April 17 1995


April 17 1995



Once, the heroes and villains in Canada’s latest version of a political morality play seemed so easy to identify. To many disgusted Canadians in the last weeks of the 1993 federal election campaign, few things exemplified the excesses of the Progressive Conservative government more than the unseemly haste with which they rushed through a $700-million plan to privatize Toronto’s Pearson International Airport and redevelop two of its three terminals. There was the issue of who benefited most: one of the biggest contract recipients, Donald Matthews, was a former Tory party president, while many of the lobbyists earning big fees were also wellknown Tories. There were questions about the deal itself: at other airports, the federal government handed control to community business groups to run as not-forprofit airport authorities. Why not do the same for Pearson? And there was the timing: the formal approval of the deal on Oct. 7, 1993, came less than three weeks before the Oct. 25 election. That broke a tradition that outgoing governments should not make long-term decisions after elections are called. The deal was, in the phrase of the incoming Liberal transport minister, Doug Young, “a cesspool.”

But if all that was so straightforward, why does the aftermath seem so confusing, complex and morally ambiguous? Eighteen months after the Liberals came to power and followed through on a campaign promise to annul the deal, they face their own share of embarrassments, controversies and questions. The embarrass-

ments include the revelation that Prime Minister Jean Chrétien, while in private law practice in 1989-1990, was consulted by Jack Matthews, the son and business partner of Don Matthews. Since then, Jack Matthews has alleged that Chrétien provided advice on the privatization process, including suggestions on how to win support for the measure from the Liberal party. Chrétien denies those allegations, and his denials are supported by lawyer Paul LaBarge, who was present on Matthews’s behalf for most of the 90-minute meeting.

Another controversy centres on the Liberal legislation, Bill C-22, that is being used to kill the deal. The legislation removes the right of aggrieved parties, such as the Matthewses, to sue the government for compensation. That is necessary, Young said in an interview last week, because without such a measure, Canadian taxpayers might have to pay up to $445 million in compensation claims to lobbyists, contractors and others he describes as “people who never drove a nail, never laid an inch of asphalt or raised a metre of steel.” Added Young: “I don’t give a good God damn, that’s never going to happen.” Instead, the government, based on advice from industry department analysts, is offering a maximum of $30 million in compensation payments.

In fact, Young—who is both revered and reviled

within political circles in Ottawa for his relentlessly blunt manner— does not hesitate to say that the government’s action in cancelling the deal amounts to a breach of contract. Said Young:

“We know we’ve broken the contract, tom it apart, use whatever terms you want—we don’t need the court to tell us that. What we’re concerned about is that the government [has] decided that it is not in the public national interest to proceed with this contract.”

But critics of the legislation, including a committee of the 34,000-member

Canadian Bar Association, also condemn it as a violation of the country’s Bill of Rights. A brief prepared by the CBA’s constitutional and human-rights section last November concluded that the bill “infringes the rule of law and Canada’s international obligations in that it denies access to the courts.” It also concluded that the bill “may infringe sections of the Bill of Rights in that if a court finds that the Pearson contractors have vested

property rights, it might also find that Bill C-22 voids these rights without due process of law.” And the Tories, who still hold a majority in the Senate, have infuriated the Liberals and caused further debate on another issue—the ability of the non-elected Senate to delay or defeat legislation passed by elected MPs—by delaying passage of the bill. The reason for that action, said John Lynch-Staunton, the Tory leader in the Senate, is that “no government should be allowed to arbitrarily strip people of their right to due process. And if the original deal is so bad, the least the government can do is hold a public inquiry to demonstrate why that is the case.”

But that is a step the Liberals do not appear willing to take. Last October, Young said he would establish such an inquiry if the Senate Tories failed to pass Bill C-22 immediately. But the Tories startled the Liberals by declaring their support for such an inquiry—with the result that the Liberals then backed off the idea. Since then, Lynch-Staunton said he plans to hold a Senate inquiry into the Pearson deal unless the Liberals agree to establish one first. For his part, Young will not say whether he will agree to appear in front of a Senate inquiry and now sounds reluctant to establish a separate inquiry. The reason for that, he said, is that “whether the God damned Senate is holding up the Pearson deal or I am, the result is the same. The issue is to end the delay and get the improvements at Pearson up and running.”

