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7 octobre 1998
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Public Accounts Committee -- Wed., Oct. 10, 1998

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10:00 A.M.


Mr. Howard Epstein


Mr. Hyland Fraser

MR. CHAIRMAN: Ladies and gentlemen, good morning. This is a resumption of the hearings of the Standing Committee on Public Accounts. We seem to have a full committee here today, although I think with two substitutions. I welcome Mr. Brooke Taylor and Mr. Jamie Muir who are standing in for other members of the committee.

You will know that our witness today is Ms. Sheila Butler, Vice-President, Finance of the Nova Scotia Gaming Corporation. She is accompanied by her lawyer who is Sandra MacPherson-Duncan. So I will proceed to swear in the witness and we will hear an opening statement from her and then we will move to asking questions as we usually do.

Do you, Sheila Butler, swear that the evidence you shall give to the Standing Committee on Public Accounts, touching on matters pertaining to the Nova Scotia Gaming Corporation shall be the truth, the whole truth and nothing but the truth, so help you God?


MR. CHAIRMAN: Thank you very much. Ms. Butler, I believe you have an opening statement for us and it is in written form which is being distributed now to members of the committee. It is in the form of, I think, a 21 page statement with appendices. How do you want to proceed? Are you proposing to read it into the record? Is that what you would like to do?

MS. BUTLER: I would like to start with the statement, please.


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MR. CHAIRMAN: Go ahead.

MS. BUTLER: Good morning, Mr. Chairman, and members of the Public Accounts Committee, ladies and gentlemen. I am pleased to have been invited to the Public Accounts Committee. I am the Vice-President of Finance and Administration of the Nova Scotia Gaming Corporation. I am going to deliver an opening statement which I anticipate will be somewhat lengthy, approximately 35 minutes, and ask your indulgence in that regard. I understand that others have pointed to me to confirm or deny the occurrence of certain events and Mr. Fiske has raised a number of questions for me to address. I am going to take this opportunity to fully respond to these requests, which I hope will be helpful to the committee.

I have been a chartered accountant since 1986 and was in a public accounting firm for 12 years prior to joining the Nova Scotia Gaming Corporation. While in public practice, I worked with large corporations and institutions performing audit and special engagement functions. On a community level, I serve on the board of Mount Saint Vincent University and have been a member of that board for five and one-half years. I also chair the audit committee of the board and that I have done for approximately five and one-half years. I have also sat on the finance and endowment committees of that board. As well, I am a member of the audit committee of the Central Regional Health Board and have been since the board's inception. I am the Treasurer, Chair of Finance and member of the Executive Committee of the Catholic Cemetery Commission, an organization which I have been involved with for approximately seven years.

I have given you a bit of background about myself because I want to make it very clear to this committee, I would not have remained in my role as Vice-President of Finance and Administration if I thought, at any time, my personal or professional integrity or my role with the corporation would have been compromised in any way.

On July 31, 1995, I joined the Gaming Corporation as Director of Finance. I was engaged in that capacity to supervise all financial aspects of the corporation. My priorities in the first six months of employment included: the establishment of an accounting system; creation and preparation of financial statements which would comply with legislation, our contracts and generally accepted accounting principles; establishing reporting requirements of our operators, and our operators include Metropolitan Entertainment Group which I will also refer to as Sheraton and/or our operator; and the Atlantic Lottery Corporation; ensuring contract and legislative compliance by our operators; developing NSGC's administrative and financial policies and procedures; establishing enhanced lines of communication with our regulator, the Nova Scotia Gaming Control Commission; and engaging an external consultant to review the operations of the Atlantic Lottery Corporation. As well, I worked with the board to determine their reporting requirements and to comply with their requests.

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I was pleased to see that the board of NSGC was a very active and interested board. From my perspective, there needed to be heavy reliance upon the board because at this time the corporation was thinly staffed. Needless to say, when I joined the corporation, there was much to be done and I worked long hours attempting to organize the financial affairs of the corporation.

The corporation's relationship with Metropolitan Entertainment Group was by no means the most significant part of our activities. Our casino operations provide approximately 17 per cent of net profits to the Gaming Corporation and the province in the form of a casino win tax. This is very important to put into perspective because in terms of magnitude, it is not by any means the most significant activity of the Gaming Corporation. Our most recent annual report highlights that even with inclusion of the income guarantee payments, our casino operations generated $24.5 million in profit while $120 million was generated from our activities from Atlantic Loto.

At the outset of my employment, as indicated, I commenced review of the five contracts with Metropolitan Entertainment Group. It became apparent that there had not been a review by the corporation's staff of any of the contracts prior to me joining the corporation. These contracts had been signed on May 31, 1995. In conducting that review, it became apparent that certain contractual deadlines, under the Halifax interim construction contract, were looming and certain financial and other reporting requirements under the operating contract had not yet been requested and, hence, provided. It is fair to say that following my employment, the relationship with Sheraton became more formalized as a result of the various requests for reports, as contemplated under the contracts.

While Sheraton complained, I took this as nothing more than posturing by a party to a contract. It was a business reality. No one from the government has ever requested that I slacken in my vigilance nor has there been any political interference.

On a personal basis, Mr. Fiske and I quickly established a friendly working relationship.

The first significant event relative to the whole issue of the permanent casino which occurred following my employment was the granting of the first six month extension. The board became aware of the request on October 4, 1995 and were to discuss the matter on October 31, 1995. The board had specifically advised Mr. Fiske on September 6, 1995, that they would not consider an extension until certain conditions were met. Following this, without the authority of the board, Mr. Fiske met with Sheraton officials in Las Vegas concerning the six month extension. Minister Boudreau was also in attendance. It was Mr. Fiske who arranged the meetings. It is apparent Mr. Fiske discussed the extension with Sheraton officials while in Las Vegas. A newspaper article dated October 20, 1995 relates that Mr. Fiske suggested the project may be scaled down to meet the realities of gaming in Nova Scotia. On that same date, Minister Boudreau announced a six month extension.

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On October 25, 1995, a board meeting was held to which I was invited. At that time, Mr. Fiske spoke in favour of the extension. I do not recall Mr. Fiske taking issue with the fact that it had already been announced before the board had had an opportunity to consider it. I specifically recall Mr. Fiske passing off the occurrence as Minister Boudreau getting caught in a scrum. I remember this discussion as I had not heard the expression scrum before and had to seek an explanation of the term. I had come to the conclusion that Mr. Fiske was fully aware of, participated in and approved of the extension.

As I recall, at that meeting, the concern of the board was as much about the unauthorized activities of Mr. Fiske as with the premature announcement of Minister Boudreau. The board, however, indicated they would approve the six month extension if Sheraton were to request it. Indeed, Mr. Spurr, was instructed to draft the documents.

I would like to make it very clear that at the time this occurred the role of Mr. Fiske as chair of the corporation and the role of the board were very much in the development stage, in the sense that the players were unclear as to their respective roles and obligations. Indeed, it was as a result of this lack of clarity that on November 6, 1995 the board specifically sought clarification of its role and obligations from Mr. Spurr who provided an opinion for the benefit of the board.

Much has been said about operational independence of the board by Mr. Fiske. What appears to have occurred in October 1995, that is, Mr. Fiske acting without the authority of the board, occurred on several occasions subsequent to this, which I will relate to you. That he now makes an issue is very disappointing to me.

As to the approval of what is a focus of this committee's review, that is the minutes of settlement, while Mr. Fiske spoke against the settlement at the board, the fact remains that Mr. Fiske voted for the settlement along with each and every member of the board. As far as I am concerned, this decision to accept the terms of settlement was the decision of the board. Although Mr. Fiske had voted in favour of the settlement, Mr. Fiske could not move on.

From May 1997 onwards, Mr. Fiske was threatening to resign. This, as you can appreciate, created a very negative environment in which to work. I cannot tell you how many times I talked him out of resigning. This created an emotional burden upon me and other staff members. He was simply unwilling to accept the decision of the board with respect to the settlement and move on. He became ineffective because his focus was not on the significant aspects of our business but remained on the May 20, 1997 decision of the board. When Mr. Fiske did, in fact, tender his resignation, although I was disappointed, there was a sense of relief from me as four months of talking Mr. Fiske out of resigning had taken a toll.

I am not aware of a change in Cabinet's view as to how Mr. Fiske dealt with the Sheraton back in April 1997. I was never aware of the Premier's Office suggesting to do whatever it takes to avoid arbitration. I was aware that the government was suggesting that

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the corporation was going to have to deal with the Sheraton on a long-term basis and, therefore, the corporation should attempt to work out a settlement rather than proceeding to arbitration. I always understood that the decision as to how the corporation was to deal with the disputes and whether to settle outside the arbitration process was ultimately the board's.

I have not personally been contacted by Mr. MacKay, Mr. Thompson, Premier Savage or Premier MacLellan at any time. I did speak to Dr. Gillis in response to requests for information, and at meetings. I have never heard Dr. Gillis complain he was out of the loop. I did, however, hear Mr. Fiske express displeasure in having to report to Dr. Gillis, a former Cabinet colleague. Perhaps this is why I was brought along to meetings with Mr. Fiske and Dr. Gillis, as I had not participated in meetings with Minister Boudreau. Whatever the reason, I have to say that I very much enjoyed the meetings with Dr. Gillis; he was interested in the corporation's affairs and was a pleasure to work with.

I saw no evidence of any interference by Cabinet or the Premier or the Premier's Office in the negotiations between the corporation and MEG. I do know that Mr. MacKay became involved at Mr. Fiske's request, as on the first day of arbitration Sheraton's representative had demanded to deal with Ms. Gordon, not Mr. Fiske, on the issue of adjournment. It was Mr. Fiske who called Mr. MacKay for assistance and direction; this phone call took place in my presence. To the best of my recollection, Mr. MacKeigan was with Mr. MacKay at the time of the phone call. In retrospect I know Mr. Fiske should have been going to the board, but that is not the route he chose to take. In response to Mr. Fiske's request for advice, Mr. MacKay said that Sheraton was to deal with Mr. Fiske, not Ms. Gordon. As a result, no adjournment was achieved and arbitration commenced.

Mr. MacKeigan's role was as a facilitator between counsel to see if terms of an adjournment could be reached. He came on the second day of proceedings after Mr. Fiske had contacted Mr. MacKay. Mr. Merrick, our counsel, was aware of Mr. MacKeigan's involvement prior to his appearance. Mr. MacKeigan worked the full morning between counsel and, ultimately, an adjournment was achieved.

Mr. Merrick and Mr. [Carl] Holm met with Sheraton's lawyers that afternoon to open negotiations and reported to us late in the afternoon. Mr. Fiske then requested that Mr. MacKay attend a meeting at our offices the next day to be apprised of the developments. Mr. MacKay did attend that meeting and told us the province was 110 per cent behind NSGC, and that Mr. MacKeigan would draw back and would not even be present during the discussions.

I want to emphasize that at no time did I ever hear a reference to "an honourable gentleman" by Mr. Fiske nor did I ever hear of any assurances to Sheraton from the government that "the arbitration was in the bag".

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At the arbitration and during the April negotiations, Mr. Fiske, Ms. Gordon and I were instructing our solicitors, Mr. Merrick and Mr. [Carl] Holm; no one from the province was giving them instructions.

