The Hand-over

by Elaine Dewar

  I looked up the FIPPA legislation to see what my chances were of getting any information from the University of Toronto. Ontario’s Freedom of Information and Protection of Privacy Act is an Alice in Wonderland legal instrument. It aims to make government-gathered information available to all, while protecting the privacy of those whose information has been collected. For every entitlement to access, there is an opposite requirement to withhold private information about individuals, or companies, or the high deliberations of the Governor-in-Council—the cabinet. Decisions to release information are made by officials according to certain rules, but they have a lot of room for discretion. In other words, the FIPPA is the land of the Red Queen.269

  The Ontario law, like the federal Access to Information Act, appears to say that the default position is that the government must release whatever an applicant is entitled to see. Information may only be withheld if it falls under listed exemptions. However, there is some information that no department head can provide. He/she “shall” withhold information derived from the collection of tax information, or gathered for the purpose of determining a tax liability or collecting a tax.270

  As I read that particular clause I found myself muttering: well there goes any chance of getting a copy of the Bennett/First Plazas Inc. tax credit receipt.

  But I decided to file an application anyway because so many people involved in this gift/sale had acted as if they’d taken a vow of omertà. Their silence shouted: dig harder! Though all of Prichard’s other suggestions had bombed (proof of my father’s adage about free advice being worth what you pay for it), I had nothing other than his FIPPA suggestion left to try.

  I contacted the University of Toronto’s FIPPA office. I explained to its Coordinator, Howard Jones, that I was working on a story that would likely be published on my blog and that I needed information from the University’s files. Jones told me that his office would evaluate my request after the payment of a $5 fee and give me an estimate of how much the search would cost. He also said I would have to pay half up front.

  I wrote a long, detailed request for information about the gift of M&S shares to U of T and their subsequent transfer to Random House. I took it to the University along with my cheque for $5.

  The University’s FIPPA office is on the University’s main campus in the McMurrich Building, a stone-faced structure whose front door is on Queen’s Park Crescent. Earlier generations of doctors had learned their anatomy in this building, so it had once been a place where bodies remained unburied.271 Now that’s an appropriate place to bury the FIPPA office, I cackled to myself as I walked down the stairs into the building’s basement and to the very last door at the end of a very long hall.

  Howard Jones turned a little green around the gills at the size of my application. I explained that I needed to see everything the University had on file about this complicated and controversial transaction because the main participants differed on important facts, or couldn’t remember them. The only way to find out what had really happened was to read the actual documents. I won’t bore you with the list of questions I included in that application. But I will say this. I was pretty sure I’d asked for everything.

  Some time later, Jones let me know that my curiosity was going to cost me about $1000.

  No way, I said, that’s outrageous! By then I had studied the appeals process as set out on the Information and Privacy Commissioner’s website and learned that the cost of an application should not become a barrier to getting information, and institutions covered by the FIPPA must take many things into consideration when asking for payment, including the public interest. This is research on a matter of major importance to Canadian cultural history! I said to Jones. You need to reconsider.

  After reconsideration, Jones informed me that the University had decided to cut its estimated cost in half—to a mere $500. I swallowed hard and delivered a cheque for $250. It soon bounced due to my failure to put enough money in the correct account. I made out a new cheque and took it to Howard Jones and his colleague Rafael Eskenazi with apologies. They were very kind. I resolved to bluster at them no more.

