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Lengthy Port Dispute Gave N.S. Organization, Ottawa a 'Black Eye': Arbitrator

Posted on: Thursday, 16 March 2006, 21:00 CST

By JOHN LEWANDOWSKI

HALIFAX (CP) - An arbitrator has blamed both Ottawa and a Nova Scotia non-profit organization for a long-running legal dispute that delivered a "black eye" to Transport Canada's program to rid itself of responsibility for managing ports across the country.

Bruce Outhouse ruled the society set up to manage the wharf in Digby, N.S., the home of a lucrative fishing fleet, will have to pay back some of the $3 million it received from Ottawa to help operate the port.

But he blamed both Transport Canada and the Maritime Harbour Society for the contentious dispute that began in 2001 when Ottawa sought a legal accounting of the money it said was misspent by the organization.

"By any measure, the situation has been a black eye for those directly involved and for the (federal) divestiture program generally," Outhouse wrote in a decision released Thursday by Transport Canada.

He asked both parties to negotiate a settlement.

"I am not satisfied that there is a true villain in this piece," he wrote in a 89-page decision that was initially given to both parties in January.

"Rather, there is fault on both sides."

Outhouse said Transport Canada failed to provide guidance to the new port operators on how to spend the funds when it divested the operation in 1999 as part as a national program to ends its port operations.

"One could say, with only moderate hyperbole, that the contribution agreement had the proverbial hole in it 'big enough to drive a truck through' and, to a certain extent, that is what happened," said the report.

The report faulted the society for falling short in executing an ambitious business plan, which included acquiring other ports and creating tour boat operations, and for spending some of the funds outside the agreement's guidelines.

The federal government gave the wharf to the Maritime Harbour Society in an agreement that required the organization to run the Digby port for at least two years without reducing its level of service. The $3 million was for a 10-year operating agreement.

Once the agreement was reached, the organization hired a consulting firm to run the port in an exclusive 10-year agreement. In turn, the company placed up to five of the society's directors on the payroll at an annual salary of $52,000 each, to help manage the wharf operation.

The legal battles began after the release of an audit, ordered by Transport Canada in 2001, that examined the arrangement between the society and the subcontractor.

The audit raised questions about how the society used some of the funding, but was unable to determine if the nearly $2 million spent to date went to "eligible expenditures" because the terms of the Transport Canada contract were so general.

The government sued both the society and the consulting firm in 2001 but proceedings against the society were stayed pending arbitration.

In his report, Outhouse said the organization generally followed the guidelines requiring spending be tied to the port's operation.

But he said the society broke spending rules when it attempted to acquire other ports and when it began operating a tour boat out of Mahone Bay on Nova Scotia's south shore, instead of Digby.

Outhouse also questioned whether there was enough work to warrant five full-time directors, but stopped short of determining whether the salaries paid were too high.

Transport Canada had already acknowledged there were problems with the privatization contract and has since made changes, specifically to agreements involving a third party.

"They include tighter contractual obligations between Transport Canada and the port operator concerning third party management of the port," Maurice Landry, a spokesman for Transport Canada, said in an interview."

Landry says Ottawa is now interested in helping the society sell the port operation to the Digby Harbour Port Association, a community group interested in taking over the wharf.

"We've offered to release the society from all obligations under the port transfer agreement," said Landry.

"That would include audits, completing this arbitration process and repayment of $480,000 that would be due if the port is sold before 2009."

Under the federal ports divestiture program, ports were first offered to other federal departments, the province where the port was located, and finally, to other interested parties. No interest in the Digby wharf came from anyone other than the Maritime Harbour Society.

Source: Canadian Press

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