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STANDING COMMITTEE ON PUBLIC ACCOUNTS
Mr. Howard Epstein
DEPUTY CHAIRMAN
MR. CHAIRMAN: Good morning. I would like to call to order this meeting of the Public Accounts Committee. We have two substitute members sitting in today. In the absence of Mr. Fage we have Mr. Michael Baker and in the absence of Mr. Darrell Dexter we have Mr. Kevin Deveaux. Welcome to Mr. Deveaux and welcome to Mr. Baker. The order of business today is to hear, as witnesses, Ms. Dara Gordon and Mr. Carl Holm.
Before I proceed to swear in the witnesses, I would like to remind everyone, as I have done at a few of our previous meetings, that this Chamber very rapidly becomes warm and I would invite anyone to remove their jackets or make themselves comfortable in their attire if that suits them, and to do so at any time during the proceedings.
Let me also say, with respect to clarifying the position of the witnesses and their documents, we, as usual, have requested and required the witnesses to appear before us. We have specifically extended to them and to their documents all of the privileges of the House that appertain and it is on that basis that they have supplied documents to the committee for our perusal in advance. Now that they are officially tabled, all of the privileges of the House clearly extend both to the witnesses and to those documents. So if there are any questions from anyone about that, I would be happy to deal with them. Otherwise, I would like to proceed to swear in the witnesses. Are there any questions? No.
Ms. Gordon, do you affirm that the evidence you shall give to the committee, touching on all matters pertaining the Nova Scotia Gaming Corporation shall be the truth, the whole truth and nothing but the truth?
MS. DARA GORDON: I do.
MR. CHAIRMAN: Thank you very much. Mr. [Carl] Holm, would you hold the Bible?
Carl Holm, do you swear that the evidence you shall give to the committee touching on all 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. CARL HOLM: I do.
MR. CHAIRMAN: Thank you very much. It has been the tradition of this committee to invite witnesses to make any opening statement that they wish to give to the committee and then to turn over to the committee the process of asking questions in clarification. Of course, here we have some previous materials that we will have read. I wonder if either of you has any opening statement that you wish to offer to us and, if so, I would encourage you to keep it within the confines of about 15 minutes.
MS. GORDON: Thank you very much, Mr. Chairman. We are pleased to have the opportunity to be here today before the Public Accounts Committee. I did want to take the opportunity to make a brief outline, a response, really, to some questions that may be in the members' minds.
In particular, there are two areas that I would like to take a few moments to deal with. The first deals with the board's decision and my role in the board's deliberations in the period of May through to September 1997. Then I hope to take a few more minutes, maybe a few longer minutes, to explain some aspects of the business deal. For that purpose, we had brought with us this morning an analysis which is really quite extensive. It was prepared by staff at the Gaming Corporation and our advisers. I don't intend to go through the entire thing but there are two or three important sections that I would like to have the opportunity to explain to the members of the committee.
MR. CHAIRMAN: This is a document that has just been tabled with us that is titled Nova Scotia Gaming Corporation Analysis of Costs and Benefits of May 20, 1997 and October 15, 1997 Settlements?
MS. GORDON: That is the one, yes.
As you will know, over the past three years, the corporation and Sheraton have had differences of opinion on business and contract issues. This is not unusual in business, at least not in my experience. However, in our case, by early 1997, the relationship had deteriorated to a point where we found ourselves headed to arbitration on many issues, both construction and financial. The circumstances surrounding the arbitration, the chronology and the detailed
account of events, have been addressed by Mr. [Carl] Holm and he will speak again to them later.
However, when you sort through all the paper and all the evidence, the bottom line, in my view, is that the board made the final decision to settle rather than to arbitrate. They made that decision on May 20, 1997 and all five members voted in favour. Originally, and that would be through 1996 to 1997, the board felt quite strongly that arbitration was the way to resolve the issues that had been building up. This was the approach that management, including Mr. Fiske, had recommended to the board and the board accepted that approach. I was firmly supportive of this approach at that time. I believed it was necessary to clear the air and, as a matter of fact, no progress was being made on direct discussions and something had to change.
However, through March, April and May - this is 1997, now - it was becoming increasingly clear to me that those supporting dealing with the relationship issues through arbitration were becoming few and far between. Ed Harris and Bob Wright, our lawyers until March 1997, seemed to me and to other members of the board, to be encouraging a settlement from almost the outset. Now our new lawyers, bringing a fresh perspective and open minds, first Carl Holm and then subsequently John Merrick, seemed to quickly conclude that the matter should be settled and not arbitrated. Then our shareholder and its legal advisor, Robbie MacKeigan, came to the same conclusion. As well, most of the board had moved to that position by May 20, 1997.
For me, on May 20, 1997, there were still pros and cons to the proposed deal. On an objective or quantitative basis, it made sense and hopefully we will have an opportunity to demonstrate that to you later. However, balanced against this objective criteria was the continued belief by Mr. Fiske that the relationship issues had to be arbitrated and I appreciated his point of view. He was our CEO. He was our top manager. However, the shareholder made its position quite clear and while I didn't, at the time, accept the advice of Mr. Merrick and Mr. [Carl] Holm, they nevertheless gave it. It was their opinion that we had to take the views of our shareholder into account, that they could not be ignored.
When I balanced all of the considerations, particularly the shareholder and its counsel's view, I sided with the majority of the board and I did not support Mr. Fiske's approach any longer. I was unhappy that our view was not shared by the others nor was I happy with the need for the shareholder to become involved but I accepted the board's decision and I wanted to move forward with the settlement and get on with the business of the corporation. I thought Mr. Fiske would as well but it very shortly became clear to me that he would not or could not accept, support or implement the board's decision. As I recall, almost immediately he indicated to me that he would resign. I discouraged him from that course, thinking a period of reflection might reconcile him to the board's directive and not wishing anyone to make decisions hastily.
During this period of late May through early June, the process to finalize the settlement that was agreed on May 20th moved slowly. Mr. Fiske also recognized during this period that there was a change in government coming, a new shareholder, in early July. He felt it was appropriate to keep the corporation's options open and I agreed with him. When the new government took over, Mr. Fiske told me that they were, in fact, opposed to the deal. The shareholder's view had been one of the determining factors in my decision to settle on May 20th. If they were now against the settlement, I believe we had a responsibility to keep our options open.
To me, in any business, to move ahead with a deal that our shareholder was uncomfortable with seemed imprudent and in any case, the Gaming Control Act stated that the changes to the contract could only be made by Cabinet. It seemed to me that we should not finalize the settlement until we were sure that we knew our shareholder would support it.
I want to be clear, other members of the board were not engaged in any second- guessing, this was Mr. Fiske and Dara Gordon. Their position, the other members of the board, was that we had a deal, a good one at that, and Mr. [Carl] Holm, as legal counsel advised that in any event, eventually he did, that that deal we were agreed to, it was legal, it was binding. I was under the impression, at a point in time, that we were not legally bound to the deal.
Thus on September 11th, the proposed settlement was put forward to our minister, with our recommendation, and that went on to Cabinet, Cabinet agreed, and for me, that was the final confirmation required. Those are the facts as I know them as they relate to that period of time.
It was a decision-making process for me that took place over six months. I would say, there was the majority of the board, there was Mr. Fiske, and I was somewhere in the middle. I knew Mr. Fiske felt strongly, but when I looked at the deal on an objective basis, it made sense that we should accept it, with this one caveat and that had to do with the relationship issues. Did they need to be cleared through arbitration? As I have said to you, from my perspective, the overwhelming voice of opinion was that this should be settled and we should get on with business, and indeed, that is what we did.
The only other issue I would like to try to deal with are some aspects of the business deal. For that reason, we have distributed the analysis of costs and benefits which staff and our advisers have prepared over the past week or so. The contracts are complicated as are the minutes of settlement, which are actually attached to the document. So I am afraid the analysis is not as straightforward as we would like, but is as shortened as we felt we could do. It does analyze all aspects of the settlement, but I don't intend to go through the whole analysis.
What I would like to do, if I would be permitted a few more minutes, is to review four key items that I believe have been the subject of a lot of comment and question. They are the rent for the interim premises, the casino design development documents, the completion date, of course, and the so-called $20 million concession.
If I might start with the question of the rent for the interim premises. For that purpose, as for some of these others, a brief review of the implications of the $25 million income guarantee or income assurance, as it is called under the contract, is necessary. The income guarantee is for a four-year term. It started on June 1, 1995 with the opening of the interim casino, and it will end, that is to say the fourth year and final year of the guarantee, as far as we are concerned, will end July 31, 1999. That will be six weeks before completion of the new, permanent casino on September 15, 1999. There is however, a shadow year or fifth year. It is called the clawback year, or at least that is what we have come to call it within the corporation. It extends from August 1, 1999 through to July 31, 2000.
Under that income guarantee, Sheraton is required to make a top-up payment to the corporation in any of the first four years, if our total provincial revenues fall below $25 million. Now there is no guarantee in the fifth or shadow year, all that year does is, if our revenues go above $25 million in that year, the Sheraton gets to be repaid anything they have paid in the earlier four years by way of top-up payments. Inherent in the understanding of the income guarantee is the concept of total provincial revenues, and that consists of three components.
The first is the 20 per cent casino win tax. That is something the province receives directly off the top of the gross revenues of the casino, so it is unaffected by expenses. The second item of importance is what we call technically, the cash available for distribution, but which really is net profit, according to GAAP, adjusted for certain things. I am referring here only to Halifax, and in the case of Halifax, we get 65 per cent of the net profit. There is a third component, and it is a fee that is paid to another party, the Nova Scotia Alcohol and Gaming Authority, and it is $100,000, so it doesn't really factor in to any analysis that we might do.
We had previously prepared and had distributed, including with copies to the members here of the committee, an analysis of rent expense, rent with the materials as released on July 7th. In that illustration, we showed that whether the rent expense was $500,000 as was recommended by our rental or leasing consultant, or whether it was $1.2 million, which was what the Sheraton wished it to be, and said that we had agreed to, or whether it is the $900,000 that the settlement ultimately provided for, made no difference on our revenues as a province, because by increasing the rent expense, that simply reduced our 65 per cent net profit, which simply reduced our total provincial revenue, and caused the Sheraton to dig into its pocket and top us back up to that extent.
That is the basic principle that affects the rent expense, and many other items, in fact, any other item that is deducted from the casino revenues before calculating the Gaming
Corporation's 65 per cent. As I mentioned, that is not just profit, there are other items including amortization of debt and interest.
If I may move now into the analysis, which we have distributed. At Pages 8 and 9, we touch upon the casino design documents.
MR. CHAIRMAN: Sorry, is there a problem? Can I help you?
MS. GORDON: I have just lost my page in my notes.
MR. CHAIRMAN: Okay, you were referring us to Pages 8 and 9 of the document you distributed today.
MS. GORDON: Right. Pages 8 and 9, this is actually the issue that was at the heart of the arbitration. It is the reason that the arbitration was started. The question was whether the casino design documents that were delivered by the Sheraton to us on April 30, 1996, complied with the requirements of the construction contract.
If you turn to Page 9, we have tracked here, a comparison of, where relevant, what our position and that of the Sheraton's was at the mediation in December 1996. We have compared that to the negotiations which occurred in April 1997, to the minutes of settlement as they were agreed on May 20, 1997, to those which were finally signed on October 15, 1997, and we have given an update on the current status.
Although these are not quantitative, measurable, financial benefits, I wanted to draw your attention to these, because these are very important improvements to the contract insofar as the Gaming Corporation is concerned. These amendments, and I will focus on the column that deals with October 15th, provided, firstly, that we would approve the documents that had been given to us on April 30, 1996. However, we would approve them only with the right to discuss amendments in the period May 31st to June 30th, which, in fact, occurred and which gave rise to the country club design concept. That has been approved by the corporation.
We also got the right - and before then we did not have it, we had only the right to approve the concept design - to receive and approve more detailed drawings, which would give us things like quality of material, layout of the gaming floor, number of restaurants, escalators or elevators, perspectives over the ocean, exterior facades, all of these things we did not have an approval right before. We now do. In fact, those documents have all been delivered and they have all been approved.
We also made provision, because of the difficulties we had in getting the arbitration advanced in the first place, for a special rapid-track arbitration if we ran into a dispute. We agreed upon an arbitrator. We appointed him. He has since been discharged. He played no role. We found that the process was a cooperative process and any suggestions or
recommendations we had were duly considered, some incorporated, others not, but we were satisfied with the approval process of the casino design development documents.
Lastly, and this does have a financial element, we felt it was important to get a commitment to a $97 million casino, and we were satisfied that that commitment was clearly documented in the minutes of settlement.
Now, I would like to move to the extension to the completion date, which is on Pages 15 and 16. In a nutshell, during the course of the arbitration, Sheraton said they were entitled to an extension of what was then the September 30, 1998 completion date. They said they were entitled to an extension to May 15, 1999, because they said Section 7.05 of the contract, relieved them from performance; that is continuing with construction until we approved the design documents. If they were right, then we were advised an extension would be granted by the arbitrator without penalty.
Our counsel said there was a material risk, that this could occur. On the other hand, if they were wrong, then the most they would have to pay for that six month extension or seven and one-half months, as it eventually became, was $2.2 million. That is what our remedies were limited to, a penalty of $10,000 per day or $2.2 million. We had previously offered them a six month extension for $1 million. I think Sheraton felt it would rather run the risk of the $2.2 million penalty, their maximum exposure, than take the sure thing and settle for $1 million. They wanted to arbitrate.
Ultimately, on May 20th, a settlement was reached. We did not get our $1 million extension fee, but we did get an enhanced penalty. Up until then if there had been a delay, all we were entitled to was $10,000 per day. If you look on Page 16, when we talk about the financial impact of the settlement, in particular the first portion of that column, the May 20, 1997 settlement, enhanced penalty, in addition to the $10,000 per day, they agreed that the Gaming Corporation would be able to amortize the development costs, then estimated at $100 million, under the income assurance, from May 15, 1999 to July 31, 1999, that is when it expired. So, that enhanced penalty would have been, we estimate, about $2 million per month - slightly less actually - but for two and one-half months it was worth $5 million to us. What we were going to do was we were going to deem completion to have occurred on May 15th and let the contract roll in as if that had occurred. That same enhanced penalty disappeared on the October 15th deal, because at that point the completion date extended beyond the income assurance period.