At the time of the settlement in May 1997, I was not in favour of it, but I understood this wasn't my decision to make. Indeed, it was me, not Mr. Fiske, who drafted the draft memo to Cabinet in August 1997 that this committee has heard so much about. Having had the benefit of hindsight and stepping away from the heat of the moment, I think the decision to settle and not proceed to arbitration was the right one. I am not a lawyer, and I can't comment on the legal advice received, but the settlement enabled us to put the disputes behind us and to get on with business. Any ambiguity surrounding the construction of the permanent casino had been dealt with. Sheraton now clearly understood the corporation's position that a permanent casino was to be built on Parcel P. As well, for the first time, the corporation was able to fix the construction costs of the permanent casino at $97 million. This was very important.

On the merits of proceeding to arbitration, at the time, I truly had concerns for Mr. Fiske. I was worried about him and concerned about the pressure on Mr. Fiske of being a witness and being subjected to cross-examination. I have subsequently been aware of activities by Mr. Fiske, and of documents which could have seriously impaired the corporation's ability to succeed in the arbitration. Although Mr. Fiske and I did work closely together, we did not always share the same point of view with respect to the Halifax permanent casino.

Up to the fall of 1996, Mr. Fiske had clearly demonstrated his support of the proposal to build the permanent casino in the existing hotel complex. I disagreed with Mr. Fiske and we had many debates about the matter, as I had not seen anything from the Sheraton to support why a stand-alone permanent casino was not a viable option.

I have attached to these opening comments, a memo written by Mr. Fiske to Minister Boudreau on March 18, 1996, recommending, without the board's knowledge or authority, an extension to the completion date of the permanent casino from September 30, 1998 to April 30, 1999. This six month extension was being recommended without compensation being requested of Sheraton. At no time was the board or I aware that this memo had been prepared or sent. As well, in February 1996, Mr. Fiske invited Minister Boudreau to a meeting at the Sheraton, and reviewed with Sheraton, plans for a casino inside the existing structure, without the knowledge of the board or reporting it to the board.

I have also attached a copy of Sheraton's 1996 proposal to these opening comments. I was under the erroneous impression, in the period of April to September 1997 that I had seen all documents with respect to this matter. I had not. With this information now available, I can perceive that Sheraton might have been receiving mixed signals concerning the form of

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the permanent casino and their ability to obtain a second six month extension without a fee. Those mixed signals appear to have come from Mr. Fiske.

As to the August draft memo to Cabinet. I drafted it with the participation of Mr. Fiske and Minister Gillis. Its purpose was to give an overview of dealings between the Sheraton and NSGC and to describe the circumstances which led to the arbitration. Mr. Fiske was hoping to have Cabinet overturn the board's decision and didn't initially advise the board of the status nor content of the memo. To the best of my recollection, following firm advice from Mr. [Carl] Holm on August 11, 1997, it was agreed that the board be apprised of the memo. The memo was then circulated to the board on August 12, 1997.

In advance of the August 19th board meeting, I was contacted by one of our board members, Mr. McAloney, a chartered accountant, who suggested further financial analysis be completed. I absolutely agreed that this was necessary, and requested a CA on staff to begin the analysis. The board as a whole reviewed the memo on August 19, 1997, and did not agree, as was their prerogative, that the memo accurately set out the position of the corporation.

They specifically were concerned that the figure of $27 million, as being the cost of the settlement, was predicated on some erroneous assumptions and incomplete analysis. They in fact were correct. On the same day as the board meeting, additional financial analysis I had requested was supplied to the board which clarified the error. More analysis was provided to the board on August 28, 1997.

By way of background, the sole issue in the arbitration scheduled for April 1997 was whether the casino design documents complied with the Halifax Casino construction contract. The financial implications of a delay in completion had not been considered while getting prepared for arbitration, because, simply put, this was not an issue on the table. The corporation's focus had been on the adequacy of the casino design documents.

In preparing this draft memo for Cabinet, we had not re-evaluated our rough estimate. Our estimate had been based solely on the amortization of the capital costs of the permanent casino per month. This estimate ignored Sydney's operating results, the clawback period, other items of the operating contract, and assumed that revenues would be achieved as projected in 1994, or as we commonly referred to as in the green books.

As indicated at Page 2, the third paragraph of the August 19th minutes, the board had some concerns that revenue projections, and hence cost to NSGC, were overstated in the memo. In fact, the results to date suggested that the projections had not been met, and indeed had been off by 50 per cent or more. Upon a more detailed examination provided to the board, as indicated on August 19th and August 28, 1997, analyzing various income projections and completion dates, we determined that the delay in construction of the permanent casino did not have a significant impact on the income guarantee provision. This

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is what I stand by. I have attached a copy of the analysis provided to the board with these opening comments.

All of these calculations presupposed, we would have been successful in arbitration. For reasons I have outlined, that in my mind today is by no means certain.

Beyond the issue of the completion date for the permanent casino, I had also prepared a financial analysis related to other issues, and I determined that they were revenue-neutral as far as the corporation was concerned. This included both the rate of rent between the hotel and casino and the capital costs of the Fife and Drum and the Library Restaurant.

Under the terms of the settlement, the permanent casino was to be completed within a month and a half after the end of the income guarantee period. Therefore, the rent would only have been charged for an additional month and a half. Under the terms of the agreement, the cost of capital of the Halifax interim casino would already have been completely paid out in May 1998. I would also like to add that it was less than satisfactory to raise the issue only after the money had been spent and the construction was complete.

The other related party transactions appear to have been satisfactorily addressed when raised with the operator. By August 28, 1997, as noted on Page 3 of the minutes of the same date, the error in the calculation of the income guarantee had been brought to the attention of the minister. While Mr. Fiske says that the draft August memo was eventually withdrawn at the insistence of legal counsel, that is not my recollection, and is not supported by the documents.

What went to Cabinet on September 10, 1997 was what was ultimately approved by the board. I understood that this was a board decision to make. I viewed the whole exercise as a board performing the function it was required to. I viewed my role as a kind of gatekeeper in ensuring that the board was fully briefed of concerns with respect to the casino, and/or our lottery business, so that they could make informed decisions.

I believe, without question, that the corporation has and continues to adequately guard the interests of taxpayers of Nova Scotia. I am very proud of the hard work and diligence of the staff of the corporation. The present staff fully understand and accept our corporate responsibility and conduct ourselves accordingly.

[10:30 a.m.]

I would now propose to take the opportunity to respond to the questions suggested to the committee for me by Mr. Fiske, if that would be appropriate?

MR. CHAIRMAN: Go right ahead.

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MS. BUTLER: Maybe I will just take a little break here for a moment. It is not coffee by the way; it is just water.

The first question:

1a. "In the decision-making process leading up to the NSGC's approval of the Terms of Settlement on May 20th, 1997, during the time the Premier's office was seeking a negotiated settlement, what was your estimate of the direct financial costs of the proposed Terms of Settlement?

1b. What was your estimate as of May 27th, 1997 of the indirect financial costs of the Terms of Settlement?".

In response to these questions, I begin by commenting that they presupposed facts that I do not consider to be completely accurate. I am not sure I would characterize the involvement of Mr. MacKay and Mr. MacKeigan as the Premier's Office seeking a negotiated settlement. I have more accurately described how they became involved during the arbitration process at the request of Mr. Fiske. I assume, however, that what Mr. Fiske is referring to is the discussion at a conceptual level only on May 20, 1997, with the board concerning the amortization of capital costs. That approximated $1.9 million per month and was encompassed in the $27 million referred to in the August 1997 draft memo to Cabinet I have discussed. For the reasons I have already detailed, that figure was incorrect for there were no significant costs.

1c. "On September 11, 1997 the McLellan Cabinet approved the negotiated settlement. As of that date, had you revised your estimate downwards and if so, by how much?".

On September 11 1997, it was my understanding Cabinet approved the contractual amendments which came about as a result of a negotiated settlement. As indicated, following detailed analysis of various scenarios, completed August 19th and 28th, 1997, I had determined the financial impact was insignificant with the delay in completion of the permanent casino. Quite simply, the $27 million cost as described on Page 3 of the draft memo was not accurate, as our detailed projections concluded.

1d. "Did you express to the Board of the Directors or any of its members your personal opinion that the terms were not a good deal for the Gaming Corporation?".

My focus, during July and August, 1997, was working with our legal counsel on the final forms of the minutes of settlement which, to my mind, was taking far too much time to achieve. I repeat, however, that as a result of the financial analysis completed in August 1997 and for the reasons I have detailed, which cast serious doubts on our ability to succeed at arbitration, I am satisfied the settlement was satisfactory. My responsibility, post-settlement,

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was to ensure the minutes of settlement protected the interest of NSGC. I had considerable debates with our counsel with respect to certain words and their clauses; this, however, was my responsibility as I had been directed by the board.

2a. "Mr. Fiske has been described by Bernie Boudreau, Q.C. as uncompromising, unbending and unyielding in any of his views and opinions. As a person who worked most closely with Mr. Fiske during the terms of settlement negotiations, do you believe that characterization accurately portrays Mr. Fiske's performance of his job with respect to such negotiations?".

I preface my remarks by saying this was a stressful time for all of us at the Gaming Corporation. Moveover, I find this question difficult to respond to as I like Mr. Fiske. If, however, the question is how I would evaluate Mr. Fiske's performance relative to the negotiations, I would characterize his performance as totally ineffective and I am of the view that Mr. Fiske lost all perspective of the job he had to do. While I would not choose the words ascribed to Mr. Boudreau, I am not prepared to say they are inaccurate in relation to these negotiations. Mr. Fiske had moved 180 degrees, as detailed in the March 1996 memo to Minister Boudreau, from actually having endorsed the concept of an alternative proposal within the hotel to wanting to get rid of Sheraton. Mr. Fiske was not willing to compromise during the April through September period. Certain meetings we had with our counsel became so intense that Mr. Fiske excused himself and asked me to deal directly with our lawyers.

If I had been privy to the March 1996 memo to Minister Boudreau and the February 1996 meeting with Sheraton officials, which certainly contradicted Mr. Fiske's position at arbitration, I can assure you I would have felt very vulnerable in pursuing the arbitration with such vigour. I would have also been extremely wary of having Mr. Fiske testify. Subsequent to the May 20, 1997 meeting, Mr. Fiske was very angry with the unanimous decision of the board to accept the settlement. Mr. Fiske declined to participate in any joint press releases and also avoided the press conference held to unveil the new casino concept.

2c. "Please describe the opinion you held during the time period from April to September 1997, inclusive of the negotiating strategy of the Metropolitan Entertainment Group . . .?".

In April 1997 I recall I was puzzled as to why Sheraton was so confident it would be successful on the arbitration. If I had been aware of the documents which Mr. Fiske had produced in March 1996 and advanced in my absence, I would have felt much differently about the process. When the arbitration was adjourned in April 1997, I can recall feeling a real sense of relief that Mr. Fiske was not going to have to go through the process as I was certainly concerned about the burden this was going to place upon him.

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2d. "Up to the MacLellan Cabinet approval of September 11th, 1997, was the tough bargaining stance adopted by Mr. Fiske supported by yourself? To your knowledge, by Dara Gordon? To your knowledge, by Dr. Gillis?".

I preface my response by disagreeing that Mr. Fiske was taking a tough bargaining stance. At the time Mr. Fiske wasn't bargaining with anyone. The terms of settlement had been agreed to and approved by the board, including himself. I recall that I wanted to put the matter behind us. Many of my hours during the summer of 1997 had been devoted to the minutes of settlement and meetings with our counsel. There were so many more important matters which were not being attended to by either myself or Mr. Fiske because of the all-consuming nature of this issue. As well, as indicated by late August when the detailed financial analysis had been completed, I was satisfied the settlement was satisfactory.

I cannot speak for Ms. Gordon or Dr. Gillis. I do, however, recall that Ms. Gordon was on vacation for part of August and when in the latter part of August I did have contact with her, it was clear she was moving towards support of the settlement.

