Judge for Yourself
The Davis Report Does Not End the Bren Gun Case —It Does Change a System Which the Commissioner Says "Broke Down."
ON FRIDAY. January 13, there was tabled in the House of Commons the report of the Royal Commission appointed to inquire into the Bren machine gun contract between the Canadian Government and John Inglis Company, Limited, of Toronto.
That inquiry arose from an article entitled “Canada’s Armament Mystery,” written by Lieutenant-Colonel George A. Drew, and published by Maclean's in its issue of September 1, 1938.
Contrary to the impression conveyed by many newspaper headlines at the time the report was tabled, the matter of the Bren Gun Contract and the extent to which the public interest was protected has not been disposed of.
The report does find that there was no evidence or ground for suspicion that any government official was guilty of corruption.
The report also finds that there was no evidence that any member of the Senate or of the House of Commons benefitted from the contract. It summarizes the evidence relating to the activities of Mr. Hugh Plaxton, M.P., prior to the making of the contract, but makes no comment. There was no charge of corruption in Maclean's article. The article did criticize the substance of the contract. It did reveal the circumstances under which the previously bankrupt John Inglis Company Limited was acquired by Major James E. Hahn and certain associates.
It did question statements made in the House of Commons by the Minister of Defence in reference to the contract.
The article did set forth twenty questions concerning:
The negotiations leading up to the contract.
The reason for the selection of Major Hahn and why tenders were not called for.
The financial set-up and stock transactions of the new Inglis Company.
The directors and shareholders of the Inglis Company. The position of Mr. Hugh Plaxton. M.P., two of whose brothers (as the evidence shows) are shareholders of the Inglis Company.
These questions, involving the responsibility of the Government and officials of the Department of Defence and the conduct of the various individuals concerned in negotiating the contract, are not answered by Commissioner Davis. He has referred the questions, with the evidence, to the Government and Parliament for judgment and action.
But Commissioner Davis did report some conclusions which bear strongly uixm the administrative system that dealt with the selection of the manufacturer and the settlement of the terms and conditions of the contract, and upon the competence of personnel.
Concerning the system by which the contract was negotiated, the Commissioner says:
“The system broke down when the Committee (the Interdepartmental Committee) failed to report back to the body that had created it (the Government). Their failure to report was not a matter of misconduct; it was a failure to recognize the importance of their Committee as part of the administrative system of government.”
And the Commissioner did recommend a complete change of system. It is that
All munitions or armament contracts should be put into the hands of an expert advisory group of competent businessmen directly accountable to the Prime Minister or to the Minister of Finance.
A GOOD JOB FOR THE COUNTRY
COMMENTING on the Davis Report on the Bren Gun Contract, in its issue of January, 16, 1939, the Ottawa Journal concludes its leading editorial with these words:
"Summed up, this investigation in its outcome is all to the good. Those responsible for it — Maclean's Magazine and Col. George A. Drew — did a good job for this country.”
“The Facts Are in the Evidence”
HERE are the main features of the Davis Reix»rt.
Study them in the light of the article which precipitated the inquiry, and JUDGE FOR YOURSELF.
(The emphasis given in black type throughout, is of course, our own.)
In finding that there was no corruption, Commissioner Davis says:
“There is no evidence that any member of the Senate or of the House of Commons of Canada was admitted to any share or part of the contract, or to any benefits to arise therefrom, or had been promised or given any suggestion that he was to have any share or part of the contract or was to be admitted to any share or part of the contract, or to any benefit to arise from the contract.
“The evidence relating to the activities of Mr. Hugh Plaxton prior to the making of the contract has already been set out or referred to in this Rejxirt, and with that exception (and excepting of course the Minister presiding over the Department of National Defence) there is no evidence that any member of the Senate or of the House of Commons of Canada had any connection with or took any part in the discussions or negotiations leading up to the contract.
“There is no evidence that any senator or member had any connection with or took any part in the affairs of the Company or in the sale of shares or securities of the Company.
“I think it right to say that there is no evidence (nor is there in the evidence any ground for suspicion) that the Minister or the Deputy Minister or any officer or official of the Department of National Defence was guilty of any act of corruption, or anything in the nature of corruption.”
In the article published by Maclean s there was no charge of corruption.
In the matter of his inability to make findings concerning the conduct, the Commissioner says:
“That a report upon the Inquiry is contemplated by the statute (The Inquiries Act, R.S.C. 1927) is not open to doubt. But that a finding of misconduct cannot be made against any person, until reasonable notice shall have been given to him of the charge of misconduct alleged against him and he shall have been allowed full opportunity to be heard in person or by counsel, is expressly enacted by sec. 13 of the statute. No charges of misconduct, however, were formulated against any particular person.
