An Abstract of the Proceedings of the Select Committee of the House of Commons, Appointed Session, 1849, to Inquire Into the Contract Packet Service

by Peninsular and Oriental Steam Navigation Company; Great Britain. Parliament. House of Commons. Select Committee to Inquire into the Contract Packet Se

DISCONTINUANCE OF THE ABOVE ARRANGEMENT.

This arrangement was not remunerative to the Company, inasmuch as the expense of the steam vessel, which, in consequence of it, the Company were obliged to run between Malta and Alexandria, was fully equal to the whole amount of the sum received for the conveyance of the Mails between Southampton and Alexandria, and it also subjected the Company to some additional expenses in carrying on their trade with Constantinople and the Black Sea ports.

The Directors have on former occasions publicly stated that they had, notwithstanding, no intention of breaking up the arrangement, considering it as a link in the chain of extensive postal communication, from which, as a whole, the Company were deriving a large portion of their income.

The Government, however, thought proper to discontinue it, on the alleged grounds of its being unnecessary, and that a saving of expense to the public would be effected thereby. The various memorials from Bombay, praying in urgent terms for its re-establishment, form a sufficient refutation of the first allegation. And the facts—that its discontinuance necessitated the employment, by Government, of an additional packet, to replace this Company’s vessel, which carried the Mails between Malta and Alexandria, at an expense exceeding the whole sum previously paid to the Company—and that the breaking off of an important branch of postal communication could not fail to cause some diminution in the postage revenue—are sufficient to show, that so far from the public being financially benefited by the change, it has been accompanied by a positive loss.

---

Termination and Renewal of the Contract of 1840, for conveying the India and China Mails between England and Alexandria.

The result of the recent proceedings of the Government, in reference to this Contract, has been of a most satisfactory character, not only as regards the interests of this Company, but the interests of other extensive enterprises employed in the Contract Packet Service.

A summary of these proceedings will be found in the evidence of Mr. T. C. Croker, in his answer to question 1306, wherein he read the following précis of them, furnished by the Admiralty, viz.:—