  By the time I made that FIPPA application, I had already begun to publish on my blog what I’d learned about the gift and sale of M&S. I put up one post called “Avie’s Version” in which I quoted what Bennett had said about control passing to Random House in 2004/2005. I calculated a very rough total of the grants that M&S had received just from the Ontario Book Fund and the Canada Council in the subsequent six years. I brought Bennett’s statement and this dollar figure to the attention of the Ontario Media Development Corporation which is in charge of administering the book publishing tax credit (a maximum of $30,000 per book if the correct criteria are met) as well as the Ontario Book Fund. No one there could tell me if M&S had received tax credits because that’s tax information and therefore secret. I asked for an interview and got a phone conversation instead with two OMDC officials—well, one official, and her book publishing advisor. I told them that the former Chairman of M&S had said that control of M&S was transferred to Random House by 2005. I told them that M&S continued to apply for and receive grants that required control of applicants to be in the hands of Canadians. I asked if they would therefore ask for the return of that money. They showed no interest in Avie Bennett’s views on control. They referred me to the definition of Canadian control in the Income Tax Act when discussing how eligibility is established for the Ontario book publishing tax credit, though the website refers to the Inverstment Canada Act definition. The Income Tax Act deems Canadian control to reside with a Canadian shareholder who owns more than 50% of the voting equity of a company, and U of T owned 75% of the shares for the entire period. Besides, they said, they were sure M&S qualified as a Canadian-controlled entity because M&S had produced its own financial statements every year, although what that had to do with the issue of control I was unable to drag out of them. (Did they mean tax returns?)

  I also reported in the blog post what Bennett had told me about how the value of his tax credit receipt had been determined—by the University, without reference to the sale of shares to Random House or by combing through M&S and its books.

  But then, Erin Lemon, Executive Director of News and Media for the U of T, contradicted Bennett’s assertions. She said there had been an independent valuation of the M&S shares. It was done for the University for the purpose of issuing the tax credit receipt by Ernst & Young Corporate Finance. Yet when I checked the Governing Council’s minutes for references to Ernst & Young, I found they had been appointed as auditors to the University for so many years that this had given rise to a debate about whether they were still able to exercise independent judgment. While a review may have been done, was it really independent?

  I put up another post with Robert Prichard’s version of how the gift was made and valued.

  I wrote as well about filing the FIPPA application. I said I didn’t have much hope of getting useful information. Jones had warned that several things I’d requested could fall under the exemptions to the Act. I hereby confess that I also made bets with friends that I would get next to nothing back from the University in exchange for $500. I figured the money was as good as down the drain.

  Publishing people began to read these posts on the blog. Some sent me notes. Months later I would ask myself: did the blog posts prod the University into changing its stonewalling ways?

  The manila envelope containing the University’s response to my FIPPA application was surprisingly thick. I ripped it open. Howard Jones had attached a cover letter. He wrote that the University had found records responsive to my requests, and:

  The University is pleased to grant full access to the responsive records, except for one minor portion of a legal opinion. Although the entire legal opinion falls under solicitor-client privilege, the University is waiving privilege except for one paragraph that contains both legal advice and personal information that are
exempt under FIPPA sections 19 and 21. For context, the University will also provide a Toronto Star editorial and a letter to the editor from former President David Naylor…

  Of course, “responsive to your request” did not mean giving me everything I’d asked for. I focused on those weasel words immediately, which is why I was utterly unprepared for the first document in the pile.

  It was a letter addressed to Jeffrey Richstone, Senior Counsel in the Department of Canadian Heritage, the same Jeffrey Richstone who had given testimony to the Standing Committee on Heritage about how factors concerning de facto control are considered. It was from Avie Bennett’s lawyer N.W.C. Ross of the law firm Weir & Foulds. (The law firm was later styled WeirFoulds LLP. Ross was not just Bennett’s lawyer, but was also listed as an arm’s length director of the Bennett Family Foundation.) The letter, dated June 2, 2000, carried this admonition in bold:

  PRIVILEGED AND CONFIDENTIAL UNDER

  THE INVESTMENT CANADA ACT AND

  EXEMPT FROM DISCLOSURE UNDER

  THE ACCESS TO INFORMATION ACT

  Apparently, that did not make it exempt from disclosure under the FIPPA.

  The letter was a “Request for Opinion Regarding First Plazas Inc. Gift of 75% of McClelland & Stewart Business to University of Toronto and Sale of Remaining 25% to Random House of Canada Ltd.” This request had been sent to Ottawa less than a month before the transaction was due to close, which suggested that Bennett and his lawyer expected unheard of speed from a Minister of the Crown.

