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Grand Trunk Railway Reporting mark: GT

From the mid to late 19th century, the British-owned Grand Trunk Railway (GTR) dominated the provinces of Ontario and Quebec. The GTR arrived in the mid 1850s with the opening of a much-needed line between Montreal and Toronto. By 1859, it stretched as far west as Sarnia, and as far east as Portland, Maine in the US.

Sir Henry Tyler
GTR President, 1872-95
National Archives, R231-2261-5-E

The GTR was owned by a group of private British investors and operated out of London. To raise capital, the railway issued bonds which came attached with annual interest payments. Initially revenue was poor and the railway was often cash strapped. In 1861, the situation was so dire that the government lent the GTR $15 million to cover serious shortfalls.

Following the government bailout, the bonds were converted to preferred shares and the GTR bounced right back. By 1869, according to some sources, it was the largest railway in the world.

It appears much of the GTR's planning was driven by shareholder concerns. The directors chose to play it safe by sticking with established routes that ran adjacent to major waterways. Growth was focused on immediate sources of revenue, rather than on building for the future.

The federal government had other obligations. As a condition of BC's entry into confederation, the government was committed to build a rail line between central Canada (Ontario and Quebec) and BC. The GTR was approached and turned the offer down flat. The company preferred to lay down tracks where the traffic was already flowing. To fulfill its obligations to BC, the government was forced to enact legislation that led to the creation of the Canadian Pacific Railway (CPR).

Sir Joseph Hickson
GTR Manager, 1874-90
National Archives, R231-2272-X-E

By the late 1880s, the CPR was making major inroads into Ontario, long considered by the GTR to be their own private turf. The GTR complained repeatedly and bitterly, citing unfair treatment towards its shareholders due to the CPR's subsidies. The complaints fell on deaf ears. The government had a far greater stake in protecting the CPR than in smoothing the GTR's ruffled feathers.

Under general manager Joseph Hickson, the GTR continued to expand with further buyouts and mergers. Hickson scored his greatest triumph in 1880 by outsmarting the Vanderbilts and gaining access to Chicago. From 1881-90 the GTR solidified its hold in Ontario by adding another 15 railways to its network including its major rival, the Great Western Railway. Hickson was regarded as a shrewd negotiator however his main focus was not on Canada, but rather the United States, where he wanted more control over the Great Lakes.

By the 1890s the GTR's stature had expanded significantly. On the downside however, its infrastructure was aging and it was still not profitable. In 1896 the company decided to employ a bit of American know-how in the form of Charles Melville Hays, a US-born executive from the Wabash Railroad. Hays accepted the challenge.

The Twentieth Century

Under Hays, the GTR finally enjoyed its first taste of profitability. Hays spent money but spent wisely. He began with major upgrades to the infrastructure which included double tracking between Montreal and Toronto. Within a few short years, his efforts had translated into reduced costs and increased revenue, much to the delight of the shareholders. He followed up in 1902 by building an elegant new head office in Montreal. Determined to beat the CPR at its own game, he then began to lay plans for the construction of five lavish new hotels. The final piece called for expansion into western Canada which he believed was the only route to continued growth.

Charles Melville Hays
GTR Manager, 1896-1909
GTR President, 1909-1912
National Archives Ref. R231-2273-1-E

Financially, the GTR was in no position to embark on such a venture. Although the railway always managed to cover its operating costs, it had not been profitable until Hays took over. After an attempted buyout of the Canadian Northern Railway (CNoR) failed, the GTR turned to the federal government and found a sympathetic ear.

The GTR, which for years had focused all its attention on Ontario and the northern US, was now being squeezed on all sides with no room to expand. Meanwhile the government wanted to expand rail service through northern Ontario and Quebec in order to drive more shipping to Quebec City and the Maritimes, home to their primary political base.