“Having fully weighed the objection advanced on this ground, as well as the weighty consideration brought to my attention by counsel that the rights of the indivi-
duals interested in the contract might become the subject of legal controversy elsewhere. I have come to the conclusion that it is inexpedient to comment upon the evidence in respect of its hearing on the conduct of the individuals concerned.
“The facts are all in evidence; and as said by Government counsel in opening their argument
So far as the facts are concerned, there are very few which are even in dispute.
“I cannot myself recall at the moment any fact to which direct proof was adduced that is in dispute. It will be for those charged with the responsibility of dealing with the facts, i.e., the Government and Parliament, to examine and study them and to take such action, if any, thereon as they may see fit.”
Findings on Contract
SO FAR as the contract it self is concerned, Commissioner I )avis reports:
“The contract is not for a fixed sum; it is on a cost plus basis. It is admitted that we do not know how much the guns are going to cost. There are, of course, adequate jxtwers of inspection, sujx.*rvision and control vested in the Department under the contract, and with the estimates from Enfield of what the guns there are costing it should be possible to keep actual cost here well within bounds.
“No substantial objection can be taken, in my view, to the provisions of the Canadian contract, though In the absence of any competitive bids or terms of manufacture I am unable to pass upon the substance as distinct from the form of thecontract. It is important, of course, that the contract be a good and businesslike contract; but what is more important after all is whether the procedure adopted in making the contract was that best calculated to protect the public interest and to secure the confidence of the people of Ganada that there would he no improper profiteering in the private manufacture of war armaments for the defence of the country.
“ That isa question upon which the Government and Parliament, in the light of the evidence brought before the Commission, must pass.”
In quoting from the evidence relating to the study of the contract by the Interdepartmental Committee, some members of which continued to favour tenders and sought assurances concerning the Inglis Company and its financial position, Commissioner Davis delivers this opinion:
“It is at least a plausible view that the question whether tenders should be called for in such a case is a matter of administrative policy, upon which competent opinion is. nr may well be, divided, and one therefore peculiarly for the Government and Parliament.
“What is obvious, of course, is this: that if the Government has an article to be manufactured for which by its very nature it is not practicable to call for tenders, and the policy of private manufacture is to he adopted, then at once the heaviest sort of responsibility falls upon those charged with the duty of selecting the individual, firm or corporation to manufacture the article. The question is: Were proper and sufficient steps taken in this case to discharge that responsibility? Upon the whole evidence, that is a question for the Government and Parliament to pass upon.”
Furthermore, the Commissioner recommends a sweeping change in the system for negotiating all armament contracts. He reports:
“What is plain to me at the end of this long inquiry is this: that if the policy of private manufacture of war munitions and armaments is to be continued in this country (a question of administrative policy for the Government and Parliament to determine), once the requirements are determined by the Department of National Defence, the negotiations leading up to and the making of contracts between the Government and private manufacturers, either for the purchase or production of such munitions or armaments, should be put into the hands of an expert advisory group of competent businessmen a capable and experienced manufacturer, a commercial lawyer who has had a wide practice in dealing with large commercial contracts, a representative of labour, and, say, a chartered accountant who has had experience in the examination of substantial business transactions. These persons should constitute a board (which might be known as the ‘Defence Purchasing Board’) and he made directly accountable to the Prime Minister or to the Minister of Finance. It is no reflection upon the technical skill and knowledge of the military officers and officials of the Department of National Defence to say this, for it is a matter requiring quite a different training and knowledge and quite a different experience from military training and experience. Nor is it any reflection upon the members of the Interdepartmental Committee that was set up by the Government. At the time of the creation of that Committee it was thought to be, I am fully satisfied, an adequate safeguard. But they are very busy men in their own departments, and the evidence satisfies me that they have neither the time nor the precise kind of knowledge and experience necessary for selecting the manufacturers and settling the provisions of such contracts."
Contract Was Amended
IN THE matter of the drawing of the contract, t lie Commissioner draws attention to evidence that the contract was amended after Colonel Drew’s article had appeared in Maclean’s.
The report says:
“During the last week of August. 1938, an advance copy of Colonel Drew’s
article that was to appear in Maclean's Magazine came to the attention of the Deputy Minister and other Departmental officials. As a result of a conference with Major Hahn in Ottawa at that time a letter was taken subsequently from the Company (Exhibit 43) dated September 3, 1938, fixing the amount of the maximum over-riding profit accruing to the Company under the contract; the provision in the contract being thought susceptible of a construction by which the Company might get a larger profit . . .
“No lawyer (excepting Colonel Orde who as Judge Advocate General has multifarious duties and would not claim to be a commercial lawyer) passed upon the intricate terms and conditions of the contract for the Department; apparently the Department of Justice was not consulted.