3. "Shortly after Mr. Fiske's meeting in Premier Savage's office on June 5, 1997, and on other occasions, did he describe to yourself and/or Dara Gordon, and did you discuss between or amongst yourselves, his purported argument with Premier Savage with respect to why the Premier's Office had sought a negotiated settlement in favour of negotiations?".

I don't recall hearing about an argument with the Premier. The minutes of June 5, 1997, indicate that Mr. Fiske had met with the Premier earlier in the morning regarding the proposed settlement. Other than Mr. Fiske reporting to the board, I cannot recall Mr. Fiske describing the details of the meeting to me. During this June period, and subsequent to this board meeting, I was extremely busy playing catch up, attempting to get an audit file reviewed, our annual report written and our financial statements completed.

4. "Shortly after such meeting, and at other times, did Ralph Fiske describe to yourself and/or Dara Gordon, and did you discuss between or amongst yourselves, Mr. Fiske's reported conversation with Messrs. Mel Thomas and Bill McInnes with respect to 'an honourable gentleman'?".

Quite simply, the answer is no. The existence of "an honourable gentleman" was a term which I had never heard Mr. Fiske refer to at any point until his appearance before the Public Accounts Committee.

5a. "In similar vein, did Mr. Fiske report to you the telephone conversation he had with Bernie Boudreau, Q.C. with respect to the motive for an intervention of the Premier's Office?".


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5b. "Did you see a handwritten note from Minister of Health, Bernie Boudreau to Ralph Fiske, requesting Mr. Fiske to appear and provide an updated report to the Priorities & Planning Committee?".

Yes. I did see this note, which I believe was received July 18, 1996.

"Did you have any conversation with Mr. Fiske with respect to the fact that such request came from the Minister of Health, not the Minister of Finance and/or that the Minister of Finance was unaware of such briefing until Mr. Fiske's actual attendance before the committee?".

My recollection as to this is that I do recall suggesting that Mr. Fiske ensure that Dr. Gillis was aware of the desire of P & P to have a presentation on the alternative proposal.

6a. "Please describe the extent of your involvement and the involvement of Dr. Bill Gillis, in the drafting of the 14 page memorandum to Cabinet submitted and signed by the Honourable William Gillis?".

As indicated, I was the primary drafter of the document. We had been clearly advised that the Gaming Control Act required NSGC to seek approval of the Governor in Council relating to any contract amendments. Both Mr. Fiske and Dr. Gillis had input into the drafting of the memo.

6b. "During the preparation of this memo and your involvement with Dr. Gillis, did he appear to have read carefully the contents of such memorandum?".

Dr. Gillis always reviewed very carefully any documents which we provided to him.

"Did he appear to agree with the events as described therein?".

I can't answer for Dr. Gillis, but it was clear, he was relying on us to detail events at which he was not present.

6c. "What was the date upon which this memorandum to Cabinet was signed by Dr. Gillis?".

It appears that it was signed on August 7, 1997, but I can't confirm that for sure.

"As of the date, as it appears at page 3, was it the belief of Dr. Gillis, Mr. Fiske and yourself that the costs of the May 20th Terms of Settlement, total approximately $27 million?".

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As I explained before, the rough calculation, which included a $1.9 million estimate per month for the six month extension and the second seven and a half month extension totalled $27 million. This estimate was re-evaluated later in the month, in part at my request, and the detailed projections which were produced refuted this estimate.

6d. "At page 10 of the memorandum to Cabinet it states 'it became clear during the briefing sessions with the Minister of Finance . . .", a bit of a typo there, sorry, ". . . during the April/May period, that Dr. Gillis had not been involved in the discussions related to the proposed Terms of Settlement and the Shareholders' directive as advanced by Mr. MacKay and Mr. Robbie MacKeigan'. In your meetings with Dr. Gillis during the drafting of this memorandum, did he take issue with the foregoing statement?".

No, but this was simply borrowing on the phraseology chosen by our counsel, Mr. Merrick. As I previously indicated, the shareholders' directive amounted to the suggestion that it would be preferable in the circumstances that the parties resolve their dispute without the need for arbitration.

6e. "At page 13 of the memorandum it states 'Due to the manner in which the Arbitration and subsequent negotiations were handled, NSGC's ability to deal effectively with Sheraton has been compromised. Sheraton's current modus operandi of usurping NSGC must cease immediately'. Did Dr. Gillis agree with this assertion?".

I don't know.

7. "Mr. Boudreau, in his appearance before this Committee, suggested that Mr. Fiske's attitude toward the Sheraton Group may have been negatively influenced by his alleged disappointment and in annoyance in not receiving the Casino contract without public tender.".

7a. "At any time prior to the testimony of Bernie Boudreau, Q.C. did you ever hear it suggested that Mr. Fiske tried to get the 'right to run a Casino in the Province without it being put to public tender'?".


7b. "Are you aware of any facts to support the allegation that Mr. Fiske wanted the Province to give him a Casino Contract without it being put to public tender?".

The answer is no.

7c. "Are you aware of any facts to suggest that Mr. Fiske withdrew his expression of interest 'because he could not compete with other bidders in the bidding process', as suggested by Mr. Boudreau?".

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7d. "At any time from your date of hire to Mr. Fiske's date of resignation, did you ever form the opinion that Mr. Fiske lacked objectivity or fairness in his dealings with the Sheraton Group because of an early interest that he had in submitting a gaming proposal?".

No, not for that reason. As you may gather, I was unaware that he had such an interest.

7e. "At any time during your working relationship with Mr. Fiske did you ever form the opinion that his actions as Chair and Chief Executive Officer were negatively influenced by such preliminary expression of interest?".

I wasn't aware of his involvement, so therefore I would not have formed any opinion.

7f. "At any time prior to Mr. Fiske's testimony before this Public Accounts Committee, had you ever heard anyone, either within the Gaming Corporation or the Sheraton Group or the Government of Nova Scotia, suggest that Mr. Fiske was not objective in his dealings with the Sheraton Group because of his own preliminary expression of interest in developing a Casino proposal?".

My answer is no.

7g. "Based on your close working relationship with Mr. Fiske, do you believe it was appropriate for Mr. Boudreau to suggest that Mr. Fiske's difficulties with the Sheraton had anything to do with such preliminary interest?".

I am unaware what information Mr. Boudreau had in his possession to form his conclusions, and I am therefore unable to comment.

8a. "At the time Mr. Merrick attended at the Premier's Office with Mr. Fiske on April 21, 1997, was he still of the view that the prospects for success at Arbitration remained strong?".

I don't know. I can't recall the discussion in that regard. This is a question I think Mr. Merrick is only capable of answering.

8b. "At any time after April 21, 1997 did Mr. Merrick ever, to your knowledge, suggest to the Board of Directors or any of its members that the odds of success at arbitration were as poor as 50/50?".

In Mr. Merrick's letter dated May 20, 1997, Page 4, he clearly expresses his concern regarding the risk of arbitration.

[Page 15]

8c. "At any time before or after April 21, 1997 did Mr. Merrick ever suggest to the Board of Directors or any of its members that construction of the permanent Casino was at risk if the arbitration was lost?".

The purpose of the arbitration was to determine the adequacy of the casino design documents as submitted by Metropolitan Entertainment Group. I don't recall if Mr. Merrick ever made such a suggestion with respect to a permanent casino.

8d. "According to the Gaming Corporation's own records and your recollections, is it correct that as late as Monday, May 19, 1997, Mr. Merrick was still not prepared to make a positive recommendation to accept the terms of settlement being demanded by the Sheraton Group and being supported by Mr. MacKeigan and the Premier's Office?".

The minutes of NSGC of May 20, 1997, provide a complete account of the process and the recommendations of counsel. Those minutes accord with my recollection.

8e. "Is it true that Mr. MacKeigan insisted that Mr. Merrick provide a recommendation to the Board of Directors on May 20th?".

I am not aware of any instructions provided by Mr. MacKeigan and/or deadlines to Mr. Merrick.

9. "During your attendance at the meeting of the Board of Directors May 20, 1997, putting aside the legalese and carefully chosen terminology of Messrs. Merrick and Holm about acceding to the wishes of the Province, was it your opinion that the Terms of Settlement were only approved by the Board of Directors because of the intervention in the Premier's Office?".

No, I cannot speak for the board but from what I observed, the board was performing its review functions fully and independently as demonstrated by the kinds of questions they were asking.

10. "In the file materials provided by Mr. Merrick, he produced a copy of your letter to him dated April 18, 1997.

(a) The attachments to that letter have not been produced. Will you undertake to produce them to the Committee?".

I have actually attached them to this package, they are at Tab 8.

10b. "In your third last paragraph, you make reference to documents 'which might provide some interesting insight into certain aspects of our relationship with Metropolitan

[Page 16]

Entertainment Group/Sheraton'. Please describe the contents of those documents and the interesting insights you observed?".

The letters, as indicated, are available for your review. The contents, I believe the documents speak for themselves. They detail the ongoing discussions in the operating relationship between NSGC and the Sheraton. I don't think it is any secret that by January 1997 those relationships were strained. We had had a failed mediation on a number of issues in December 1996.

12a. "In the Minutes of the Board of Directors of August 19, 1997, Board Member Bob Cordy indicates his main reason for supporting a negotiated settlement was the anticipated improved relationship with the Sheraton Group. Other Board Members spoke to similar effect. In your opinion, does that relationship improve following the May 20th agreement?".

All I can speak to is that plans related to the permanent casino were now under way. I think the agreement to prepare financial and operational protocols was an important step to better define the terms of our business relationship. I believe that NSGC would have been better served if in the early days of the relationship a more businesslike approach had been adopted. The relationship did improve when Ms. Gordon assumed responsibility and a more businesslike approach was adopted.

12b. "Following the approval of the Terms of Settlement by the MacLellan Cabinet September 11, 1997, did the Sheraton continue its obstructionist strategy by refusing to authorize your auditors, Ernst &Young to make available its audit working papers with respect to evidence of related transactions?".

As indicated, the terms of settlement were approved by the board of NSGC. According to the Gaming Control Act, the Governor in Council must approve any contractual amendments or any new contracts. After the approvals were provided, I don't believe that there had been a change in Sheraton's approach. Sheraton and NSGC both wanted to better define the parameters of the operating relationship and I am not surprised at all that Ernst & Young would not make available its audit working papers.

13. "The Minutes of August 28, 1997 at page 3 indicate that Minister Gillis had been briefed regarding the error in the calculations of lost revenues, and was firm in his wish to present the Minutes of Settlement to Cabinet as soon as possible. The Minutes disclose that Minister Gillis requested that the history of disputes with Sheraton be explained, as well as the consequence and options, but that no recommendation be included. Are the Minutes accurate in that regard. Please describe your understanding of Minister Gillis' position at that time?".

[Page 17]

I preface my response by saying that more accurately the minutes indicate that Mr. Fiske reported Dr. Gillis' position. I do not recall attending any meeting or participating in any teleconference in which the minister expressed his wishes in those terms. I also note the absence of recommendation by the board was only to occur if the board was not in agreement. It was. Beyond this, all I can say is that Dr. Gillis had always requested the drafting of a memo to Cabinet.

14. "In the Minutes of the Board of Directors of August 19, 1997, reference is made to 'the necessity and opportunity to re-store gaming authority in the Province back to NSGC and to once again have the Minister involved'. At that meeting, was it the view of the Board of Directors that the Minister of Finance had not been kept properly involved because of the Interventions of the Premier's Office?".