---

“On the 6th January, 1848, the Admiralty gave notice to the Peninsular and Oriental Company, for the termination of the contract, at the end of twelve months, on the 18th January, 1849. Their object in so doing was, to ascertain whether the service could not be done at a cheaper rate. There had previously been correspondence on the subject between the Admiralty, the Treasury, and the Post-office; and the Treasury, by a Minute, dated 4th February, and communicated on the 5th, requested the Admiralty to give this notice. On the 27th of March the Admiralty wrote to the Treasury, proposing that an advertisement should be issued, calling for tenders for conveyance of mails to and from Alexandria. On the 5th of April the Treasury approved. The advertisement appeared in the Gazette of the 21st of April. It was for the monthly conveyance of the Calcutta and China Mails and despatches between England and Alexandria, by way of Gibraltar and Malta, leaving England on the 20th of each month. The contract was to commence on the 8th of January, 1849, and to last at least three years. On the 18th of May two tenders were received, one from the Peninsular and Oriental Company, for the following sums: for the first year of contract, £27,500; for the second, £27,000; for the third, £26,500; for the fourth, £26,000; and so on, reducing £500 for each subsequent year that the contract remained in force, with two vessels of 450-horse power, and a reserve vessel of 250-horse power. Another tender was received from the India and Australia Company for £25,650, offering the ‘Minerva,’ of 400-horse power, 627 tons; the ‘Admiral,’ of 400-horse power, 929 tons; and one spare steam vessel, of 250-horse power. The Peninsular and Oriental Company accompanied their tender by a letter, in which, after stating the grounds upon which they considered that the Government ought not to take away the conveyance of the Mails from a Company which had embarked so much capital in the undertaking, and had performed the service satisfactorily, they propose, that if the contract is continued to them they will submit the accounts of all their transactions connected with the mail service, from time to time, to the inspection of such competent persons as the Government may appoint; and that when the financial position of the Company, with respect to such mail service, shall be such as, after making the customary allowance for the repairs, wear and tear, and sea risk of the vessels and property, a maximum dividend of 10 per cent. can be realised, any surplus of earnings over and above such maximum dividend shall be placed at the disposal of the Treasury, for the benefit of the public. On the 19th of May the Admiralty wrote, that, previous to coming to a decision upon the tender, they were anxious to ascertain whether this proposal, if adopted, might be expected to cause any deduction, and, if so, to what extent, from the account that would be paid by the public if their tenders were accepted; they therefore begged to be informed what surplus of profit beyond a dividend of 10 per cent., after deductions for repairs, wear and tear, sea risks of vessels and property, might be expected, from the calculations the Company were able to make; and whether, in case a satisfactory reply could not be given to this question, two officers deputed by the Admiralty might at once have access to the accounts, for information on that point, and previous to a decision being come to on the tenders. This latter alternative was at once adopted by the Directors of the Company, and they opened all their accounts to the inspection of Captain Ellice and Mr. Bond, who made a report on the subject, from which it appeared that the Shareholders had never received a dividend of 10 per cent., and that the balance of receipts, after payment of all expenses and charges, was not then sufficient for a dividend of that amount; the Admiralty having ascertained that no diminution of the tenders was likely to accrue from this proposal, and, considering both tenders too high, declined them both. The Admiralty then made an offer to the Peninsular and Oriental Company, founded on the mileage rate, viz., 4s. 6d. paid to them for the Lisbon and Gibraltar Line. This was not accepted—but after several interviews with the Directors of the Company, it was signified to the Admiralty that they would be willing to undertake the service for £24,000 a year, diminishing annually by £500, until the expiration of the contract, which was not in any case to cease before the 1st of January, 1853. The India and Australia Company also made an offer, which was, however, not admissible, for it required a fourteen years’ contract; it was for a mileage of 5s. 6d. a mile for the first seven years, and at 4s. 6d. a mile for the remaining seven years. They afterwards modified the offer as to the duration of the contract; and the Government, finding that there were competing offers before them, determined upon affording another opportunity for public competition; and on the 2nd of November, 1848, tenders were again sent in, in accordance with a public advertisement, from the same parties. The tender of the Peninsular and Oriental Company was higher than their offer made in pursuance of private negotiation, though the terms were the same. It was for £26,750, with a diminution of £500 after the first four years, in the event of its being continued, and £1,000 additional a year, if the port of embarkation were removed to Plymouth. The India and Australia Company tendered for £18,450, in two vessels of 400-horse power, and one reserve of 150-horse power; the same vessel being mentioned in both tenders, as in the former one. The lowest tender was directed by the Treasury to be accepted, provided they could furnish satisfactory security for the due performance of the service they were to undertake. Much inquiry and negotiation then took place, and the Company were allowed until the sailing of the last packet provided for under the expiring contract, to prove that they had capital sufficient for the undertaking,—but they failed in showing that they possessed sufficient paid-up capital, and they did not actually possess the vessels mentioned in their tender, so that on the 20th December, the Board of Admiralty closed that negotiation, and having obtained the consent of the Peninsular and Oriental Company to renew their former offer of £24,000, recommended it for the sanction of the Treasury, and it was adopted in the existing contract.”

---

The result of this transaction has, there is every reason to believe, satisfied the Government of the correctness of the opinions which were pressed upon its attention, on behalf of this Company, in the course of the proceedings above detailed, namely:—

1. That fully recognising, as one of the first duties of a Government, the protection of the public interests, by economising the public resources, the mode adopted for doing so, by closing at short periods and re-opening to public tender these large Contracts for the Mail Service, is neither effective for benefiting the public, nor altogether equitable as regards the interests of those private parties who had embarked capital in the formation of the extensive steam navigation enterprises, by means of which these important postal communications were first established.

2. Because experience has amply proved, that capitalists cannot be induced to embark their money in any extensive steam navigation enterprise, intended to compete with one previously established.

