Esquimalt and Nanaimo Railway Co. v. Attorney-General of British Columbia

Esquimalt and Nanaimo Railway Co. v. Attorney-General of British Columbia
Collection
Supreme Court Judgments
Date
1948-06-25
Report
[1948] SCR 403
Judges
Kerwin, Patrick; Rand, Ivan Cleveland; Kellock, Roy Lindsay; Estey, James Wilfred; Locke, Charles Holland
On appeal from
British Columbia
Subjects
Constitutional law
Decision Content
Supreme Court of Canada
Esquimalt and Nanaimo Railway Co. v. Attorney-General of British Columbia, [1948] S.C.R. 403
Date: 1948-06-25
IN THE MATTER OF A Reference By His Honour The Lieutenant Governor of The Province of British Columbia in Council to The Court of Appeal of Certain Questions Relative To The Esquimalt and Nanaimo Railway Company Land Grant From The Dominion of Canada on 21st April, 1887.
Esquimalt and Nanaimo Railway Company,
and
Alpine Timber Company Ltd. and The Attorney - General Of Canada Appellants;
and
The Attorney - General Of British Columbia Respondent.
1948: February 9, 10, 11, 12, 16; 1948: June 25.
Present: Kerwin, Rand, Kellock, Estey and Locke JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA
Constitutional law—Statutory exemption from taxation—Parliamentary contract—Public statute—Severance tax—Levies—Indirect taxation—Interpretation Act, c. 2 of Consolidated Act, 1877, of B.C.—Forest Act, c. 102, R.S.B.C. 1936, s. 123, am. c. 29, Statutes of 1946—Constitutional Questions Determination Act, c. 50, R.S.B.C., 1936. By an Act relating to the Island Railway, the Graving Dock and Railway Lands of the Province, cap. 14, Statutes of British Columbia 1884, sec. 22, it was provided that:— "The lands to be acquired by the company from the Dominion Government for the construction of the railway shall not be subject to taxation unless and until the same are used by the company for other than railroad purposes or leased, occupied, sold or alienated."
Held: answering a question submitted by the Lieutenant-Governor in Council under the provisions of The Constitutional Questions Determination Act, cap. 50 R.S.B.C. 1936, and reversing the judgment of the Court of Appeal, that the Province of British Columbia was obligated by contract to exempt from taxation the lands acquired by the Esquimalt and Nanaimo Railway Company from the Dominion Government and remaining in its hands in the manner provided by the section.
Held: reversing the judgment of the Court of Appeal (except as to Question 4) the further questions submitted should be answered in the manner indicated in the Statement of Facts.
APPEAL from the decision of the Court of Appeal for British Columbia on certain questions relative to the Esquimalt and Nanaimo Railway Company Land Grant from the Dominion of Canada on 21st April, 1887, referred to the Court by His Honour the Lieutenant Governor of British Columbia.
By the Terms of Union which declared the conditions upon which the Colony of British Columbia became part of Canada, the Dominion undertook to secure the commencement within two years and the construction within ten years from the date of the Union of a railway to connect the Pacific sea board with the railway system of Canada. The province agreed to convey to the Dominion in trust, to be appropriated in such manner as the Dominion Government might deem advisable, in furtherance of the construction of the railway, an extent of public lands along the line of railway not to exceed twenty miles on each side of the said line. By Order-in-Council of June 7, 1873, the Dominion fixed Esquimalt as the terminus of the proposed railway, it being then contemplated that the line should cross to Vancouver Island at Seymour Narrows and proceed thence to Esquimalt. Later the Dominion determined that the terminus should be at a place upon Burrard Inlet. The Province contended that the Terms of Union required the construction of the railway on Vancouver Island as a section of the Canadian Pacific Railway but the Dominion contended that the terminus on Burrard Inlet complied with the said Terms of Union. On August 20, 1883, an agreement was made, subject to the approval of Parliament and the Legislature, whereby Canada agreed to contribute a sum of $750,000 towards the cost of construction of a railroad between Esquimalt and Nanaimo and to convey to a company to be incorporated to construct the railway lands upon Vancouver Island lying between Esquimalt and Seymour Narrows, to be conveyed by the Province to the Dominion for that purpose. A draft of the Act to be passed by the Legislature approved by the representatives of the Dominion and the Province provided that:—
the lands to be acquired by the company from the Dominion Government for the construction of the railway shall not be subject to taxation unless and until the same are used by the company for other than railroad purposes or leased, occupied, sold or alienated.
