The Alberta and Great Waterways Railway Scandal was a political scandal in Alberta, Canada in 1910, which caused the resignation of Liberal premier Alexander Cameron Rutherford. Rutherford and his government were accused of giving loan guarantees to private interests for the construction of the Alberta and Great Waterways (A&GW) Railway that substantially exceeded the cost of construction, and which paid interest considerably above the market rate. They were also accused of exercising insufficient oversight over the railway's operations.
The scandal split the Liberal Party: Rutherford's Minister of Public Works, William Henry Cushing, resigned from the government and publicly attacked its railway policy, and a large portion of the Liberal caucus voted to defeat the government in the Legislative Assembly of Alberta. The government survived all of these votes. Rutherford largely placated the legislature by appointing a royal commission to investigate the affair, but pressure from Lieutenant-Governor George Bulyea and unrest within his own caucus forced Rutherford's resignation and his replacement by Arthur Sifton.
The royal commission gave its report months after Rutherford resigned. The majority on the commission did not find Rutherford or his cabinet guilty of any wrongdoing, but criticized them for poor judgment, both in relation to the loan guarantees and in relation to the exemptions the A&GW received from provincial legislation. A minority report was more sympathetic, and declared the allegations against them "disproved".
James Cornwall, a Liberal backbencher who supported Rutherford, fared somewhat worse: his personal financial involvement in the railway gave rise to "suspicious circumstances", but he too was not proven guilty of any wrongdoing.
Besides provoking Rutherford's resignation, the scandal opened rifts in the Liberal Party that took years to heal. Sifton eventually smoothed over most of these divisions, but was frustrated in his railway policy by legal defeats. He ultimately adopted a similar policy to Rutherford's, and the A&GW was eventually built by private interests using the money raised from provincial loan guarantees. Sifton's Liberals went on to be re-elected in 1913 and 1917.
Background
Alberta's first years as a province were optimistic ones. This optimism manifested itself in a desire for railroads. The public, media, and politicians all called for the rapid development of new lines and expansion of existing ones.Thomas 59 Rutherford's Liberals had set up a framework that allowed almost anybody to enter the railroad business, but few firms had done so by 1909.Thomas 58–59 The opposition Conservatives called for the government's direct entry into the industry.Thomas 60 Rutherford's government instead opted for a regime of loan guarantees: the Grand Trunk Pacific Railway and the Canadian Northern Railway (CNR) had their bonds, which were to pay 4% per year over their thirty-year term, guaranteed at a rate of $13,000 per mile of railway constructed. The legislature had the right to increase this to $15,000. In exchange, the railways were subject to a minimum rate of line construction: the CNR was required to build and the Grand Trunk Railway before the end of 1909.
Besides the established companies, guarantees were also offered to new companies. One company to take advantage of this was the Alberta and Great Waterways Railway, which was founded by two Kansas City bankers, William R. Clarke and Bertrand R. Clarke, and a Winnipeg accountant, William Bain. The company proposed to build a "line from Edmonton north-easterly to a point at or near the west end of Lac la Biche, thence to a point at or near Fort McMurray."Thomas 61 Guarantees to the A&GW were more generous than to the established companies: $20,000 per mile for and $400,000 for its Edmonton terminal. The bonds also paid better interest (5%) over a longer term (fifty years) than those of the established companies. Upon the bonds' sale, the money was to be placed in a bank account controlled by the government, and paid to the railway as the line was constructed.Thomas 62
The scandal
The Rutherford government had just been resoundingly re-elected in the 1909 provincial election, winning 36 of the legislature's 41 seats, when the new legislature first met in February 1910. There was initially no sign of controversy in relation to the A&GW Railway: William Clarke, A&GW President, had several months earlier announced that the line would be completed by the end of 1912, ahead of schedule.Thomas 69 When the A&GW bonds went on sale in London in November 1909, the issue was oversubscribed. The following month, the contract for ties was awarded.Thomas 70 Everything seemed to be progressing as planned when, at the beginning of the new legislative session, Liberal backbencher John R. Boyle asked the government a series of innocuous questions about the company and the guarantees made to it. Rutherford, Minister of Railways as well as Premier, responded to the questions in writing.Thomas 70–71 Before he did so, however, a rumour began to circulate that William Henry Cushing, Minister of Public Works, had resigned from the cabinet.Babcock 59
Boyle and Conservative leader R. B. Bennett questioned Rutherford about the rumours, but Rutherford initially refused to make any announcement. The next day, however, the rumour was confirmed when the Premier read Cushing's letter of resignation in the legislature. In this letter, Cushing gave his reasons for resigning as disagreement with the government's railway policy, which he claimed was developed without his involvement or consent. Rutherford disagreed with this claim, and expressed his regret for Cushing's resignation.Thomas 71
J. R. Boyle's resolution
On February 21, Boyle gave notice of a resolution to expropriate the rights of the A&GW and build the line directly. He asserted that the government had guaranteed to the A&GW more than was necessary, as a line of , barely two thirds what had been guaranteed, was sufficient. The next day, Boyle further alleged that Deputy Attorney-General S. B. Woods had tampered with the government's files on the A&GW before Boyle and Bennett had viewed them. Attorney-General Charles Wilson Cross strongly disputed this allegation.