[10:30 a.m.]
If I may lastly move to the so-called $20 million concession, it is on Page 21. Mr. Fiske, in testimony before the Public Accounts Committee on both June 17th and again on July 8th, suggested that the settlement resulted in a $20 million concession being given to the operator. At other points he refers to it as $27 million to $30 million, I believe. Well, the
operating contract provides for the income assurance, as I have previously described. The key to that is if in any of the first four years we do not make a total of $25 million, then the operator is required to top it up.
One of the factors in determining whether total provincial revenue is $25 million or not is this 65 per cent of profits. I said I use that term loosely because profits is defined to be after - it is actually called cash available for distribution and it is defined after - the amortization of the capital investment by the operator. So, what that meant was that there could be a theoretical loss to the province, depending on the date, one assumes, for completion of the casino. You can't amortize development costs until the casino is completed, it has to be completed. That was why the May 15, 1997 enhanced penalty was so attractive, because we were going to amend the contract to allow us to amortize before completion.
The way we believe the $20 million is calculated by Mr. Fiske, the assumption is made that the operator's capital investment for the permanent casino is approximately $100 million and that all of it is financed by an equity contribution from the operator. If one makes those assumptions, the costs, that is the amortization, would be about $2 million per month.
Assuming the permanent casino was completed on September 30, 1998, which was the scheduled date at the time of the settlement, then the development costs could have been amortized beginning in October 1998, because once it is completed we can begin to amortize. Thus 10 payments would have been amortized under the protection of the income assurance from October 1998 through to its expiry on July 31, 1999; 10 times 2 is the $20 million. By so amortizing, that would have further reduced our total provincial revenue in exactly the same way that any increase to rent expense did, and that would have required the operator to dig into their pocket and top up to $25 million.
That analysis was done on the basis that the revenue of the larger permanent casino would be the same as the revenue of the interim casino; that was an analysis that we did at one point. It also excluded the possible clawback of all or a portion of that $20 million in year five, under the income assurance, because dependent upon the completion date of the permanent, the expectation is that revenues will increase so that we will make more than $25 million, and we will need to pay back some portion of the income assurance.
As noted before, it was based on the assumption that the permanent would have been opened on September 30, 1998. But we knew in April that the operator couldn't complete the permanent by that date, in fact the best date we could then get, and it appeared realistic, based upon the advice we were receiving, was March 1999. If you accept that, then it wouldn't matter if the arbitrator decided the contract required that the casino be built on September 30th, he could find that, but the only damage we would receive would be our $10,000 per day. We couldn't trigger the amortization until the casino was actually completed. So it is an entirely theoretical loss.
In any event, legal counsel advised that when they became convinced the casino could not be completed before March 1999, that the only possible concession the operator would receive via an extension would be this $10,000 per day penalty, which brought us back to the $1.8 million on the six month basis.
Now the settlement of May is the best and clearest illustration of the fact that this was well understood at the time, because at that time, the enhanced penalty clause was included. That was the deeming clause, deeming the completion to have occurred on the date it was scheduled to occur, whether it did or not, and thus enabling us to get a double penalty. As I have said before, that did not reappear in the October 15th agreement.
This is what we believe Mr. Fiske's reference to concessions to be. In a memorandum that was released, he states that NSGC will lose - this was a draft memorandum, I am sorry, to Cabinet, that was prepared in early August, 1997. He says in that memo, NSGC will lose - an additional seven and one-half months whereby the development costs, approximately $2 million in principal and interest per month, or $15 million total, could be expense under the protection of the income guarantee. This additional extension in the completion date, combined with the first six months extension granted would ultimately cost NSGC approximately $27 million.
So the $27 million combines a theoretical $12 million under the earlier six month extension that had already been granted for no consideration, together with the theoretical $15 million for the period from September 1998 to May 15, 1999. That is our understanding of the $20 million. On this analysis, there was never any $20 million to be conceded or to be lost, it was entirely theoretical.
MR. CHAIRMAN: Ms. Gordon, it has been a lot longer than 15 minutes. Is there any chance we could wrap this up fairly soon?
MS. GORDON: That is it. Those were the two points that were the most important ones that I wanted to cover. That is it. I believe Carl has very few remarks to make.
HON. RUSSELL MACKINNON: On a point of order, Mr. Chairman. We afforded a previous witness two hours and 35 minutes for an opening statement.
MR. CHAIRMAN: The only reason I suggested it, is it sounded like it was the end of what she was saying, and so she confirmed. Is there more that you wanted to add?
MS. GORDON: No, but I did hope that Mr. [Carl] Holm might be given a few moments.
MR. CARL HOLM: I have approximately five minutes, Mr. Chairman.
MR. CHAIRMAN: I certainly have no problem with that.
MR. CARL HOLM: Lawyers are generally brief, as you know. Mr. Chairman, committee members, I think Dara, John Merrick and Robbie MacKeigan have already told you most of what I could concerning the matter. In addition to what you heard orally from them, you have my letter of July 6th, I believe, which was distributed in the press package that the corporation had prepared, distributed on July 7th, and you got this morning, the analysis of the costs and benefits of the settlement.
I guess I would just like to confirm for purposes of the record and to avoid repetition, that I agree with the substance of what Dara, John, and Robbie have told you. It is also my opinion that my letter accurately reports events that occurred over that period as known to me, and I believe that the corporation's analysis fairly represents the costs and benefits that arose out of the settlement.
As I said, I don't want to be repetitive and go back over, repeating ground that you have already heard on, or that is immaterial, however there are perhaps two points that I would like to deal with. The first point was whether the settlement was directed; the second point being the appropriateness of the settlement, at least as perceived by me at that time, and still now.
On the first point, I would like to say that I did not and do not believe that the corporation was directed. As you would have heard from other witnesses, certainly the Premier, Mr. MacKay and Mr. MacKeigan made it clear that they thought that the matter should be settled, if possible. None of them, at any time I am aware of, directed it be settled, or directed any of the terms of settlement. Mr. MacKay and Mr. MacKeigan, at every meeting and in every conversation I was present for consistently said, one, that the Sheraton had to deal with the corporation, two, the corporation had to decide on the settlement.
As I say, I think that in every conversation or meeting I attended, those expressions were used at some point. At no time was the board's authority removed, as it could be by Order in Council. The corporation's legal advisers recommended settlement. The board made the decision to settle. The corporation's board and its advisers are in fact the persons who are responsible for the terms of settlement, be they good or bad.
The second point I would like to make, is that I believed in May, I believed in September and October when the minutes ultimately got signed, and I believe now that the settlement and its terms were appropriate. In my opinion, the settlement served the best interests of the corporation, the province and through the province, the taxpayers. If I hadn't believed the settlement was appropriate, I wouldn't have recommended it, regardless of what I believe the shareholder's views or desires were. I don't think that would have been responsible for me. If I thought the terms were bad, I would have told the board that. If the
board thought the terms were bad, in my opinion, they both had the right and responsibility to turn down the settlement.
When I was first retained, and in the early stages of the arbitration, I had a thought that there was $20 million in issue. Ms. Gordon has gone through the analysis, so I won't repeat that. But in April, when I discovered that the casino could not in fact be completed until the end of March, this theoretical $20 million disappeared. There was no $20 million, there was no $20 million at issue or on the table in the arbitration. There was no $20 million or $27 million that was given up through the settlement. It didn't exist.
As soon as you accept the fact that the casino could not physically be completed until March or, as it turned out, later. I wouldn't have recommended settlement if I had thought there was $20 million at stake in the arbitration. I think that that would have been too high a price to pay. You would go for it, and take your chances on winning or losing. But at most, in my opinion at the time, in issue at arbitration was $10,000 per day from September 30th, and that in the context where the corporation a year earlier had offered to the extension that was sought for $1 million, and in April of this year, 1997, had again agreed to settle for $1 million.
From the corporation's perspective, it wanted to get on with the permanent. It wanted more enhanced design documents and input into the planning process of the casino. What it wanted was available through settlement. Those things were outside of the terms of the contract, or arguably were outside of the terms of the contract, and they were available through the settlement. Counsel was of the view that there was a possibility of losing and, in my opinion, it was only the corporation who would lose if the dispute continued and further delay resulted, because if you keep disputing the matter, you never get around to building the casino and this $2 million a month, or whatever the right number is, never comes into play until you get the thing built. So, it was only the corporation that would lose if it wasn't brought to conclusion and commitments and time schedules established for completing the casino.
As I say, at that time, the only thing that appeared to be standing in the way of settlement was this $1 million, and there was no certainty the corporation would succeed at arbitration. To me, it made common business sense to settle on the terms we had negotiated. It still does make common business sense. The only thing that, at the time in late May, I didn't anticipate was Mr. Fiske's non-acceptance of the decision to settle which, in my opinion, resulted in a further four month delay.
As Mr. Fiske alluded to in his testimony on July 7th, during the summer of 1997, I don't believe I was giving him the advice he wanted to hear. He didn't wish to hear that there was a deal which the corporation had a duty to proceed with. I think those are all the points I have to make, Mr. Chairman.
MR. CHAIRMAN: Mr. [Carl] Holm, thank you very much. Our procedure is to turn to the members of the committee and invite them to ask questions and enter into a dialogue with the witnesses. I will start now with Ms. Godin. Although, let me just observe that since we have ended up hearing the two witnesses essentially back-to-back and we are scheduled to go to 1:00 o'clock, we might have a bit more time than I had originally thought. So, why don't we start off with about 20 minutes or so for each of the Party groupings and then go back through each of the Party groupings afterwards. I will start with Ms. Godin.
MS. ROSEMARY GODIN: Thank you, Ms. Gordon and Mr. [Carl] Holm for appearing before us today.
Ms. Gordon, you know this is coming, this morning, these questions. Can you please tell us what is going on with the work stoppage at the new casino project site?
MS. GORDON: Well, the information that I have, I spoke with Peter Boynton last evening, he is the CEO of Caesars World, and they want to pause and evaluate the interior design before they commit to the next contracts. The work has not stopped completely. They are continuing the completion of the piling contract and, of course, the design work is underway. They are ahead of schedule and believe they have the room within the schedule to take this time to look at things and still meet their schedule completion of September 1999.
MS. GODIN: Mr. Gordon, have you spoken with the Premier about this? Has he given you any advice?
MS. GORDON: About the permanent or . . .
MS. GODIN: No, about the work stoppage. Have you spoken with him since?
MS. GORDON: No, I haven't.
MS. GODIN: From what I heard on radio and in the media and read this morning and yesterday, I am getting this picture, Ms. Gordon, of the Gaming Corporation phoning around yesterday trying to get answers, trying to find out what is going on. Don't you think it is strange that you were not one of the very first to be told that construction had halted? Do you think that the Sheraton takes the Gaming Corporation seriously?
MS. GORDON: Well, under the terms of the contract, the Sheraton is responsible for the construction and the construction schedule and they manage the construction program and schedule. We have our own construction advisers who meet with the construction team for Sheraton regularly. The information moved, I think, more quickly through the community than Peter expected that to be, but I should be clear that he was trying to reach me yesterday afternoon and I was not available. In fact, I didn't return his call until later last night.
MS. GODIN: Just so I am clear. Mr. Boynton said that the project was ahead of schedule so they shut it down to look at the design. I don't know how else to ask this but do you really believe that, that they can afford to shut a project down while they look at a design?
MS. GORDON: Well, I think what is clear here is that the construction of the permanent is a better deal for the Province of Nova Scotia than it is for the Sheraton. So it is very important for them, they don't have the room for error that perhaps we do so it is very important for them to make certain that they have the right structure built, properly themed and laid out to attract the markets that they need to attract to the permanent. It seems appropriate to me that if they are running a little ahead of time and they are about to embark on contracts that start to move into the interior and the layout of the facility, that if they have time to pause and evaluate, now is the time to do it. So long as it doesn't impact upon their commitment to complete by September 15, 1999, we are prepared to stand by and watch and keep an eye on it and see what develops.
MS. GODIN: Just to confirm, you had no prior knowledge or warning that this was going to happen before yesterday?
MS. GORDON: Yes, I received my information, as I said, yesterday afternoon.
MS. GODIN: Ms. Gordon, I want to talk about something that appears on Page 34 of the annual report. Could you tell this committee whether or not the HST arbitration which is mentioned on Page 34 of the annual report, and the government's lack of action on the regulatory amendments are at all the cause of the construction stoppage?
MS. GORDON: That is this year's annual report, Page 34?
MS. GODIN: Yes.
MS. GORDON: So you are wondering, is this related to the work stoppage?
MS. GODIN: Yes.
MS. GORDON: Well, I don't think so. Certainly it would come as a surprise to me if it was in any manner. With respect to your other question, the regulatory amendments were a part, our support, that is the Gaming Corporation's support of those, was a part of the minutes of settlement. It is also something we believe is necessary to maximize the benefits to the province from the permanent casino. They have not been passed and I have no information on when or if they will be. We are less impacted by that, as a province, at the Gaming Corporation, than the Sheraton is. Their marketing plans for the permanent include a focus on attracting an international and high-end market. In order for them to do that, we believe and our advisers tell us, that these regulatory amendments, or some of them, will be
necessary. If, therefore, there is uncertainty as to whether those amendments will, in fact, be passed, it seems to be prudent to stop at this juncture and re-evaluate the theming, for example, of the property and that is a possible consideration that they have at this juncture.
MS. GODIN: Exactly, you say that the province is less impacted than the Sheraton is. Basically, this inaction of the government to get on with the regulatory amendments, I guess you have answered the question so I will go on.
Can you please tell us if you spoke with anyone to prepare for your testimony here today?
MS. GORDON: Yes, I spent some time in preparation with Mr. [Carl] Holm, with the staff of the Nova Scotia Gaming Corporation, our financial people in particular, and with our communications person, Jennifer MacIsaac.
MS. GODIN: Have you discussed Mr. Fiske's testimony with any sitting member of the Legislature since he first appeared before us?
MS. GORDON: I don't think so.
MS. GODIN: Ms. Gordon, when were you appointed to your present position?
MS. GORDON: In February 1995 when the corporation was established.