That is no small consideration: Pearson is the country’s biggest and busiest airport, processing an average of 21 million passengers a year, or 57,000 a day. That is onethird of all Canadian passenger traffic, along with 40 per cent of the country’s air cargo. More than 800 aircraft from about 60 international airlines take off and land daily. But large parts of the airport are visibly aging and decaying, and Transport Canada engineers say that some structures, such as parking garages, are in such poor shape that it would make much more sense to demolish and rebuild than to repair existing facilities. In the proposed deal, the developers undertook to spend $700 million overhauling the airport’s older facilities. Using an accounting model accepted by the federal Treasury Board, they promised to pay Ottawa $11.7 billion over the 57-year life of the contract, calculated to be $4 billion more than the government would have received if it maintained ownership. In return, the consortium expected its own profit over the same period to amount to $3.5 billion.

But until the issue of compensation for the voided contract is resolved, it will be almost impossible for the new, government-designated airport operator, the Greater Toronto Airports Authority, to raise the money it needs on money markets while the possibility of lawsuits against the airport remains. Says Young: “You would have to be crazy to ask the airport authority to try to raise money under those conditions.”

But it is also true that many of the people whom the Liberals suggested would be most afraid of a public inquiry are, in fact, among the most vocal supporters of the idea. Among them: Tory members of the Senate, and Don and Jack Matthews. “We don’t just agree with the idea of an independent inquiry—we demand one,” says Gordon Baker, the lawyer representing the companies owned by consortium officials. “We think that the more the air is cleared publicly, the more it will be clear that this deal the Liberals voided was clean, aboveboard and good for everyone.”

J'Jv'-,,J'Jcuu a.Liu `J'JU IV! CVCIyVIIC. So far, the only inquiry was conducted by Robert Nixon, the former Ontario Liberal leader and Chrétien intimate asked by the Prime Minister shortly after the election to investigate the deal. After a 30-day investigation, Nixon

(4 J'iuuy II1VL~U~aUU11, IIJ.AUII wrote a report suggesting that the contract was "inadequate, arrived at with a flawed process and under the shadow of possible political manipulation." As a result, he recommended that it be can celled. But Nixon's report gave no specific evidence of such manipulation. It was also vague in its condemnation of the financial terms of the con tract, saying only that the rate of return to the developers "could, given the nature of the transacion, well be viewed as excessive." But several other studies, including one from the department of transport and two by independent firms, analyzed the deal in

LIIU~LL iIIUi~ iavuia~ii~ L~II11~. The transport department report, prepared by senior department officials, con cluded that the deal would provide more revenue to the government than would continued public ownership of the airport. Nixon said later that he read the department’s report, but disagreed with its conclusions and found it “incomplete.”

And although the Liberals emphasized the links that many of the key figures in the Pearson deal had with the Tories, several people with Liberal ties were also involved. Two-thirds of the Pearson Development Corp., headed by Jack and Don Matthews, was actually owned by Montreal billionaire Charles Bronfman, whose key adviser, Leo Kolber, is a Liberal senator and fund-raiser. One of the consortium’s vice-presidents and advisers also had close ties with the Liberals. Conceded one senior Liberal: “Those people [Pearson Development] made sure to work both sides of the street very well.”

Another key point of contention is the date that the deal was actually completed. Baker, the lawyer for the Matthewses, says that the key date is Aug. 27, 1993—the day that the Treasury Board approved the contract. That would mean the deal closed before then-Prime Minister Kim Campbell announced the coming election. But Young and senior transport department officials insist that the relevant date is Oct. 7—a month after the election began—because that was when the last documents were formally signed.

Perhaps the one thing that most of the principals involved share in common is that they have suffered in one way or another because of the ongoing controversy. The Matthews Group Ltd. was pushed into receivership by its banks shortly after the Liberals announced the cancellation of the deal. More than 700 people who were working for Pearson Development Corp. lost their jobs at the same time. Young and some air industry analysts suggest that the delay in renovating Pearson may cause it to lose its attractiveness to major airlines as a hub or jump-off point to other destinations. Tories acknowledge that public opinion towards the original deal still runs strongly against them, and their stand in the Senate against Bill C22 has met, Lynch-Staunton acknowledges, with equal measures of “apathy, annoyance and some support.”

For their part, some Liberals also acknowledge that the entire issue has proven more controversial and fraught with trouble than they originally anticipated. They were horrified and infuriated by the linkage of Chrétien with the Matthews Group—although there is no evidence that the Prime Minister behaved in an improper manner. It also appears likely that any outcome to the Pearson controversy—whether by passing Bill C-22 or reaching a settlement before that with developers—carries potential political dangers for the Liberal party. And until or unless a public inquiry takes place, all sides will bear the effects of a case that raises many more questions than answers.