OTTAWA - Lawyers for Brian Mulroney and Karlheinz Schreiber are squaring off for their first real tussle at a public inquiry into the business dealings between the former Conservative prime minister and the German-Canadian arms dealer.

The skirmish set for Wednesday is just the opening round of what promises to be an epic battle. But the oral arguments presented to Justice Jeffrey Oliphant will help determine just how far the judge can go in probing the affair.

At issue is the legal yardstick by which Mulroney's conduct should be measured - and, by implication, the question of whether he strayed beyond the bounds expected of a senior public official.

Guy Pratte, the lawyer for the former prime minister, has already offered some preliminary observations in written submissions filed before Christmas.

In essence, the brief argued that Mulroney must be judged solely by the federal ethics code in force when he left office - a code he himself established over two decades ago.

The rules, drafted in 1985 and officially known as the Conflict of Interest and Post Employment Code for Public Office Holders, have been rewritten several times since then by both Liberal and Conservative governments.

But Pratte contends it would be unfair to apply the later, more stringent versions retroactively, or to reach beyond the 1985 code to seek guidance from other legal sources.

Casting such a wide net would be "beyond the commission's jurisdiction, would violate our client' procedural and constitutional rights and would amount to a breach of natural justice," wrote Pratte.

He also pointedly reminded Oliphant that his terms of reference grant him no power to hold anyone criminally or civilly liable.

Schreiber's counsel, backed by lawyers for the current Tory government, urged the commissioner to take a broader view of things.

Richard Auger, representing Schreiber, argued in his written brief that a range of federal statutes, including the Parliament of Canada Act, the Income Tax Act and export control laws could be relevant to the inquiry's work.

Auger also called on Oliphant to take account of the Quebec bar's ethics code and the in-house ethical guidelines of Mulroney's Montreal-based law firm, Ogilvy Renault.

Paul Vickery, a lawyer for the federal Justice Department, added the Financial Administration Act and the ethics provisions of the Criminal Code to the list of legal authorities that should be considered.

"A commission of inquiry is neither a criminal trial nor a civil action for the determination of liability," Vickery acknowledged in his brief.

But an inquiry does have the power to make more general findings of misconduct, he said, and the relevant statutes can help "inform" deliberations.

The debate is more than mere hair-splitting. The legal definitions adopted by an inquiry can determine whether its findings withstand future scrutiny.

Sinclair Stevens, a minister in Mulroney's cabinet, was lambasted by an inquiry headed by Justice William Parker in 1987 for numerous conflicts of interest between his ministerial duties and private business affairs.

But Stevens was eventually exonerated - after a costly 17-year legal fight - when a Federal Court judge overturned Parker's findings in 2004. That verdict is among the legal precedents now cited by Mulroney's lawyers in arguing for a narrow definition of ministerial misconduct.

More recently, former Liberal prime minister Jean Chretien won a judgment striking down the adverse findings against him by Justice John Gomery in the federal sponsorship affair. That decision has been appealed by the Conservative government and the final judicial word has yet to be heard.

The Mulroney-Schreiber affair has been boiling since November 2007, when Prime Minister Stephen Harper first promised a public inquiry.

It took another seven months before he appointed Oliphant, a judge of Manitoba Court of Queen's Bench, to head the probe, and the first witnesses aren't expected to testify until late March - 16 months after Harper's initial pledge.

Mulroney has admitted that, after he left office in 1993, he accepted $225,000 from Schreiber to promote the building of German-designed light armoured vehicles in Canada. He says he tried to line up support among foreign political leaders whose countries might become customers for the vehicles.

Schreiber says the deal was struck before Mulroney left office although the cash didn't change hands until later. He says the payments totalled $300,000 and also claims Mulroney was supposed to lobby the Canadian government rather than foreign leaders.

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