“The Minister said he never went over the proposals of Major Hahn in j detail.
I had infinite confidence in my I technical advisers and also in the final jurisdiction and supervision of the Interdepartmental Committee I which I was largely instrumental in creating myself.”
Referring to Lieutenant Jolley, who j worked on the various proposals submitted I by Major Hahn prior to the contract under inquiry, the Commissioner says:
“Lieutenant Jolley impressed me as an earnest and scholarly young man, skilled in his own technical branch. But he was obviously without the business experience and judgment necessary for dealing with a proposed business contract of an intricate nature involving the expenditure of millions of dollars.”
Colonel Drew’s article pointed out that on July 1, 1938, the Minister of Defence told the House of Commons that “Major Hahn went to England in 1936 and evidently made a favourable impression upon the British people. He also had access over there to the specifications of the Bren gun.”
Further, the article pointed out that on June 22. Mr. Mackenzie replied “No” to the following question by Mr. Woodsworth: “Was Major James Hahn ap-
pointed by the Canadian Government to go to England in 1937 and 1938, to make a survey of munitions production for the purpose of advising the Canadian Government?”
Colonel Drew’s article stated that Major Hahn must have had some undisclosed status.
Commissioner Davis says: “It clearly
results from the evidence that the Depart( ment, having introduced and sponsored Hahn to the War Office, and the War Office having, in November, 1937 (after a full year of pressure by the Department upon it), expressed its readiness to negotiate with the Inglis Company ...”
And “that pressure from Canada upon the War Office during the period was continuous is, in my view, the proper inference from the facts directly proved in evidence.” The report states that:
“Notwithstanding that the contract involves the expenditure of several millions of dollars hy the Canadian Government, no industrial producer (other than Major Hahn) was consulted by the Department of National Defence as to the proposed manufacture of Bren guns for the Canadian Government, or invited to ßive competitive bids or terms of manufacture. Nor did anyone, so far as the evidence shows, ever visit any industrial plant (except Inglis) to consider the possibility of production of Bren guns in Canada.
"Mr. Hellmuth put certain questions to the Minister in this connection to which, with the answers, I now refer:
Q. You did not give anybody else a chance?
A. Nobody asked for it.
Q. Mr. Minister, what I want to get you to answer is this: You
never did attempt in any method or any way to see what any one of these dozen or more well-known companies, with skilled labour, skilled mechanics, who had been working in precision steel—well, let us take the automobile industry, which makes the very closest parts and closest tolerances -no effort was made of any kind to see what they could do?
A. The answer Is ‘No.’ I do not think It was practicable.”
The report comments that much emphasis was laid throughout the Inquiry, by the Department officials and counsel, upon what was said to be a saving of something like $1,300,(XX) to the Canadian ( Government due to the participation of the War Office. The Commissioner refers to his own statement to Government counsel. “Of course that would apply to any Canadian manufacturer who had been selected.” and to Mr. Ralston’s reply: “Quite right.”
Points From the Evidence
AS THIS issue of Maclean's was largely L made up on the date the Davis Report was made public, it is not possible to present it in full (in blue book form it tills fifty-two printed pages).
The report summarizes the evidence and in a number of cases expresses the Commissioner’s opinion concerning its significance.
Among the points set down by the Commissioner are these:
At the outset, the British War Office stipulated that one of the conditions of manufacture of the gun in Canada was that production must take place in a Government -owned factory.
In several reports made by the then Chief of the General Staff to the Minister of National Defence, Major-General E. C. Ashton urged that the Government erect a small arms factory, and included the Bren gun in suggested production.
In November, 1936, the Conference of Defence Associations, by resolution, urged the Dominion Government “to take immediate steps to create a munitions board or some similar body to control the production within Canada of such munitions as can now be made here satisfactorily, and to prepare plans for the effective mobilization of our industrial resources in the event of war.”
In February. 1938, the officers of the Artillery Association (both the permanent
and the non-permanent force officers) passed a resolution asking “that steps should be taken by the Government to appoint a munitions board under the chairmanship of a skilled manufacturer, to provide for the manufacture of all munitions which can be efficiently produced in Canada.”
While, during the course of the Inquiry Government counsel submitted that the above sort of evidence was not relevant, the Commissioner finds “but if one is to inquire into the preliminary discussions and negotiations leading up to and the completion of the contract in question, it is relevant as part of the narrative to know what were the views of the Chief of the General Staff and of recognized voluntary associations of officers of the land forces in Canada which were made known to the Department.”
The report continues:
“The Minister said that there were two very definite schools of thought in the Department and that he assumed all responsibility. One school, he said, was headed by the then Chief of General Staff and the other by the Deputy Minister, for both of whom he said he had equally great admiration.