On the same date a memorandum of agreement was signed between the Dominion and Robert Dunsmuir et al as contractors for the construction of the railway, which was to bind the parties only upon the passage of the agreed legislation by the Dominion and the Province and which provided, inter alia, for the payment of the sum of $750,000 in instalments and the conveyance by the Dominion to the company to be formed of the lands received by it from the Province upon the completion of the railway. In December 1883 an Act in the form so agreed upon was passed by the Legislature (cap. 14, Statutes of B.C. 1884) which provided for the incorporation of such persons as might be nominated by the Governor General in Council as the Esquimalt and Nanaimo Railway Company and, by cap. 6, Statutes of Canada, 1884, the agreements were approved by the Dominion and thereafter Robert Dunsmuir and his associates were nominated by the Governor General in Council as the persons to be so incorporated. The company constructed the railroad in accordance with its contract and received from the Dominion a conveyance of the lands.
In consequence of a report made by the Chief Justice of British Columbia, acting as a Commissioner under the Public Inquiries Act of British Columbia appointed to inquire into the forest resources of the Province and the legislation relating thereto, and among other matters to inquire into and report upon "Forest Finance and Revenue to the Crown from Forest Resources", wherein the Commissioner expressed the opinion that there was no contract between the Province and the company which would be broken by the imposition of a severance tax upon timber cut upon the lands remaining in the hands of the railway company after such lands were sold or otherwise alienated, the Lieutenant-Governor in Council acting under the Constitutional Questions Determination Act (cap. 50, R.S.B.C. 1936) referred the following questions to the Court of Appeal for hearing and consideration:
Question 1. Was the said Commissioner right in his finding that "there never was any contractual relationship between the provincial government and the contractors or the Railway Company in relation to the transfer of the Railway Belt to the Railway Company?"
Question 2. if there was a contract, would any of the legislation herein outlined, if enacted, be a derogation from the provisions of the contract?
Question 3. Was the said Commissioner right in his finding that "There is no contract between the Province and the company," which would be breached by the imposition of the tax recommended by the Commissioner?
Question 4. Would a tax imposed by the Province on timber, as and when cut upon lands in the Island Railway Belt, the ownership of which is vested in a private individual or corporation, the tax being a fixed sum per thousand feet board measure in the timber cut, be ultra vires of the Province?
Question 5. Is it within the competence of the Legislature of British Columbia to enact a Statute for the imposition of a tax on land of the Island Railway Belt acquired in 1887 by the Esquimalt and Nanaimo Railway Company from Canada and containing provisions substantially as follows:—
(a) When land in the belt is used by the railway company for other than railroad purposes, or when it is leased, occupied, sold, or alienated, the owner thereof shall thereupon be taxed upon such land as and when merchantable timber is cut and severed from the land:
(b) The tax shall approximate the prevailing rates of royalty per thousand feet of merchantable timber:
(c) The owner shall be liable for payment of the tax:
(d) The tax until paid shall be a charge on the land.
Question 6. Is it within the competence of the Legislature of British Columbia to enact a Statute for the imposition of a tax on land of the Island Railway Belt acquired in 1887 by the Esquimalt and Nanaimo Railway Company from Canada and containing provisions substantially as follows:—
(a) The tax shall apply only to land in the belt when used by the railway company for other than railroad purposes, or when leased, occupied, sold, or alienated: (b) When land in the belt is used by the railway company for other than railroad purposes, or when it is leased, occupied, sold, or alienated, it shall thereupon be assessed at its fair market value:
(c) The owner of such land shall be taxed on the land in a percentage of the assessed value, and the tax shall be a charge on the land:
(d) The time for payment of the tax shall be fixed as follows:
(i) Within a specified limited time after the assessment, with a discount if paid within the specified time;
(ii) Or at the election of the taxpayer made within a specified time after assessment, by paying each year on account of the tax a sum that bears the same ratio to the total tax as the value of the trees cut during that year bears to the assessed value of the land.