3. Because the very act of terminating these Contracts at short periods, and then putting them up to public competition, increases the difficulty of obtaining bonâ fide competitors, inasmuch as no capitalist of ordinary prudence will embark in an enterprise dependent for its success upon its employment in a public service of so uncertain or transient a duration.

4. Because, were it even possible to create a competing Company on so extensive a scale as would be required to perform efficiently the Contract Mail Services alluded to, the two Companies would either, one or both of them, be ruined—or, what is much more probable, for the protection of their mutual interests would coalesce, and thus establish a stronger monopoly than could ever be effected by a single Company.

5. Because it is but just that parties who have embarked so large an amount of capital in the establishment of such enterprises, and who have thereby, as has already been shown, been the means of effecting important public benefits, should have a preference of employment,[5] so long as they perform the public service efficiently, and are willing to do so on terms realising to them no more than a fair commercial profit.

6. That there is no practical difficulty in protecting the public interest, without opening these Contracts to public tender, by either of the following means:—

First, By stipulating for a diminishing scale of payments, on the plan adopted by this Company in their Contract for the Southampton and Alexandria Mail Service. The public, by this plan, derive a benefit from any increase of income which, by the progressive development of their enterprise, the Contractors may obtain from the increase of commercial traffic.

Secondly, By stipulating that, at intervening periods of the Contract, the question of reduction should be submitted to two competent arbitrators, one to be appointed by the Government, who should investigate the Contractor’s transactions, and make an award as to whether any and what reduction ought to be made in the payment for the Mail Services.

The Committee of the House of Commons seem to have recognised the eligibility of the principle of the last mode of proceeding, in the third and concluding resolution of their Report, namely—“They suggest that if it be decided to renew the existing Contracts, the most strict and searching inquiry should be instituted, by some responsible department of the Government, into the cost of the execution, into the manner in which the Service has been performed, and into the profits resulting from the several transactions to the Companies by which they have been respectively carried on.”

This suggestion, it has been shown, was anticipated by the Directors of the Peninsular and Oriental Company, in offering their books and accounts to the inspection of Government.

---

ABSTRACT
OF
EVIDENCE TAKEN BEFORE THE COMMITTEE.

Efficiency of Performance of the Mail Service.

Extract from Mr. T. C. Croker of the Admiralty’s evidence.

1115. Has the contract been well performed?—I can speak from a knowledge of nine years to the manner in which that contract has been performed, and it has been performed most admirably, and has given general satisfaction; in fact, the only fault which has been found with the manner in which it has been performed is, that it has been done too well.

1116. Will you explain what you mean by being done too well?—The vessels arrived sooner than it was calculated they should have done, which was made matter of public complaint.

1176. At our last meeting we had brought your examination down to the period at which the alteration took place in the arrangements between the Peninsular Company and the Government?—Yes.

1177. The Committee then understood from you that up to that period the contract had been carried on, as far as you were aware, in a satisfactory manner?—Highly so; here are the testimonials of the Admiralty as to the satisfactory manner in which the contract was carried on.

1606. With reference to the Indian part of it, is it within your knowledge how far that contract has been performed?—It has been well performed.

1607. Throughout?—Yes.

No Breaches of Contract committed.

Mr. Croker further examined—

1152. Would not the Admiralty agent on board those packets be cognizant of any breach of contract which had occurred?—Certainly.

1153. Do not they make reports to the Admiralty through the officers conducting the packet service at Southampton?—Certainly.

1154. Would not any breach of contract come immediately to the knowledge of the Admiralty, through the report of the Admiralty agent?—Certainly.

1155. Therefore the absence of any such report is direct proof that the contract has not been broken, provided the Admiralty agent does his duty?—Certainly.

Complaints made to the Admiralty against the Company.

1974. At your last examination you carried down a statement of any complaints, or in the absence of any complaints, to a certain date, with respect to the performance of the contracts of which we were then inquiring, of the vessels of the Oriental Company; have you furnished yourself since with any further particulars upon that subject?—This is a précis of the correspondence respecting complaints of the manner in which the contract mail service in the Indian and China Seas has been performed.