This reference to the minutes is a quote from Mr. Fiske and represents his view. I can't speak for the board as to whether they shared Mr. Fiske's view. To the best of my recollection the board was questioning whether the minister had been properly briefed by Mr. Fiske.

15. "In your memo of September 10, 1997, and in the Minutes of the Board of Directors of September 18, 1997 at page 2, you describe the lack of preparedness of the Sheraton Group, even after the concessions made by the Gaming Corporation in order to achieve a better working relationship. Please describe that specific conversation with Mel Thomas and your interpretation at the time of the Sheraton's sincerity in moving forward quickly with the construction of the permanent casino?".

I think my memo speaks for itself. I think with the history of the project it is very important to be alert to any messages and to present that information to the board for their consideration.

16. "In her testimony before the Public Accounts Committee at page 41, Acting Chair, Dara Gordon, stated that the Sheraton Group 'never really denied us access'. Based on your experience as Director of Finance, was that an accurate statement?".

All information that we have requested from the Sheraton, as far as I can recall, has always been provided to us.

I am now prepared to respond fully to the questions of the committee to assist them in any way I can.

MR. CHAIRMAN: A very interesting presentation, thank you very much. Mr. Dexter.

MR. DARRELL DEXTER: It is difficult to know where to begin. I guess I wanted to start with just a question of the preparation of this document and who you consulted with

[Page 18]

in its preparation. Perhaps you could tell us, who did you consult with in order to prepare this?

MS. BUTLER: Yes, I consulted with Ms. MacPherson-Duncan.

MR. DEXTER: Did you consult with Dara Gordon?


MR. DEXTER: Did you consult with any government public relations people?


MR. DEXTER: Any other persons involved in the drafting of the document?

MS. BUTLER: No, it was my draft.

MR. DEXTER: Was this done as part of your responsibilities or duties while you were at work at the Gaming Corporation?

MS. BUTLER: I don't know if I understand your . . .

MR. DEXTER: Well, did you do this while you were at work? Did you carry it out while you were employed?

MS. BUTLER: I did it . . .

MR. DEXTER: On Gaming Corporation time?

MS. BUTLER: And on my personal time as well. Yes.

MR. DEXTER: The cost of the preparation of this document, who is bearing that cost?

MS. BUTLER: The corporation.

MR. DEXTER: Your appearance here and the supporting documentation has all been paid for by the Gaming Corporation?

MS. BUTLER: Well, I prepared the document myself with the assistance of Ms. MacPherson-Duncan. There is no cost involved in providing the documents that we already had in our office.

[Page 19]

MR. DEXTER: But the advice that you received with respect to it, who pays for that?

MS. BUTLER: The corporation.

MR. DEXTER: Thank you. You talked about the preparation of the information that you had and presented to the board early on, in April I believe, and your estimation of the $27 million loss that the corporation would take. That was the information that was before the board at that time?

MS. BUTLER: Well, I believe, if I could take you to the statement . . .

MR. DEXTER: I am not interested in the statement, I am interested in your answer.

MS. BUTLER: Well, as I recall, we spoke I believe it was in a June meeting (Interruption)

MR. MICHEL SAMSON: Mr. Chairman, what kind of questions are these? She is not a hostile witness.

MR. DEXTER: These are straightforward questions.

MR. CHAIRMAN: Straightforward it is, there is nothing wrong with the question.

MS. SANDRA MACPHERSON-DUNCAN: I would say though on behalf of Ms. Butler that she should be entitled to respond to it in a manner that she feels most comfortable. (Interruption)

MR. CHAIRMAN: I think the language could improve on the part of the members, Mr. Samson. Please continue, Mr. Dexter.

MR. DEXTER: I have asked the question, the information that you had and that you placed before the board on April 1997 that showed a $27 million loss was the information that the board operated on at that time, is that correct?

[11:00 a.m.]

MS. BUTLER: No, because in April 1997 we were dealing strictly with the adjournment of arbitration.

MR. DEXTER: So are you saying there was some other information?

MS. BUTLER: Pardon me?

[Page 20]

MR. DEXTER: I asked a very specific question. The financial information that you provided to the board in April 1997 told the board that there would be a $27 million loss as a result of the terms of settlement? Is that correct?

MS. BUTLER: I would have to go back to the minutes to check but my recollection is that in April we were just simply dealing with the adjournment of the arbitration and our counsel were attempting to negotiate terms of settlement which they were not successful completing. So as a result at some point during that week it had been agreed that the arbitration would be rescheduled for a May period.

MR. DEXTER: You said in your statement that you prepared the draft memorandum which we have heard a lot about in the past several weeks, if not months. At that time the information that you provide to them continues to show - and this is in August - that there is a $27 million loss to the Gaming Corporation as a result of the approval of the minutes of settlement? Is that correct?

MS. BUTLER: Could you repeat that question, please?

MR. DEXTER: When you prepared the memorandum that you have talked about, that memorandum continues to show a $27 million loss to the province as a result of the approval of the minutes of settlement? Is that not correct?

MS. BUTLER: No, because as I explained this morning, it was included within the memo but at that point in August our detailed analysis certainly demonstrated that that $27 million was incorrect.

MR. DEXTER: Well, then why did you include it in the memo?

MS. BUTLER: Because at the time we had not gone back and re-evaluated the rough estimate.

MR. DEXTER: Okay. So the answer to my question, when I asked you, at the time that you prepared the memo, you said that the approval of the terms of settlement would mean a $27 million loss to the Gaming Corporation?

MS. BUTLER: It had been a rough calculation, yes.

MR. DEXTER: Yes, and you have been careful to go back and to say that this was a conceptual number that came out in May?

MS. BUTLER: It was very much a conceptual number because I cannot tell you with certainty at which meeting the issue actually arose because when you consider what we were dealing with at arbitration, we were simply dealing with construction issues. When this issue

[Page 21]

arose at a board meeting subsequent to the adjournment of arbitration, I cannot recall exactly the date, it was just a conceptual way to get a rough estimate at the time.

MR. DEXTER: The minutes of the board of directors in May 1997 and again in August 1997 show you citing three factors in the evaluation of how much a settlement was going to cost the Gaming Corporation. Do you recall that?

MS. BUTLER: Perhaps maybe I should open the minutes.

MR. DEXTER: Please refer to documents if you have them. The three factors that you cited at that time were the loss of opportunity to expense capital costs under the protection of the income guarantee, is that right, that is one? Do you have the document?

MS. MACPHERSON-DUNCAN: Which minutes are you referring to?

MR. DEXTER: The minutes of May 20, 1997.

MS. BUTLER: Which page are you on, please, Mr. Dexter?

MR. DEXTER: Well, I am not on any page. I just have these notes made on them.

MS. BUTLER: Let me just find it.

MR. DEXTER: But you must remember this. You cited three factors, loss of opportunity to expense capital costs under the protection of the income guarantee, was one; an enhanced bottom line between May 1998 and the completion date of which Sheraton would get 35 per cent; and the building up by Sheraton of a positive reserve against the income guarantee. Were those the three factors that you cited? Do you recall that?

MS. BUTLER: Yes, at a conceptual level, yes.

MR. DEXTER: Do you agree now that those are the three significant factors in calculating the settlement's costs to the Gaming Corporation?


MR. DEXTER: What has gone into changing your mind about that?

MS. BUTLER: Well, it is a very complicated calculation which I would be more than happy to take you through, but there are various components. First of all, the income guarantee period runs until July 1999, with an additional clawback year that completes it to July 2000. In order to assess whether there is an impact under the income guarantee, you not only have to look at Halifax's operations and attempt to estimate what the reasonable revenue

[Page 22]

projections would be, as well as expenses, but you also have to take into account Sydney's operating results and any other important terms of the operating contracts.

As you can see in my submission today to the committee, under Tab 4, Tab 5, Tab 6 and Tab 7, in order to do a comprehensive job of the calculation, it is a very detailed calculation.

MR. DEXTER: If this is the case, why wasn't this done in May or April, prior to those initial . . .

MS. BUTLER: As I had explained earlier today, when we were going forward to arbitration in April, the sole issue on the table was the adequacy of the casino design documents and whether they complied with the Halifax casino construction contract, and to me, a delay wasn't on the table. That was not an issue.

MR. DEXTER: It was not an issue because they were not going to be successful.

MS. BUTLER: If I had been aware of some of the information that had been prepared by Mr. Fiske and advanced by Mr. Fiske without our knowledge . . .

MR. DEXTER: For instance?

MS. BUTLER: The memo of March 18, 1996. That is included in my submission at Tab 2.

MR. DEXTER: And that memo calls for a permanent casino?

MS. BUTLER: Well, this memo here recommends a delay in terms of completion and this is prepared by Mr. Fiske and sent to Minister Boudreau, "We believe that the permanent Casino should reflect benefit to downtown Halifax and the Province of Nova Scotia, and we would respectfully suggest that a six month delay to the April 30, 1996 deadline and a six month delay to the October 1, 1998 deadline be granted on the joint request of Sheraton Casinos Nova Scotia and the Nova Scotia Gaming Corproation.".

MR. DEXTER: This document wasn't in the hands of Sheraton?

MS. BUTLER: But it had been produced.

MR. DEXTER: Produced where?

MS. BUTLER: It had been produced in the Gaming Corporation's office.

[Page 23]

MR. DEXTER: But it wasn't information that they had going into the arbitration. They weren't putting any store in this. This wasn't part of their case.

MS. BUTLER: No. I can't answer that question but what I can offer is that Mr. Fiske, on many occasions had discussions with Mr. MacInnes, who was counsel to Sheraton and they did exchange ideas, and they exchanged information. I don't have the knowledge, whether Mr. Fiske made Mr. MacInnes aware of this request to Minister Boudreau.

MR. DEXTER: I want to just talk briefly about another document that has been produced by the Gaming Corporation, which is the one that was attached to the letter of Ms. Gordon, dated September 30, 1998. This is the comparison that was produced, and I believe it was originally produced at the press conference, that was held earlier by the Gaming Corporation, that compares the deals. Did you prepare that document?

MS. BUTLER: I am really not familiar with which document? Maybe if I could view your document, I could let you know with certainty.

MR. DEXTER: I will give you the title. It says, Analysis of Costs and Benefits of May 20, 1997 and October 15, 1997 settlements.

MS. MACPHERSON-DUNCAN: How far into the document produced is it, Mr. Dexter?

MR. DEXTER: It would be eight pages in.

MS. BUTLER: So it is entitled, Nova Scotia Gaming Corporation's Analysis of Costs and Benefits?


MS. BUTLER: Okay. I have that in front of me.

MR. DEXTER: Did you prepare this document?

MS. BUTLER: I didn't prepare it; however, I did vet it for accuracy.

MR. DEXTER: If you look at the subsequent pages, were you involved with this and including is a section of it called the explanation of the $27 million penalty?

MS. BUTLER: Maybe you could point to that page?

MR. DEXTER: It is difficult when you don't have these tabs. It is Page 21.

[Page 24]

MS. BUTLER: Thank you.

MR. DEXTER: You have that document?


MR. DEXTER: You divide this into two parts. One is the $20 million and it says, sometimes $27 million to $30 million. Did you prepare this? Again, is this part of . . .

MS. BUTLER: No, but I did review it.

MR. DEXTER: You reviewed it for accuracy and you agree that it is an accurate document?


MR. DEXTER: You divide it into two parts. The explanation of the $20 million, and then the penalty part, that is a correct interpretation of what is there, is it not?

MS. BUTLER: Are you asking specifically about the penalty section?

MR. DEXTER: Right. You see them as being separate issues?