Question 7. Is the Esquimalt and Nanaimo Railway liable to the tax (so-called) for forest protection imposed by section 123 of the "Forest Act," being chapter 102 of the "Revised Statutes of British Columbia, 1936," in connection with its timber lands in the Island Railway Belt acquired from Canada in 1887? In particular does the said tax (so-called) derogate from the provisions of section 22 of the aforesaid Act of 1883?"
The Court of Appeal (Sidney Smith, J.A. dissenting) answered Questions 1, 3, 5 and 6 in the affirmative and Question 2 in the negative. The Court unanimously answered Question 4 in the affirmative. The Court (O'Halloran, J.A. dissenting) answered the first part of Question 7 in the affirmative and the second part in the negative.
Held: reversing the judgment appealed from (except as to the answer to Question 4) as follows:—
Question 1: The Commissioner was right in his finding that there never was any contractual relationship between the Provincial Government and the contractors.
The Commissioner was not right in finding that there never was any contractual relationship between the Provincial Government and the railway company.
Question 2: Yes.
Question 3: No.
Question 4: Yes.
Question 5: No.
Question 6: No.
Question 7: As to the first part, no; as to the second part, yes.
C. F. H. Carson, K.C., J. E. McMullen K.C. and I. D. Sinclair for the Esquimalt and Nanaimo Railway Company.
D. N. Hossie K.C. for the Alpine Timber Company Limited.
F. P. Varcoe K.C. and A. H. Laidlaw for the Attorney-General of Canada.
J. W. de B. Farris K.C. and John L. Farris for the Attorney-General of British Columbia. The judgment of Kerwin and Locke JJ. was delivered by
LOCKE J.:—There are two matters to be determined in answering Question 1 and the first of these is as to whether the Commissioner was right in finding that there never was any contractual relationship between the Provincial Government and the contractors. It is common ground that the expression "Provincial Government" is intended to mean His Majesty in right of the Province of British Columbia and that the question is as to whether there is a contract to exempt the lands in question from taxation in the manner provided by sec. 22 of the Settlement Act.
It is conceded that there was no written agreement between the contractors and the Province: if there was an oral agreement made on or prior to August 20, 1883, no witness is available to prove it since the then Premier, Mr. Smithe, and Mr. Robert Dunsmuir and his associates are long since dead, and the existence of such a contract if there was one must, therefore, be a matter either of inference from the known facts, or the legal result of the actions of the parties so far as they are now capable of proof.
By the terms of Union the Colony of British Columbia became part of the Dominion of Canada on July 20, 1871, and by sec. 11 the Government of the Dominion undertook to secure the commencement simultaneously, within two years from the date of Union, of the construction of a railway from the Pacific towards the Rocky Mountains, and from such point as might be selected, east of the Rocky Mountains, towards the Pacific, to connect the sea board of British Columbia with the railway system of Canada, and to secure the completion of such railway within ten years from the date of the Union: on its part the Government of British Columbia agreed to convey to the Dominion, in trust, to be appropriated in such manner as the Dominion Government might deem advisable "in furtherance of the construction of the said railway, a similar extent of public lands along the line of railway, throughout its entire length in British Columbia, (not to exceed, however, twenty miles on each side of the said line) as may be appropriated for the same purpose by the Dominion Government from the public lands in the Northwest Territories and the Province of Manitoba". The section further provided that the quantity of land which might be held under pre-emption right or by Crown grant within the limits of the tract of land in British Columbia to be so conveyed to the Dominion should be made good to the Dominion from contiguous public lands. In consideration of the land to be so conveyed in aid of the construction of the railway, the Dominion agreed to pay to British Columbia from the date of the Union the sum of $100,000 per annum. In addition to other obligations assumed by Canada, it was to guarantee the interest for ten years from the date of the completion of the works on such sum not exceeding $100,000 sterling, as might be required for the construction of a first class graving-dock at Esquimalt.