1975. At what date does that précis commence?—The 23rd of August, 1846.

1976. Does that précis come down to the present time?—It does.

1977. Who is responsible for that being a correct statement of what has taken place?—Mr. Worth, the head of the packet department.

1978. Have you sufficiently examined that précis to be able to give to the Committee a statement of the number of complaints which are contained in it?—I should say there were three or four complaints; I have read it through.

1979. Were any of those complaints on examination found to be just?—I think the last complaint is at present undergoing investigation.

1980. What is the date of the last complaint?—October, 1848.

1981. Will you state the general grounds of the complaints; were the complaints of the state of accommodation and the conduct of the officers on board, or of the time that the vessels occupied upon the voyage, whether beyond the limited time or not?—The first complaint states that “Lady Mary Wood” was much out of repair.

1982. What is the date of that?—The 23rd of August, 1846.

1983. From whom is that complaint?—Captain Ellice, the superintendent of the packet service at Southampton.

1984. He is a Government officer?—Yes; the complaint was that in consequence she exceeded the contract time by nineteen hours.

1985. By nineteen hours on the whole voyage, or between England and Suez?—The statement is, that in her last voyage from Hong Kong to Ceylon she exceeded the contract time by nineteen hours.

1986. How is it that the Government agent at Southampton makes a report of the state of a vessel in the Indian Seas; did he transmit a complaint from somebody else?—He transmitted a letter from the Admiralty agent on board.

1987. What was the result of that complaint?—“The contractor was acquainted that the Board of Admiralty had been informed that the ‘Lady Mary Wood’ was getting exceedingly out of repair, and requested to be informed when a vessel, such as is required by the contract, will be substituted for her. The contractors stated in reply that the information furnished to the Admiralty was exaggerated; this vessel had no defects but what could be made good on her return to Hong Kong, defects mostly caused by the severity of the passage from that port to Point de Galle; and they inclosed a copy of the carpenter’s report, and extract of the commander’s letter. They further stated, that (as the Admiralty is, no doubt, aware) in consequence of the recent demand in engineering and shipwright work, the builders have not possibly been able to fulfil their contracts in point of time; and the result is, that of six steam ships of 450-horse power building for them, not one is yet completed, though contracted to be delivered within the last year. They fully expect to be able to despatch one of those vessels in substitution of the ‘Lady Mary Wood,’ in November next, and a second of the same class and power about three months after, in substitution of the ‘Braganza.’”

1988. What is the date of that letter?—The 28th of August.

1989. What is the date of the complaint?—The 23rd of August.

1990. What is the date of the complaint transmitted?—That does not appear from the précis. The Admiralty agent employed on the voyage from Hong Kong to Ceylon writes this complaint, which reaches Captain Ellice about the 23rd August, 1846.

1991. What would be the ordinary length of communication between Ceylon and Southampton?—That is arranged by the contract; as I have had very little to do with the contracts in the Indian Seas, I am not prepared to say.

1992. Is it not about five months?[6]—Yes.

1993. Taking it at five months preceding this date of the complaint, they say that another vessel will be ready by November of the same year?—Yes.

1994. What was the result of the complaint as to the want of punctuality in the time?—The contractors were acquainted, on the 23rd of August, with this complaint, and what I have read is their explanation.

1995. The explanation which you have read is with reference to the non-repair of the vessel, it is not with reference to the time at all. Is there any letter from the Admiralty, either admitting the excuse to be satisfactory or otherwise?—The Admiralty seem to have admitted the excuse, for they minute the letter, acknowledging the receipt of it.

1996. Did the Admiralty officer on board the ship report anything respecting the improper state of the ship before leaving Hong Kong?—He stated that the “Lady Mary Wood” was much out of repair in her last voyage from Hong Kong to Ceylon.

