The Railway Builders: A Chronicle of Overland Highways

by Oscar D. Skelton

Hincks returned to Canada with a tentative contract in his pocket. To Canada, too, came Henry Jackson, a partner in the Brassey firm for this enterprise, and one of the most skilful and domineering of the railway lobbyists in Canada's annals, rich in such methods. At once a battle royal began in parliament. On August 7, 1852, the Montreal and Kingston and the Kingston and Toronto charters were proclaimed in force; apparently the supposition of the government was that the English contractors would simply subscribe for the bulk of the stock in these companies. But the Canadian promoters were not willing to give up their rights so easily; a week after the books were opened, Galt, Holton, and Macpherson subscribed between them £596,500 and seven of their associates took up the nominal balance of the capital of £600,000 which was authorized. Hincks met this move by bringing down a bill to incorporate a new company, the Grand Trunk Railway Company of Canada, and the rights of the rival claimants came before parliament for decision.

On behalf of the English promoters it was urged that the Canadian promoters could not raise the necessary capital, that the Galt-Holton-Macpherson subscription was a fake, that the English contractors could induce capitalists to invest freely at low rates, and that their superior methods would result in a road of more solid construction and lower working expenses than the ordinary American railway. Holton and Galt, on the other hand, contended that their subscription was in good faith, that tenders were in, and that with provincial guarantee and municipal aid, and by paying the contractors partly in stock, they could finance the road. It would be better, they urged, to have the control in the hands of men who knew the province rather than in the hands of outsiders. The Grand Trunk Company, seeking incorporation, was only a sham company, under the thumb of the contractors, formed to ratify a foregone contract with them. If the Montreal and Kingston Company was given control, it would invite the Brassey firm to tender on the same basis as other contractors: no more could honestly be asked.

Galt and Holton had the best of the argument, but Hincks had the votes, and rumours which Jackson spread of the Brassey millions and the firm's open door to all the money markets of Europe brought conviction or afforded excuse. The railway committee reported in favour of the English promoters, though the competition had compelled them to reduce their price by a thousand pounds a mile, and to accept a guarantee of £3000 per mile instead of half the cost. At the same time the Brassey firm secured a charter for the Grand Trunk of Canada East, to run from Quebec to Trois Pistoles—Canada's first section of the Halifax to Quebec route. The same aggressive firm had already secured a contract for the Quebec and Richmond, which was to join the St Lawrence and Atlantic at Richmond, and, as has been seen, for New Brunswick and Nova Scotia roads. With these contracts seemingly secure, Jackson sailed for home. But Canadian promoters were quick to learn. Galt had another card to play. As president of the St Lawrence and Atlantic he proposed to amalgamate this road with the Montreal and Kingston, and to build a bridge at Montreal, thus securing an essential part of the trunk line. Hincks became alarmed at the Montreal interests thus arrayed against him, and proposed as a compromise that the Grand Trunk should absorb the St Lawrence road and build the bridge at Montreal on the condition that the opposition to its westward plans should be abandoned. Upon this all parties agreed, and the English and Canadian promoters joined forces.

Negotiations were completed in England early in 1853. As yet the Grand Trunk Company was but a name. The real parties to the bargain were many. First came John Ross, a member of the Canadian Cabinet, but representing the future Grand Trunk, of which he was elected president. The Barings and Glyns, eminent banking houses, had a twofold part to play, as they were closely connected with the contractors and were also the London agents of the Canadian government. The contractors themselves, Peto, Brassey, Betts and Jackson, of whom Jackson, accompanied by the company's engineer, A. M. Ross, had spent a year studying the Canadian situation, put in anxious weeks hammering out the details of the agreement and the prospectus to follow it. Galt represented the St Lawrence and Atlantic and the Atlantic and St Lawrence, while Rhodes and Forsythe of Quebec had charge of the interests of the Quebec and Richmond. An agreement was reached to amalgamate all the Canadian roads and to lease the Maine road for 999 years. This left Toronto the western terminus. An attempt to absorb the Great Western and thus secure an extension to Windsor came to nothing. This failure gave Galt an opening for another brilliant stroke of railway strategy. A company had recently been chartered to build a road from Toronto to Guelph and Sarnia, and the firm of Gzowski and Co., of which Galt was a member, had secured the contract. Galt, acting with Alexander Gillespie, a prominent London financier who was the agent of the Toronto, Guelph and Sarnia Railway, now proposed to substitute this line as the westward extension. Everybody was in an amalgamating mood, and the bargain went through. All contracts previously made were taken over by the amalgamated company, and the investing public was told that all uncertainty as to the total amount was thus removed—as it emphatically was, for the time.