The failure of the Dominion to commence the construction of the railway and to complete it within the times limited by sec. 11 gave rise to great dissatisfaction in the new Province. With the merits of the various disputes which arose between the Dominion and the Province in consequence, all of which were composed by the Settlement Act (Cap. 14, Statutes of B.C. 1884), we are not here concerned. While the Dominion had by Order-in-Council passed on June 7, 1873, fixed Esquimalt as the terminus of the proposed railway and asked for the conveyance of a strip of land twenty miles in width along the east coast of Vancouver Island between Seymour Narrows and the Harbour of Esquimalt, in furtherance of the construction of the railway, and this request had been extended in March, 1875, by a request that the belt of land to be conveyed should be twenty miles on each side of the proposed railway on Vancouver Island, and while the Province had by cap. 13 of the Statutes of 1875 granted to the Dominion Government, in trust, to be appropriated in such manner as it might deem advisable an area of public lands not to exceed twenty miles on each side of the proposed line between Esquimalt and Nanaimo, the Province had considered itself at liberty to rescind the land grant and, by cap. 16 of the Statutes of 1882, the Act of 1875 which authorized the grant was repealed.
While all matters in dispute were settled by the Act of December, 1883, the attitude adopted on behalf of the Dominion and of the Province respectively is of importance in considering the question to be determined. The position taken by the Dominion is summarized in a report of a Committee of the Privy Council approved by the Governor General in Council on May 17, 1881, and addressed to the Minister of Railways and Canals, which, stated shortly, was that while it had originally been contemplated that the railway should run by Bute Inlet and an Order-in-Council had been passed declaring that Esquimalt should be the terminus on the Pacific coast, further information had disclosed that this was inadvisable and that it had been determined in October, 1879, that the Western terminus of the road should be on Burrard Inlet, which was a compliance with the terms of sec. 11. As to the terms proposed by Lord Carnarvon, then Secretary of State for the Colonies, made for the purpose of ending the differences which had arisen between the Dominion and the Province and which recommended that the railway from Esquimalt to Nanaimo should be commenced as soon as possible and completed with all practicable despatch, the Government of Canada took the attitude that while entitled to every respect they had never received the sanction of the Parliament of the Dominion and that, on the contrary, a bill to give effect to these terms having been introduced by the Government into the House of Commons, providing for the construction of the Esquimalt and Nanaimo line, though passed by the House was lost in the Senate and, in the words of the report, "consequently Parliamentary sanction refused to the construction of what was regarded by the majority in the Senate as a Provincial work quite unnecessary to the fulfilment of the terms of Union with British Columbia". The report further recited that a contract had been entered into and received the sanction of Parliament for the construction of the railway from the end of the existing system near Lake Nipissing to Burrard Inlet (this referring to the contract made by the Dominion and the persons who became the incorporators of the Canadian Pacific Railway Company, which forms a schedule to cap. 1, Statutes of Canada 1881), that Parliament had not authorized the construction of the Esquimalt and Nanaimo line and that, in view of the large expenditure involved in the building of the Canadian Pacific Railway, it was not probable that it would do so.
The position taken by the Province was as stated in an Order-in-Council passed on February 10, 1883, a copy of which was forwarded by the Lieutenant-Governor to the Secretary of State on that date. Briefly this was that the Province, upon being advised in 1873 that an Order-in-Council had been passed by the Dominion fixing Esquimalt as the terminus of the Canadian Pacific Railway and deciding that a line of railway should be located between the Harbour of Esquimalt and Seymour Narrows, had first reserved a belt of land twenty miles in width between these two places and thereafter, on the request of the Dominion, conveyed these lands to it for railway purposes, that communications passing between the Province and the Dominion showed that both parties understood that the eleventh section of the Terms of Union required the construction of the road on the Island as a section of the Canadian Pacific Railway and that the Dominion had defaulted in complying with its obligations. The Order-in-Council recited that the reservation of the railway belt on the Island and the withholding of these lands from development or settlement had caused great injury to the commercial and industrial interests of the Province and the Committee recommended as a basis of settlement between the Governments of the railway and railway lands questions
that the Dominion Government be urgently requested to carry out its obligation to the Province by commencing at the earliest possible period the construction of the Island Railway and complete the same with all practicable despatch, or by giving to the Province such fair compensation for failure to build said Island Railway as will enable the Government of the Province to build it as a Provincial work and open the East Coast lands for settlement.