  The letter explained that First Plazas Inc., controlled by Bennett, had acquired control of McClelland & Stewart, created in 1906, and that Bennett began to “oversee its day-to-day operation as Chairman” in 1986. The letter outlined Bennett’s problems.

  In recent years Mr. Bennett has been forced to confront several complex issues which do not lend themselves to simple solutions. These issues include:

  ensuring that control of the publishing program remains with Canadians:

  the difficulty of finding a dedicated and capable successor to purchase the entire business;

  coping with the significant losses which the business has suffered, particularly over the last number of years;

  identifying a group or groups that are capable of protecting and continuing to build one of the finest fiction and non-fiction programs in the country (particularly by supporting the McClelland & Stewart business on a secure financial platform);

  identifying a group or groups capable of allowing the McClelland & Stewart business to respond to the significant changes occurring in the publishing environment, including securing better access for McClelland & Stewart authors to international distribution.

  This outline of Bennett’s problems cleverly reframed the main thrust of the Investment Canada Act. It forbids the sale of existing Canadian publishing companies to foreigners, or foreign-controlled entities. Control of the publishing program by Canadians is not the legal issue: control of the publishing company is.

  The other issues Mr. Bennett allegedly faced—the difficulty of finding a capable successor to “purchase the entire business” and “coping with significant losses which the business has suffered, particularly over the last number of years” were the required conditions for exemption from the Investment Canada Act and Book Policy. And yet both statements were direct contradictions of what Bennett had told me about the state of M&S in 2000 and whether he’d tried to find a Canadian buyer.

  He’d told me that he had not tried to find a Canadian buyer. He’d told me that the company was doing fine, that nothing had pushed him out. He’d told me, and Doug Gibson had concurred, that M&S was profitable—not very profitable, but profitable—and not deep in debt.

  The other concerns raised in Ross’s letter—identifying a group capable of “protecting and continuing to build one of the finest fiction and non-fiction programs in the country (particularly supporting McClelland & Stewart business on a secure financial platform),” and, finding a group that can allow M&S to respond to changes in publishing and get better distribution for M&S authors internationally—were certainly issues. But they were not Investment Canada Act issues, not issues that needed a letter of Opinion from the Minister.

  So why were they raised in this letter at all? I think because Bennett had picked the timing for the execution of his exit strategy with Jack McClelland-like care. A federal election was in the offing when he threw himself upon the Minister’s officials with his modest proposal. The phrases in this letter constituted a warning that the leading Canadian publisher was once again in dire straits, just like the rest of the Canadian publishing industry, something no one would want to see on the front pages of the newspapers during an election campaign. After all, the Associate Deputy Minister of Canadian Heritage, the person in charge of Investment Canada Act issues for the Department, Michael Wernick, had testified to the Standing Committee on Canadian Heritage only three weeks earlier. On May 9, 2000, he’d said that the government’s book publishing policy was successful. A report on same was about to issue from the Standing Committee on Canadian Heritage.272

  Ross asserted in his letter that Bennett’s proposal to sell shares to Random House and give the rest to U of T had been discussed in two prior visits to Ottawa (no dates were given in the letter), one made by Bennett and Prichard, the other made by Ross and his partner, John McKellar. Bennett and Prichard had met with several officials, including Michael Wernick.

  The letter explained that Bennett’s First Plazas Inc. had already created a new Ontario corporation as a wholly owned subsidiary called McClelland & Stewart Ltd. This new entity would acquire from the old M&S “the following assets of the M&S business: book rights, inventory, prepaid expenses, a portion of the office lease, office equipment, trademarks and other intellectual property rights and goodwill (including the Tundra Books and Macfarlane, Walter & Ross subsidiaries). M&S will not acquire from FP any cash, receivables, payables, agency business, business relating to The Canadian Encyclopedia or any interest in Canbook Distribution Corp.”