MS. BUTLER: Yes. They are separate.

MR. DEXTER: On Page 23, there is a section called Penalty Concession If Any. Can you have a look at that?

MS. BUTLER: I see that in front of me, yes. Thank you.

MR. DEXTER: You said you reviewed all the construction contract terms and you are familiar with them?

MS. BUTLER: Right. I am not a lawyer though, but I am familiar with the terms.

MR. DEXTER: Sure, but if you had any doubt about them, you would ask about them.

MS. BUTLER: I would.

MR. DEXTER: Sure. In this Section 5.09 of the Halifax Casino Construction Contract, it is clear from this, is it not, that the $10,000 per day for delay is not a total figure? It is a pre-estimate of damages, is that correct?

[Page 25]

MS. BUTLER: I am sorry. I can't answer.

MR. DEXTER: I want you to just look at the clause, and it says the, "Operator shall, immediately on demand, pay to the NSGC, as a genuine preestimate of damages which will be suffered by NSGC and not as a penalty, the sum of $10,000 per day . . .", so the amount that would have accrued to the Gaming Corporation as a result of the delay by the Metropolitan Entertainment Group was not $10,000 a day? That was just an agreed upon pre-estimate of damages, is that correct? Do you agree with me?

MS. BUTLER: I guess I can only respond to your question in layman's terms, as I understand it. My understanding is that this particular clause would impose a $10,000 per day penalty if the casino were not completed and opened.

MR. DEXTER: Did you ever ask for any advice with respect to this?

MS. BUTLER: Oh, we certainly have. Yes, we have.

MR. DEXTER: And was it your understanding that whatever damages you suffered would be limited to that $10,000 a day?

MS. BUTLER: I think that we have conducted a very thorough review of our remedies under all of our contracts.

MR. DEXTER: And you were under the impression at that time that you were limited to a $10,000 a day penalty? That was the conclusion you came to?

MS. BUTLER: No, I am not saying that was the conclusion, not at all.

MR. DEXTER: Then what conclusion did you come to?

MS. BUTLER: Well, I would have to go back to the Gaming Corporation's documents and go back to the opinions which we did seek from our legal counsel, yes, and I would be certainly happy to do that for you and get back to you.

MR. DEXTER: So do you know whether or not you received an opinion with respect to that section?

MS. BUTLER: I would say, yes, to the best of my recollection.

MR. DEXTER: I would be pleased if that could be provided to the committee.

MS. BUTLER: It might have already been provided.

[Page 26]

MR. DEXTER: I have not seen it anywhere.

MS. BUTLER: Certainly I would be happy to do that for you.

MR. DEXTER: Thank you. You mentioned earlier and I just want to make this point, I think you said - I am sorry, Mr. Chairman, is there a time?

MR. CHAIRMAN: One and one-half minutes.

MR. DEXTER: I think you said at the time of the arbitration that you knew or understood that the question of a permanent casino was never at risk in the arbitration?

MS. BUTLER: Are you referring to the question with respect to Mr. Merrick's comment?

MR. DEXTER: No, I am asking you your understanding of what was at stake at the arbitration?

MS. BUTLER: What was at issue at the arbitration was simply the adequacy of the casino design documents and whether they complied with the Halifax casino construction contract.

MR. DEXTER: We have heard on numerous occasions here that, well, we could have lost the casino as a result of this arbitration but that is erroneous, isn't it? The fate of the casino was never at stake at that arbitration?

MS. BUTLER: I cannot comment on what other people have said. All I know is that the arbitration itself was attempting to deal with the dispute on the casino design documents.

MR. DEXTER: And just to follow that a step further, what was not at issue was the question of whether or not a permanent casino was going to be built; that did not hinge on this?

MS. BUTLER: We had a signed contract for the construction of a Halifax permanent casino.

MR. DEXTER: Right, and you said in your testimony earlier, and I am just going to point you to Page 6, you said, at the bottom of the fourth paragraph:

"As well, for the first time the Corporation was able to fix the construction costs of the permanent casino at 97 million dollars. This was important.".


[Page 27]

MR. DEXTER: That is in May 1997?


MR. DEXTER: I just want to really briefly refer you to your notes.

MR. CHAIRMAN: Mr. Dexter, I have to move to the other caucus, the PC caucus next. We will be back.

MR. DEXTER: Thank you.

MR. CHAIRMAN: Who is asking questions? Mr. Taylor.

MR. BROOKE TAYLOR: Thank you, Mr. Chairman, and, Ms. Butler, thanks for your presentation. Your resume is certainly very impressive. I have some concerns regarding the May 20th terms of settlement. I know you have addressed some questions that Mr. Dexter has raised but it appears that your rough calculation, and I believe you prepared the original errors list, so-called, that identified millions of dollars in questionable accounting practises undertaken by the ITT Sheraton, referenced by Mr. Fiske in his testimony to this committee, however, from your presentation today we are being told that after a more detailed analysis of various scenarios completed throughout the month of August and I guess you have come up now, or at least we are being told that the financial impact was insignificant. Could you be a little more specific in just how insignificant is the financial impact to this province?

MS. BUTLER: First of all, I would like to correct one of your observations. When Mr. Fiske had referred to a list, that was prepared by a staff member of the corporation, so just to correct the record in that regard.

MR. TAYLOR: It wasn't you?

MS. BUTLER: No, it was an employee under my direction. In terms of the analysis, the analysis that we did prepare in August 1997, subject to obviously, you know, a lot of factors, revenue projections being one of them, and the type of financing that Sheraton would ultimately obtain; whether they were going to obtain third party financing or finance it internally, the costs could have been anywhere between $3 million to $4 million, but that was still an unknown because of some of the other aspects that were yet to be quantified.

MR. TAYLOR: So I guess perhaps to somewhat reiterate my question, would you say that as a result of the negotiated settlement Nova Scotians lost revenue?

MS. BUTLER: Not at all.

[Page 28]

MR. TAYLOR: Well, I am sorry, then I misunderstand. Did you not say that your figures now after a detailed analysis indicate that between, what did you say, $3 million to $4 million may have been lost?

MS. BUTLER: The detailed analysis was based upon projections and projections are not actuals. These projections made assumptions with regard to expenses. They were very conservatively prepared and they also took into account the method for financing the project which had been included in the original submission by Sheraton which was a 60-40 split, third party financing, 60 per cent and 40 per cent equity. So I guess what I am saying is that our detailed projections were showing approximately $3 million to $4 million but that is subject to the type of financing, subject to the operating results in Sydney, subject to the operating results in Halifax. So it was insignificant.

MR. TAYLOR: I appreciate your view regarding insignificant but I do not think it would be shared by the majority of Nova Scotians and I say that with all respect because if you did a detailed analysis and came up with those types of figures, obviously, they would be supported by information perhaps factored into the equation, the penalty per day, the $10,000. Was that part of your projections?

MS. BUTLER: The penalty provision which Mr. Dexter had referred to earlier presupposed that we would have won at arbitration so, therefore, an agreement was reached between both parties that the completion date would be extended. So we did not consider that a waiving of penalties in any form.

MR. TAYLOR: Very interesting. Before I pass on to my colleague, Mr. Chairman, I have another question. Construction of the planned $100 million casino has essentially ground to a halt. In fact, I guess that happened in mid-July. According to your presentation this morning, Ms. Butler, you have been preoccupied with legal counsel on drafting up the minutes of the settlement during the months of July and August, so it may not be a fair question but nonetheless I have to ask you. The Gaming Corporation, the Chair at least, Ms. Gordon, has told us the reason for the delay is because the casino's design may not be suitable and yet the casino's designer has said that his firm has not been approached. I just wondered what your thoughts are along the line of the casino and your corporation saying that the Starwood, or whoever, is saying that they are not sure about the design and yet the designer is saying he has not been approached yet. There is quite a time lapse between the middle of July and now. I am just wondering what your thoughts are along those lines?

MS. BUTLER: Along specifically . . .

MR. TAYLOR: We have the designer saying he has not been approached. We have the corporation saying that the casino is not being built because they are rethinking the design. So the question is what is the corporation saying today regarding the halt, if you will, or the delay in building the new casino?

[Page 29]

MS. BUTLER: I guess I can only speak for myself.


MS. BUTLER: And, frankly, I do not accept the reasons that Sheraton have provided and we will just have to wait and see what takes place.

MR. TAYLOR: Thank you.


MR. ERNEST FAGE: Ms. Butler, welcome. Good morning. I am not a lawyer . .

MS. BUTLER: Nor am I, so we are equal here.

MR. FAGE: I am not an accountant either, so the questions will tend to be a little more free-ranging. Through the entire analysis of what has taken place regarding Sheraton Hotels, the construction of the casino, Mr. Fiske's testimony, it appears to me that there are a couple of major themes here. One of them is, who is responsible to protect the interests of Nova Scotians in regard to construction of the permanent casino and the operation of the temporary and permanent casino? Throughout this testimony, we have had various lawyers who have given testimony, we have had former Premier Savage, two Ministers of the Crown who were Finance Ministers, as well as a number of officials from the Gaming Corporation involved.

The root of Mr. Fiske's contention, in my mind, was that the Nova Scotia Gaming Corporation was appointed to negotiate on behalf of the Province of Nova Scotia to protect the interests of Nova Scotians in the construction of that casino. We have had various testimony which appears to directly lead to the Premier's Office, the minister's office, even your material here showing Mr. Boudreau, the Finance Minister making an announcement about a six-month extension even before your board had met. The testimony upholds that.

I think that is the real question, who was in charge? Was the Gaming Corporation truly in charge of negotiating the Sheraton deal?

MS. BUTLER: I think I have made it very clear in my statement that at the time that the arbitration was adjourned, it was our corporation's counsel taking instructions from myself, Ms. Gordon and Mr. Fiske, with respect to the negotiations. So it is very clear in my mind who was running the operation at that point in time.

MR. FAGE: In your testimony then - clearly legal counsel representing other interested parties in this negotiation are taking part in decisions, sometimes informing the board and sometimes not - throughout your own deposition this morning, it indicates that

[Page 30]

there is whole host of groups that are providing input into that decision-making, rather than just the board.

MS. BUTLER: All that I am aware of is that - if you are referring to Mr. MacKeigan - Mr. MacKeigan was acting as a facilitator, and our counsel, Mr. Merrick and Mr. [Carl] Holm were the only counsel that were dealing directly with Sheraton's counsel.

MR. FAGE: In your opinion, should the Nova Scotia Gaming Corporation be the sole agent to protect the interests of Nova Scotians and negotiate with any casino operation, Sheraton or regardless, is that the mandate?

MS. BUTLER: Yes. It is our mandate to protect the business interests, to conduct and manage gaming in Nova Scotia. However, the only exception to that is in the sense that we do have to have any, if we were to undertake a new form of gaming in Nova Scotia and have a new contract, we would have to get it ultimately approved by the Governor in Council.

MR. FAGE: Okay. Second subsequent question that concerns me is dealing with the list of errors. In Mr. Fiske's testimony, he referred to a list of errors or inconsistencies. Can you detail that list of errors that he would have been talking about where accounting procedures, there may have been a mistake or misappropriation?

MS. BUTLER: I believe you are referring to a list which he refers to as a Kim Bustin list, who was a chartered accountant at the time. I don't have the list in front of me, but I would be happy to go through it for you, and . . .

MR. FAGE: Could they be provided at a later date then?

MS. BUTLER: Actually, it has been provided to the committee as part of our delivery under the Audit Committee, Minutes and Documents.