“The Minister said that General Ashton (the then Chief of the General Staff) was very insistent upon the development of government arsenals, and that the former Chief of General Staff, General McNaughton, evolved a very comprehensive scheme for Valcartier which would include practically all the requirements of the Canadian forces.
That was considered after I went into the Department, and I found that the cost of it would be something between $30,000,000 and $35,000,000. With my meagre $25,000,000 or $30,000,000, what could I do with a scheme like that?
“But the testimony given before the Commission established that only 60,000 square feet of space was necessary for the purpose of production of the 7,000 Bren guns for Canada, as well as 5,000 guns for the War Office, and that an entire new building (apart from land) would cost approximately $120,000. In proposal ‘B’ of Major Hahn (Exhibit 11). of December 29, 1936, the building was shown at an estimated cost of $104,196.40.”
The Commissioner called attention to the statement of the Prime Minister in the House of Commons on April 2, 1937, when, in answering Mr. Woodsworth, he said:
“We agree with him in asserting the principle that no profits should be made out of war.”
Introduction of Major Hahn
TN CONNECTION with Major Hahn and his introduction to the Minister and Deputy Minister of Defence, the report says:
“Major Hahn does not appear to have been engaged in any manufacturing business in the month of June, 1936, when Mr. Herbert Plaxton (a brother of Mr. Hugh Plaxton) interested him in a proposition to acquire what is known as the Inglis plant in Toronto, which was then closed down and in the hands of a Receiver for bondholders. After he had made several inspections and examinations of the plant. Major Hahn, in July or August. 1936, decided to become interested, provided he had the controlling interest. He knew that those who would be financially associated with him were Cameron, Pointon & Merritt (Toronto stockbrokers).and Mr. Herbert Plaxton, with a possibility of Mr. Gordon Plaxton becoming interested.”
The report then goes on to deal with the introduction by Hugh Plaxton, M.P., to the Deputy Minister and later to the Minister of Defence. Then the Commissioner quotes from the evidence the following examination of Mr. Plaxton.
“Q. Mr. Plaxton, when you discussed this matter with Colonel LaFleche on October 9, 1936, did you tell him that the group who were interested in this proposal consisted of your brother, Mr. Bert Plaxton, a stock brokerage firm of Cameron, Pointon & Merritt, and Hahn, in this case a company promoter?
A. No, and if I may anticipate further questions along that line, I can say that my best recollection is I did not tell Colonel LaFleche who the group was behind Major Hahn, or the group headed rather by Major Hahn, nor have I told it to anyone identified with the Government or with any department of the Government.
Q. So that so far as you are concerned they did not know to this day who the group of friends really were?
A. I think everyone is pretty well aware of that fact now.”
‘‘Q. Now I just want to repeat this, and it is repetition, but I do want to be clear on this. As I understand it, you conveyed the impression, and I believe you sought to convey the impression, that your only interest in introducing Hahn to LaFleche on October 9. was the concern you felt about unemployment in your riding; is that right?
A. Oh, I would say that there was more than that in it. I do not think I ever made that particular statement. I will say that that was one of my chief and motivating interests, but I am going to confess—I was not, aside from my very profound interest in the welfare of my constituents—I was going to assist Major Hahn, whom I considered to be a man of extreme ability and, secondly, a personal friend. The rest of the group there with him were personal friends, and two were brothers.
Q. You quite naturally were seeking to assist your brothers in getting this contract?
A. Well, I do not think that is putting it fairly. You have got to include them all in the group.
Q. I mean your brothers amongst the others?
On August 24, 1936, Mr. Hugh Plaxton wrote a letter to Prime Minister Mackenzie King inquiring “whether or not the Government’s policy permits of the obtaining of orders from the British Government.” The reply stated: “We see no reason why a Canadian firm established for the manufacture of munitions should be precluded from obtaining orders from the British Government. It would be necessary, of course, to see that it was distinctly understood that such orders, as were obtained, were at the instance of the firm itself and not either directly or indirectly, at the instance of the Government of Canada.”
“A Reliable Group”
rHE REPORT states that following upon the interview with the Minister on October 19, 1936, and without waiting for the report of the inspector who had been asked by the Department, on October 10, to inspect the Inglis plant in Toronto, there was sent by the Deputy Minister of National ‘Defence to the Under Secretary of State for External Affairs, on October 20, 1936, a letter regarding Major I Iahn’s visit to England.
The report comments:
“It is to be observed that the letter states that Major Hahn represents a reliable group which controls certain manufacturing plants capable of manufacturing armament and munitions, located in a large industrial centre where
the labour and material factor is stable I and favourable.