MS. GODIN: Can you describe the process for getting this job? Did you respond to an advertisement or were you approached? What was the process here?
MS. GORDON: I applied through a letter to Mr. Bob MacKay at that time. I was contacted first by the Premier, then Premier Savage, and subsequently or maybe it was first by the minister and subsequently by Premier Savage.
MS. GODIN: Ms. Gordon, you say you applied but how did you know how to apply? Was there an advertisement for this?
MS. GORDON: No, I was encouraged to apply by - I can't recall for sure - I think it was Mr. MacKay or someone in his office.
MS. GODIN: Do you know if anyone else applied?
MS. GORDON: No, I wouldn't know that.
MS. GODIN: And you can't remember who asked you to apply?
MS. GORDON: My best recollection is that it was Mr. MacKay or someone in his office.
MS. GODIN: Okay. Have you ever made donations to the Liberal Party, Ms. Gordon?
MS. GORDON: I am a member of the Liberal Party and I contribute an annual fee.
MS. GODIN: Were you involved in any way with the Liberal leadership convention?
MS. GORDON: No.
MS. GODIN: And you continue to make donations to the Liberal Party, is that correct? Have you made donations in 1998 to the Liberal Party?
MS. GORDON: I can't be sure of that. Probably, would be my guess.
MS. GODIN: You have said many times that this is a good deal, that you believe this settlement is a good deal for Nova Scotia. I referred earlier to the regulatory amendments and just before I turn it over to my colleague, I just want to ask, those amendments, the regulations, allow for seven days a week gambling, 24 hours a day, granting of credit to out-of-province players and drinks for high rollers. Can you explain how this is a good deal for Nova Scotians?
MS. GORDON: Well, the Gaming Corporation's mandate is for the business interest of Nova Scotians and our principal interest is to increase the net revenues of the Province of Nova Scotia. Therefore, we believe that the regulatory amendments that we have supported and recommended through our minister to Cabinet are desirable in order to enable the permanent casino to compete for the international high-end player. Those regulatory amendments that we have requested are in place across Canada and throughout the northeast U.S. which are our target markets.
MS. GODIN: You say you are trying to attract the international high-end player? What has the Gaming Corporation done to attract international players?
MS. GORDON: Well, the marketing strategy has been targeted towards the international player, that is to say through travel packages. We recently opened a premium play room in the Halifax interim casino to test the market and its value in attracting out-of-province and tourist players.
MS. GODIN: Thank you, Ms. Gordon. I am going to turn it over to Kevin Deveaux.
MR. CHAIRMAN: Mr. Deveaux.
MR. KEVIN DEVEAUX: Mr. Chairman, through you to Ms. Gordon, thank you for coming today Ms. Gordon. I am sort of pinch-hitting here in this process so I am trying to pick up in the last 24 hours as to some of the things. I want to follow up on a question that Ms. Godin already asked you. According to the official records issued by the Chief Electoral Officer, someone by the name of Dara Gordon had made a $300 donation each of the years 1991 to 1996. Would that be you?
MS. GORDON: Yes.
MR. KEVIN DEVEAUX: Do you recall if you made a donation in 1997 to the Liberal Party?
MS. GORDON: Yes.
MR. KEVIN DEVEAUX: Do you know how much that was?
MS. GORDON: No, I don't know exactly. It would be in that range, would be my guess.
[11:00 a.m.]
MR. KEVIN DEVEAUX: You were talking a bit about the amortization and you have provided us with a lot of documents with regard to the deal that was the settlement. I want to particularly note Page 22 and Page 23 of the document, and I believe on Page 16 it is done in a table form but it discusses the same thing. At the bottom of Page 22, it states, "The settlement of May 20 provided for amortization of the capital investment of the Permanent . . .", I take it that means the permanent site, ". . . from May 15, 1999 whether it was completed or not.". So the May 20th settlement that was agreed to by the corporation would have stated that whether or not the casino was completed by May 15, 1999, amortization would begin. I think what you note there, as well, is, "This was intended to ensure any benefit of the amortization of the capital investment began to accrue prior to the expiration of the Income Assurance . . .", so that some of that money would be covered, is that correct, under the $25 million per year?
MS. GORDON: That's correct.
MR. KEVIN DEVEAUX: You go on, on Page 23, continuing, "This provision was deleted from the October 15, 1997 settlement as the revised completion date (September 15, 1999) would not occur until after the end of the Income Assurance Period . . .". So, from May 20th to October 15th, the settlement agreement was altered to remove the conditions of the amortization. Would you agree with that?
MS. GORDON: No, not precisely. What changed was the completion date. Instead of being May 15, 1999, which is what it was on the May 20th settlement, moved to September 15, 1999 in the October settlement.
MR. KEVIN DEVEAUX: Prior to the May 20th settlement, the corporation had an understanding - correct me if I am wrong - that the casino would be built, I think, by September 30, 1998. Is that correct?
MS. GORDON: That's correct, yes.
MR. KEVIN DEVEAUX: And at that time, under that assumption, the corporation assumed amortization would start September 30, 1998, originally.
MS. GORDON: Had the casino been built on September 30, 1998, amortization would have started then, yes.
MR. KEVIN DEVEAUX: So, by the time the settlement was finally finalized on October 15, 1997, that amortization period had changed in the eyes of the corporation as to when amortization would start. Is that correct?
MS. GORDON: I'm sorry, I missed the very end of that.
MR. KEVIN DEVEAUX: Based on the October 15, 1997 settlement, approved by the corporation, you had to alter your understanding of when amortization would begin, to the September 15, 1999 - is it? - date from the September 30, 1999 date earlier?
MS. GORDON: We extended the completion date. The completion date triggers the commencement of the amortization.
MR. KEVIN DEVEAUX: Right, so that would have meant, though, that the process of when amortization would begin and end had been changed from the corporation's original understanding to when the settlement was agreed to in October.
MS. GORDON: Amortization begins on the completion date, to the extent you change the completion date, then the amortization will flow from that.
MR. KEVIN DEVEAUX: Do you believe that that change in the amortization date had an impact on the finances of the corporation potentially?
MS. GORDON: I don't agree, you see, that there has been a change in the amortization date. The amortization flows from the completion date, that was the date that was changed.
MR. KEVIN DEVEAUX: Right, but in changing it, less - and I am not even sure if any of it is - of the amortization falls under the guaranteed income, $25 million per year, revenue. So, wouldn't that mean that there would then have to be more of the amortization post-guaranteed revenue and, therefore, that means that more cost would be deferred from the actual potential revenues of the government?
MS. GORDON: If the completion date, as it was changed to September 15, 1999 by the October 1997 settlement, is outside of the income assurance period - which it is, because the income assurance period now completes on July 31, 1999 - then, yes, the amortization of the facility is no longer protected or sheltered in any part under the income guarantee.
MR. KEVIN DEVEAUX: Will that have an impact on the potential revenue, long term, for the corporation?
MS. GORDON: Yes, it would, and we have done that analysis.
MR. KEVIN DEVEAUX: I want to take you to your statement on October 22, 1997, before this committee. Do you have a copy of that?
MS. GORDON: I must have it here somewhere.
MR. KEVIN DEVEAUX: Particularly Page 20. You were testifying, I think, and questions were being asked by the honourable member for Hants West at that time. I can provide you with a copy after I finish reading this.
MS. GORDON: Is it October 22nd?
MR. KEVIN DEVEAUX: Yes, that's correct, on Page 20. Down the middle of the page, Mr. Russell is asking a question, "Mr. Chairman, I would like to return to the change that is presently before Cabinet.", and I think he is referring to the change in the settlement agreement. "As I understand it, one of those changes has to do with the amortization of the cost of the development of a new casino, and that is new and it is going to reflect on that $100 million that we would receive over the four year period from the ITT Sheraton?".
My understanding of his question there is he is asking whether or not the amortization had been affected and how it would impact on the $100 million guaranteed. Your response, Ms. Gordon, is, "No, there is no change to the amortization schedule in the new proposal that is going before Cabinet.". I guess based on your earlier testimony here today, I just want you to try to clarify your statement back on October 22nd as to whether that was accurate, noting that that was one week after the settlement had been agreed to by the corporation?
MS. GORDON: I don't think that that is what that says, or at least that is not the question that I understood was put to me. I thought the question that was being asked was
whether the amortization schedule was changed in the deal, that is changed from the contract in the deal that was going before Cabinet, which it wasn't. In fact, I went on and clarified further on. He says, "What was the original proposal with regard to amortization?", and I go on and clarify, "The original deal, like going back to 1995?". So, I thought that the question was whether we had altered the amortization provisions in the original contract in the deal that was going to Cabinet, and we had not.
MR. KEVIN DEVEAUX: I see, okay. Do I still have a couple of minutes? I'm not sure how much . . .
MR. CHAIRMAN: No, actually, we are through the first period. I will move now to colleagues immediately beside and start with Mr. LeBlanc.
MR. NEIL LEBLANC: Mr. Chairman, I want to start off with the regulatory changes. I notice, Ms. Gordon, you mentioned the fact that you are trying to target the international players and I think from the very start that this casino has been sold on the fact that Nova Scotians wouldn't be the major users of it because of the sense if we are getting tax monies mostly out of Nova Scotians and there are social costs involved, then the benefits will be greatly outweighed by the social costs of this whole exercise.
It begs the question, what research are we doing to know who is using the Sheraton? What is the percentage of people who are supposedly international players versus Nova Scotians?
MS. GORDON: We are doing research and marketing work; that is to say that both the Sheraton and we have retained consultants to assist us with that. The results that we have experienced with the Halifax interim have not been as were originally projected; in other words, a portion of our international market has not materialized to the extent we had hoped. Mind you, the international market, particularly if it is the premium market, does not need to be significant in terms of numbers, it just has to be the right players that are attracted to the casino here in Halifax. So, we have been very conscious of the need to attract out-of-province players and, as you know, that is one of the reasons that we support these regulatory amendments that are before Cabinet, as I understand it, now.
MR. LEBLANC: So, if I could go back to the regulatory changes that are being put forward to Cabinet, what is your understanding as to where they sit? My understanding of it is they have been there for three or four months, or perhaps even longer than that.
MS. GORDON: I'm not sure they are even before Cabinet. I made the recommendation to our then minister, which was Minister Gillis, and I don't know where they are. I don't know if they are before Cabinet or not.
MR. LEBLANC: So, we don't know where the regulations are, then? Basically, as far as you are concerned, they have been moved up the line and whether the minister himself has brought them forward to Cabinet, you are unaware of it?
MS. GORDON: That's right, I am not aware of it.
MR. LEBLANC: I have been listening to your testimony, and also the previous witnesses, and the main point, I guess, as to whether or not the amortization for the new facility would take place before the income guarantees were finished, I believe, looking at the contract originally signed, even before the Gaming Corporation was established. Just to make sure of that, was the deal with Sheraton signed before the Gaming Corporation was established or after?
MS. GORDON: No, it wasn't. There was a Memorandum of Understanding, signed by the casino project committee and the then minister in December 1994. The corporation was established in February 1995 and the contracts were signed effective May 31, 1995. So, they were signed by the Gaming Corporation.
MR. LEBLANC: Okay, but the bottom line is that when we signed these contracts, the Province of Nova Scotia was of the opinion that for a time-frame of an income guarantee that there would be amortization of the casino that would be taking place, which the province would be the beneficiary of. Is that correct?
MS. GORDON: Yes, if the permanent casino was completed as per the original completion date, that would be the effect.
MR. LEBLANC: That is right because it is my understanding from your testimony earlier today, the casino was supposed to be finished by September 1998. Is that correct?
MS. GORDON: Originally, no. It was supposed to be completed by March 31, 1998 and there was a six month extension given in November 1995, which took it out to September 1998.
MR. LEBLANC: But the bottom line from everything that I have heard, the testimonies, in my opinion, is that the Sheraton has tried from the very start looking at this subjectively, they quickly made the assumption that if they delay the contract, delay the completion of this facility, subsequent to the four year deal of the income, they would be the beneficiary. So, if I was looking at this as a business person, I would see myself trying to delay this until after. So, obviously, the contract that the province signed with the Sheraton from the start was flawed, because the provisions for penalties were insufficient for them to be scared of the consequences even if the province had not waived the penalties, because the amortization was millions and millions of dollars versus what the penalties would have been, and then they had penalties and by dealing with the Gaming Corporation and the government
at the same time, they kept getting extensions so they would not have to pay their penalties either. Correct me if I am wrong.
MS. GORDON: Well, our financial analysis doesn't support that. The reason for that, one can debate the adequacy of the per-day penalty, but the key really to the analysis as to what Sheraton should be doing and whether they should be building or not building turns on the income assurance. When they are paying $25 million a year, a good portion of which they are digging into their pocket to pay, it makes sense for them to move into the permanent mode as quickly as possible so that all revenues will rise above the $25 million and they don't have to dig into their pockets any longer.
MR. LEBLANC: Well, I disagree with your assertion because I think they learned very quickly, the first year, and you have mentioned it yourself, the international players have not come into play like they were supposed to and that perhaps the assumptions they had made in regards to the profitability for the casino was not going to be there. Perhaps it will take a longer period of time for that to materialize, but for themselves, the amortization, if they would have finished this as of March 15, 1998, I think you said, versus where they are now is probably in the range of somewhere over $20 million of amortization of which 65 per cent you would be the beneficiary for.
MS. GORDON: Well, that is exactly my point. Had that occurred, then the $20 million amortization would have reduced our revenues and they would have had to dig into their pocket to come up with that money and replenish it.
MR. LEBLANC: On the fifth year, but you are assuming that the revenues would be there?
MS. GORDON: No, I am assuming the revenues are not there. That is the scenario where they are going to have to dig into their pocket. Once the revenues are there from the permanent then, at that stage, that is the point in time when the income assurance expires, including the clawback here, that is the day when we want the permanent built.
MR. LEBLANC: But the clawback only comes in in the fifth year, and that is if the income exceeds $25 million, for the province . . .
MS. GORDON: The clawback applies in all years.
MR. LEBLANC: But it only takes effect in the fifth year.
MS. GORDON: It is the only extension year, the fifth year, but if in any year we make more than $25 million, we have to repay any portion earlier paid as a top-up payment.
