—No. 2.—

Mr. Hawes to the Secretary of the Company.

I am directed by Lord Grey to acknowledge the receipt of your letter of the 23rd ultimo.

Lord Grey has given an attentive consideration to the New Zealand Company's statement of its claims on Her Majesty's Government, and to its suggestions for terminating the discussions so long pending between the Company and Her Majesty's Government.

Lord Grey is ready at once to admit that the Company has established a claim against Her Majesty's Government.

He is, however, very averse to discussing how far the claim in question gives the Company a right to pecuniary indemnification, or to attempting to calculate its amount. He could not do so without disputing many of the arguments, and much of the claim urged by the Company, and he thinks that he can best consult his own sense of the public interest, and what he understands to be the wishes of the Company, without entering into discussions and investigations which would needlessly prolong a prejudicial controversy. Far higher objects even than that of justice to the New Zealand Company are involved in the consideration of its claim. The proceedings out of which that claim has grown, together with the serious errors committed in the general Administration of the Colony, have inflicted on the great body of enterprising Settlers, injuries more to be deplored even than those to which the Company has been subjected.

Those proceedings have so affected the prosperity of the Colony, that though Lord Grey hopes that the efficacy of free institutions, the admirable policy of Governor Grey, and the instructions which have been given to him, will prove a sufficient security to the Colony against future misgovern- page 20 ment, he is obliged to confess that more must be done [unclear: ere] the Settlers themselves and the Public in England can be expected to feel such revived confidence, as can alone give the requisite impulse to the colonisation of New Zealand. Lord Grey is sincerely of opinion that the energetic co-operation of the Company which originally laid the foundation of the Colony, would be materially conducive if it be not absolutely essential to the realisation of this great object. He is, therefore, very unwilling to enter upon the claim ail one to be settled as a matter of account between the Government and the Company. He is disposed to regard the maintenance of the New Zealand Company, and the renewal of its operations, as ends to be promoted even more on large views of public policy than on considerations of strict right. And he is inclined, before resorting to any less satisfactory course, to see whether it may not be possible to put the Company itself in a position by renewing its operations to repair its losses, and at the same time to restore the prosperity of the existing Settlements, and make New Zealand the seat of an extensive and thriving Colony.

From the communications which he has had with the Company, Lord Grey does not apprehend that the present cessation of its operations arises from any doubt on the part of the Company, as to the soundness of the general principles on which it has acted in the formation of its present Settlements. He understands it to be the conviction of the Company that the disposition to colonise New Zealand, though checked by recent disasters, would speedily revive with the belief that the Colonist might rely on security for his person and property; that the renewal of the Company's operations would, in all probability, be followed by the immediate execution of the long proposed scheme of a Scotch Settlement at Otago; and that the impulse thus once again being given, no long time would in all likelihood pass without the formation and even the partial realisation of yet more extensive plans of settlement. The page 21 difficulties which alone prevent the resumption of the Company's operations appear to be, first, the exhaustion of its funds and its consequent inability to meet existing liabilities and defray the preliminary expenses of a new undertaking; and, secondly, the doubt which after recent events the Public entertain as to the degree of countenance from Her Majesty's Government on which the Company may hereafter rely.

When Lord Grey considers of what great importance to imperial interests it is that the colonisation of New Zealand should go on steadily and rapidly, and that the ancient disposition to plant Settlements of Englishmen in Her Majesty's distant possessions should be revived and established, he is not disposed to allow such great objects to be frustrated by difficulties which it is in the power of Government to surmount. At the present moment, he sees no means whereby the settlement of New Zealand is likely to be so vigorously and securely effected as by the operations of the New Zealand Company. He feels convinced that the extinction or failure of a Company whose first efforts were so successful, would operate most fatally in deterring others from embarking in similar associations. It appears to him, therefore, that it is matter of the greatest public concern to enable the New Zealand Company to renew its operations; and that if a state of feeling, in producing which the past conduct of the Government and its officers has unhappily had a share, and the want of the necessary funds, be the only obstacles that prevent the Company from renewing its operations, it is the duty of the Government to take care that an object of great permanent importance is not compromised for want of encouragement and temporary assistance.

Lord Grey is therefore willing to make the Government a party to the fair trial of the experiment, whether the Company can be placed in a position that will enable it after a certain period to continue its operations without further assistance, and with reasonable prospects of success. He is willing, for this purpose, to give the Company the am- page 22 plest means that can be afforded, by the exclusive use of the Crown lands in the Southern Government of New Zealand. He is willing to stipulate for the advance, during a limited period, of considerable sums, for the purpose of enabling the Company to meet its present liabilities and the outlay necessary for the vigorous prosecution of its operations. At the same time, in order to give the Public complete security for the right application of the lands and funds thus placed at the disposal of the Company, he must require that a Commissioner, appointed on behalf of the Crown, shall be present at all the Meetings of the Directors, and have an absolute veto on all their proceedings. While he makes this stipulation on behalf of the Public, Lord Grey cannot apprehend that the Company will regard it as at all likely to prove injurious to its own character, or to the freedom of its operations. The Commissioner will be selected with the assent of the Company, and his instructions will direct him to give full effect to the Company's principles of colonisation. The Company will find that that participation of Her Majesty's Government in its acts, which will be implied by the Commissioner's presence at its Board, will give it additional claims to the confidence and respect of the Public.