“And further that
Major Hahn is proceeding to j England within the next few days in connection with questions pertaining j to the manufacture in Canada of | munitions and armament, and in ! particular the Bren light machine ¡ gun.
With particular reference to the I Bren light machine gun the Department is desirous of considering as fully as possible the question of commencing its manufacture in Canada | at the earliest date.
The Department must consider the possibility of the gun being manufactured in a plant or plants j other than Government owned, such j as, for example, those controlled by Major Hahn and his associates.
“The Deputy Minister was asked:
Q. Do you mean to say now that when you wrote that letter on October 20, you did not know the names of the individuals who made up that group?
A. No, I did not, but I did know that Major Hahn was a leading figure in the whole thing, he had a controlling interest and he had grouped with him worthwhile people, which is the natural thing. Q. IIow did you know that?
A. I was told it.
Q. By whom?
A. By himself and by Mr. Plaxton. Q. Anybody else?
“The Deputy Minister had asked Major Hahn, on his first visit on October 9, 1936, that the Inglis plant he inspected, and that was done by the Resident Inspector (Aircraft Inspection Detachment) at Toronto, whose report is dated October 21, 1936. The report said in part that,
This plant is primarily equipad for the manufacture of boilers, turbines and the working of heavy plate generally. All equipment is in reasonably good condition, considering the length of time it has been in use.
The machinery at present in this factory, with few exceptions, is unsuited for the manufacture of aircraft, hut it might be used for the manufacture of tanks or shells . . .
This factory is at present inoperative and has not been in operation since April, 1936. There is no design staff at present employed, and the total number of workmen now employed consists of three men as factory maintenance staff.”
Payment of Expenses
THE REPORT continues with the narrative of the agreement made among Major Hahn, J. D. Cameron, Herbert Plaxton and Gordon Plaxton (two brothers of Hugh Plaxton, M.P.), in connection with the formation of the Inglis Company and the distribution of the vendor shares and subscription shares, i Then:
“It was October 26, 1936, that Major Hahn, Mr. Gordon Plaxton and Mr. Hugh Plaxton left for England. A few days before, they arranged to pay Mr. Hugh Plaxton’s expenses. On October 22, 1936, Mr. Hugh Plaxton received a cheque for $750 (Exhibit 331), on account of his expenses from Cameron, Pointon and Merritt, and upon his return he received, on December 22, 1936, another cheque (Exhibit 331) from the same firm for $500; both cheques were charged against the group. The following questions were put to Mr. Hugh Plaxton to which he replied:
Q. Did you know when you went to Continued from page 43 England there was a possibility that the Canadian Government might place an order for Bren guns with Major Hahn, or with the Inglis plant?
A. I would say there was certainly a definite hope—but it was just a hope.
Q. It had been discussed, had it?
A. Between myself and the Major?
A. Oh, we were discussing that, I have no doubt, and a great many things, on board boat and in England, and prior to leaving.”
It was on November 9 that the High Commissioner in London cabled to the Secretary of State for External Affairs, stating that he had received from the Department of National Defence the request that Hahn communicate to it his impression as to possibility of producing the Bren gun in Canada, and stating: ‘‘In order to obtain information desired, War Office must be requested to give Major Hahn, as representative of the Canadian Government, access to information of a secret nature which normally is not given to other than Government officials.”
In reply, through the External Affairs Department, the Department of National Defence cabled on November 9, 1936— “Have discussed matter with Minister of National Defence. You might request War Office to give Major Hahn, as representing Canadian Government in in this particular, any information which they consider desirable and necessary to enable National Defence to reach a conclusion on possibility produce Bren gun in Canada.”
The report, after dealing with the various proposals submitted by Major Hahn, switches back to the interview of Major Hahn, Mr. Hugh Plaxton and Mr. Cameron with the Minister of National Defence on October 19, 1936, when the Minister’s letter of introduction of Major Hahn to the High Commissioner of October 19, 1936, was obtained, and to October 20, 1936, when the letter of the Department of National Defence was sent to External Affairs for transmission of information to the High Commissioner.
Did Not Know Who Associates Were
nrilE REPORT says:
“The Minister and the DeputyMinister were examined as to their knowledge of the ‘reliable group which controls certain manufacturing plants.’ The letter of October 20, 1936, having been read in full to the Minister, Mr. Hellmuth asked him:
Q. Did you know at that time who Major Hahn’s associates were?
A. No and I do not know now.
Q. Did you know who the reliable group behind Major Hahn were?
A. No, not to my knowledge—no information given me.
Q. What was the information as to the reliable group?
A. The information was that he was a man of financial integrity and ability.
Q. I am asking you if you knew the personnel of the reliable group?
Q. You did not know that?
Q. Did you know whether Major Halm at that time had any plant?
A. I knew nothing, except the information conveyed to me.
Q. I would like to have that question answered, with all due deference. I would like to know whether you knewwhether Major Hahn had or controlled any plant or plants?