MR. LEBLANC: I am going to leave this subject right now and go to another one, Mr. Chairman, because I am not going to get the answer I want, I can tell.
In regard to your comments, and I just want to make sure that I heard it right. You made mention that your lawyer had mentioned that the shareholders, at one of the meetings, and this is in your opening comments today, so I don't have it in front of me, I am going by recollection, that you mention that the legal counsel had said that it was the direction that the shareholders had given you, and I think you made mention that you received legal opinion regarding that, though Mr. [Carl] Holm just said that you weren't given any written instructions by Cabinet to do so, that you were in disagreement with the decision, but that there was an indication that the shareholders, which is the province, wished the Gaming Corporation to go in this direction.
Can you pick up on that. I want to make sure that I heard that right, maybe I didn't. Perhaps you could clarify that.
MS. GORDON: I was describing the May 20, 1997 board of directors meeting at which the decision was made to accept the settlement as opposed to proceeding with the arbitration. I was describing the considerations that affected my decision, not the majority of the board, but my own decision. One of the considerations, in fact a determining one for me, was Mr. Merrick's firm view that the shareholders' wishes should be considered.
MR. LEBLANC: So in other words, Mr. [Carl] Holm's comments earlier on, saying that in no way the province gave any direction, and I think I am using the words that you used, you said that the meetings you attended with Mr. MacKay and with the Premier or there was another individual, Mr. MacKeigan, were you given any direction as to what the Gaming Corporation should do? Basically, I am listening to the two testimonies here, and to me there seems to be a little bit of a difference there. Perhaps you could clarify that Mr. [Carl] Holm.
MR. CARL HOLM: I think what I said, Mr. LeBlanc, was that the corporation at no time was directed. I did make it clear, and I think all the testimony has been consistent in this. That the Premier, Mr. MacKay and Mr. MacKeigan made it clear that they thought the matter should be settled, if it could be settled, but they didn't direct a settlement, they didn't direct the terms. The terms were terms negotiated by counsel on behalf of the corporation, and put to . . .
MR. LEBLANC: But in essence, you were being directed, whether it is in writing or not, verbally, they were informing you that they wished the deal to be finalized, and I think there were few things, words even in your testimony that you used at the Gaming Corporation.
MR. CARL HOLM: I didn't think I was directed in the sense, Mr. LeBlanc, that my independence was removed. So as I say, if I thought that it wasn't a good deal, I wouldn't
have recommended it. I would have said to the board, and I think that this is correct, that if the board didn't think it was a good deal, regardless of what Mr. MacKay, the Premier, Mr. MacKeigan may have been saying as to what the views of the shareholders were, the board would be acting irresponsibly. They wouldn't be acting as a proper board of directors, if they approved it. I said that at the meeting, and I think that they understood that. It would be appropriate for them to take into account what the owner was thinking, what the owner's views were, a person should not just reject that out of hand. But having taken into account what the views were, then you have to make your own decision.
That was, I think, our recommendation to them, that they had to make their decision, and I take it that that is what they did. I wasn't in their minds.
MR. LEBLANC: Mr. Chairman, I am just going to make a statement, and then I will pass it on to my colleagues. This is in regard to this whole thing. I think the whole point of the Gaming Corporation is that the province would have the final say. I think in the legislation, it is there, and I think even legally that that is the case.
I think the whole thing is trying to make it as transparent as possible. If the government of the day wished to give direction to the Gaming Corporation, it should have been in writing, it should have been a more formalized system than what happened. I am making that point. I have said it before outside this Chamber and in this Chamber. I will stand by that.
I have finished my line of questioning, and I will pass it to my colleagues.
MR. CHAIRMAN: Thank you. Mr. Baker.
MR. MICHAEL BAKER: Yes, thank you. My question is for Mr. [Carl] Holm initially. Are you telling us Mr. [Carl] Holm that your advice to the Gaming Corporation Board is different than the advice that was given by Mr. Merrick? Because Mr. Merrick has made it quite clear that he was telling the board that they had a duty, the word, duty, was in fact the word he used, a duty to take into consideration the views of the shareholder in making their decision. Now if you are telling us that your message to the board of directors was that they have a duty to make an independent judgement, and not to be beholden to the shareholder, that seems to be at odds. Which is it?
MR. CARL HOLM: I think that perhaps, at the time, John and I perhaps had different emphases. In my view, it was appropriate to take into account the shareholder's views but it was the board's decision to make. Absent a formal direction, they had the responsibility to make the decision. I don't know that we differed. My emphasis was perhaps less on the shareholder's view, and in fact, my emphasis was also less on whether we would win or lose the arbitration, because in my view, at that point in time, the corporation would lose if it won, it would lose if it lost.
The only sensible business thing to do was to do the settlement which was proposed, because the terms gave the corporation what it was seeking. It brought any further delays to an end, and that people would get on with matters. There is a potential in that as well, there were other things in the settlement, apart from just the construction-type issues, which I think were beneficial to the corporation and the ability to build its relationships with the Sheraton.
All of my emphasis, and that is maybe because Mr. Merrick is a barrister, a litigator, and I am a business lawyer. So maybe it is just two people of the old English system of barrister and solicitor, which you would be familiar with, that a barrister maybe in fact does come at things with a little bit different perspective than a solicitor. Both the barrister and the solicitor recommended the settlement.
MR. BAKER: Following up on what you have just said, I find it a little unusual. Wouldn't you agree that if you had the shareholder of the corporation telegraphing the message to the other party that you are negotiating with that they should basically agree or that you should agree with whatever proposal was made by the Sheraton, wouldn't you agree with me that that would, as a lawyer and an advocate, compromise your negotiating position with the Sheraton?
MR. CARL HOLM: If you remember Mr. Baker, the only place where there was a difference between the parties was this $1 million. A year earlier, the corporation had offered this extension for $1 million. In fact, I think even before that, the chairman had recommended to the minister an extension without reference to any fee, this same six month extension. So what was in issue here was $1 million.
People had their heels dug in. There was on the table, the various availability of the enhanced casino design documents. We had at that point, the double-up penalty to, as it were, ensure that they would complete on the date that they said they would complete. This was the earliest date they could complete.
The terms had already been negotiated. If the province and something Mr. MacKay or someone said in a meeting, the only thing it impacted was that $1 million, and I don't really think that it did, but perhaps.
MR. BAKER: To follow up on that, with my last question. Mr. MacKeigan's presence in the whole thing, wouldn't it appear to be inappropriate to appear to have the shareholders supervising the negotiations? Doesn't that compromise your ability to negotiate the best deal for the province, if you have the province, with its own lawyer, present in the course of negotiations? Doesn't that really make your position that of merely a functionary and the real messenger being Mr. MacKeigan?
MR. CARL HOLM: If you remember, Mr. Baker, and I think this is set out in my summary, that Mr. Merrick, Mr. Fiske, and myself met with the Premier, Mr. MacKay and
Mr. MacKeigan on the Monday. Sheraton were not involved in that meeting. The province was not there on the Tuesday when the negotiations commenced. I think my record is in error because Mr. MacKeigan and Mr. Merrick's recollection is that there was a call from Mr. MacKeigan to Mr. Merrick that evening, inquiring as to whether he could be of assistance, and whether it would be all right if he came.
So, it was, in fact, the corporation that said, it is okay that you come and participate in this. It was not Mr. MacKeigan or the province injecting themselves entirely into this, they were saying, we have an interest in seeing this settled if we can help get it settled. They were invited to come. In fact, on subsequent occasions, it was the corporation that invited Mr. MacKay and Mr. MacKeigan to come attend some strategy meetings at the corporation office to get their views. They did not ask for invitations, they were invited. It was the corporation that suggested to Mr. MacKay that perhaps the Premier should phone the people at the Sheraton, should phone Mr. Boynton, should phone this person. It was not the province suggesting that. So, it was the corporation that was looking for the province to wield, should I say, its fist and bring the Sheraton to heel.
MR. BAKER: I guess another observation is, during the whole course of these negotiations leading up to the May meeting of the corporation, were there any discussions between yourself or anyone from the Gaming Corporation, that you are aware of, with the minister in charge, Mr. Boudreau?
MR. CARL HOLM: I would not have all of those . . .
MR. BAKER: Just to your knowledge. Were there any?
MR. CARL HOLM: No. Well, to my knowledge, and that would not normally be my role as solicitor. I was involved in providing advice to the chairman, or principally dealing with the chairman and the staff and then, on occasion, with the board. So, no, not to my knowledge.
MR. CHAIRMAN: Mr. Baker, I have to move now. I will come back to you but I have to move now to Mr. MacKinnon. (Interruption) Mr. [Carl] Holm, could you have given us more of an answer?
MR. CARL HOLM: I was just going to say, supplementary to that, Mr. Baker, at the time, that would be what I just told you is so, as a result of reviewing as we have done all the documentations of the corporation which in any way relate to this, there were memos provided by the chairman to the minister prior to, at and around, and after the arbitration advising as to what was occurring to Minister Gillis, to the minister in charge. (Interruptions)
MS. GORDON: Sorry, it wasn't Minister Boudreau during that time, it was Minister Gillis.
MR. MACKINNON: I thought I was dealing with Mr. John Holm there for a moment.
Mr. Chairman, through you to Ms. Gordon, several weeks ago Mr. Fiske attended a session here before the committee and made reference to a rather lengthy document, a memorandum for Cabinet, I believe it is a 14 or 15 page document. Did you or any member of the board, with the exception of Mr. Fiske, participate in the preparation of that particular memorandum?
MS. GORDON: The memorandum that you are referring to was, I believe, the draft memorandum drafted for Minister Gillis to Cabinet. That was drafted, I believe, during the latter part of July and the early part of August. The board was not aware that that memo had been drafted until its meeting in mid-August, I believe.
[11:30 a.m.]
MR. MACKINNON: Are you aware of who drafted that memo?
MS. GORDON: I understand that the memo was principally drafted by Mr. Fiske, not Dr. Gillis, with the support of staff at the corporation.
MR. MACKINNON: That being the case, when the board and its lawyers became aware of the fact that this 14 page memorandum had been prepared and submitted, what were its thoughts?
MS. GORDON: The board was quite concerned that a memorandum that was intended for Cabinet had reached the stage that it had, without input or direction by the board to the chair and without the chair having consulted with the board, because it was not representative of the majority of the board's view.
MR. MACKINNON: So, what we are saying then, Ms. Gordon, is we have a chairperson acting without the knowledge or the approbation of the board in a manner which could very easily put the board in a position, or at least a perceived position, of acting in bad faith. Is that what you are telling us?
MS. GORDON: Yes, I think that's correct. Mr. [Carl] Holm, among others, provided that advice to the board - and, I understand, to the chair prior to the board being aware of the memo - quite firmly. He felt the agreement that had been reached in May was one that we had to pursue and were bound by, and that the memo that had been prepared was not compatible with the course that we had agreed to pursue and that it wasn't appropriate, let alone the fact that the board was concerned that it wasn't at all balanced.
MR. MACKINNON: I have been reading through the package of documents that have been submitted, minutes of the meetings, and so on, by the Gaming Corporation. I came
across a memorandum - perhaps I will table it - and I am going to make reference to the second-last and last paragraphs of this memorandum. I will provide some extra copies just for ease, if need be. It is a memorandum dated March 18, 1996, to the Honourable Bernie Boudreau, Minister of Finance, from Ralph F. Fiske, Chair of the Nova Scotia Gaming Corporation. I will just read, briefly, the second-last paragraph, " We, . . .", referring to the board, I would presume, ". . . 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 October 1, 1998 deadline be granted on the joint request of Sheraton Casinos Nova Scotia and the Nova Scotia Gaming Corporation.".
Ms. Gordon, I glanced through - and perhaps I missed it - in the minutes of the meetings prior to this memo being prepared and signed by Mr. Fiske and, obviously, sent to the then Minister of Finance, Bernie Boudreau. Was the board aware of this particular memo? Is this the board's position?
MS. GORDON: No, the board wasn't aware of this memo; in fact, this memo turned up during the course of a records review, in an effort to deliver materials to this committee, and it pre-dates a meeting which the board had in April, which was the first time the board discussed an extension - well, what's referred to here as the October 1, 1998 date but which was in fact September 30, 1998 - that was the first time the board discussed the six month extension, at the meeting in early April, I believe, following this memorandum. The board's position at that time was that an extension required an extension fee and the board was unaware, I believe - at least I as a member of the board and I believe the other members were unaware - until we located this memorandum in our files later on that Mr. Fiske had, in fact, a month preceding recommended that particular six month extension that has been the subject of so much controversy. He had recommended it to Mr. Boudreau in March 1996 without consideration.
MR. MACKINNON: The reason I ask these questions, Ms. Gordon, is because as all individuals who come before this committee and, indeed, ourselves as legislators, where every time we speak on a particular matter, we are expected to deal with it as forthrightly as we possibly can, remembering that we do everything with due diligence, and so on, and we are expected to be tested on matters of memory and to be as factual as possible. The impression I received from Mr. Fiske, and others, was that perhaps we were focusing a little too much on Mr. Fiske and not about the issues. To me, this points out very clearly that we have a chairman who is acting independently of the board. Is this the evidence that I am looking at or am I missing something here?
MS. GORDON: This instance that you point to, the board was unaware of the memorandum that the chairman had written to the minister, and obviously the board took a good deal of time and interest wrestling with a decision such as a six month extension. So,
this certainly came as a surprise to the board to see that the chairman had proceeded without the board's authority or direction.
MR. MACKINNON: Thank you.
MR. CHAIRMAN: Mr. Fraser.
MR. HYLAND FRASER: Ms. Gordon, how much money has the Province of Nova Scotia invested in the Halifax casino?
MS. GORDON: We haven't invested any money in the Nova Scotia casinos. It has all come from Sheraton.
MR. FRASER: How much has the province received from this casino, or from the Sheraton, I guess?
MS. GORDON: We are running around the $100 million mark. We have the four years of the guarantee at $25 million per year.
MR. FRASER: I just want to refer a bit to the arbitration. What was the maximum amount, in your opinion, the Gaming Corporation would have received, or would have been entitled to, if they had won the arbitration, if it had gone forward?
MS. GORDON: At that time we were talking a six month extension, so if we had won and if we had been awarded the penalty, $1.8 million.