In 1903 the two parties struck a deal where the government would build the National Transcontinental Railway (NTR) and the GTR would build the Grand Trunk Pacific (GTP). The NTR would operate from the Maritimes to Winnipeg. In Winnipeg it would connect with the GTP which would run to Prince Rupert, BC. Upon completion, the NTR was to be leased back to the GTR which would operate the two railways as one. Leasing costs were to be based on a percentage of the construction costs.

The deal went sour almost from the very start. Construction began in 1905. Hays had insisted on building the railway to the highest possible standards. By 1908 the chief engineer was reporting serious cost overruns. By 1912 the GTP was running out of money.

Hays had blundered badly. In March 1912, accompanied by his wife, daughter, and son-in-law, he made a trip to London to meet with the board of directors. It was to be his last. Eager to return in time for the opening of the Chateau Laurier, Hays booked passage home on the ill-fated Titanic. Tragically, both Hays and his son-in-law lost their lives in the disaster.

Picture of travel brochure
Travel brochure for Algonquin Park, 1917

Hays, who left no succession planning, was followed in the presidency by another American, Edson Joseph Chamberlin, who had settled in Canada in 1886. Chamberlin lacked Hays' finesse when it came to dealing with politicians. He also had the infuriating ability to inflame an already tense situation by levelling provocative accusations of mismanagement towards the government.

The GTP was completed in 1914 and the NTR in 1915. By then the GTR was in serious financial trouble.

The GTR had never been high on the popularity list of Prime Minister Robert Borden. He mistrusted the railway and while in opposition, had argued extensively against the deal. His earlier concerns were validated when in 1915 the railway, citing costs as a factor, reneged on the agreement to run the NTR. The GTR was cooked. It was just a matter of time.

A Royal Commission in 1916 slammed the absentee management in England, holding them largely responsible for the railway's precarious financial position. According to reports, Chamberlin's performance in front of the committee did nothing to enhance the GTR's badly tarnished reputation.

The inquiry revealed, among other things, that the GTR had paid out an average of $3.6 million in dividends per year to its British shareholders ($30.6 million over 10 years) rather than making much-needed improvements to its infrastructure. At the same time the railway was paying off its greedy shareholders, it was borrowing heavily from the Canadian government just to survive.

The majority opinion (two out of three) held that due to the vast amount of assistance received from the Canadian government, the people of Canada were the rightful owners and the railway should be turned over to them.

In 1919 the GTR claimed it could no longer make interest payments on the GTP. The government swooped in and placed the GTP into receivership. It was quickly nationalized.

The following year the GTR was placed under government management. The GTR was still a going concern however it couldn't possibly generate enough revenue to maintain operations and cover its massive debts to the federal government, which by then totalled over $216 million (over $4 billion today).

The British shareholders were furious and demanded compensation. Both parties agreed that the value of the GTR's stock should be determined by an arbitration panel.

During the arbitration and valuation process, a few embarrassing facts came to light. In particular there were some notable discrepancies between the financial reports released to the shareholders and those provided to the Railway Department. It turned out that from 1912-1920 the GTR had been utilizing an "audit office account" to cook their books. The manipulations depended on whether they were planning to pay dividends or going after government aid.

Shares in the GTR skyrocketed on the London Exchange in anticipation of a favourable resolution. It didn't happen. The railway's stock was found to be worthless. Sir Thomas White, one of the arbitrators, summed it up by writing; "It would be difficult to imagine a more misconceived project than that to which the Grand Trunk committed its credit in this unfortunate enterprise."

The enraged shareholders then hauled the government into court where the two parties battled it out for several years. It was to no avail. In January 1923 the GTR was absorbed into the newly formed Canadian National Railway (CN) and the shareholders walked away empty handed. It has been said that the shareholders never forgave the Canadian government for "stealing our railway."

The GTR's demise was painful, protracted and likely inevitable. Absentee management, negligent planning, limited corporate vision, supreme arrogance, and a rigid financial structure all played a part.

Today much of the GTR's original mainline in Ontario and Quebec remains in use by CN and also by VIA Rail. The name Grand Trunk Corporation is still under CN ownership and continues to be used as a holding company for CN's operations in the US.