1997. It was after his arrival in Ceylon that he made that report?—Yes.

1998. But he does not appear to have made any statement of that sort previous to the commencement of the voyage from Hong Kong?—There is nothing in the précis to show that he did.

1999. What is the next complaint?—“On the 28th of September of the same year, Captain Ellice sent a copy of a letter from the Admiralty agent on board the ‘Lady Mary Wood,’ reporting that vessel having grounded on a bank of sand or mud off the town of Penang, and reporting the deficiency of night-signals on board her; and he states that the vessel was got off on the following day, in a fit state to proceed with the mails, and, it was supposed, would proceed with the mails to China.”

2000. What is the next complaint?—The next complaint is transmitted by Captain Ellice, who sends a report of the survey on the “Braganza,” held at Hong Kong; he sent this on the 21st of June, 1847.

2001. What is the result of the survey?—“A copy was sent to the contractors, and the contractors stated, in reply, that they had transmitted orders, some time ago, to their agent at Bombay, to have this vessel docked on the first opportunity, and had reason to believe that this had been done. They also stated that their new steamships ‘Pekin,’ of 1,200 tons and 430-horse power, and ‘Pottinger,’ of 1,400 tons and 450-horse power, are now stationed on the line between Point de Galle and China, in performance of the mail contract service.”

2002. What is the next complaint?—“On the 2nd of October, Captain Ellice transmitted an extract of a letter from the Admiralty agent on board the ‘Pekin,’ reporting the unfitness of that vessel for the mail service.” This forms a part of Lieutenant Waghorn’s complaint, and is already before the Committee.

2003. What was the result of that; was the complaint decided to be well-founded or not?—I think not.

2004. Was Lieutenant Waghorn a passenger on board that vessel?—I put in his letter on the last occasion.

2005. Will you proceed to the next complaint?—“On the 2nd of June, 1848, the Postmaster-general transmitted an extract of a letter from the post-office agent at Suez, stating that the ‘Haddington’ was detained at that port, waiting for the arrival of cargo, until one o’clock A.M. on the 11th ultimo, although the mails were put on board at ten minutes past five o’clock on the previous morning; and, further, that some of the packages forming the cargo were of an unnecessarily cumbersome size.”

2006. What was the result of that?—The contractors were called upon to state whether they can account for this delay; and in reply they state that they are not aware of this delay, but will call upon the agent at Suez for explanation; that the mails being transmitted by land from Alexandria to Suez, there is seldom any variation in the time of their transit, whilst the passengers and baggage, at the period of low Nile (May and June), are frequently retarded in getting the steamers round the bends of the river; and they apprehend that the Admiralty must have been misinformed as to the size of the packages, the weight of which are, by their regulation, limited to under 100 lbs., four of such packages forming a camel load for the desert passage.

2007. Is there any thing further upon that complaint, because the Company seem to doubt the fact?—Nothing further appears upon the subject of the complaint.

2008. Is there any subsequent report from the Company?—No subsequent report from the Company appears to have been received.

2009. Is there any subsequent complaint?—“On the 3rd of October, 1848, another complaint is made: The Indian and Australian Mail Steam Packet Company complain that the Peninsular and Oriental Steam Packet Company do not employ steam vessels of the size required by the contract, between Suez and Calcutta, and between Ceylon and Hong Kong, and offer to do the service at less expense.”

2010. What is the result of that?—“They were acquainted that they had omitted to state in what particulars they considered the contract with this Company is now infringed, that the Admiralty were not aware that any requirements of that contract are not now observed, excepting that the ‘Haddington,’ temporarily employed in the place of another vessel, is 442-horse power instead of 500-horse power.”

2011. Have you any other complaint?—There is no other complaint, but there is another communication from the Indian and Australian Steam Packet Company. They “enter into further explanation and remarks, and hope the contract with the Peninsular and Oriental Steam Packet Companies may be forthwith dissolved.” That is marked as “read.”

2012. With reference to the complaint to which your attention was called the last time you were examined, from Admiral Collier, what is the result of that?—I have here a paper endorsed, “Complaint of irregularities in the performance of the East India and China contract, in the case of the ‘Achilles.’”