Of that part of the arrangement which relates to the advance of money for the purposes of the Company, Lord Grey proposes to limit the duration to three years. A much less period would hardly give the experiment a fair trial; and if, after such a period, the Company should not find itself in a condition to carry on its operations without external aid, there would be little room to expect that a continuance of pecuniary assistance would bring it into a better state. But Lord Grey is sanguine in his anticipation of a more favourable result. On the supposition that the Company will find itself in a position to carry on its operations on its own resources, he proposes, at the end of that period, on obtaining the Company's assent to such restrictions on its page 23 profits and disposal of land as may be requisite on public grounds, to leave the Crown Lands in the Southern Government of New Zealand at the Company's disposal, still keeping the Commissioner at the Company's Board, with his previous powers. The Company would accept this vast grant of land as a full compensation of any claims that it may have had; and it might fairly be expected that the advances which had been made by the Government to place the Company in a position to turn so large a property to account, should thenceforth be regarded as a debt, of which the Company should be bound to reimburse the principal by an annual payment of not less than one-fourth of its clear profits.

In Lord Grey's opinion it is also necessary to provide for the unfavourable, and as he hopes, improbable contingency of the Company's finding itself, at the end of three years, unable to carry on its operations without a continuance of pecuniary aid from the Government. It would appear from the statements furnished in your letter, that the liabilities of the Company will then consist of its debt to Her Majesty's Government, and of certain possible liabilities to third parties. The debt will comprise the 100,000l. which has been, or may be advanced to the Company under the Act of 1846, and such further advances as may be made during the ensuing three years, which are not to exceed 136,000l., but will probably be reduced considerably below that amount by the clear profits of the sales of land which the Company may reasonably be expected to make during that period. The liabilities to third parties will be none but those to which the Company shall, with the assent of the Government, have subjected itself during the same period, together with what Lord Grey is assured can only be some small amount of debt, which may possibly be found due to the Nelson Settlers, on a settlement of some accounts, of which the balance cannot at present be exactly ascertained. Assuming the correctness of the Company's page 24 statements of its affairs, Lord Grey is prepared at once to undertake, that in the event of the Company's finding itself unable to continue its operations, Her Majesty's Government will meet the Company's present claims by remitting this debt, which would be entirely due to the Government itself, and by taking on itself the liabilities specified above. In order to reimburse the Shareholders for the capital actually sacrificed by them, the Government will further consent to take the land at present belonging to the Company, acknowledging in consideration thereof a debt to the Company of five shillings an acre for such land. This debt shall be a mortgage charge on all the Crown Lands of New Zealand, of which the interest, and a certain proportion of the principal, shall be the first payment out of any land fund accruing to the Crown in New Zealand.

The various provisions of the proposed arrangement are stated more in detail, and with more precision, in the accompanying Memorandum. If the Company shall accede to the arrangement, it will be necessary that that part of it, by which the Crown Lands of the Southern Government are to be placed at the disposal of the Company, should be carried into effect by issuing Royal Instructions, limiting the Instructions of last December, as far as they relate to the disposal of Waste Lands, to the Northern Government of New Zealand. The late Instructions will still secure the Company against any obstruction of their plans by the sale of the Crown Lands of the Northern Government at an unduly low price. Those Instructions in fact re-establish in that Government the provisions of the 5th and 6th Victoria, and are not more liable to change than the Act of Parliament itself.

Lord Grey is fully sensible of the importance of guarding Her Majesty's Government and the Company, from the injury to which their combined operations, under the proposed arrangements, would be subjected by the competition of low priced lands in the hands of such individuals as have page 25 obtained them through the profuse grants made by Governor Fitzroy, in absolute violation of his instructions. It appears from recent despatches from Governor Grey, that the total amount of land claimed under Governor Fitzroy's Proclamations, amounts to somewhat less than 100,000 acres. Lord Grey feels little doubt that the instructions which he has sent out, will prevent grants being made for any but an inconsiderable portion of this quantity.

There is another amount of about 77,000 acres granted by Governor Fitzroy, in excess of the amounts awarded by the Commissioners of Land-Claims and the maximum of grants fixed by the Instructions and Local Ordinances. With these it is more difficult to deal, as the grants have actually been issued; and though, apparently, this has been done illegally, they can only be set aside in due course of law. Lord Grey has instructed the Governor, whenever he sees a chance of success, to institute proceedings for setting aside such grants.

Should the Company accede to the proposed arrangement, it will be advisable without delay to proceed to the appointment of a Commissioner; and Lord Grey will at once submit to the Directors the name of the person whom, if approved by them, he would appoint. The Instructions of this Commissioner will direct him generally to concert with the Company such measures as may best carry out that Scheme of Colonisation on which the Company proposes to act. Without now entering into various important details of these Instructions, it is enough to state that the Commissioner will generally be directed to sanction no measure whereby any land is to be granted without sale, or sold for less than twenty shillings an acre, or whereby less than ten shillings an acre out of the produce of any sale shall be applied to emigration. He will also be instructed not to assent to any dividend being made during the next three years, without the previous sanction of Her Majesty's Government.

Having now gone through the principal points which it is necessary to consider in forming the arrangement proposed, page 26 the various details of which will be found stated with more precision and fulness in the accompanying Memorandum, Lord Grey has only to hope that the New Zealand Company will find his suggestions such as they can accept; and that Her Majesty's Government may, henceforth, be enabled effectually to co-operate with the Company in re-establishing its affairs, and effecting the great public objects which Lord Grey and the Directors have sincerely at heart.