While the negotiations between the Dominion and the Province which followed resulted in a settlement, it is of importance to note that at the session of the Provincial Legislature in 1882 an Act to incorporate the Vancouver Land and Railway Company had been passed in pursuance of a petition presented by Lewis M. Clement et al, praying for the incorporation of a company for the purpose of constructing and working a railway from Esquimalt Harbour and for a grant of public lands in aid thereof, and that the Act of 1875 which authorized the land grant to the Dominion was repealed. The Act, cap. 15 Statutes of 1882, (hereinafter referred to as the Clement Act) constituted the applicants a body corporate by the above name, and by sec. 9 the company was required to lay out, construct, acquire, equip, maintain and work a continuous line of railway from a point on Esquimalt Harbour to a point on Seymour Narrows; the survey was to be com- menced within sixty days after the Government should have notified the company that it was prepared to set apart and reserve to the company the lands referred to, and it was provided that not less than ten miles of the portion of the railway between Esquimalt and Nanaimo should be completely constructed, equipped and in running order on or before July 1, 1883, and the entire railroad was to be constructed and equipped on or before the 1st day of July, 1890. Sec. 17 required the company to give security to the satisfaction of the Government of the Province to the extent of $250,000 for the due construction of the railway in accordance with the terms of the Act, and provided that if this was not given within sixty days from the repeal by the Legislature of the Esquimalt and Nanaimo Railway Act 1875, which had authorized the grant of the railway belt on the Island to Canada, a sum of $10,000 required to be deposited should be forfeited and the provisions of the Act should be "null and void". Sec. 18 provided that upon satisfactory security having been given and "in consideration of the completion and perpetual and efficient operation of the said railway by the company" the Government would set apart and reserve to the company 1,900,000 acres of public land lying on both sides of the proposed line between Esquimalt and Seymour Narrows, and upon completion of the railway, in accordance with the terms of the Act should grant the fee simple in the said lands to the company. Sec. 21 provided a limited exemption from taxation for the railway and its properties and the capital stock of the company, and that "the lands of the company shall also be free from provincial taxation until they are either leased, sold, occupied or in any way alienated". Nothing resulted, however, from this legislation: the company did not provide the security stipulated for and its rights under the statute lapsed and the Province was again at liberty to resume its negotiations with the Dominion.
When on February 19, 1883, the Lieutenant-Governor sent to the Secretary of State the copy of the report of the Provincial Executive Council the Dominion Government sent Mr. Trutch to Victoria to negotiate with the Province in an endeavour to settle all matters in dispute. Negotiations were carried on between Mr. Smithe, the Premier of the Province, and Mr. Trutch on behalf of the Dominion. Sir John A. Macdonald had advised the Premier that the Dominion Government was prepared to submit to Parliament the proposals of the Province, with such modifications as might be settled on with Mr. Trutch and concurred in by the Dominion Government, and stipulated that the Provincial Legislature should legislate first. On May 5, 1883, Mr. Trutch wrote to the Premier making certain proposals on behalf of the Dominion, these including the suggestion that the Province should grant to the Dominion a portion of the lands described in the Clement Act and procure the incorporation by Act of the Legislature "of certain persons to be designated by the Government of Canada for the construction of the railway from Esquimalt to Nanaimo", and offering, inter alia on behalf of the Dominion to appropriate these lands and the sum of $750,000 to be paid as the work proceeded to the proposed company, provided it gave satisfactory security for the completion of the railway within three and a half years from the date of its incorporation.