2013. Is that the complaint referred to by Admiral Collier?—It is.

2014. Was there a letter or memorial of the merchants of Hong Kong transmitted by Admiral Collier to the Admiralty?—There was.

2015. What was the subject of that memorial or letter?—The merchants represented to Sir Francis Collier the serious inconvenience which they, “and, in particular, the Canton community, have suffered, and continue to suffer, by the frequent late arrival of the steamers conveying her Majesty’s mails. The delay seems to have arisen from the steamers being generally unable to keep the time contracted for by the Admiralty, for the performance of the several distances, as will be seen, we believe, by the reports sent home by the Admiralty agents, appointed to the several steamers. The time slowed is very ample, rendering it seldom necessary to exceed a speed of eight miles per hour; and had the steamers been the superior class of vessels contracted for by the Admiralty, and ‘keeping pace with the advanced state of science,’ no difficulty in performing the passages within the specified time ought ever to be experienced. An improvement has lately taken place in the class of boats, by the arrival of other steamers; but the system adopted, and particularly, of late, of overloading them, and to such an extent as to render it necessary to carry a large quantity of coal on deck, tends to perpetrate the evil, and to create even greater detention than before, while it greatly endangers the lives of her Majesty’s subjects, and the safety of her Majesty’s mails. It is our opinion, that on several occasions it may solely be attributed to unforeseen and fortunate circumstances that the steamers have been enabled to reach their destination. Considering the large sum given by her Majesty’s Government for the purpose of carrying the mails, and also that thereby the Peninsular and Oriental Company are enabled to have a monopoly of the traffic on this side of Egypt, we think the mercantile community have reason to expect that, at all events, the contract shall be faithfully adhered to, and that the steamers shall not be allowed to carry beyond a certain and safe amount of cargo;” and they request Sir Francis Collier to call the attention of the Lords of the Admiralty to the subject.

2016. Was that transmitted by Admiral Collier?—It was transmitted to the Admiralty by Admiral Collier.

2017. What was Sir Francis Collier’s remark or observation when he transmitted that memorial?—Sir Francis Collier’s letter does not appear to be in this correspondence, but I presume it can be produced.

2018. What was done in consequence of the transmission of that memorial?—“A letter appears to have been written on the 11th of April, 1849, by the Secretary of the Admiralty to the Peninsular and Oriental Steam Navigation Company, enclosing a copy of the memorial which had been received from Sir Francis Collier, and the Company were acquainted that the Board of Admiralty trusted that they had already taken steps to prevent the recurrence of the delays complained of.”

2019. Will you read any previous letter on the same subject which was laid before the Admiralty by the Peninsular and Oriental Steam Packet Company?—“Admiralty, 6th March, 1849.” (This is from the Secretary of the Admiralty to the Peninsular and Oriental Steam Packet Company.) “Gentlemen, it having been represented to my Lords Commissioners of the Admiralty that the contract steam packet, ‘Achilles,’ was delayed in her voyage from Point de Galle to Hong Kong, in November last, she having sailed from the former place on the 29th of that month, and not arriving at Hong Kong until the 23rd of December; thus being 175 hours beyond the time allowed by the contract; I am commanded by my Lords Commissioners of the Admiralty to call your attention to the circumstance, and to acquaint you that it appears that the place intended for coals on board the ‘Achilles’ was occupied by opium chests, and the coals placed on deck, and the vessel overloaded; and that my Lords are informed that her arrival at Hong Kong, 175 hours after she was due, was owing to the excess of cargo, and to the negligent and lazy manner in which the vessel was coaled at Singapore.”