A. Not to my own knowledge— certainly not.
Q. Do you know whether he had any company at that time?
A. Not to my knowledge, no.
0When did you find out that Major Hahn had associates, and who they were?
A. I did not know who they were until the article referred to in this investigation (i.e., in Maclean’s Magazine).
Q. So that we may say the contract—at the time the contract was signed you had no knowledge of w ho his associates were?
A. That is quite correct.
0. Nor had you any knowledge of who the reliable group were?
A. Quite correct, I accepted the reliable supervision of men in whom I had absolute confidence.
Q. I am asking you if you knew of any of these. Did you know what experience Major Hahn had in the manufacture of precision steel?
A. No, not to my own knowledge.
Q. Did you know what his previous industrial experience or activity had been?
A. No, not to my own knowledge.”
The Minister said:
“A. I was informed by my Deputy Minister that he had previous industrial experience, and I was informed by Mr. Plaxton of the same thing.
Q. Then, Mr. Plaxton, the gentleman who, as you say, was veryanxious to obtain a factory in his own riding in Toronto, and your Deputy Minister, were the sole informants on any experience that Major Hahn had had?
A. I knew in the end that the whole situation was being thoroughly reviewed by the sub-committee of the Interdepartmental Committee.
Q. Then, from that date, until after this article appeared in Maclean’s Magazine, you had personally made no inquiries as to either his associates, the group behind him, or his business experience in such manufacturing?
A. No, certainly not.
Q. You did know, 1 suppose, that there were half a dozen, at least, firms in Canada who had been actively engaged in the manufacture of precision steel?
A. Ina general way, yes.
Q. And firms which had had a long experience, and were employing skilled labour in that respect?
Q. There was never the slightest effort, was there, to interest or invite any of those firms to tender, or to make an offer to manufacture the Bren gun?
A. No, I do not think there was.
May I finish my answer?
Q. Yes, certainly.
A. I do not think any steel company in Canada knew the slightest thing about the production of the Bren gun.
Q. No, 1 do not suppose they did. But there were firms in Canada who had been doing very delicate steel operations for a great many years, were there not?
A. In my judgment it had nothing whatsoever to do with the question, because for this reason, that any company in Canada could not undertake this particular contract unless there was a greater volume of production to reduce the cost of production—and that was essentially a vital factor in the whole thing.
Q. Then I think you did say that you had not made any inquiry until after this article appeared; have you since ascertained who were—
Q. You have not?
Q. So that you are still—I do not wish to say this at all offensively—you are still in the dark as to who these associates are and the group behind him?
A. I think we all are.”
The report continues:
“The Deputy Minister swore that he too did not knowwho were the ‘reliable group’ which controlled certain manufacturing plants. And Major Hahn and
Mr. Hugh Plaxton say they did not toll j the Prime Minister, or the Minister, or the Deputy Minister, or the High Commissioner, or Sir Thomas Inskip, or Sir Harold Brown, who the group were who were in the venture with Major Hahn, i.e., Mr. Plaxton’s two brothers and the Toronto stockbrokers. Camj eron, Pointon & Merritt.
“The evidence is abundantly plain that prior to October 9. 1936 (the day Major Hahn first met the Deputy Minister). Cameron, Pointon & Merritt, a firm of stockbrokers in Toronto, and Herbert Plaxton (a brother of Mr. Hugh Plaxton) and Major Hahn had become jointly interested in a venture to buy what was known as the John Inglis plant in Toronto, which had been closed down since April of that year and was in the hands of a Receiver and Manager, the Premier Trust Company of Toronto, for the bondholders of the company, and that on September 21, 1936, one Nurse, an employee in the office of Cameron, Pointon & Merritt, had made a written offer (Exhibit 286) to the Toronto General Trusts Corporation (the trustee under the tond mortgage) for submission to a meeting of bondholders, to purchase the mortgaged premises which covered all the assets and undertaking of the company, including the goodwill, for the consideration and on the terms and conditions therein mentioned. Nurse was admittedly acting, not in his own interest, but as a nominee of Major Hahn. Herbert Plaxton, and Cameron. Pointon & Merritt. The offer was accepted on
October 19. 1936 (Exhibit 285). Mr. \ Gordon Plaxton about that time had j become another member of the group, j In due course the Nurse agreement was I transferred to a new company which the group caused to bí' incorporated on ! November 23, 1936, with the name of 1 British Canadian Engineering Limited; the company which, under the corjxirate j name of John Inglis Company Limited, j which it had subsequently acquired on June 4, 1937, entered into the contract on March 31, 1938, with the Canadian Government, in question in this Inquiry. Although the Nurse agreement had been accepted in October, 1936, and although Major Hahn said that his ‘main interest in the acquisition of these assets, and of the trade mark and name, was the commercial business. That is what I was vitally interested in,’ the new company did not start operating its plant until April 1, 1938.”