A glowing prospectus was drawn up. The amalgamated road would be the most comprehensive railway system in the world, comprising 1112 miles, stretching from Portland and eventually from Halifax (by both the northern and the southern route) to Lake Huron. The whole future traffic between west and east must therefore pass over the Grand Trunk, as both geographical conditions and legislative enactment prevented it from injurious competition. 'Commencing at the debouchere [sic] of the three longest lakes in the world,' the prospectus continued, 'it pours the accumulating traffic in one unbroken line throughout the entire length of Canada into the St Lawrence at Montreal and Quebec, on which it rests on the north, while on the south it reaches the magnificent harbours of Portland and St John on the ocean.' It was backed by government guarantee and Canadian investment, and its execution was in the hands of the most eminent contractors. The total capital was fixed at £9,500,000 sterling. The revenue was estimated at nearly £1,500,000 a year, which, with working expenses at forty per cent of revenue, and debenture interest and £60,000 for lease of the Atlantic and St Lawrence Railway deducted, would leave £550,000 or 11 1/2 per cent on the share capital.

On the advice of Baring and Glyn only half the capital was issued at first. This decision proved a serious mistake. In 1853, when the company was floated, money was abundant and cheap; the shares and bonds issued were over-subscribed twenty times, and were quoted at a premium before allotment. Scarcely was the issue made when war with Russia loomed up, and money rose from three to seven or eight per cent. Never again was it possible for the Grand Trunk to secure capital in such abundance.

But this was for the future to disclose. At once construction began in Canada. A. M. Ross was appointed chief engineer, and S. P. Bidder general manager, both on the nomination of the English bankers and contractors. Plant was assembled in Canada, orders for rails and equipment were placed in England, and navvies came out by the thousand. At one time 14,000 men were directly employed upon the railways in Upper Canada alone. In July 1853 the last gaps in the St Lawrence and Atlantic had been filled up, though not in permanent fashion. In 1854 the Quebec and Richmond section was opened; in 1855, the road from Montreal to Brockville and from Lévis to St Thomas, Quebec; in 1856, the Brockville to Toronto and Toronto to Stratford sections. Not until 1858 was the western road completed as far as London. The year 1859 saw the completion of the Victoria Bridge, the extension from St Mary's to Sarnia, and a new road in Michigan, running from Port Huron to Detroit. By 1860 the eastern section extended to Rivière du Loup, where a halt was made.

From the outset difficulties undreamed of had developed. Money was hard to get and early traffic returns were disappointing, so that the company found it almost impossible to secure the balance of the capital required. The road from Montreal to Portland was found to require heavy expenditure to bring it up to the standard. The contractors, for their part, were embarrassed by the company's shortage of funds and by the great rise in the prices of land, materials, and labour. Their own activities, the Reciprocity Treaty of 1854 with the United States, the Crimean War, had combined to bring on a period of inflated prices such as Canada was not to experience again for half a century. With wheat at two dollars a bushel, and 'land selling by the inch,' even liberal margins of profit on contracts vanished.[[2]]

In these straits the company turned to the government for aid. It had many supporters in the House. No one could deny the benefits which its operations had conferred upon the province. The government guarantee of interest and the government nomination of a part of the board of directors were plausibly held to involve responsibility for the solvency of the company. It was not surprising, therefore, that for a decade after 1855 scarcely a year passed without a bill to amend the terms of the Grand Trunk agreement. One year it was an additional guarantee, another a temporary loan, again a postponement, and again a still further postponement of the government's lien. It soon came to be recognized that the money which had been advanced under the guarantee provisions must be considered a gift, not a loan, though to this day the amount nominally due still figures as an asset on the Dominion government's books. Incidentally, the embarrassing government directors were dispensed with in 1857.

The Grand Trunk was complete from Lake Huron to the Atlantic in 1860. In the ten years that followed, working expenses varied from fifty-eight to eighty-five per cent of the gross receipts, instead of the forty per cent which the prospectus had foreshadowed; not a cent of dividend was paid on ordinary shares—nor has been to this day.