2020. What was the result of that letter?—The secretary of the Company answered it on the 10th of March, 1849—“I have the honour to acknowledge the receipt of your letter, dated 6th instant, calling the attention of the Directors of the Company to a representation which has been made to the Lords Commissioners of the Admiralty, that the Company’s contract steamer, ‘Achilles,’ was considerably delayed upon her voyage from Point de Galle to Hong Kong, in November last, and that such delay was owing to the excess of cargo, and to negligence in the coaling at Singapore. In reply, I am instructed to express the great regret with which the Directors have received this communication, and to acquaint you, for the information of their Lordships, that a rumour having already reached them that some representations of the kind had been addressed to their Lordships, the Directors, by the mail of the 24th of February, wrote to the Company’s superintendent at Bombay, calling upon him for full and immediate explanation of the circumstances. Until the receipt of his report it will be impossible for the Directors to say how far the allegations in question are well founded; but, in the meantime, they are anxious to state that their standing instructions to all the agents and officers of the Company are, that the punctual performance of the mail service is to be ever regarded by them as paramount to every other consideration, and that any departure from that principle will be visited by the Directors with the utmost severity. The Directors take this opportunity of acquainting you, for the information of their Lordships, that having found by experience that no commercial house, however high its respectability, can represent the Company so efficiently at foreign stations as an officer of their own, they, by the last steamer, despatched Captain Sparkes, lately the Company’s superintendent at Southampton, to relieve the firm at present acting as the Company’s agents at Singapore, in the superintendence of the Company’s affairs at that port, and they feel every confidence that he will actively and zealously discharge his duties at that station. The Directors also think it right to state, that from such information as they are at present in possession of, they have reason to consider that the representation which has been made to their Lordships is exaggerated, both as regards the extent of the delay of the ‘Achilles,’ and the alleged causes thereof.”

2021. This letter is of the date of the 10th of March, 1849; what is the date of the memorial of the merchants of Canton?—The 29th of December, 1848.

2022. Was there any corresponding complaint or representation from the Admiralty officer on board the vessel to the Lords of the Admiralty?—I cannot state.

2023. Was not the first letter which you read in consequence of the official representations made to the Admiralty, through their officer, as to the delay of the “Achilles,” previous to the reception of the memorial from Hong Kong?—I have no doubt it was.

2024. The Company say, in the letter of the 10th of March, that they can give no answer to the complaint made of misfeasance in the contract between Ceylon and China, til they shall receive a report from their agent at Bombay?—They state that they wrote to their superintendent at Bombay, calling upon him for an immediate explanation of the circumstances.

2025. Do you know that the service is now performed from Ceylon to China by a vessel that starts from Bombay, and picks up the mail there?—I believe it is so.

2026. What was the result of those communications; did the Admiralty come to any decision upon them?—On the 12th of March, the Admiralty acquainted the Company that they “were gratified to learn that they had despatched an officer of their own to act as superintendent at Singapore, and who may be able to prevent the recurrence of the delay complained of.”

2027. Nothing was done by the Admiralty but to express their satisfaction that the Company had sent out an agent to Singapore, as an answer to that complaint of the Company overloading their vessels, and being out of time?—The Admiralty subsequently sent forward the letter I have read from the merchants, stating, “that their Lordships trust you have already taken steps to prevent the recurrence of the delays complained of.” The Admiralty appear to have done nothing more; the matter is still in the course of investigation; it is not yet closed; the explanation has not yet been received from the Company.[7]

2028. Have you any other complaints?—No.

Charge of corrupt Jobbing, and Favouritism by the Admiralty towards the Peninsular and Oriental Company.

Examination of Mr. Andrew Henderson—

2138. Am I to understand that you make two complaints: first, that there was no opportunity for tendering; and, secondly, that the price was too high?—Yes.

2139. Were you during the period, from the beginning, in 1844, to the time at which the contract was finally signed, in constant communication with the Admiralty?—I used to go to the Contract Packet Office, which was the only place I could go to; I could get no answer to my letter.

2140. Did it come before the Board?—It appears not; Mr. Sidney Herbert told me that he had never heard of it.

2141. On the 8th of August Mr. Sidney Herbert told you it was open to you to send in any contract that you wished?—Yes.

2142. Did you send in a contract, offering to do the service with efficient vessels for £60,000?—No; I gave this proof that it could be done; but I made no tender for it, because I had no vessel for it.