Argument of Counsel
NEXT the Commissioner set forth the argument by counsel for the Inglis Company, and supported by counsel for Plaxton and Company, to the effect that “No charges being laid, no report of misconduct or no report can to made against us, because there was no charge ] of misconduct, and no notice to us.”
Then it is that the Commissioner states:
“That a report upon the Inquiry is contemplated by the statute is not open to j doubt. But that a finding of misconduct cannot to made against any person, until reasonable notice shall have been given to him of the charge of misconduct alleged against him and he shall have been allowed full opportunity to to heard in person or by counsel, is expressly enacted by sec. 13 of the statute. No charges of misconduct, however, were formulated against any particular person.
“Having fully weighed the objection j advanced on this ground, as well as the | weighty consideration brought to my attention by counsel, that the rights of i the individuals interested in the contract J might become the subject of legal controversy elsewhere, I have come to the I conclusion that it is inexpedient to comj ment upon the evidence in respect to its bearing on the conduct of the individuals concerned.
“The facts are all in evidence; and
as said by Government counsel in opening their argument
So far as the facts are concerned, there are very few which are even in dispute.
“I cannot myself recall at the moment any fact to which direct proof was adduced that is in dispute. It will be for those charged with the responsibility of dealing with the facts, i.e., the Government and Parliament, to examine and study them and to take such action, if any, thereon as they may see fit.’’
rT'HE REPORT, at some length, deals with the progress of the contract through the Interdepartmental Committee, and quotes extensively from the evidence of Mr. Fraser Elliott, Commissioner of Income Tax, who was one of the members of the Committee.
In the following extracts from the report, the Commissioner calls attention to the opinions and actions of the Interdepartmental Committee.
“Mr. Elliott, in giving his testimony, said:
It early became clear to all members of the Committee that there were two phases under consideration. One phase was that there might be competitive bidding, and it was the unanimous and earnest desire of everybody on the Committee to secure competitive bids if possible. The second phase was the study of the terms of the contract in itself. “The Committee appointed a subcommittee of three, of whom only one was a member of the original Committee, for consideration and study and report
‘The sub-committee made its report on January 13, 1938 (Exhibit 50). The report contained in part the following: Having in mind the main Committee’s suggestion that competitive bids be called for, the sub-committee, as an indication only of the names of concerns from whom competitive bids might be asked, mention—
The Steel Company of Canada, Dominion Bridge,
Canadian Car and Foundry Company, Limited,
National Steel Company, and possibly automobile manufacturers, who undoubtedly have suitable plants and precision tools, together with such others as in the opinion of the main Committee, might be asked to tender.
The sub-committee appreciate that time is an essential factor, but inasmuch as the duration of the contract is from five to six years, the suggestion of a delay of two to three months to allow intending bidders to gather essential information, does not appear to be unwarranted under the circumstances and in view of the amount of money involved in the contract . . .
“The second meeting of the Interdepartmental Committee on the proposed contract was held on January 24, 1938. Q. What was the main subject of discussion at the second meeting. Mr. Elliott?
A. Competitive bids and why the John Inglis Company should get this contract, the financial status of the company and a number of other things . . .
The Committee wanted to get price comparisons from other competent companies. They felt the lack of them in considering this individual contract. They kept urging for some method of competitive bidding and comparative prices being entered upon.
“The Deputy Minister, as Chairman of the meeting, said he felt
that while competitive bids are always desirable, in this case there was a record of a substantial saving, a potential saving to the Government, and that, together with the pressure from the War Office for action, to get on with the job, we should enter into consideration of the terms of this contract with the Inglis Company.
“Mr. Elliott said that he had in his official capacity some knowledge of the early history of the John Inglis Company which he regarded as of a confidential character and did not pass on to anyone except his assistant, Mr. Sharp, who was also present at the meeting of the Committee. But Mr. Elliott said that
in discussing the financial status of the company, the history of the John Inglis Company was adequately disclosed to the Chairman, namely, the essential point being that it was known that it had been in receivership.
“Mr. Elliott continued:
The Chairman indicated that he had an understanding—exactly how it was acquired I do not know—from England that they would not deal with any other firm.
“Pressed as to exactly what was said, Mr. Elliott put it this way:
I said as a statement of fact that the Chairman stated to us that he believed, or he was of the opinion, whichever way you wish to put it—he believed that England would not place the contract with any other company in Canada.