On May 7, 1883, an Order-in-Council of the Provincial Executive Committee, which had considered these proposals, after reciting the desirability that the long-standing dispute should be settled and that the Dominion and the Province should unite in a common endeavour to open the country to settlement, recommended their acceptance.
On May 9, 1883, a Dominion Order-in-Council, after reciting the proposals made by the Lieutenant-Governor on behalf of the Province in his communication of February 10, 1883, authorized the making of counter proposals without prejudice, which included the following:
The Provincial Government shall grant to the Dominion Government the lands in Vancouver Island specified in Mr. Dunsmuir's last proposal for the construction of the Esquimalt and Nanaimo Railway.
That the British Columbia Government shall procure an Act of Incorporation for such parties as shall be designated by the Dominion Government for the construction of the Railway on Vancouver Island.
That the Dominion Government shall appropriate the lands on Vancouver Island and a sum of $750,000 to be paid as the work proceeds, to a Company to be incorporated at their instance by the Legislature of British Columbia, and which Company shall give satisfactory security for the completion of the Railway from Esquimalt to Nanaimo within four years from the date of the Act of Incorporation.
While these matters were taking place the Provincial Legislature was in session at Victoria and on May 12, 1883, passed an Act relating to the Island Railway, the Graving Dock and Railway Lands of the Province: cap. 14 Statutes of B.C. 1883, hereinafter referred to as the May Act. The text of this statute had been submitted in advance to Mr. Trutch and by him transmitted to the Prime Minister, and on the day the Act was passed the former wrote to the Premier pointing out that certain provisions of the Act, in particular one which recited that "the Government of Canada agrees to secure the construction of a railway from Esquimalt to Nanaimo", were not in conformity with the proposals made in the letter of May 5th. The Premier took the attitude that the Act was in accordance with the arrangements made between Mr. Trutch and himself; the latter said that any position he had taken in the negotiations was expressed to be subject to the approval of the Government of Canada and, by a letter of May 15th, informed the Premier that he had received a message from the Prime Minister directing him to communicate to the Premier that "Parliament long ago refused to build the Island Railway and cannot successfully be asked now to change that policy" and that the Dominion Government had offered to ask Parliament to vote $750,000 "to subsidize a company to construct that railway and to take satisfactory security from such company for the construction of that work", and regretted the offer had not been accepted. On May 23rd the Premier telegraphed to the Prime Minister regarding the matter and on the following day the latter replied:
Dominion Government greatly regrets that your Act in effect makes Island Railway a Government work, although to enable Government to build it power to use agency of a railway company is given. We never agreed to that provision. Useless to ask Parliament to confirm your Act. We are quite ready to perform conditions telegraphed to Mr. Trutch and accepted by you, and meanwhile will proceed provisionally to carry out such arrangement, to be completed when your Act amended in conformity with agreement.
Negotiations were continued between the two Governments during the latter part of May and in June of 1883, and by an Order-in-Council of June 23rd the Dominion authorized the Minister of Justice, Sir Alexander Campbell, to proceed to Victoria in an endeavour to bring the matter to a conclusion. The instructions to the Minister included the following: That Sir Alexander Campbell should then communicate with Mr. Dunsmuir or other capitalists who are understood to be desirous of forming a company to construct the railway under the terms of the Provincial Act.
On the arrival of Sir Alexander Campbell he apparently carried on negotiations not only with the Provincial Government, in regard to the amendment to the May Act upon which the Dominion insisted, but also with Mr. Dunsmuir and his associates. In these negotiations the Dominion maintained the position it had taken in the Order-in-Council of May 17, 1881, regarding the obligations of Canada in respect to the Island Railway. In a letter addressed by Sir Alexander Campbell to the Premier on August 6, 1883, a copy of a proposed contract for the construction of the railway between the Dominion and Dunsmuir et als was submitted for the consideration of the Provincial Government. What part, if any, the province had taken in these negotiations is not known. The letter, after stating that a copy of the proposed contract (in draft) for the construction of the railway was enclosed and the suggestions of the Premier invited, said in part:
The Government of the Dominion are anxious that in all respects it should meet the just expectations of the Government of your Province. The obligations, so far as regards the Government of the Dominion, are confined, as you will see, to the payment, as the work progresses, of the assistance promised to the Railway by us, and the transfer, after the work is wholly completed of the land grant which the Government of the Province has placed in our hands for that purpose. We assume no responsibility for non-completion, or delay in the progress of the work. The security which the Company will deposit with the Dominion Government will be held, however, by us in trust for this purpose.
