property, the
Government, at their instance, has assented to legislation which may have been for the
public interest, but which has certainly had the eft'ect of making the satisfaction of the
Company's debts more difficult.

2. Tliat under the authority of the legislation so promoted and assented to, pre-
ference capital, to the extent of £327,600, sterling, has been added to the Company's lia-
bilities.

3. That in addition to tho preference capital so added to the Company's liabilities,
the management has abstracted nearly one million of dollars ($996,251) from the surplus
earnings of the property, and applied it to works of doubtful utility, admittedly not neces-
sary as working expenses, and said to be properly chargeable to capital.

4. That during the ten years ended in 1873, the earnings Jiave increased from $ 1,804
to $5,932 per mile per annum, including in each case all branches and extensions.

5. That during the same period the proportion of the gross earnings absorbed in
working expenses has increased from 5i^jj to 65^*jj per cent.

6. That it is an admitted principle in railway economy that all other things being
equal and under the same tariff, the per centage of earnings necessarily absorbed in work-
ing expenses, will decrease with the increase of such earnings.

7. That from the time the property was first able to pay interest on the debt held by
the controlling interest, until now, there has been, with the exception of one year, a contin-
uous increasi"" in the proportion of earnings absorbed by working expenses.

8. That so soon as it became difficult to absorb that portion of the earnings not ne-
cessary for payment of interest on the debenture debt in working expenses, the surplus
forced upon the managers by the prosperity of the concern, has been applied to the con-
struction of new works of doubtful necessity, or absorbed in unprofitable undertakings.

9. That the details of expenditure in so far as they can be ascertained from the mana-
ger's published statement (all other infoimation having been refused by him to the sharehohlers'
committee), indicate an unresaonable increase in items not necessarily greatly increased by
increased business.

10. That additional mileage to the extent that has taken place in this case, does not
add proportionally to the cost of management in working.

11. That during the period in which the circumstances above recited have been trans-
piring, the Government have alone had the power to inforce a better administration of
the property ;

12. That the shareholders, whose franchises, owing to the act of the Grovernment
could not avail to improve the constitution of the managmcnt, were justified in believing
that the Government would, for the protection of the large interest held in the property
by the country, exercise their power for the prevention of improvident management.

IT IS SUBMITTED THAT THE MANAGEMENT OF THE TRUST HAS
BEEN UNWISE AND IMPROVIDENT. THAT THIS IMPROVIDENT MAN-
AGEMENT HAS BEEN INTENTIONAL, AND HAS TENDED TO IMPAIR
THE VALUE OF THE GOVERNMENT LIEN AND THE SHAREHOLDERS-
INTERESTS. THAT THE TRUSTEES CAN HAVE NO JUST CAUSE FOR
COMPLAINT, IF THE CONTROL OF THE PROPERTY IS TAKEN OUT OF
THEIR HANDS, AND THAT THE SHAREHOLDERS ARE fJNTITLED TO
THE AID AND SYMPATHY OF THE GOVERNMENT IN THEIR EFFORTS
TO RECOVER THE CONTROL OF THE PROPERTY^ BY THE LIQUIDATION
OF AS MUCH OF THE LIEN HELD BY THE DOMINION, AS UNDER THE
CIRCUxMSTANCES HEREIN RECITED, THE GOVERNMENT MAY DEEM IT
EQUITABLE TO AGREE TO.

IV. Considering, moreover: —

1. That, in addition to the capital raised, and exi)en(lcd under the legislation nf
1869, for the reconstruction of the Company's works, there has been expended up to the
present time, $1,239,751 on capital account.

2. That this expenditure has been in excess of more than a liberal expenditure for
working expenses.

3. .That it is alleged by the management that all necessary renewals of way and
works, and the necessary additions to equipment have been liberally provided for.

i. That no evidence has been offered as to any necessity for the proposed change of
gauge.

5. That the present gauge was adopted in compliance with the law, and in opposition
to the opinion of the proprietors and their professional advisers ;

6. That additional equipment of rolling stock, if necessary at all, is only necessary in
consequence of improvident and unnecessary engagements entered into, with the consent
of the Government, to serve what is said to be a public interest, and for the development
of new territory incapable of affording profitable traffic for a railway.

IT IS SUBMITTED THAT THE INCREASE OF CAPITAL PROPOSED,
AND ALLEGED BY THE MANAGERS TO BE REQUISITE, IS UNNECES-
SARY, AND THAT IT WOULD BE UNJUST TO PERMIT ADDITIONAL
PREFERANCE CAPITAL TO BE PLACED IN FRONT OF THE SHARE
CAPITAL.

V. And, lastly, considering,

1. That the preference Debenture capital as settled by the legislation of 1869-60,
a^riounted to only £5.33,900 sterling, bearing interest at 6 per cent.

2. That this amount would have been largely reduced, if the Government had in
accordance with the provisions of the Acts of those years, 23 Vic. Cap. 105, sec. 3, sub-
sec. 7, reduced the mortgage bonds to the amount which the company actually received for
them in cash.

3. That the arrears of interest would have been largely reduced if the Government
had exercised their powers, and prevented the application of surplus revenue to capital
account, which ought to have gone to the payment of interest.

4. That during the last eight years, the surplus earnings would have been much
larger if the powers and rights of the Government had been exercised for the preven-
tion of extravagant management. * ,

5. That the increase of the debenture capital in excess of the amount above stated,
was not necessary for the profitable working of the main line, and could not have taken
place without the assent of the Government.

6. That if this unnecessary increase of capital had not been assented to, the preference
debt of the company, including the capital sum of £475,000 advanced by the Government
would now amount to no more than £1,008,900 ;

7. That adding to this sum the original share capital and the arrears of interest that
would have been outstanding had the surplus earnings been applied to the payment of
interest, rather than to the construction of new works of doubtful necessity, the total
capital would not now exceed £1,328,176 sterling.

IT IS SUBMITTED THAT THE GOVERNMENT WOULD DO NO MORE
THAN EQUITY, IF IT WERE TO TREAT WITH THE SHAREHOLDERS ON
THE BASIS OF BRINGING THE PREFERENCE CAPITAL WITHIN THE
LIMITS STATED ABOVE BY WAIVING THE LIEN OF THE DOMINION,
AND ARREARS OF INTEREST, SO AS TO PRODUCE THAT RESULT.

If the concluffinns ab&ve arrived at are accepted as reasonable, the shareholders are prepared
to raise, within a reasotuiOle time, tite money necessary for paying over to the Government what*
ever, on the foregoing equitable conditimis, may be due to it; to provide funds necessary for
liquidating any fioating debt that maybe outstanding; and for fulfdlirg all the liabilities by
which the Company is legally and juatly bound, including working the Northern Extension lines,
itnd equipping them with rolling stock, provided the Government will consent to promote such legisla-
tion as may be necessary for increasing the share capital to such extent as nuiy be expedient, and
for vesting in them, toithout prejudice to tfie bondholders, the control over their property ; and
tliey will undertake to satisfy the Government as to their ability to carry this out.

On behalf of the Committee of Shareholders,

(Signed) R. C. Henderson,

Secretory

Toronto, April 2S, 1874.

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