“Mr. Elliott said that the suggestion was then made that a cable be sent to England to ascertain definitely England’s position in respect of competitive bids.
The Chairman pointed out that to ask such a question at this juncture might endanger the placing of the British order, and endanger thereby the loss which he obviously was anxious to save Canada in the cost of the machinery and equipment. The Committee nevertheless did not take such notice of that opinion as to withdraw their desire to have the cable sent. They were willing to risk the danger. The form of the cable was then drafted.
“The Deputy Minister (but not without the subsequent approval of the Committee) amended their draft cable before it was sent (Exhibit 188). Moreover, the Deputy Minister sent a very long cable himself, at the same time, to the War Office (Exhibit 212). Major Hahn was in Ottawa the day of the meeting (January 24) and was anxious to see the Committee, but he said he was not called in. The Deputy Minister told him, he says, that ‘the suggestion of tendering was to be continued with,’ and Major Hahn says he ‘unexpectedly took boat for England;’ he ‘went straight back to Toronto on the 25th and sailed on January 26’ from New York for England, arriving there on the evening of February 2. En route he sent a wireless asking for an interview with Sir Harold Brown, or with someone at the War Office, and was notified on the morning of February 3 that that had been done. After interviews in England with the War Office, Major Hahn was back in Toronto by February 18 (Exhibit 223).
“The next (the third) meeting of the Interdepartmental Committee on this contract was held on February 25. 1938 (pp. 636 to 712). What was referred to as an up-to-date draft revision of the Canadian contract (Exhibit 53) was before the Committee at this meeting. Mr. Elliott said:
The Committee then swung into the repetition of this statement, namely the fact that competitive tendering had not been entered into by three or four companies capable of manufacturing guns, and that that was one of the main objections still tentatively retained by members of the Committee.
An important matter then developed. so far as the Committee was determined, by the Chairman indicating that responsibility for the way in which this particular company had been selected necessarily rested with the Department of National Defence. “Mr. Elliott said that the Chairman (the Deputy Minister of National Defence) pointed out that his Department had followed the practice of the British Government where competition is not always obtainable, and they unhesitatingly go into noncompetitive contracts in order to secure their requirements. In this particular case the British Government had picked the firm to manufacture its guns.
By the Commissioner:
Q. Just a minute: the British Government had done what?
A. Picked the firm.
Q. In this case?
Q. In this case the British Government had done that?
A. Yes, that in this case the British Government had picked the firm to manufacture guns, and that they had made the best possible deal with that particular firm.
“In view of the Deputy Minister’s statement, Mr. Elliott said that the Committee ‘practically reorientated itself in respect of the whole matter.’
We stated in the meeting at that time that if the Department took the responsibility, then there could no longer be any objection. That was a fait accompli, and we had to meet it.
“Mr. Elliott said that
The committee gave the opinion that it was difficult to conceive that the War Office was willing to deal only with one Canadian company, and that company in point of fact, as we stated, recently having gone through receivership.
The committee jxfintod out that there had not been received from England a categorical denial that they
would not deal with any other company. We therefore suggested a further wire or cable asking them, ‘Will you or will you not deal with a selected list of companies?’ That was quite a thing to raise, after the several cables that had passed.
“Mr. Elliott said that the Committee’s suggestion of a further wire gave great concern to the Chairman.
He really felt so strongly about it that it amounted to a suggestion that we must not do it. And the Committee accepted that.”
The report says:
“The system broke down when the Committee failed to report back to the body that had created it. Their failure to report was not a matter of misconduct; it was a failure to recognize the importance of their Committee as part of the administrative system of government. There is not a suggestion that fhe members of the Government ever heard of these difficulties which confronted the Committee, or of the attitude that was taken by members of it to the proposed contract. The Minister of National Defence did say that he was informed in a general way, not in great detail, of the progress of the discussions in the Committee by the Deputy Minister, but he never saw the minutes of the meetings of the Committee until this Inquiry commenced. The reports he had from his Deputy Minister respecting the Interdepartmental Committee’s activities are Exhibits 243-244 of March 21, 1938, after the Committee had ceased to function on this contract.
“At the end of this third meeting on February 25, 1938, the matter was again referred to the sub-committee. The rcqxirt of the sub-committee is Exhibit 54.
“The fourth and last meeting of the Interdepartmental Committee on this contract took place March 17, 1938. The meeting commenced shortly before three o’clock in the afternoon and did not finish its deliberations until shortly before three o’clock the next morning. The explanation given by Mr. Elliott was that the Department of National Defence
wanted to get the contract in jiroper form to present next day at eleven o’clock to Council.”