We understand that with this contract (involving no other undertaking on our part than those I have mentioned), and the deposit of the security above referred to, the Government of the Province are satisfied that the terms of the Act concerning the Island Railway will have been completely performed on the part of the Government of Canada.
After stating that he proposed on obtaining the approval of the local Government to the contract to execute it and that Mr. Dunsmuir and his friends would be invited to do so, the letter said that after having it executed the writer thought the contract should be placed in the hands of Mr. Trutch "awaiting the change which your Legislature is to make in the Act relating to the Island Railway, by striking out any language under which Canada might be called upon to construct or secure the construction of the railway, and substituting language involving an obligation simply to take security for such construction to the satisfaction of your Government. The clause in the Island Railway Act relating to the sale to actual settlers for four years at a dollar an acre has, I understand, received the assent of Mr. Dunsmuir and his friends". On August 17th Sir Alexander Campbell again addressed the Premier, noting that he had had no reply to the above quoted letter and asking whether the Provincial Government would have any objection to the $250,000 to be deposited by the contractors being invested in approved securities. On the day following the Premier answered, saying that he had carefully considered the proposed contract and had a few suggestions to make and suggested an interview to discuss them: as to the cash deposit being exchanged for approved securities he saw no objection but added that "in the event of the forfeiture of the security by the contractors it ought to be understood that it would be handed over to the Province by the Dominion Government". In a reply written on the same date Sir Alexander Campbell declined to agree to this latter proposal saying that the disposition of the security in case of default "must depend upon the circumstances of the moment, and unless the Dominion should be released from all obligations in the matter they would not hand over the security but retain it for the purpose for which it was given".
On August 20, 1883, a memorandum of agreement was signed by Sir Alexander Campbell and Mr. Smithe providing, inter alia, that the Government of British Columbia would invite the adoption by the Legislature of certain amendments to the May Act, such amendments being indicated by red lines in the copy of the proposed new Bill annexed to the memorandum and that the said Government "will procure the assent of the contractors for the construction of the Island Railway to the provisions of clause (f) of the agreement recited in the amending Bill". That clause provided that the lands on Vancouver Island to be conveyed to the Dominion should with certain exceptions be open for four years from the passing of the Act to actual settlers, for agricultural purposes, at the rate of one dollar an acre, to the extent of 160 acres to each such actual settler, and that in any grants to settlers the right to cut timber for railway purposes and rights of way for the railway, and stations, and workshops should be reserved: in the meantime and until the railway should be completed the Government of British Columbia was to be the agent of the Government of Canada for the purpose of administering these lands, for the purposes of settlement, and provision was made for the making of pre-emption records by the Government of the Province and for the deposit of all moneys received by the Province in respect of such administration into the Bank of British Columbia, to the credit of the Receiver General of Canada, and that such moneys, less expenses, should upon completion of the railway be paid over to the railway contractors. The memorandum further stipulated that upon the amending Bill becoming law in British Columbia and the assent of the contractor for the construction of the railway to the provisions of clause (f) above referred to being obtained, the Government of the Dominion would seek the sanction of Parliament to enable them to give effect to the stipulations on their part contained in the agreement recited in the amending Bill. On the same day Sir Alexander Campbell, acting on behalf of the Minister of Railways and Canals of Canada, signed a contract for the construction of the Esquimalt and Nanaimo Railway with Robert Dunsmuir and his associates.