MR. FAGE: I guess the reason I asked that question, I was referring to it, I felt there would be more detail involved regarding some comments regarding the Sheraton as a hotel and the Gaming Corporation that would clearly indicate that any innuendo that funds may have been showing up on the hotel accommodation or restaurant side where they would have been more appropriately accommodated on the gaming side to make sure that there was none of those improprieties happening. That was the reason I would ask that question.

[11:30 a.m.]

MS. BUTLER: If you are referring to what we in the accounting world refer to as related party transactions, these issues were raised with the operator and form part of our list of issues in dispute, which were settled. By way of comment, since we have dealt directly with

[Page 31]

the operator on these issues, they have totally revamped their operations to basically eliminate any related party transactions.

MR. FAGE: All those transactions would have been reallocated to their proper avenue, if there was a problem then? Because I think beyond the parameter of losses to Nova Scotia, as pointed out by my colleague, Mr. Taylor, I think of the tax implication of the appropriation, whether it was gaming taxes, provincially and possibly federally, if funds happen to be, by mistake, misappropriated. Obviously, there is probably some tax implications that have to be protected for Nova Scotians as well as all Canadians, possibly, here. That is another concern, a deal that was cut that washes the slate clean and prevented the arbitration still may have implications where the taxpayer did not receive revenue due to them.

MS. BUTLER: I am not a tax accountant, first of all. I wouldn't begin to even attempt to talk about the tax consequences of the hotel and casino. However, what I can tell you is that I did prepare substantial analysis for the board. When we were attempting to get approval back, I believe, in August and September 1996 as to our negotiating parameters with the board when we were first of all moving forward to discuss the various issues with Mr. Thomas and Mr. Robertson, when I did prepare the analysis related to many of those transactions, it was very clear, they were revenue-neutral to the corporation.

MR. FAGE: My question in asking that, that definitely had to be an implication, obviously the tax implication, of appropriation of funds would have come under scrutiny at some point, and would have been the protection of the Nova Scotia taxpayer.

Subsequent question to that, regarding the accommodation of Sheraton Hotel, as some people have said, did revenues on the accommodation side of the business, I am not looking for specific figures, rise dramatically once the casino was in operation versus before the operation of the casino?

MS. BUTLER: I can't answer that question for you today, but I would be happy to try and get an answer for you.

MR. FAGE: One last question, in regards to the construction of the hotel, correct me if I am wrong, again I am not a lawyer or an accountant, but it appeared, when the casino deal was originally signed, the construction of the casino was guaranteed. The arbitration, the negotiations were more about two specific things, in my mind, and that was a possible date when it would be built and the design or size, however you want to say it, the appropriate design and time-frame when the casino would be built. Is that properly putting the arbitration in context?

[Page 32]

MS. BUTLER: No, because the dispute at hand was, the Sheraton had submitted documents April 30, 1996, and we had sought not only legal but construction assistance, and we were certainly of the view that the documents did not comply with the requirements of the contract. That was the dispute that was being brought forward before the arbitrator.

MR. FAGE: But the original deal said that if you wanted to be the successful bidder to run the casinos in Nova Scotia, you had to build a permanent casino in Halifax.

MS. BUTLER: I certainly don't disagree with that, that is what the contract contemplated that the Sheraton was required to build the permanent casino. But we were debating as to the adequacy of the casino design documents.

MR. FAGE: So then in essence, it was the design of the casino and when the casino would be built, whether it required one six month extension, two, three or four. That is what the arbitration really, in essence, was about, because you said design is what you were negotiating and that is . . .

MS. BUTLER: No, we were not negotiating the design, we were attempting to clear the debate which was whether the documents they had provided to us were consistent with the contract and whether they were adequate to move on in terms of the project. So, we weren't deviating from the contract, we were just trying to have an arbitrator determine who was right and who was wrong.

MR. FAGE: Thank you very much, Ms. Butler. My colleague, Jamie Muir.

MR. CHAIRMAN: Thank you. One minute, Mr. Muir.

MR. JAMES MUIR: Thank you, Mr. Chairman, and a quick question for you, Ms. Butler; I will get back with others. I noticed that when you were employed by the corporation you were Director of Finance.


MR. MUIR: At what point did you become Vice-President of Finance and Administration? How long?

MS. BUTLER: I can't recall but I can find out and get back to you.

MR. MUIR: Did your role change dramatically when you became Vice-President of Finance and Administration? I guess my point is, as Director of Finance there may have been certain things that were going on that you may not have known but when you became the Vice-President of Finance and Administration, simply by changing the role, that you would see things that you were not in a position to see before?

[Page 33]

MS. BUTLER: No, I think I could characterize that when I joined the corporation, I was the only financial person employed. So, I think the list of my responsibilities that I had to undertake in the first six months demonstrate that it was really too much for just one financial person. So, although the titles changed, I mean as we moved down the road, our responsibilities were building as we became more familiar, really, with what our corporate mandate was and our operators, including as well the Atlantic Lottery Corporation. That is an organization that a lot of people don't tend to focus on when they talk about the corporation and there was much work to be done there as well, which continues.

MR. CHAIRMAN: The questioning moves to the Liberal caucus. There will be a short second round. Mr. Fraser.

MR. HYLAND FRASER: Thank you, Mr. Chairman, and thank you, Ms. Butler. I guess my first is a comment in today's Daily News, which I can table, Mr. Chairman, if you wish. Parker Barss Donham indicates that the hearings reach a climax today, and perhaps that's a good thing and we can move on to other things. But based on the comprehensive testimony of Ms. Butler, I presume that we will.

In this article, "Still employed by the Gaming Corporation, she must be . . .", referring to Ms. Butler, ". . . under incredible pressure to toe the government line.". I wonder what your comment is on that and do you feel threatened or are you expecting to be reprimanded or anything based on your testimony today?

MS. BUTLER: I don't feel threatened at all; in fact, I am very happy to be here because I want to put this whole matter behind us because we have a lot of business to attend to, so I am quite pleased to be here to answer whatever questions the committee might have.

MR. FRASER: Thank you. On the casino deal, what does the province get from this deal?

MS. BUTLER: Right now, according to the terms of the contract, we are guaranteed $25 million per year for the first four years, up to and including July 1999. So that is under the operating contract.

MR. FRASER: How much has the province spent?

MS. BUTLER: With regard to the . . .

MR. FRASER: To getting this $25 million a year; $100 million.

MS. BUTLER: I guess I wouldn't be the right person to ask because I was not involved with the proposal process. So I wouldn't be familiar with the cost in terms of running the proposal.

[Page 34]

MR. FRASER: But it would be minimal versus the reward of $100 million?

MS. BUTLER: Certainly.

MR. FRASER: What is your relationship with Dara Gordon?

MS. BUTLER: Dara Gordon and I work very closely together. We share responsibilities at the corporation and I must say I have a great deal of respect for Dara. She has been just wonderful to have on board at the corporation, because we have actually been able to start to get a lot of things that were unattended to during the summer of 1997 up and running. So I have just the greatest praise for Ms. Gordon.

MR. FRASER: Mr. Fiske has stated that Ms. Gordon should be removed because she is, "not independent in any way, shape or form". Do you have any comment on that?

MS. BUTLER: I totally disagree with that comment.

MR. FRASER: Thank you. I will pass it on to my colleague, Mr. Samson.

MR. CHAIRMAN: Mr. Samson.

MR. SAMSON: Thank you, Mr. Chairman. I just want to start off by saying that following the testimony we have heard, this whole issue here has been nothing but an obsession by the NDP, what we here, as government members, like to call Dextergate. Every attempt to make this into a great conspiracy has failed. Now, Ms. Butler has appeared today before us as an employee of the Gaming Corporation and has been asked to testify on her employment as an employee of the Gaming Corporation. She obviously has not been the star witness that Mr. Fiske or Parker Barss Donham or Mr. Dexter expected, yet Mr. Dexter saw fit to question and interrogate Ms. Butler on who typed this document, her presentation - which I might say is 21 pages, in which she answered all of Mr. MacIntosh's questions - who copied it and who bound it.

I think those were nothing but cheap questions and on behalf of the government members, I want to apologize to Ms. Butler for this most deplorable behaviour by Mr. Dexter and I want to thank her for her presentation today, which I am sure was very difficult in preparing, and appearing before us today has not been a simple thing to do.

Ms. Butler, during your employment as VP of Finance, as to the relationship with Sheraton, you and your staff had indicated a number of accounting discrepancies that Sheraton was employing and questioned them. Were any of these discrepancies serious enough to be brought to the attention of the Alcohol and Gaming Authority?


[Page 35]

MR. SAMSON: Now, the Alcohol and Gaming Authority is the actual regulator of the casinos. Has the Gaming Corporation at any time reported any violations by the Sheraton to the regulator?

MS. BUTLER: According to the Gaming Control Act, we are required to report any irregularities, any fraud, any cheat-at-play incidents, so we do on occasion report to the authority as well as our minister; that is a requirement of the Act.

MR. SAMSON: Do you recall any type of violations, that you remember, that were reported to the authority?


MR. SAMSON: What type of violations would that be?

MS. BUTLER: Sometimes players will cap bets at the casino or, possibly, there was an incident, I believe, down in Sydney where there was collusion amongst employees and a player that came in, so, different incidents like that. We are also under the same obligation for Atlantic Lottery Corporation as well. So, at times we also report when people attempt to cash forged tickets, they think they have won their dream but they haven't. So those are the types of matters that we have to advance to the authority.

MR. SAMSON: From your testimony today it appears that you have been quite diligent in monitoring the financial dealings with Sheraton while Mr. Fiske was employed as the chairman. Has that continued since Mr. Fiske has departed or have you loosened up your investigation into Sheraton's dealings?

MS. BUTLER: Not at all. We take our responsibilities very seriously, not only, as I say, for the casino activities but, as well, the Atlantic Lottery Corporation because we are one of four shareholders in that corporation and our diligence with regard to that corporation is just as high. So we certainly haven't changed our routine at all.

MR. SAMSON: Now, in your experience, do you feel confident that you and your staff at the Gaming Corporation are capable of continuing this financial watchdog role over Sheraton and the casinos?

MS. BUTLER: I guess we like to characterize it more as monitoring. We look at the regulator, really, as being the watchdog. So we would not envision changing what we are doing in regard to the casinos and/or the lottery.

MR. SAMSON: Ms. Butler, do you feel that you are out of your league in your dealings with the Sheraton Casino, either yourself or your staff, that they are just way out there and we can't even keep control on what they are doing?

[Page 36]

MS. BUTLER: Not at all. I believe that our board, with Ms. Gordon as leader of our organization, and with our counsel that we very much have everything well in hand.

MR. SAMSON: Now, Ms. Butler, there has been a lot of attention in the media recently concerning the regulations that were approved by Cabinet for the casino. Mainly, number one, the extended operating hours; number two, providing credit for out-of-province players; and, number three, providing complimentary alcohol in the confines of the high-limit room.

Ms. Butler, I would refer you to Tab number two of your presentation, to the memorandum dated March 18, 1996, to the Honourable Bernie Boudreau, Minister of Finance, from Ralph Fiske, chair. Are you aware that it was Mr. Fiske who prepared this memo?

MS. BUTLER: I do not know who prepared it because I was out of the office at the time. So I cannot tell you who prepared it, but he signed it, so therefore, . . .

MR. SAMSON: So what we see next to Mr. Fiske's name, there are initials there. From your experience would that represent Mr. Fiske's initials?