MR. CHAIRMAN: I'm sorry. I think the question was, how much would the Sheraton have received? I don't think the Sheraton would have received any money, would they?
MS. GORDON: No, I'm sorry.
MR. FRASER: No, my question was, how much would the Gaming Corporation have received?
MR. CHAIRMAN: Oh, I'm sorry.
MR. FRASER: What were the benefits of the settlement that you negotiated?
MS. GORDON: The benefits are extensive and that is the reason we took the time to prepare this 26 page analysis. But the greatest benefits were the modifications or amendments that were made to the casino contracts. In my view, we have enhanced our legal position under those contracts and that is important. Just sort of in broad brush, the other very important thing, to my mind, is it resolved all of those issues that had been accumulating, that
we couldn't seem to get beyond in direct discussions. We finally put them behind us in a manner that had no financial impact on the Gaming Corporation. Plus, we weren't trading off anything in the future; all of the rights we had, we still have and some are enhanced. So, those were important benefits.
MR. FRASER: So, the province didn't lose any money because of the settlement that you negotiated?
MS. GORDON: Well, that's right, unless one would say that for sure we would have won the arbitration, then potentially there was the penalty. We had offered $1 million.
MR. FRASER: Thank you. Mr. Chairman, I would like to pass it on to my colleague.
MR. CHAIRMAN: Mr. Samson.
MR. MICHEL SAMSON: Ms. Gordon, there has been quite a bit made out in the press and by other witnesses about the fact that you changed your mind during some of these negotiations and how that is supposed to be such a terrible thing, which goes beyond my understanding in such a business relationship that you found yourself in the middle of. You stated before this committee that you did change your mind about whether the Gaming Corporation should proceed with arbitration. Did this take place before or after Ralph Fiske resigned?
MS. GORDON: Before. On May 20th, it was really the turning point. At that time, I believed the business deal was a good one. I was troubled by the relationship issues that Ralph and others wanted to deal with through arbitration. I supported his view that that is the way they would best be dealt with; however, in the face of all of the views to the contrary, including the fact that our shareholder believed that the matter should be settled, I chose to side with the board on May 20th.
MR. SAMSON: Were financial issues behind your hesitation here?
MS. GORDON: No. My only hesitation was that Mr. Fiske believed so firmly that the relationship issues had to be aired in an arbitration format, that I guess, in his view, that outweighed all the financial or other benefits under the business deal, that it would be more important to proceed with the arbitration. As I say, I shared that view, I wanted to support that view, but I believed that it was in the best interests of the corporation to settle.
MR. SAMSON: Ms. Gordon, throughout your time at the corporation and throughout these negotiations, have you ever been approached personally by the Premier's Office, Mr. Bob MacKay or Mr. David Thompson to change your mind on whether the Gaming Corporation should go to arbitration?
MS. GORDON: Never at any time.
MR. SAMSON: Outside of those individuals, have there been any people involved in their offices who have contacted you?
MS. GORDON: No, I have not, and during that period, I did not speak to any political-type person or any person of government from any other department.
MR. SAMSON: Ms. Gordon, a few questions have been raised about your political affiliation and contributions, which I think if we brought all the lawyers in Nova Scotia in here, would probably give similar answers to what you have given us today. You have been a member of the Nova Scotia Bar Society for how many years now?
MS. GORDON: Since 1979; 19 years.
MR. SAMSON: During your employment with the Nova Scotia Gaming Corporation, at any time did you compromise your integrity as a member of the Nova Scotia Bar in decisions that you made?
MS. GORDON: No.
MR. SAMSON: Ms. Gordon, around the time of May 20th, when the settlement was reached, what would you say was the mindset or the attitudes of the board members, including Mr. Fiske, as related to the Sheraton?
MS. GORDON: Well, I think the board had reached a decision that they wished to settle, they believed the deal to be good. You don't get everything your way in the course of negotiation, but the board was happy with the result, believed that it would be papered very quickly, and that we would get on with business, and that Ralph would pick up the reins and push the corporate agenda forward.
MR. SAMSON: Throughout this, what was Mr. Fiske's attitude, I guess, toward the Sheraton and toward the resulting decision by the board of May 20th?
MS. GORDON: Well, as I recollect, during the course of the board deliberations, he supported the decision that was taken; he expressed concern about the shareholder involvement at that time, but I believed that he had reached the conclusion that it was a good deal and he supported it. Shortly thereafter, and I can't recall exactly, it became clear to me that although he had voted for the deal at the board level, he couldn't execute and implement on it. He was not accepting it.
MR. SAMSON: So how much has been made about your apparent change of mind? Would it be safe to say, from what you recollect, that Mr. Fiske also went through a change of mind from the time of May 20th to subsequently thereafter?
MS. GORDON: I am not sure what was in his mind on May 20th and thus not sure whether he changed it but as to what he said on May 20th, he supported it and shortly thereafter he was not prepared to move forward with it.
MR. SAMSON: Those are all of my questions for now.
MR. CHAIRMAN: Thank you. We will move back through the Parties again, with another 20 minutes, starting with Mr. Deveaux.
MR. KEVIN DEVEAUX: Mr. Chairman, through you to Ms. Gordon. Ms. Gordon, I want to clarify a couple of points and I think some people have asked these questions to some extent but I just want to do it all at once, just to get it on the record. Can you confirm here today whether at any time during the negotiations, I guess, from April until September, whether you had any conversation with regard to Gaming Corporation business with the following people. It is just a yes or no, I guess. Did you have any conversations with Premier John Savage with regard to Gaming Corporation business?
MS. GORDON: No.
MR. KEVIN DEVEAUX: Bob MacKay?
MS. GORDON: No. Well, hang on now. Bob MacKay was invited to a couple of our board meetings so that the board could better brief Mr. MacKay on the issues. So obviously I spoke to him during that setting.
MR. KEVIN DEVEAUX: Robbie MacKeigan?
MS. GORDON: The same thing. I think Robbie may have been there for a briefing as well at one stage.
MR. KEVIN DEVEAUX: Russell MacLellan?
MS. GORDON: No.
MR. KEVIN DEVEAUX: David Thompson?
MS. GORDON: No.
MR. KEVIN DEVEAUX: So, in fact, just so we are clear - and I think you have been clear to this point - with regard to Mr. Fiske's testimony earlier at this committee, with regard to what he said went on in conversations with those various people, you were not present and have no first-hand knowledge of any of those conversations, is that right?
MS. GORDON: That is right. I have no knowledge of any such conversations.
MR. CHAIRMAN: I wonder if I might just interrupt. I am sorry, but this line of questioning reminded me of a very small amendment to an earlier answer that you gave. You were asked if you had met with any members of the Legislature prior to your testimony here. In fact, you and I spoke and we should note that, of course, this was at the direction of the committee and we discussed not the content of your testimony but a process for delivering documents. Is that not correct?
MS. GORDON: I stand corrected.
MR. CHAIRMAN: Thank you. Moving along.
MS. GORDON: Yes, that is right. I did shake hands with Mr. LeBlanc one day, too. (Laughter)
MR. KEVIN DEVEAUX: Based on your lack of first-hand knowledge with regard to the goings on between Mr. Fiske and the various members of the government and deputy ministers - and I have sort of read a little about this in the recent past- my understanding from Mr. Fiske's testimony - and please, can you confirm here today? - is that shortly after his meeting with Premier Savage, I believe in early June 1997, which has been known as the table-banging meeting, that he had recounted that meeting to you and Ms. Butler shortly after that. Is that correct? Did he recount that meeting to you?
MS. GORDON: I don't recollect that but he did comment upon it, I am sure, at the board, because it is minuted at the board that he had met with Dr. Savage, although I don't think it talks about fist thumping or anything of that nature.
MR. KEVIN DEVEAUX: So you don't recall any informal discussion between you, Ms. Butler and Mr. Fiske with regard to that?
MS. GORDON: No, I really don't recall.
MR. KEVIN DEVEAUX: With regard to his conversation with Mr. Thompson on September 25, 1997, do you recall having an informal conversation with Ms. Butler and Mr. Fiske shortly after that conversation?
MS. GORDON: I knew that he was in communication with David Thompson and he did have several conversations, as I recall, with David Thompson and I expect he did recount one or more of them but I don't have any specific recollection of that particular one.
MR. KEVIN DEVEAUX: I want to go over to another point which Ms. Godin had raised with regard to regulatory amendments, the proposed amendments that the corporation has recommended to the government. Just so I am clear, because when Ms. Godin asked it, I wasn't absolutely sure of your answer. Has the lack of approval of the regulatory amendments that the Sheraton is pursuing had anything to do with the stoppage of construction at the site yesterday or Monday?
MS. GORDON: Only indirectly is what I was trying to explain to Ms. Godin. That is to say that the theming for the permanent that we have approved and moved along with is for a country club concept as opposed to the privateers concept that was originally conceived and that has largely been targeted and designed to attract the high-end gamer. If the regulatory amendments are not approved, then our likelihood of attracting the high-end gamer is less and thus one should rethink, maybe, a concept that suits all markets or isn't so specifically targeted towards the high-end market, and that may be what is being done. My conversation with Peter Boynton didn't get into it at that level.
MR. KEVIN DEVEAUX: So let me put this another way, then. Have you had any conversations with anyone at Sheraton or Caesar's or MEG, or whatever corporation in particular, have you had any conversations with them in the recent past that they would be stopping work on the construction project until the regulatory amendments are made?
MS. GORDON: No, I have had conversations with the people at the Sheraton - or Caesar's World actually, now - and Starwood Hotels where they have indicated that some rethinking of the concept may be necessary. But if what you are asking is have they threatened to stop work unless the regulatory amendments are made, no.
MR. KEVIN DEVEAUX: So you don't see this stoppage of work continuing. Have they set a date for when the start of work will begin again?
MS. GORDON: I don't have enough information yet on how long the stoppage is planned and I don't have the restart date. Our main interest is to ensure that their performance under the contract, and as I mentioned before, there is some flexibility there. Just because they are not at $3.1 million on day 182 doesn't mean that there is anything wrong. So we are going to monitor the situation, make sure that whatever they are evaluating is shared with us. We have the right to approve any rethinking of the concept and I think we have to give them the two or three weeks that it might take - and I am not even sure how long it will take - for them to evaluate. They have a big investment that they are making here and they want to get it right.
MR. KEVIN DEVEAUX: I will start with a comment and lead to a question. I find it a bit shocking that a major corporation such as ITT Sheraton would invest $100 million in the construction of a permanent casino here and then stop work and not have a specific date for when it will start again when all that they are really doing is redesigning. My understanding is that these sorts of construction projects are built on a fine line to ensure that they are built by a certain date and to stop work for a period of time in which they have not even disclosed to you how long that will be, seems a bit surprising to me that they would not have set a specific date for when they will start again.
I guess my question to you is, given the nature of their sort of discussion with you, that they will have to rethink their project based on the lack of regulatory amendments being approved, and that there has been no date set for starting of work, doesn't that concern you that those two things are done around the same time?
MS. GORDON: Well, I agree that it is unusual that there is a stoppage but on the other hand, they are not so tightly scheduled that they don't have room to meet their completion date, and further evaluate what they originally have proposed. So, it is possible that is exactly what they are engaged in doing. We may know more within a couple of weeks. In the meantime, we are going to monitor the situation closely. Construction is continuing. The entire site is not shut down. The piling work is continuing. The design work and off-site work are continuing. So, I don't want to overreact, but I also want to assure you that we are watching the situation and looking out after the best interests of the province.
MR. KEVIN DEVEAUX: One of two things concerns me here and I will put them forward as alternatives based on your testimony here today. First, either the Sheraton is playing hardball with the Government of Nova Scotia and is attempting to basically stop major portions of the construction of this until regulatory amendments are made, or, in the alternative, there seems to be a lack of communication between the corporation and ITT Sheraton over an extended period of time.
So, my concern is, which is it? Do we have Sheraton playing hardball here and are they really shutting down this project until the regulations are amended, or is this a matter of the corporation not having strong communication links with the Sheraton to know exactly what they are doing?
MS. GORDON: We just don't have any evidence that there has been a shutdown to pressure for regulatory changes. In fact, what I know, I have just explained to you, is to the contrary, that they are likely planning for an event that there would be no regulatory changes. So, it doesn't make sense to me that this is a pressure tactic and I would have thought if there was pressure to be brought to bear, this would not be the way to bring it to bear at a time when I am here before the Public Accounts Committee having to account for this action. So, I just don't accept that. It is possible. We will monitor. We will see. Events will unfold.
As to the communications, we are not in contact with Caesar's World or Starwood on a daily basis. We work through a construction team that meets regularly, weekly, participates in weekly construction meetings and I agree this communications link did not work very well yesterday. That was partially my fault. I did return the call when I realized it had come to the office.
MR. KEVIN DEVEAUX: I want to expand on that a little bit. Looking at Page 18 of the document you provided to us today, it talks about one of the changes based on - well, let me back up actually before I look at that. Let me ask you, Ms. Gordon - and I am not sure if someone already asked this question, I will leave it open-ended - why was the memorandum of settlement approved last year a good deal for the Nova Scotia Gaming Corporation?
MS. GORDON: Well, I was trying to shorten the answer to that. I think the answer to that is contained in these 24 pages. You can see that based upon our analysis, while we did not achieve perfection on each and every of the 24 points, by and large, we got what we wanted with the one exception of the completion date.
MR. KEVIN DEVEAUX: Okay. Well, then let me sort of focus in on one specific point. I have heard others say the same thing, I think Mr. [Carl] Holm said it earlier today, and I think I have heard Mr. Merrick and Mr. MacKeigan mention it last week in the testimony I read, that one of the benefits of this particular settlement was enhancing and improving the relationship, because it was going to be a 20 year relationship, between the Gaming Corporation and the MEG, or ITT Sheraton, or whatever form of corporate body they were in. Would you agree that that was one of the benefits of this settlement, was enhancing the long-term relationship between the two parties?
MS. GORDON: In fact, that was the very issue that Mr. Fiske was concerned about. I have already said I shared his concern. I believed at the time that the relationship issues, and only the relationship issues, that there was some merit in doing battle on those issues. As it turns out, I don't any longer hold that view. I believe that the relationship has improved. They are not our best friends, we have a business relationship with these people. We don't chat to them every day. They have responsibilities to carry out under the contract, and they are, for the most part, discharging those now, with little debate and little controversy.