Debate on Boyle's resolution began February 25, in front of a full public gallery. Cushing opened debate. He explained that the cabinet's original intention had been for $20,000 per mile to be the maximum guarantee, with less promised for more easily built portions of the line.Thomas 72 He claimed that he had taken ill at a time that this understanding was still in place, only to have Rutherford move responsibility for railways from Cushing's Public Works department to a new Railways department, headed by Rutherford himself.Thomas 72–73 He recounted his discomfort with Rutherford's refusal to consult with Public Works engineers on the actual costs of constructing the line, and his relief at Rutherford's assurance that Cushing himself would be consulted. He claimed that Rutherford had not followed-through on this pledge, and that, upon seeing the completed agreement between the A&GW and the government, Cushing had decided to resign.Thomas 73 Rutherford disputed this version of events, noted that Cushing had been at all relevant cabinet meetings, and cited the report of government engineer R. W. Jones in disputing that the line could be constructed for less than $20,000 per mile.Thomas 73–74
Boyle followed, alleging that Rutherford had privately committed the government to the $20,000 figure as early as November 14, 1908, before a government engineer had even been appointed. He also accused the government of negligence in failing to verify the paid in capital of the A&GW before committing $7.4 million of government loan guarantees to it. He closed by repeating his demand that the government expropriate the company's rights and build the line itself.Thomas 74 Cross rebutted for the government, questioning Cushing's sincerity and quoting a March 1909 speech in which the then-Minister of Public Works had defended the government's railway policy against Bennett's attacks. Cross also reminded the legislature that no money was to be paid to the A&GW until tracks were actually constructed.
On February 28 Liberal MLA Ezra Riley, a leader of the anti-Rutherford insurgency and a supporter of Cushing, proposed an amendment to Boyle's resolution, striking out the proposals to expropriate and substituting a statement that "the contract and agreement entered into between the Government and the Alberta and Great Waterways Railway Company are not such as to commend them to the judgment and confidence of this house". The same day, an amendment to this amendment was moved by Liberal MLA John William Woolf (Cardston) and seconded by Edmonton Liberal MLA John Alexander McDougall. Woolf and McDougall proposed redrafting the agreement along the lines proposed by A&GW President Clarke in a letter to Rutherford. This letter suggested that the A&GW should offer to the government its construction equipment and other assets in guarantee of its construction pledges.
The Woolf-McDougall amendment was considered friendly to the government, but Rutherford was not yet in the clear.Thomas 75 Independent Edward Michener attacked the government for receiving only par value for the bonds when they had been sold at ten percent above par.Thomas 76 McDougall voiced his support for Michener's argument. Though McDougall had seconded Woolf's pro-government amendment, his reasons for doing so were less support for the government than a principled aversion to the province using its law-making power to extricate itself from inconvenient contracts.Thomas 76–77
Opposition to the government came to a head March 2 when Conservative leader and Calgary MLA R.B. Bennett spoke.Thomas 77 Bennett was renowned as one of the province's finest orators, and the five-hour speech he gave on this occasion earned plaudits. The Liberal Edmonton Bulletin praised its "splendor in diction [and] the physical endurance of the orator" and called it a "high water mark for parliamentary debate in Alberta".Thomas 77–78 Bennett lashed out at the government's handling of the A&GW file, accusing it of culpable negligence in failing to properly oversee the company's activities. He claimed to have been approached directly by "great financial interests" intent on preventing his participation in the debate. He argued that the discrepancy in the sale price of the bonds and what the government had received for them meant that Clarke and his associates had realized a profit of between $200,000 and $300,000 at the government's expense.Thomas 78 He closed with an accusation that Cross had sent an emissary to a telephone company that wanted to install an automatic telephone system in Calgary agreeing to reverse his opposition to the deal in exchange for a $12,000 contribution to Cross's campaign fund. These charges, corroborated by Cushing but hotly denied by Cross, were not related to the A&GW affair but were designed to damage the credibility of the government's de facto house leader on the eve of the vote on the Woolf-McDougall amendment.Thomas 79
The government side adopted similar tactics: Agriculture Minister Duncan Marshall accused Boyle of being motivated by bitterness over having been denied the solicitorship of the A&GW; Boyle admitted that he had applied for this position but denied an accusation by Peace River MLA James Cornwall that he had requested Cornwall's assistance in lobbying for it.Thomas 79–80