MR. SAMSON: I would point your attention to the last paragraph of that memorandum and I am going to read a few excerpts out of that. The last paragraph:

"In order for the Casinos in Nova Scotia to achieve World Class status, Sheraton Casinos, Nova Scotia believe that some changes to Regulations are required.". Further down, "The changes would basically allow for the construction of a high stakes area in the Halifax Casino on the waterfront. This area would be separated from the main Casino by partitions. The doorway would be open so that anyone could enter, however, a security person would be stationed there to give it the appearance of an exclusive area.". Further, "This area could be frequented by sophisticated Nova Scotia players or the sophisticated out of jurisdiction players that we are trying to attract. In that room Sheraton Casinos Nova Scotia would like to be able to serve complimentary alcohol at their discretion, as has been pointed out, the type of player that would be playing high stakes games is not going to abuse this privilege.".

The next paragraph, "As well, to attract the out of province premium player the Sheraton Casinos Nova Scotia feel that they need the ability to grant credit to persons with out of province identification only.". Further on, "The provision of credit to out of province players would allow for a more orderly flow of these funds and increase the ability to attract the premium player.".

[Page 37]

Then the last one I am going to read, "These two changes are designed to help our casino become a World Class facility and attract the premium player. These have been submitted to the Board of the Corporation and have been approved by them. We believe that they will not impact the vast majority of Nova Scotians. Sheraton Casinos Nova Scotia has not asked for, nor does it want, the ability to provide complimentary liquor to the vast majority of the gaming public, nor provide credit to any Nova Scotians. We believe that these changes will enhance the World Wide image of our Casinos.".

Based on what I have read there of this memo dated March 18, 1996, from Mr. Fiske and the subsequent regulations that were passed this week, do these appear to be the same regulations that Mr. Fiske was seeking change on March 18, 1996?

MS. BUTLER: I would say yes.

MR. SAMSON: Thank you very much.

MR. CHAIRMAN: Mr. MacKinnon.

HON. RUSSELL MACKINNON: Ms. Butler, did the Auditor General ever conduct an audit of the Gaming Corporation?

MS. BUTLER: Actually the Auditor General is our external auditor so they do conduct an audit on an annual basis.

MR. MACKINNON: And what did the last audit reveal? What type of an assessment did the Auditor General provide?

MS. BUTLER: Actually our audit report - I have our annual report here with me - and the Auditor General gave us an audit opinion on our financial statements. I do not think you would want me to read it aloud because it is only things that auditors get excited about, but . . .

MR. MACKINNON: If you could put it in layman's terms. Did he give you a clean bill of health, did he recommend you go to the doctor, or what is the situation over there?

MS. BUTLER: There was a clean bill of health with the exception of just an issue over the accounting for what we refer to as mandatory deferrals which, in the initial year of actually putting our financial statements together, the Auditor General and the corporation disagreed with just the accounting for mandatory deferrals. So it is just sort of a carry-over of that particular issue, but it is just a standard way of reporting it.

MR. MACKINNON: Was it a cut and concentrate audit? Was it just a cursory type?

[Page 38]

MS. BUTLER: It is your standard audit of financial statements to ensure that they comply with generally accepted accounting principles and are fairly represented.

MR. MACKINNON: So from an accountability point of view, the Auditor General is satisfied with the activities at the Gaming Corporation?


MR. MACKINNON: Thank you.

MR. CHAIRMAN: Do you have further questions? Okay, thank you. Ms. Butler, we are going to do a second round of questions now. We had originally scheduled you to go perhaps to 11:30 a.m. but because of the length of the original statement, and I think our secretary has been in touch with you about this, perhaps I will start off , if I may, on this.

MR. SAMSON: Mr. Chairman, before you . . .

MR. CHAIRMAN: Mr. Samson.

MR. SAMSON: . . . you continue, this is something that has happened week after week and I want to bring it to your attention. As chairman you are still a member of the NDP caucus and as that, in order to have fairness here, any time allotted for a caucus, your time and your questions should be deducted from your caucus' time.

MR. CHAIRMAN: Absolutely.

MR. SAMSON: In the last number of weeks what you have done is asked your set of questions and once you were done, then gave the time to your caucus that we had been given ourselves, and I would suggest to you that, in the future, any time allotment that you take as the chairman, you are a member of the NDP caucus, and that that time be deducted from your other members.

MR. CHAIRMAN: Your statement is not accurate, Mr. Samson, in that I did not add on any time to the caucus' questioning, but it has always been the tradition here that, indeed, when the Chairman asks questions as a member of caucus, that that time is part of the caucus' time. I recognize that.

Ms. Butler, the evidence you gave us today contains information that I find particularly interesting with respect to one point, and I have to say with one point only, but it is the focus of a great deal of the interest to this committee and to help you with my question, I am referring to Pages 10 and 14 of your statement to us today. What emerges from that is that on August 19 and August 28, 1997, you did a more sophisticated and detailed calculation of the costs to the Gaming Corporation and the public of what the

[Page 39]

settlement entailed. It was the belief of yourself, and I gather of all parties - that is, all parties on the government side - that the cost of the settlement was in the range of $27 million. Isn't that correct?

MS. BUTLER: As I explained earlier this morning when we spoke, the board had raised the question as to the impact of the extension of the completion date. In that particular meeting I just referred to the conceptual costs of the amortization of the permanent casino which was $1.9 million. The agreement had already been reached. The board had approved it but we were just talking at a conceptual level.

MR. CHAIRMAN: But that is the belief of yourself at the time, that is in May 1997?

MS. BUTLER: I would have to go back to the minutes to see exactly.

MR. CHAIRMAN: That is what the minutes say. The minutes say that and your statement says that it was your belief in May 1997 that that was the cost. Are you trying to tell us differently?

MS. BUTLER: I am saying that that was a rough estimate, yes.

MR. CHAIRMAN: Regardless of whether it was rough, it was the only information that you had, is that not right?

MS. BUTLER: An incorrect rough estimate.

MR. CHAIRMAN: You have made the point that it is incorrect, but it is the information that you had at the time?

MS. BUTLER: That was the discussion.

MR. CHAIRMAN: It is a question of your belief at the time and did you have a different belief at the time, you are not telling us that, the time being May 1997?

MS. BUTLER: It was simply taking $1.9 million and multiplying it, first of all, by the first six month extension . . .

MR. CHAIRMAN: I understand how it was arrived at.

MS. BUTLER: . . . that had been granted without the board having the opportunity to consider whether compensation was going to be requested of Sheraton.

MR. CHAIRMAN: But in May 1997, when the board agreed to the proposed terms of settlement, that was the belief of yourself as to the consequences, is that right?

[Page 40]

MS. BUTLER: That was the rough estimate taking the six months and the other delay, yes.

MR. CHAIRMAN: And that was also Mr. Fiske's belief?


MR. CHAIRMAN: And Ms. Gordon's?

MS. BUTLER: I cannot speak for Ms. Gordon.

MR. CHAIRMAN: Well, the board as a whole?

MS. BUTLER: I cannot speak for the board.

MR. CHAIRMAN: Did they have any other information, any differing information in front of them?


MR. CHAIRMAN: What about Mr. Merrick, did he have any differing information in front of him that you are aware of?

MS. BUTLER: I am not aware of what Mr. Merrick had.

MR. CHAIRMAN: Until you did your calculation in August 1997, no one had an idea that it was different than $27 million, isn't that really what emerges from what you are telling us?

MS. BUTLER: I think that the $27 million, it includes the first six month extension, I just think that there were erroneous assumptions, the way that that number had been calculated.

MR. CHAIRMAN: You have already told us several times, you think it is erroneous. The point is, you didn't discover that it was erroneous until August 1997, isn't that correct?

MS. BUTLER: I was very pleased that Mr. McAloney had called me up and requested additional analysis, yes.

MR. CHAIRMAN: But you discovered it when you did your calculations later in August 1977.

MS. BUTLER: Correct.

[Page 41]

MR. CHAIRMAN: So there is no way that anyone else would be in a position to have a different figure in front of them before that. Is that correct?

MS. BUTLER: I had not provided the detailed analysis to the board, yes.

MR. CHAIRMAN: Good. Thank you. Rosemary.


MR. FAGE: Mr. Chairman, if I may interrupt, if we had five minutes, your five minutes are up. We recorded at 11:51 a.m. that you began, I think it moves to us directly, if we are doing five minute shifts.

MR. CHAIRMAN: In fact, I was proposing that we do as we have done before, follow up with a supplementary 10 minute shift. You will get 10 minutes.

MR. FAGE: Fine. That is great then.

MS. GODIN: Mr. Chairman, if I can just say that free booze and non-stop gambling sounds very good to Mr. Samson and his Party, but I will remind him that the majority of Nova Scotians never wanted gambling in Nova Scotia in the first place. These profits are coming from the people who can least afford them. It is not just the NDP that wants answers to some very serious problems, and I hope that Mr. Samson remembers that.

Ms. Butler, the errors list. Does such a list exist?


MS. GODIN: Do we have a copy of it?

MS. BUTLER: Yes. It was provided when we delivered the audit committee package.

MS. GODIN: Mr. Fiske characterized those errors as perhaps a deliberate attempt by the operators to see what they could get away with. Is that your interpretation?


MS. GODIN: You think they were really errors?

MS. BUTLER: I think you would have to look at each and every one of them, but in many cases, it was a difference in interpretation of the operating contract.

[Page 42]

MS. GODIN: The Gaming Control Act requires the operators to provide the corporation with reports, accounts, records and other documents in respect to the operation of the casino. Mr. Fiske said that there were, if not refusals, there were real delays. Has that been your experience?


MS. GODIN: Mr. Fiske has a lot of good things to say about your diligence but he also says that somebody, I think he even says it was the operators, Sheraton, wanted you fired. You say today that their aggressiveness in that way was ". . . nothing more than posturing by a party to the contract, a business reality.". Don't you think that is a little more than posturing?

MS. BUTLER: No, because I believe that when I arrived at the corporation, it had been a very informal relationship, and suddenly I was asking for a lot of information, and it became very much formalized.

MS. GODIN: I have to ask you something that Mr. Fage started with, and that is, who is running the show? Who calls the shots, now? Who is calling the shots here in this operation?

MS. BUTLER: I report to the board. The board makes the decisions.

MS. GODIN: You say the board is making all the decisions about the operation of the casino?

MS. BUTLER: Well, about the operating of the casino?

MS. GODIN: Yes, the operating of the casino and the events that are happening, going on these days, or not going on these days?

MS. BUTLER: The board is responsible.

MS. GODIN: Okay. Thank you.

MR. CHAIRMAN: Thank you. Mr. Muir.

MR. MUIR: Hello again. I had begun, when I asked earlier about your emerging role in the corporation; now that you are Vice-President of Finance and Administration, are you a formal member of the board?


[Page 43]

[12:00 p.m.]

MR. MUIR: I would like to return for a minute, it is a statement that Mr. Fiske made in his testimony, and I am going to read it to you. "We were also accused of micro-managing. That as well was a fabrication designed to discourage us from examining books and records that would disclose inappropriate allocation of revenue and expenses not authorized by the original operating agreement. Purported mistakes, ranging from $4.00 to $450,000 to $5.1 million are just a few examples, caught only through our vigilance, and when we uncovered such concerns, the Sheraton general manager had the audacity to suggest that I fire extraordinarily competent and inquisitive Sheila Butler.".

Not the last part, but the initial part of the statement there from Mr. Fiske, did you feel there were games going on?


MR. MUIR: What would be your explanation for these purported mistakes or is this accurate, what Mr. Fiske says?

MS. BUTLER: I guess I would highlight two of those errors to maybe explain my position. One of the errors was for $5 million, which was something that we brought to the Sheraton's attention in July 1996. They were interpreting the operating contract as it related to the amortization of capital costs differently than the way we saw the contract. When we brought it to their attention, they actually went through and made the adjustments, which would be quite time consuming, because you had to work from June 1995 onwards, and agreed, and presented new financial statements. That was the $5 million error.