[12:00 p.m.]
So I think we have moved the relationship forward, and I, myself have rethought where I was last summer, believing then that we should do battle, and now knowing that I think we have made tremendous progress under the umbrella of the minutes of settlement.
MR. KEVIN DEVEAUX: It is a yes or no answer to this question. Is this a good deal for the Gaming Corporation, because it enhances the long-term relationship between the Gaming Corporation and the Sheraton?
MS. GORDON: I think that is one of the benefits that I do believe exists now, but I concede, I was not of that view last spring.
MR. KEVIN DEVEAUX: I want to take you to Page 18 of the document you provided to us, under "(c), Protocol to enhance and improve communications". You talk about the issue and the position, and then you talk about disposition. I take it that that is what the settlement agreement would have resulted in.
MS. GORDON: Disposition, yes.
MR. KEVIN DEVEAUX: It says, "Agreed via May settlement to immediately commence discussions between NSGC and Sheraton to establish a protocol to enhance and improve communications and relations.". You go on to state, "Communications improved. Operator providing additional financial information and reports.". Based on the facts of the last 24 hours, would you agree that communications have indeed improved, based on this settlement agreement that was approved by Cabinet last year?
MS. GORDON: I think I have already said that communications have indeed improved greatly from last May, 1997, and I have conceded that there was a communications mislink yesterday.
MR. KEVIN DEVEAUX: Do you have any long-term concerns that the communications are not improving with regard to the, I know you said in the past six months they have improved, but do you have any long-term concerns that communications will deteriorate or that they will improve? Do you have any position on that?
MS. GORDON: No, in fact all evidence and information that I have right now points to a greatly improved business relationship with the Sheraton.
MR. KEVIN DEVEAUX: I think Ms. Godin has some questions.
MR. CHAIRMAN: Ms. Godin.
MS. GODIN: Ms. Gordon, the province wants revenues, that is going to make it a good deal, the Sheraton or Caesar's wants income assurances to make it a good deal for them, but the international high roller is being very elusive here in Nova Scotia. It is becoming painfully obvious to, I think, all parties that the money to sustain the casino right now is coming out of the pockets of Nova Scotians, and away from the pockets of Nova Scotian business.
Is this, I have to ask you, after the events of yesterday, is this deal going to fall apart? Is this the start of this whole deal falling apart?
MS. GORDON: As I responded earlier, there is no reason to believe that. The information that I have received is consistent with what has been sort of the pause and evaluate strategy. It is consistent with the completion of the casino by the September 15, 1999 deadline. I don't have any information at this stage that would lead me to any other conclusion.
MS. GODIN: You mentioned a time-frame, I have heard you say a couple of weeks, I think I may have heard you say three weeks, that the Sheraton may take to pause, is the word that you are using. What is going to happen if it goes on after three weeks, will there be penalties, or what is going to happen? How long are we going to give them?
MS. GORDON: I want to be clear that I haven't discussed the length of the pause with Peter as yet, and I hope to get back to him later today. Coming back to your question, however, if the construction schedule is not met in the sense that the completion date of September 1999, is not achieved, then there is a provision for penalties.
MS. GODIN: So we can sit here and wait until September 1999, before any . . .
MS. GORDON: No, there are other provisions in the contract that could constitute a default which would entitle us to certain other remedies. They include a shutdown, for example, or stoppage of work for a four month period according to the contract would constitute a breach that would entitle us to remedies. I am also advised that a shortcoming from the approved construction schedule of some substance and continuing for some period of time would constitute a default. At some stage we also have to consider things like fundamental breach and so on. As I have said, although I accept the explanation that has been given to me for the stoppage, and it does make sense from a variety of angles, we nevertheless are looking into the contract provisions and we intend to use whatever tools we have to ensure that Sheraton lives up to its contractual obligations and at this point I have every assurance they will.
MS. GODIN: So perhaps the answer is then that we can sit and wait for four months while they redesign something before we are going to get worried about this?
MS. GORDON: No, what I was saying is four months is a fixed time that is contained in the contract and at that point there is clearly a default. But if they do not adhere in any substantial fashion, they fall off the construction schedule - and, as I have mentioned, they are ahead at the moment on the construction schedule so there is some room there - at some point that too may constitute a default. The short answer is we do not have to wait until September 1999.
MS. GODIN: Just one quick question, Mr. Chairman. Are you worried, Ms. Gordon?
MS. GORDON: No, I do not think I have any cause for worry right now but I am conscious of the fact that we need to monitor the situation and that is just one of the challenges that we have in getting the project completed in time.
MS. GODIN: Thank you.
MR. CHAIRMAN: Thank you. Mr. LeBlanc.
MR. LEBLANC: I want to ask a question. We have heard testimony from Mr. Fiske and we have heard testimony from Mr. MacKeigan and Mr. Merrick, and I have heard testimony here today from Ms. Gordon and also from Mr. [Carl] Holm that substantiates that meetings were being held with the deputy to the Premier and solicitors and so forth. What I do not understand is that we had upon Mr. Boudreau resigning to participate in the leadership for the Liberal Party in 1997, a very senior member of the Cabinet, Bill Gillis, was responsible for the Gaming Corporation and what has always haunted me, I guess, is why was he removed from the process because, obviously, from the memorandum that was prepared by himself and Mr. Fiske, it was obvious that he was outside of the loop. It has been mentioned different times and the fact that you were meeting with the Premier on some occasions and deputy ministers on other occasions without Mr. Gillis being there a lot of those times, it begs a question as to why were you not dealing directly with the minister and why was this being held at the highest political level of government? Perhaps you could shed some light as to what your opinions on that are.
MS. GORDON: I was not aware at the time that Dr. Gillis had not been involved. In fact, in our review of files we have located some number of memoranda to Dr. Gillis during that period. I cannot recall the exact timing but it seems to me that Dr. Gillis was newly appointed in maybe April, or May, I cannot quite remember, and he may have been, I do not know, distracted with the affairs of Finance as opposed to the Gaming Control Corporation but it was the board's understanding and, indeed, it would surprise me to find out that the chairman wasn't reporting on some basis to Dr. Gillis during that period.
MR. LEBLANC: I think if you listen to what Mr. Fiske has said, he wasn't in contact with Mr. Gillis, the problems that were happening was that the meetings that were taking place with the Gaming Corporation on behalf of the government were coming out of the Premier's Office, rather than coming out of the minister responsible. That is what begs the question as to whether negotiations were taking place, where they were taking place within the department, and whether they were taking place outside the department in other parts of government. I look at myself as a former Minister of the Crown who took my responsibilities very seriously, and if I was responsible for, let's say Sport and Recreation, whatever, decisions came through me, and obviously in this case, they weren't.
MS. GORDON: Again, I just want to limit it to what I know of the situation. I do know and Carl has refreshed my memory that there were briefing memorandums prepared and
delivered to Minister Gillis at that time. I am virtually certain that there were meetings going on between Mr. Fiske and Minister Gillis. I do know that there was at least one meeting with representatives of the Premier's Office, at which Minister Gillis wasn't present.
That is really the limit of my knowledge. I don't know. Minister Gillis did not come to any board meetings.
MR. LEBLANC: I don't disagree with your synopsis, because I think Mr. Fiske mentioned there were some meetings when Mr. Gillis was there. The whole point that I am trying to make, and I appreciate that you weren't chairman at the time, is that how I deem that to be inappropriate for the minister who has the responsibility for the Gaming Corporation to be an outsider looking in, while the Premier or his staff are making the decisions in regard to the Gaming Corporation. I can appreciate the fact that you weren't chairman, and you can't shed more light on that.
Mr. Chairman, I want to also ask a question in regard to the penalties. The question was asked prior as to other ramifications, you made mention that there are penalties that the Sheraton would have to face if they didn't meet the schedule. I am not really sure that I am very comfortable with that, because they had penalties the first time, somehow they never end up having to pay the penalties.
Can you be a little more specific to the members of the Public Accounts Committee as to what the penalties would be if they delay again, or whatever? Because I think for the Sheraton, having the casino within the hotel, though you make mention that the new casino is going to greatly enhance all the revenues of the Sheraton Casino, it also, as an accountant myself, I can look at the advantages on the other side, whereby you are having the casino operate within the hotel, which will increase the occupancy of the hotel, and obviously there are parts of the overhead which are being charged to the casino by the hotel, and obviously other charges.
I guess it begs the question, I would like to have perhaps a little clearer answer as to what we are talking about here for penalties, for delays, because I think that taking into consideration what happened the first time, that we would like to have a little more clearer picture. Perhaps you could elaborate.
MS. GORDON: Mr. LeBlanc, I wanted to assure you that we are monitoring - you are referring now to the situation that Ms. Godin brought up - we are monitoring the situation, and we are assessing our legal position. We believe it to be, as I have described to Ms. Godin, better than $10,000 a day when they don't build by September 1999. I guess the difficulty I am having is, we don't know for sure where this thing is headed, and I really would prefer not to prejudice the corporation's position by outlining or sharing with you what our legal assessment might be at this time.
MR. LEBLANC: I think perhaps, if I could elaborate. What I am looking for is, I am not prejudging whether the casino will be finished on time, because I don't know that, and it has only been a day that it has been delayed, so I think we are very speculative at this point in time. What I am asking for is that if you sign a contract with the Sheraton that it is supposed to be built by September 15, 1999, I think that is the date, what provisions are there if they don't meet that schedule?
I don't think that is a problem, I am not prejudicing their relationship with the province, I am not prejudicing their deal with anybody else. What I am looking to see is that if, and perhaps if you can't give it at this point, maybe if you can give assurances to give it to the committee, just what provisions there are. I don't see that prejudicing anybody's case, if the Sheraton finishes the casino on time, then there are no provisions that they would have to be responsible for.
MR. CHAIRMAN: Perhaps we could approach it this way. You have a concern about not disclosing your strategy. Perhaps you might answer the question by putting the Gaming Corporation's position at its strongest.
MS. GORDON: Okay. And it is strong. The contract does have the $10,000 per day liquidated damages clause if not complete by September 1999. In addition, if there is a default, and I have described to Ms. Godin two of the ways that there might be a default, then that triggers a right on our part to terminate the construction contract, and that triggers a full-scale damages clause. I could leave it at that.
MR. LEBLANC: All right. I will accept that. I appreciate your giving me some of the information I am looking for. Another thing I wanted to ask is that my understanding from the testimony that has taken place is that it was difficult to get information from the Sheraton, and I think it was in regard to different expenditures and so forth. The premise, or the point has been made, perhaps by yourself, that it didn't make a difference, because of the fact that they had an income guarantee. As we are getting very close to the end of the income guarantee, these things become very important. It begs the questions, that now that we have signed this memorandum of agreement, or this new agreement in September 1997, I guess what I am looking for is, what hammer does the Gaming Corporation have to get access to it?
Before this new agreement was signed, there was a gag order given to not give information, even to the accountants of the company. Whether it was a personal conflict between Mr. Fiske or the Sheraton, I think is irrelevant. I think that any reasonable person would assume that financial information about the operation of the casino should not be withheld from the Gaming Corporation. I ask myself, as to what we signed, and what regulatory, I don't want to use the word regulatory, because you are not a regulatory agency, but you do have a contractual arrangement with the Sheraton. What I want to know is, how easy or how difficult will it be to get very specific information and what time-frames?
MS. GORDON: I would like to respond to that question, because in the first instance, I think it is important to understand that in agreeing upon the settlement on May 20th, that there was no prejudice; putting the issues behind us, as I said to you, that were protected by the income shelter, or the income assurance, there was no prejudice on a go-forward basis. We are not exposed with respect to anything on a go-forward basis. That is the first point I wanted to make clear. Secondly, we have a statutory right under the Gaming Control Act, and it is in our contract to go in to the premises of the Sheraton and carry out a comprehensive audit of all their books and records at any time. That right remains as it always has. Where the difficulty was arising was, we were entitled under the contract to certain financial reports.
MR. LEBLANC: Could you say that again please?
MS. GORDON: We were entitled under the contract to certain financial reports, and the form was even specified in the contract. They would deliver the financial reports, and we would want supplemental information to explain some of the numbers in the financial reports. We didn't have the right to ask them to provide those supplemental reports. In fairness, they cooperated for a lot of things. But eventually they said, no, if you want those reports, send your auditor in. You put them together, pull them together, and you will get the information that way.
They never really denied us access. Their focus was on the cost, the human resource cost to them, of having to generate these additional reports and materials we needed, beyond that which we were entitled to in the contract. Through the minutes of settlement, we have negotiated the financial protocol. Virtually all, if not all of these additional reports that we wanted to have, we will and are now getting.
MR. LEBLANC: Those are the two questions that I wanted to ask. My colleague from Lunenburg wanted to ask a question. Thank you, Mr. Chairman.
MR. CHAIRMAN: Mr. Baker.
MR. BAKER: Thank you very much. Ms. Gordon, a question for you. Do you view the role of the Gaming Corporation to independently deal with the casino and come to independent decisions subject to being specifically directed by Order in Council? Is that what you view the role of the Gaming Corporation to do, to deal independently with the Sheraton, the casino operator, and that, of course, is always subject to the power by Order in Council of the government?
MS. GORDON: Well, no, I would not agree entirely with that. I agree to that extent but there are other provisions, for example, in the Gaming Control Act where we need to get or secure Governor in Council approval. So I believe in those areas that we need to report to and account to, through our minister, the Governor in Council.
MR. BAKER: So are you suggesting that, if a problem like the Sheraton contract dispute arises again, if there is a dispute, for example, dealing with the construction delay, that it is your position that the government should continue to whisper in your ear what its position is and that that is the appropriate way the public business should be conducted with the government whispering in your ear what they want and then you do it?
MS. GORDON: I do not think that would be a fair characterization of what I was saying. I think that . . .
MR. BAKER: I guess that has been the past history of the deal, that the government would whisper in the ear of the Gaming Corporation?