  In return, the new M&S would issue to First Plazas Inc. all its common shares plus a promissory note in the amount of $1,000,000. This note would have a one-year term. If the new M&S was unable to pay back First Plazas as promised, then Random House of Canada would lend M&S sufficient funds to “repay FP,” such loan to bear interest at the then “less than market rate of 6% annually.” First Plazas would then donate 75% of the new M&S’s common shares to U of T “by deed of gift” and sell the remaining 25% of the new M&S shares to Random House of Canada. U of T’s Governing Council, the recipient of the gift, was described as a Canadian entity to which only Canadians could be appointed.

  The new M&S would also maintain the publishing program (including Tundra, Macfarlane, Walter & Ross, New Canadian Library, etc.) “intact.” New M&S would be overseen by a board of seven, five from U of T, two from Random House, with Bennett to be the “initial” chairman. There would be an agreement between the parties including: protection of minority rights, U of T’s right to sell its shares to a third party, but a right of first refusal for Random House to buy the U of T’s shares if such an offer was made (with regulatory approval, said the note) plus something in favour of U of T called “put rights respecting its interest in M&S.”

  I had no idea what these “put rights” were, nor did the letter spell them out.

  As well, the new M&S would sign an Administrative Services and Financial Support Agreement with Random House, which “guarantees the independence of the publishing program under the Publisher.” The first publisher would be the current McClelland & Stewart Publisher, Mr. Doug Gibson. Random House would be obliged to provide all loans required by M&S to operate the business at a lower than market rate of interest. U of T would not be required to provide any funding, and Random House would also provide administrative and back office support “at cost,” including finance, human resour
ces, computer, legal, royalty, production and inventory management services for “a ten-year term.” And finally, editorial decisions would be made by its staff under the direction of its publisher “who will be a Canadian.”

  Eventually, the letter got to the real point of this request for a Letter of Opinion.

  “It is a condition to RHC’s investment in M&S,” wrote Ross, “that M&S receive an opinion of the Minister of Canadian Heritage under section 37(1) of the Investment Canada Act that M&S will continue to be a ‘Canadian’ within the meaning of the Investment Canada Act after the implementation of the RCH investment, and, accordingly, that the investment is not notifiable or reviewable under the Investment Canada Act.”

  The Minister of Canadian Heritage had been granted the right to declare companies to be Canadian at the same time she was granted the right to be notified and to review under the Investment Canada Act any proposed purchases (or mergers) by foreigners of Canadian companies in cultural industries. Such an Opinion is binding on successors provided material facts do not change. The point of the request for this Letter of Opinion was to have the Minister affirm that regardless of the facts of this deal, regardless of the nuanced meanings in law of “arm’s length,” “influence” and “de facto control,” which might otherwise have been brought to bear given Random House of Canada’s role, the new M&S would be treated by the government as a Canadian entity. The transaction would therefore not be subject to review under the Act.

  The letter asked for this Opinion to be issued quickly since Bennett wanted to close this deal by July 1, 2000, that being “the ideal time in the year to complete a transaction of this nature.” Why July 1 was ideal was not explained. All the underlying agreements between the parties had apparently been sent to Ottawa attached to this letter, but they were not attached to my copy.

  Now I understood why Prichard and Bennett had gone to plead a case in Ottawa: Random House had demanded it. With such a written declaration from the Minister of Canadian Heritage (who is also responsible for the Canada Council, and its various grant programs), M&S would have no difficulty applying for federal grants and Ontario tax credits. And wool was pulled over no one’s eyes: this letter subtly made it clear that this Opinion should be issued in spite of Random House gaining de facto control of M&S through this transaction. It itemized Random House’s responsibilities to make loans and operate the business under a ten-year administrative and financial services agreement. As Random House was going to run the company’s finances, it clearly would acquire de facto control. While the letter asserted that the publishing program would be run by Canadians and the owner of the majority of the shares would be a Canadian entity, the word “control” only appeared in the letter when referring to First Plazas Inc.