One was for around $450,000 to $500,000, and that represented rent which had been double-charged in Sydney, because a prepayment had been included as part of the construction costs in error, and as well, they were expensing it on a monthly basis. This error was brought to the attention of myself by Mr. Robertson. In that case, Sheraton raised it with us. We discussed how we would resolve the error, and came to an agreement, and they reissued financial statements. I believe that was in, I think, February 1997.

MR. MUIR: Thank you. The errors list which has been referred to, you indicated this morning that you didn't compile that errors list.


MR. MUIR: Was it compiled from information that you did provide?

[Page 44]

MS. BUTLER: In some cases, if I had been involved in the particular issue, then yes, but at the time, we had another chartered accountant with us, Ms. Bustin, who was responsible for really providing me assistance, so in some cases, it was items that had come to her attention during her reviews, and in other cases, it was items that I had been involved with when I initially joined the corporation, and it was sort of only me dealing with the financial matters.

MR. MUIR: I guess one last question from me, and this goes back to a statement you made on Page 2 of your opening statement in which you indicated that when the Gaming Corporation became involved with the Sheraton Casino Group, it was a long time before there was really any examination by auditors or persons like yourself of the books. This seems to me, if this is the case, there was really something amiss when the agreement, the arrangement with the Sheraton began. Do I read that correctly?

MS. BUTLER: Well, I guess from my perspective when I arrived, dealing with multimillion dollar businesses in terms of both the casino and the lottery, I would have anticipated that the appropriate amount of staff would have been hired, and that these staff members would have already undertaken a review of the contracts to determine what was necessary. In fact, when I made my initial review, there were certain issues that came to my attention that I believe if the proper professionals had been in place from day one, we probably would have resolved a lot of the matters well in advance, and it would have made it a lot less difficult.

MR. MUIR: I think that is correct, and it was typical perhaps of that government in those days that they did a lot of things and really didn't do much planning about it. This seems to be to me another example of it.

MR. CHAIRMAN: Mr. Taylor.

MR. TAYLOR: Again, I want to go back to the original errors list. I would like the name of the author who compiled that original errors list. I think you did indicate earlier, did you not, that that was a clerk with the corporation who used information that was essentially worked up by yourself and others.

MS. BUTLER: It wasn't a clerk, it was a chartered accountant, Ms. Bustin.

MR. TAYLOR: You indicated that your focus during the months of July and August last year was working with legal counsel on the final form of the minutes of settlement, which in your mind was taking far too much time to achieve. My concern is, subsequent to reading that and listening to you make the presentation this morning, that because the terms of settlement, back in May of the same year, essentially was predicated on the original errors list that you and legal counsel, or at least legal counsel - perhaps including your attorney who is with you this morning - were trying to put the appropriate spin, if you will, on the $27 million

[Page 45]

that was lost to the taxpayers of Nova Scotia and that is why, in fact, in your mind it took too long?

MS. BUTLER: There is no spin this morning. I come today to the committee to speak of the knowledge that I have and in terms of the terms of settlement when I talk about the lengthy process, I had been directed by the board to ensure the language was appropriate with the terms of settlement. So, I debated quite often with our counsel as to the use of one word or another or a particular phrase.

MR. TAYLOR: Two months.

MS. BUTLER: It was over a period of time.


MR. FAGE: Mr. Chairman, we are getting down to two and one-half minutes left, Ms. Butler, so I will go right specifically to Tab 4, second insert, the title is Sheraton Casino Halifax. Do you believe those figures are realistic between 1997-98 fiscal year projections on income and 1998-99, where income goes from $40.5 million to $120.75 million, because the construction of the casino would cause that type of influx of high rollers into Nova Scotia?

MS. BUTLER: Well, that was precisely why the board, at the August 19, 1997 meeting, suggested that the analysis we had prepared was flawed, because the analysis had been prepared based upon the Green Books, so the 1998 through the year 2000 was based upon the original projections of Sheraton. So, the revenue assumptions, obviously, drive a lot of the calculations and will drive the revenue. So they had asked us at that point in time to go back and redo the detailed projections at various levels- of revenue so that they could see the impact, what happened in terms of the income guarantee. Sure enough, I mean, it certainly demonstrated that there was not an impact on the income guarantee.

MR. FAGE: Well, I think from just what you have told me and what these numbers clearly demonstrate to me and probably to most Nova Scotians is that this government's - which is in control of this through the Premier's Office rather than the Minister of Finance - sole goal is to build a casino at any cost or at any consequences. We are seeing it today. This week alone we have seen we have free booze for high rollers, we have extended hours, everything that the Sheraton has asked has been given to them. The Premier this week has threatened at the end of the month if they don't come across with this new casino, and it clearly comes back to these figures indicating that it was a casino at any cost, what is he going to threaten them with next month, to give them $97 million to build the casino? Is that going to be the threat next month?

[Page 46]

I think it is clearly evident with these figures that a casino at any cost or any consequences was what was driving this entire process. To me it is just not acceptable that the Nova Scotia Gaming Corporation has been used as a vehicle to further that process rather than looking out for the financial good and protection of Nova Scotians which I feel it was designed for, come back to the clear fact that the casino construction was guaranteed in the contract if you were the successful bidder. We have gone through this entire process, Mr. Chairman, to arrive at the same port we started at and that is to build the casino at any consequences or cost. Thank you.

MR. CHAIRMAN: Back to the Liberal caucus, Mr. Samson has a question.

MR. SAMSON: Mr. Chairman, just following up on Mr. Fage's comments, it has to be remembered that as I pointed out in my line of questioning, the memo of March 18, 1996, signed by Mr. Fiske on behalf of the board, the regulations passed this week were recommended by Mr. Ralph Fiske on March 18, 1996. Now, this is not something that has happened recently, that has come up out of the blue, that Sheraton said, give us this or we won't build, this was on the table two years ago. So, this is nothing new and we have to keep that in mind. This was something that Mr. Fiske suggested and these are the exact regulations that were made.

Now, Ms. Butler, we received a letter on September 17, 1998, to Mr. Chairman from Mr. MacIntosh. On Page 4, "There has been a concerted attempt to mis-state this issue before your Committee. Repeatedly the issue has been identified as the eventual cost to taxpayers. Mr. Fiske suggests that is not the issue . . . that is not Mr. Fiske's role, nor should it be necessary for your Committee to engage in such distracting pursuits.". Mr. Chairman, I submit to you that the Public Accounts Committee is here to investigate the Public Accounts of the province and this is the issue that we are here to deal with.

Now, Ms. Butler, when Mr. Fiske appeared before us back in June, he claimed that the Nova Scotia Gaming Corporation, which you are an employee of, and the government of the day signed a deal with Sheraton which cost the people of Nova Scotia $27 million. Now, Ms. Butler, I ask you, when you go to bed at night, as a professional accountant, do you do so knowing that you cost the people of Nova Scotia $27 million?

MS. BUTLER: No, I mean, that is totally inaccurate. As I have indicated, and the projections within the tabs demonstrate, it is false.

MR. CHAIRMAN: Mr. MacKinnon.

MR. MACKINNON: Just one follow-up to that as well. Through your presentation, Ms. Butler, I understand that the initial contact between the Gaming Corporation and the Premier's Office was actually initiated by Mr. Fiske.

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MS. BUTLER: That is correct.

MR. MACKINNON: So, it wasn't the Premier's Office coming in and meddling in the corporation's affairs, it was essentially the chairman of the corporation going to the Premier's Office.

MS. BUTLER: That is right. We were actually at the Barrington Inn, and Sheraton's counsel had indicated that they did not want to deal with Mr. Fiske and wanted to deal only with Ms. Gordon, so we made a phone call to Mr. MacKay.

MR. MACKINNON: Now, Mr. Fiske, as I understand, finished his employment with the corporation September 1997, is that correct?

MS. BUTLER: Correct.

MR. MACKINNON: Did you ever speak with Mr. Fiske, since that date?

MS. BUTLER: Actually, Mr. Fiske called me in December 1997 at the office.

MR. MACKINNON: What was the purpose of that call?

MS. BUTLER: He requested that I provide to him the list of errors which other members have been discussing, I responded to Mr. Fiske that I couldn't do that. "I have an oath of secrecy and you know I can't provide that to you, Mr. Fiske.". Mr. Fiske, unfortunately, said to me, "Well, no one would have to know." Anyhow . . .

MR. MACKINNON: Excuse me, if I could Ms. Butler, I am a layperson here. You are suggesting to the committee, to the people of Nova Scotia that Mr. Fiske called you after he left the corporation asking you to supply him with some confidential documents.


MR. MACKINNON: For what purpose?

MS. BUTLER: He wanted copies of them. I made it clear to him that I would know and that I had an oath of secrecy and that I could not give him the documents but I was very disappointed that he would try and have me compromise my integrity.

MR. MACKINNON: But why did he want the documents?

MS. BUTLER: Well, he had a need, I guess, for the documents.

MR. MACKINNON: Okay. Thank you.

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MR. CHAIRMAN: It doesn't seem that there are any further questions. Ms. Butler, thank you very much. You are excused as a witness, thank you.

MS. BUTLER: Thank you very much.

MR. CHAIRMAN: The committee has on its agenda an attempt now to see if we can come to grips with how we intend to proceed. Mr. Dexter.

MR. DEXTER: I would like to move that for the next meeting of the Public Accounts Committee that we call before the committee, Premier Russell MacLellan. This is to give - as Mr. Samson has pointed out time and time again - an opportunity for all the people who have been named in one way or another in this procedure to respond to the committee and to the questions of the committee. I know that Mr. Samson has said that they want everything to come out, and I think that since it was Premier MacLellan who was in kind of at the end of this, this will, I think, move the matter on to a conclusion. That would be my motion.

MR. CHAIRMAN: Probably your motion just anticipated what Mr. Samson was going to say to us in his own suggestion.

MR. DEXTER: I would expect.

MR. CHAIRMAN: Mr. Fage, I see, is indicating his hand.

MR. FAGE: I really don't feel that it is sufficient. I would move that we have time appropriated next week for two witnesses, one of them being Premier Russell MacLellan and the other the Finance Minister who is directly in charge of the Gaming Corporation and who is answerable to that group. I think it would be highly improper just to have the Premier there. Let's finish it up properly and let's have both the Finance Minister, the Honourable Donald Downe, as well as Premier Russell MacLellan. That is what I would move if we are going to have witnesses in next week.

MR. CHAIRMAN: Mr. Dexter, you had a comment.

MR. DEXTER: If that is the amendment to my motion, I would certainly accept it.

MR. CHAIRMAN: Any other comments?

MR. MACKINNON: Maybe after that we will bring in the cleaning lady. (Interruptions) I mean if there is merit to it, fine, we support it. Mr. Chairman, I have said that right from day one. But there is a lot of pressing business that is being overlooked because of this obsession and this obsession has produced literally nothing. So I just throw that out so that the people of Nova Scotia will know where we are coming from, where we are going and what we are going to achieve. There are many important issues on the table, but if that

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is the will of the committee, we support it. If there is something substantive to be achieved by it, fine. No one can ever say that we have ever obstructed that process.

MR. CHAIRMAN: Well, it sounds as if it is unanimous then. We will ask the clerk of the committee to attempt to make the arrangements with the witnesses looking towards next week. I guess we stand adjourned for today. Thank you very much.

[The committee adjourned at 12:17 p.m.]