In view of the letter of the Premier of August 18, it may be assumed that the terms of this contract were approved by the representatives of the Province. While the Dominion was the contracting party, its representatives had made it abundantly clear in the correspondence that Canada assumed no responsibility for the non-completion or delay in the progress of the work and considered its part in the matter as being restricted to the payment of the $750,000 as the work progressed and the transfer after it was completed of the land grant which the Province had placed in its hands for that purpose. While of importance to the Dominion as a whole, in that the development and progress of the Province would contribute to the welfare of the country as a whole, the Island Railway was after all primarily a matter of Provincial concern: with the exception of the money contribution and the granting of foreshore rights it was the Province which was contributing the consideration for the building of the road. As might be expected under these circumstances, the contract imposed upon the contractors not merely the obligation to build and equip the line from Esquimalt to Nanaimo but also to maintain and "work continuously" the said line and a telegraph line throughout and along the railway line (sec. 3) and (by sec. 9) a covenant that they would "in good faith keep and maintain the same and the rolling stock required therefor in good and efficient working and running order; and shall continuously and in good faith operate the same, and also the said telegraph line, and will keep the said telegraph line and appurtenances in good running order". The Bill referred to in the memorandum of agreement signed on the same date by the representatives of the Province and the Dominion, which was to amend the May Act, contained in sec. 27 a provision that the Esquimalt and Nanaimo Railway Company
shall be bound by any contract or agreement for the construction of the railway from Esquimalt to Nanaimo which shall be entered into by and between the persons so to be incorporated as aforesaid and Her Majesty represented by the Minister of Railways and Canals, and shall be entitled to the full benefit of such contract or agreement which shall be construed and operate in like manner as if such company had been a party thereto in lieu of such persons, and the document had been duly executed by such company under their corporate seal.
The necessity for this is apparent: the subsidies were to be given to ensure not merely the construction of the railway and telegraph lines but also their operation in perpetuity. It was apparently considered necessary to obtain the covenant of the contractors as well as that of the company to be formed and in addition to impose the obligation to operate in the statute of incorporation which, by sec. 9, required the company to "lay out, construct, keep, maintain and work the railway and telegraph lines". The contract also referred to the agreement between the two Governments whereby the Province would procure the incorporation "of certain persons to be designated by the Government of Canada" for the construction of the road and the Dominion agreed to grant to the contractors a subsidy of $750,000 and the lands it was to receive from the Province "for which subsidies the construction of the railway and telegraph line from Esquimalt to Nanaimo shall be completed and the same shall be equipped, maintained and operated.
That Mr. Dunsmuir must have been a party to the negotiations which resulted in the agreement between the Dominion and the Province of August 20th is, I think, apparent. The terms of the proposed Settlement Act were, of course, of vital importance to the contractors and the reference to the draft Bill identified by the signatures of Sir Alexander Campbell and the Honourable Mr. Smithe in clause 15 of the contract made with them makes it evident that Mr. Dunsmuir was satisfied with the terms of the proposed Act prior to the signing of the memorandum on behalf of the two Governments on August 20th. That memorandum had required the Province to obtain the approval of the contractors to the very material change made in clause (f) of the May Act, and it was apparently in consequence of this that by a memorandum dated at Victoria on August 22, 1883, Robert Dunsmuir wrote on a copy of the draft which had been signed by Messrs. Campbell and Smithe the following:
I have read and on behalf of myself and my associates acquiesce in the various provisions of this Bill, so far as they relate to the Island Railway & lands.
By the terms of these documents neither the memorandum signed on behalf of the two Governments nor the contract with Dunsmuir et als were to become binding until both the Legislature of the Province and the Dominion Parliament had acted and meanwhile the documents were held in escrow. In due course the Settlement Act was passed by the Legislature in December, 1883 and the agreement with the contractors authorized by Parliament by cap. 6 of the Statutes of 1884, and by an Order-in-Council of April 12, 1884, Mr. Dunsmuir and his associates were named as the persons to be incorporated as the Esquimalt and Nanaimo Railway Company.
While the agreement for the construction of the r