MS. GORDON: I am afraid I cannot agree with that. In fact, the corporation since its establishment has been given a lot of latitude. Although it has maintained a reporting function with the minister responsible, and I understand that the chairman has consulted and informed ministers from time to time on the direction the corporation is going, the board of directors of the corporation has very much been charged with the responsibility of the corporation's mandate. I realize that you would be wrestling with the events of last summer in respect of the extension but that is not the typical way that the corporation conducts its business. It is the only time that I am aware of that the shareholder saw fit to express its views.
MR. BAKER: I guess I am going to try to follow that up because there has been the suggestion made at times that the corporation is largely autonomous except on very fundamental issues which are dealt with in the Gaming Control Act. My concern is that the autonomy of the corporation is compromised by the expression of wishes, it happened in this particular case where Mr. Merrick telegraphed, I guess is the best way of putting it, to you and other members of the board what the province wanted the board of directors to do. It may be a moot point about whether or not you were ordered to do that but clearly it was telegraphed and you would have to agree with me that it was certainly telegraphed to you that the province had a view with respect to the settlement of May 20th.
MS. GORDON: You know, Mr. Baker, it is true that the province's wishes were conveyed to the board but the majority of the board did not make their decision because of the province's wishes. So the board controlled the decision-making process and, indeed, it was open to Ralph and me to dissent, not agree. I did not feel intimidated or forced in any way. It was important to me to know that the shareholder, they, too, had come in. Now, this was about the sixth group as far as I could count and they all thought there should be a settlement too. It began to be persuasive to me that maybe this course that Mr. Fiske and I in support were intent upon was not the right course. That was the value of that process to me.
MR. BAKER: I guess I will shift direction for a second. The contract for the completion date is now September 15th, 1999?
MS. GORDON: Yes.
MR. BAKER: If the casino developer were to come and request a further extension of the construction deadline, would you be prepared to oppose that? I mean this is, you know, in light of past history, it is not unreasonable to foresee the possibility and I guess what I am asking you, for you individually, you cannot obviously speak for anyone else, but would you be personally prepared to oppose that based on the financial interests of the province?
MS. GORDON: I would have to assess, as I believe I am required to do, what is in the best interests of the Gaming Corporation and the Province of Nova Scotia. So we would have to look at our financial position, the pros and the cons, evaluate, weigh, but at the end of that process I cannot at the moment conceive of a scenario where we would extend but, you know, that would be the process. I would not like to say today what we might do if we ever had such an approach but I would expect the board to make the recommendation.
MR. BAKER: Another question, which has to deal with the issue of what the penalties would be in the event of a breach. The difficulty in the past with the relationship between the Gaming Corporation and the casino has been that, you know, no always means maybe, or no has meant maybe in the situation in the past history and, I guess, are you prepared to make it known to the casino that future extensions are not going to be favourably viewed?
MS. GORDON: I agree with your comment that the no that was conveyed last spring perhaps was not conveyed very firmly because of the advice we received later on and I am still troubled by how the maybe developed but if it is in the best interests of Nova Scotia to oppose an extension, that message will be communicated loudly and clearly.
MR. BAKER: I am just going to shift gears. You had indicated earlier in your evidence today that the plan of the corporation was to target high roller out-of-province gamblers?
MS. GORDON: Right.
MR. BAKER: How do you square that with ads on local television which, unless I would be very mistaken, there are not very many high-roller gamblers from Las Vegas who are going to be watching local TV and, you know, clearly there is a very concerted advertising effort being put forward addressed to Nova Scotians and not to out-of-province gamblers and I guess I have a problem with squaring what you just said earlier with the television advertising campaign.
MS. GORDON: Our international, or out-of-province gamblers have not materialized to the level we wish and we continue to target them but the primary market and secondary market - the primary being Halifax and secondary, Atlantic Canada - we have to maintain that market. Until we grow our international market we cannot ignore our local market. Those
sorts of advertising efforts and marketing efforts in Halifax but more particularly in the Atlantic Canadian region, are designed to stabilize and possibly increase that market.
MR. CHAIRMAN: Is this a request to ask a question, Mr. Leefe?
MR. JOHN LEEFE: Yes, thank you, Mr. Chairman.
MR. CHAIRMAN: Very briefly, please.
MR. LEEFE: I will be as brief as I can. Ms. Gordon, a few moments ago you made reference to your responsibility to report to the minister.
MS. GORDON: Yes.
MR. LEEFE: Would it not be under normal circumstances fair to assume that not only would you expect to report through your minister but that you would anticipate that any directive that may be coming from Cabinet would come through that minister to you and to the board?
MS. GORDON: I have not looked at the Act to find out whether directives come from the minister or the Governor in Council. I truly do not know the answer to that question and I have never focused on it.
MR. LEEFE: So clearly it is not a matter that is of interest to you. It does not matter whether you are getting your direction from the Premier's Office or from the minister's office providing it comes from the government?
MS. GORDON: Well, I am not receiving direction, or have not in my capacity, but I thought you were referring to the events last summer and I do not know whether the directive of Cabinet - which is what I believe it needs to be, a directive of Cabinet - I cannot say to you whether that was conveyed via the minister or directly by officials of Cabinet. In fact, I can say to you it was the latter.
[12:30 p.m.]
MR. LEEFE: You have been acting chair under two ministers, Mr. Gillis and now Minister Downe. In the case of either minister, did you have occasion to contact either of them, respecting the views or decisions taken by the board, or did either, in any instance, contact you to express an opinion or render advice, during your time as acting chair?
MS. GORDON: Yes. As a vice-chair, I report on a regular basis to both ministers on the corporate business agenda, the direction the corporation is taking. We account for our
budget, just as other Crown Corporations, and have to justify our business plan, and have it approved in that ordinary process.
MR. LEEFE: Have either of those ministers, the former minister or the present minister, taken an initiative to contact you without being first solicited by you as the vice-chair?
MS. GORDON: We have a broad mandate, for example, the Atlantic Lottery Corporation, the issues that we are struggling with there on profit allocation. I couldn't say to you for a certainty that Minister Gillis didn't call me up and ask me at some stage where that stood, or how we were making out, that sort of thing. I can't say to you, in other words, that I always initiate the calls. But I do have discussions with the ministers on those areas.
MR. LEEFE: It is clear then that in either case, with either minister with whom you have dealt, if either of them did call you, the reason for their call was of insufficient importance that you wouldn't remember specifically?
MS. GORDON: If either of them called me? I call and they return calls. All of the conversations that I have had with them, have been on corporate business, and matters where the corporation is headed on certain matters, largely reporting functions to the ministers.
MR. LEEFE: But you would remember if Mr. MacKay or Mr. Thompson or the Premier called?
MS. GORDON: Yes, about what? If at any time? They have never called me.
MR. LEEFE: You would remember that, wouldn't you?
MS. GORDON: I would think so, because that would be other than ordinary course, that I would expect.
MR. LEEFE: Being called from the Premier's Office is being called from a different level than being called from the minister's office?
MS. GORDON: It is not that so much, I have never spoken to the Premier before. I would remember.
MR. LEEFE: Thank you, Mr. Chairman.
MR. CHAIRMAN: Over to Mr. MacKinnon.
MR. MACKINNON: My first question is to Ms. Gordon. Ms. Gordon, did you or any member of your board ever feel that Dr. Gillis, as Minister of Finance, was "out of the loop" on any matters?
MS. GORDON: No. I had never really focused on Dr. Gillis' role during this April, May and June time period. Obviously, he was involved in July, August, because that memorandum was created, and I presume that flowed out of discussions that Mr. Fiske had with him. Prior to that time, we have established from reviewing the files, that there were various reporting memoranda to Dr. Gillis, so I would have expected, therefore he was in the loop. I am sure I can recall Mr. Fiske saying to me that he had attended one or another meetings with Dr. Gillis, on a periodic basis. But beyond that, I simply can't recall. I couldn't tell you whether they had regular meetings or no meetings. All the files show is that there were briefing notes during that period.
MR. MACKINNON: But the suggestion "out of the loop" kind of implies or leads one to believe that the minister is oblivious to really what is happening on important matters. That simply wasn't the case, was it?
MS. GORDON: Certainly not in my experience. I had no knowledge of that during that period. My experience subsequently with Dr. Gillis is that he is very much "in the loop" and a very detailed person.
MR. MACKINNON: Mr. Chairman, my question to Mr. [Carl] Holm, a couple of little questions here. In previous presentations, Mr. Fiske has alleged political interference, to put it succinctly. Did you, Mr. [Carl] Holm receive any marching orders or directives from Premier Savage or Premier MacLellan as to the terms of the settlement with the Sheraton Group?
MR. CARL HOLM: No, Mr. MacKinnon. The only dealings I had with any of those individuals are as reported in that long letter that I had done, which I think is attendance at the Premier's Office at that one meeting. I guess the only other two events that occurred, which didn't constitute marching orders, I think the last communication I had with Mr. MacKeigan was in early June, he had asked me to send a then current copy of the draft of the minutes of settlement, which I did, for his information. I didn't hear from him again.
In mid-September or thereabouts, I had a call from him asking if I would be able to meet with him, and I think Mr. Spurr, and advise them as to sort of where things were at, current status. I said that no, I couldn't, wouldn't meet with them. My client was the corporation. I would need to have instructions from the corporation. So I didn't meet with them.
Other than as I say, as reported with those two additions, I had no communications with any of those individuals.
MR. MACKINNON: Equally so, Mr. [Carl] Holm, with regard to terms of the settlement, did you receive any directives or marching orders from Mr. David Thompson or Mr. Bob MacKay?
MR. CARL HOLM: No.
MR. MACKINNON: Who in fact made the final call as to the terms of the settlement?
MR. CARL HOLM: I guess the working out of the positions and what would be put forward was really a joint effort on the part of Mr. Fiske, corporation staff, I think Ms. Gordon was there at some of the meetings, and counsel as to the positions that we would advance, what the issues were. So the terms were really as established within the corporation, put to the Sheraton's counsel, negotiated back and forth, until we got to the final documentation.
MR. MACKINNON: My next question would be, what role did Mr. MacKeigan play?
MR. CARL HOLM: In the terms?
MR. MACKINNON: Yes.
MR. CARL HOLM: I think, absolutely none, at least in anything that I was involved in, other than that he, I guess the one thing reported, which he did, which was, I am trying to remember here. Mr. Merrick did report that in advance, I think, of the May 20th meeting, Mr. MacKeigan had called him, and said, well, aren't you going to put these, what I see as positive features of the deal, before the board. Mr. Merrick had reported that.
The only discussion I can recall, if any, I had with Mr. MacKeigan and this was just sort of an aside, was a conversation which I might well have initiated or probably did initiate, was I was scratching my head in respect of all of these other items on the table, and I said to him and he maybe said to me, there is no money involved in any of these, so why are we fighting about them, why can't we push them on and get on. That was just the sort of, he wasn't directing me. We had that little type of conversation, which I probably initiated, because I know it was in my head. He didn't disagree with my view. Other than those types of little sort of conversations, there were none, no directions.
MR. MACKINNON: One final question. Just to summarize, it would be more of a considered opinion that if there was any conversation, inference, direction or opinions translated, it would be more in terms of intervention as opposed to interference? I mean, if you have a client that wants to express his or her opinion, and they have commissioned you to do a job.
MR. CARL HOLM: There certainly wasn't, at least not what I would perceive in the sense of interference, direction, I don't even know if the word intervention is almost too strong. I am not quite sure what the right word is to put on it, Mr. MacKinnon.
MR. MACKINNON: I am satisfied with your answer. Thank you.
MR. CHAIRMAN: Mr. Fraser.
MR. FRASER: I am wondering if you participated in the 14 page first memorandum that went to Cabinet?
MR. CARL HOLM: No, I did not. I saw it at one point, I guess, I think I saw it before the board saw it. I had had a call. I went down to the corporation's office and was shown it to read, by Mr. Fiske. I guess it was indicated to me at the time that it had already gone forward so I took it that I was not really being asked for a whole lot of opinion on it, if it had already gone. I read through it. What I indicated to Mr. Fiske was that although there were many of the statements contained in the memorandum which were, in fact, accurate, that when you read the thing as a whole and took into account what was missing, in my mind, it totally misrepresented what was the situation and what were the terms of settlement, what were the advantages and disadvantages. I said that I had, which had always been my belief, that the corporation had made an agreement and as part of that agreement it had undertaken to move this forward to bring the recommendations to Cabinet.
It was within Cabinet's power to turn down the recommendations or to turn down the amendments to the contract, not the rest of the deal, and so I thought that in going forward with that memorandum there was some danger if the corporation associated itself with it, that it could be accused of acting in bad faith. I told Mr. Fiske that.
MR. FRASER: What would be the consequences if the corporation were found to be acting in bad faith?
MR. CARL HOLM: I guess I never analyzed it through to the end other than I ended up digging out a bunch of cases. You will see I think the material, a very long opinion I did on August 22nd in response to a request from the board. But if a party acts in bad faith in respect to a contract, the other party normally has some rights to sue. What remedies that might be available to the person, I guess that is the part I did not really think through, whether the party could seek specific performance, whether they could - anyway, it could leave you in a very large mess in my view.
MR. FRASER: I will pass.
MR. CHAIRMAN: Mr. Samson.
MR. SAMSON: Mr. [Carl] Holm, in your experience in business law and the different businesses you have been involved with, is it normal for a chairman to go out on his own and write up such a memorandum with such potential consequences without consent of any of the shareholders, or board members in this case?
MR. CARL HOLM: I do not know that it would be unusual, necessarily, for a chief executive or a chair to develop a memorandum which, in fact, got advanced a significant way along the road before a board became aware of it. I think that it would be unusual for a chair to develop a memorandum which, at least to me, appeared not to represent the position of the board and to move that forward without the board's concurrence and consent. In essence, to set the corporation off in a different direction than it was taking, I think that would not be normal.
MR. SAMSON: Was any reason ever given as to why this memorandum was not passed through the board before being presented?
MR. CARL HOLM: No, certainly not to me.
MR. SAMSON: As far as the final settlement that was reached, Mr. [Carl] Holm, I guess with your experience with the corporation and these entire negotiations, what would be your assessment of the final settlement that was reached?
MR. CARL HOLM: I think as I had indicated in the beginning, in my opening remarks, it had seemed to me at the time when the settlement was recommended, and it still seems to me, that it made common business sense to enter into that settlement agreement. There were benefits for the corporation and it did not prejudice any of its future rights. So I thought it was a good deal then or it was an appropriate deal then and I still think that.
MR. SAMSON: As regards arbitration, in your opinion as a member of the board, what were the risks to the province in regard to arbitration?
MR. CARL HOLM: Well, I am not a member of the board and I do not think that is what you intended to say, but as counsel to the corporation I guess the risks of arbitration were twofold. One was that I guess you would lose and they would get an extension and they were actually looking for an extension that was equivalent to the period of delay which would have at that point taken the extension perhaps, if they were 100 per cent successful, to the end of October. There was also provision in the contract which says that if the corporation improperly refused to approve, they could be subject to having to pay Sheraton's costs caused by the delay. That could have been a negative impact.
I guess the other disadvantage I had thought of with arbitration, that even if we won, the corporation had not at that time, as it were, got itself refocused on business. It would be continuing to spend its time focused on fighting with the Sheraton rather than what it should
be doing, which was the business of getting on with building the casino and the other aspects of its business.
MR. SAMSON: The legislation that we have here in Nova Scotia in regard to setting up the Gaming Corporation and the authority, how does that compare with other legislation in Canada?
MR. CARL HOLM: I would not say that I am an expert on the gaming legislation across the country. I have reviewed, or had occasion to look at all of it, I think that the legislation that we have here, and any legislation I am sure can stand improvement, but the legislation we have here is modern. It has the features of separation of the Gaming Authority and the Gaming Corporation, the regulator and the regulated, and I can tell you from experience acting as legal counsel to the corporation that the regulator does get into the face of the corporation somewhat. So in fact there is that sort of tension between the two arms which I think was intended and should be.
There are other jurisdictions, British Columbia, if I remember, British Columbia, the regulatory arm, the minister can merely set up a branch within his department to be the regulator and one body runs the whole thing. In Alberta, the same thing, one body runs its whole thing. Ontario is more akin to ours. But I think even there the authority has less jurisdiction over, and I may be getting into cutting fine legal lines, but I think that the authority may have less authority over the casino corporation in Ontario than the authority has here over the Gaming Corporation. So I guess the only point is that our legislation is far from being in the stone ages and it is as modern as any in Canada and, in fact, I think significantly better than a lot.
MR. SAMSON: How do we regulation-wise, I guess, with the everyday running of the casino, how do we compare to other provinces in that regard as to what is permitted in regard to gambling and how do we stand on that point?
MR. CARL HOLM: I have not really compared the casino regulations. I think that the casino regulations in Nova Scotia by and large came from Ontario. I can tell you that there are some, I do not remember, 80 pages of them. They are very detailed. Whether there are some things that were missed in those 80 pages, I cannot say that somebody else has, but they are certainly extensive.
MR. SAMSON: So what you are saying is our regulations here mainly were compared with the ones used in Ontario in drafting?
MR. CARL HOLM: I believe that was their source. It sort of surprised me, I had clerks in the office trying to dig me out all of the legislation - this is a number of months ago - and I was surprised at how little - which always concerns me, I am sort of afraid they did not
find it - regulatory regulations they found from other jurisdictions, and so I feel particularly cautious in commenting, but there did not seem to be very much.
MR. SAMSON: I know you have done the legal opinion on this question, and it has come up again today with the idea of the board, and how its operation should be with government, and there seems to be some confusion, that you could actually have a board that would be completely independent from government that could run gambling here in this province. I would just ask you, based on the letter that you gave, and your experience of the Criminal Code of Canada, as it relates to gambling, and the Gaming Control Act we have here in Nova Scotia, what role does government play under these two Acts with regard to gambling?
MR. CARL HOLM: I think you are referring to that letter of July 6th, a letter of July 6th or thereabouts that I did. I guess under the Criminal Code, Section 207.(1)(a), it is only the government of a province which can conduct and manage lottery schemes. Casinos are lottery schemes, 6/49 tickets are lottery schemes. My understanding of that section, and my understanding of the regulator's view of that section is that the government has to ultimately be conducting and managing.
If the government is to be conducting and managing, it has to have some method of control. So the corporation can only act as its agent. In Nova Scotia legislation as indicated, the corporation is subject to direction by the Governor in Council, within the context of the Act, it can't direct the corporation to go and get into car dealerships, or what have you. The Governor in Council approval is required for key contracts, and the minister can give directions, again within the context of the Act.
MR. SAMSON: I guess, in that sense, how does the Gaming Control Act, here in Nova Scotia, compare to what is being used in other provinces? Are other provinces setting up these independent boards, separate from what we have done here?
MR. CARL HOLM: I think, as I have indicated, there is sort of a variety of situations existing across the country. In Ontario, it is a Governor in Council that can direct. In Manitoba, well in fact, I think Manitoba, perhaps Alberta and British Columbia, in each case it is the minister by himself, there is no Governor in Council involved there. A minister by himself can direct the corporation.
I think in every instance, and again I would want to do more research before I gave you an affidavit, but I think that in all of the legislation that I can remember looking at, there is that capacity, as I think there in law has to be, for government to direct. And in some cases, it is put to the ministerial level, and in other cases, it is at the Governor in Council level.
MR. CHAIRMAN: Mr. Samson, we are through the 20 minutes, but did you have something else? Go ahead.
MR. SAMSON: Just one, just to clarify for one last time. Is it possible for the Government of Nova Scotia under the Criminal Code of Canada to set up an independent board to run gambling in this province that would not be subject to the directions of government?
MR. CARL HOLM: I guess, no. In my opinion, no.
MR. SAMSON: Thank you Mr. [Carl] Holm.
MR. CHAIRMAN: Mr. Samson, thank you. We have a few minutes, but we have a request to ask a couple of additional questions. We will move through each caucus, but I would ask the members to be very brief. We have procedural matters to deal with.
MR. KEVIN DEVEAUX: Thank you, Mr. Chairman, I just have a couple of quick questions for Ms. Gordon. The first one is a request, Ms. Gordon. Would your board of directors be willing to table the construction schedule for the permanent casino, as it has been provided to you by the company that is actually constructing the project? Would you be willing to table that with this committee?
MS. GORDON: Yes. I don't see any difficulty in doing that.
MR. KEVIN DEVEAUX: When would you see that being able to be tabled? (Interruption) Just asking. I didn't say I wanted it immediately. Sorry.
MS. GORDON: We could table it certainly tomorrow.
MR. KEVIN DEVEAUX: Thank you. The other question I do have, though, is about this weekly construction meeting between yourselves or a management company that you have and the people constructing the casino. How could the stoppage have been a surprise to the corporation?
MS. GORDON: We are looking into that with our construction consultants right now. They meet periodically, weekly usually, but it is possible that they may have lapsed into a bi-weekly thing, particularly with the summer holidays. We were in touch with our consultants last evening and I know that they are talking to their colleagues, and finding out what is going on.
MR. KEVIN DEVEAUX: My concern after today's testimony, Ms. Gordon, from this side of the room, is that the ITT Sheraton is back to their old game of shutting down the project while they are trying to get regulatory changes. The relationship between the corporation and between Sheraton that was always bad, as far as I can observe, is still bad. As far as I can tell, probably always will be bad. So my question to you is, will you resign if it is clear that this good deal has gone sour?
MS. GORDON: Pardon me?
MR. KEVIN DEVEAUX: Will you resign if it is clear that this good deal, as you have called it, has gone sour, and that the Sheraton is up to its old game of putting a gun to the head of the taxpayers of Nova Scotia?
MS. GORDON: I am not sure what good deal goes sour means. As a vice-chair, I have been anxious that a chair be identified and a CEO at the soonest opportunity. I would like to return to my practice of law, and I am carrying the ball in the meantime. It would mean little for me to say that I would be willing to resign. I would be willing to resign sooner if there was someone to replace me.
MR. CHAIRMAN: Mr. LeBlanc.
MR. LEBLANC: I want to ask a question to Ms. Gordon. Who is the management consultant? I think I would like to know that.
MS. GORDON: The construction people?
MR. LEBLANC: Yes.
MS. GORDON: That would be the Hardman Group Limited.
MR. LEBLANC: One quick question, too, in regard to the amortization. I have listened to all the testimony, and if no extension whatsoever - I am going back to the beginning - had been given to Sheraton, they should have completed the project by March 15, 1998, am I right?
MS. GORDON: That is right, March 15, 1998.
MR. LEBLANC: The four year guaranteed term ran to July 31, 1999?
MS. GORDON: That is correct.
MR. LEBLANC: Okay. So, correct me, that is 15.5 months that they would have had a casino constructed if no extensions whatsoever had been given. If that would have happened, the province would have had approximately $31 million of that casino amortized before the four year guaranteed provisions would have been up. Is that right or wrong?
MS. GORDON: That is correct. That is Mr. Fiske's analysis.
MR. LEBLANC: I am asking, is it yours?
MS. GORDON: That is right. We would have had that amount, $2 million times whatever months. I didn't catch your months there.
MR. LEBLANC: I said 15.5 months. So 15.5 months times two is $31 million. There is no way they would have come anywhere close to getting that back on a guarantee in a shadow year.
MS. GORDON: Well, actually . . .
MR. LEBLANC: Go on.
MS. GORDON: Actually, we have done that analysis. There is, it appears, I didn't really want to get into that when I was addressing the $20 million question but even on that scenario, the clawback has quite a significant effect, because you see the permanent is up and going sooner with the higher revenues. So it . . .
MR. LEBLANC: You are assuming that the revenues would have been higher.
MS. GORDON: Well, that is the basis upon which we went forward and made them build it. That the revenues will be higher, otherwise we would be in the interim.
MR. CHAIRMAN: Is that analysis filed with us? I don't think I have seen that.
MS. GORDON: Yes, it is. It is in your minutes, behind August 29th or August 14th tab, I am not sure.
MR. CHAIRMAN: Okay. Thank you. Oh, Mr. MacKinnon has one other question.
MR. MACKINNON: One final question, Mr. Chairman. Ms. Gordon, Mr. [Carl] Holm, thank you on behalf of our caucus for coming here, but I like to always summarize things. Since this entire hearing process began with one individual coming and making accusations of political inference and loss of tens of millions of dollars, to date I haven't seen any evidence to support Mr. Fiske's position, quite frankly.
Is it both your testimonies here today, that number one, there was no political interference; and number two, there was no loss of $20-some million or $30 million as has been suggested by Mr. Fiske?
MS. GORDON: That is certainly my position. I believe this was a good business deal, and that the process followed was appropriate.
MR. MACKINNON: Mr. [Carl] Holm?
MR. CARL HOLM: Yes, I think I have already said that, yes.
MR. MACKINNON: Thank you.
MR. CHAIRMAN: Thank you, and thank you all. I would like to thank our witnesses. If there are any follow-up questions or requests for documents, you will certainly hear from us about that. But thank you for helping us along with the questions we had today.
Before the committee breaks, we have a few quick - I hope quick - procedural matters I would like to turn to. First, of course, you will know, I believe, that the Auditor General is letting us know that he expects to receive back from the printers probably tomorrow, perhaps Friday, his report on the P3 schools and is wanting to know whether the committee would like to assemble tomorrow in order to receive the report and ask questions about it. It is not clear to me whether we have either availability or preparedness on behalf of the members of the committee to do that.
[1:00 p.m.]
There is an alternative route available to the Auditor General, of course. He can simply table the document with the Clerk of the House. It will be deemed then to be a public document and we can take some date later to ask him questions. So I offer those two alternatives. Do members of the committee have any views? (Interruption) I take it you are saying the latter, are you, Mr. MacKinnon?
MR. MACKINNON: Well, yes. Given the shortness of notice, I am speaking for myself here, because of previous engagements it would be almost impossible to come back tomorrow. My suggestion, and I am at the will of the rest of the committee here, would be that the Auditor General table the report with the Clerk and perhaps the next meeting we have we can deal with the report whether it be in camera or open, it is of little consequence.
MR. CHAIRMAN: Is that generally the wish of the committee, that we ask the Auditor General to table the report and make it public in that way and we will meet him on another day? I see nodding and yes, okay, I take it that that is agreed. So, Mr. Salmon, if that is okay, that is how we will proceed?
MR. ROY SALMON: Certainly, Mr. Chairman. I apologize for the short notice. We have been struggling with this audit for some time and I know there is a lot of interest in it, so we wanted to get it into the public domain as early as we could. Tomorrow is the earliest we can. It is not a long report. It was my intention to present it to the Clerk, have it tabled and make copies available to all members of the Legislature through the caucus offices but I wanted to provide the opportunity for a public meeting or an in camera meeting if the committee so wished. So we can proceed as you have agreed.
MR. CHAIRMAN: Fine, Mr. Salmon, thank you. Two other quick points, one is the Legislative Counsel gave us some advice with respect to the position, or protection of witnesses. He just wanted to know if we were intending to make that letter of advice public. Since, on the whole, the letter goes to encouraging witnesses to come and testify before the Public Accounts Committee, it seems to me it would be in our best interests to make that letter public and offer it to anyone who is thinking of coming. Is that agreeable to the members of the committee? All right, thank you. That is agreed.
Next is the whole question of meeting dates. The next meeting date apparently, I am advised by the Clerk, that is free is going to be Wednesday, August 12th. The arrangements in terms of availability of the next witnesses you have asked to meet with, that is to say, Mr. MacKay and Mr. Thompson, seems to be August 26th. So unless somehow their schedules free up, I propose that we ask the Clerk to make definite arrangements with them for August 26th but we should reconvene August 12th if we wish to proceed with other matters or do we wish to leave it until August 26th? Mr. MacKinnon.
MR. MACKINNON: Why not have the meeting on the P3?
MR. CHAIRMAN: Meet on August 12th to hear about P3 and convene with Mr. MacKay and Mr. Thompson on August 26th to continue our other business, is that what I am hearing? Is that all right with members of the committee? Yes. All right, I hear a sufficient number of yeses to make that our schedule for the next two meetings. We will not reconvene then until August 12th when we will deal with P3 schools and we will meet again on August 26th to hear the evidence of Mr. MacKay and Mr. Thompson. Thank you all very much. We stand adjourned.
[The committee adjourned at 1:04 p.m.]