2143. Your opinion was, that £60,000 was an adequate price, and that the public in general, and you in particular, ought to have an opportunity of making a tender; did you tender to do the service at that price?—In reply to that question I may state, that early in December the representative of the “Precursor,” Sir George Larpent, and myself, waited upon the President of the Board of Control, and asked him to take care that our interests should be considered, and we received an assurance that they should be considered; and in the scheme for the mails it is particularly stated that those two vessels were ready, and it was suggested that they should take alternately the mails with the other two vessels.

2144. I ask you whether you did or did not offer to do the service for £60,000?—I can hardly say whether you can call it an offer, but I submitted a scheme by which it was shown that it could be done for £60,000; contracts were not advertised for, and therefore we were not in a position to send in contracts.

2145. You placed in the hands of Mr. Crofton Croker a lithographic statement, from which you considered the inference might be drawn that £60,000 would be sufficient for that service?—Yes.

2146. Was that statement anonymous, or was it guaranteed by any name?—It was guaranteed by my own name; and the same thing was stated in the plan submitted to Government; and that plan has, every bit of it, been carried out since.

2147. My only object is to come to an accurate understanding of the facts; I understand your grievance to be, that the more expensive tender, from the Peninsular and Oriental Steam Packet Company, was accepted by the Admiralty, when a cheaper contract might have been had from other parties, and that, in your judgment, £60,000 a year would have been ample for that service; is that so?—My complaint is, that the proposal of the Peninsular and Oriental Steam Packet Company to undertake the Bombay mails was not accepted, but that they were allowed to adopt all my plans, and I was refused all participation in it. It could not be called a contract, it was not the time for a contract; contracts were never asked for; but there was clear evidence given that, if we were allowed to take it, it could be done for £60,000.

2148. You complain that an unfair advantage was allowed to be taken of you, by the Peninsular and Oriental Steam Packet Company?—Certainly; I complain that they were allowed to take advantage of my plans and to adopt them, and that I was not allowed to compete for the contract.

2149. In your plan, you said it could be done for £60,000?—Yes.

2150. Your general plan has been adopted by the Peninsular and Oriental Steam Packet Company?—Yes; my plan was distinctly opposed to theirs. Their plan was this: the vessels which were bound to go every month to Bengal, they purposed that those vessels should go to Bombay, and that once in every two months those vessels should go to Calcutta. That was, in point of fact, reducing the present communication, from a separate mail to Bombay and Calcutta, to one mail to Bombay.

2151. Your complaint was, that you were excluded from the opportunity of competing for the contract?—Yes; and that my plans were adopted.

2152. You have put it on record, that on the 6th of August the Chancellor of the Exchequer stated to you, that he had given no authority for the conclusion of the contract?—Yes, he said that he had nothing to do with it.

2153. On the 8th of August, two days afterwards, you have put it on record that the Secretary to the Admiralty told you that it was quite open to you to send in any tender you pleased?—Yes.

2154. And it was therefore open to the public in general, and to you in particular, to put in a tender thereupon?—I sent in a distinct tender for the China mail.

2155. But we were speaking of the service for which you say £60,000 was ample; viz. the Suez and Calcutta service. Confining yourself at present to that, you were told by the Chancellor of the Exchequer, on the 6th of August, that the contract was not concluded, and you were told by the Secretary of the Admiralty, on the 8th of August, that it was open to you, in particular, to send in any tender for the conveyance of the mail from Suez to Calcutta?—I was engaged in the other one at the time.

2156. Then is there any grievance at all as regards your being deprived of the mail from Suez to Calcutta?—Certainly, a very great grievance.

2157. Be as good as to explain what that grievance is?—The grievance is, that the “India” and the “Precursor” were not allowed to participate in the advantage.

2158. Then, whether the sum paid for the service was £60,000 or £170,000, your grievance is, that the “India” and the “Precursor” did not come in for a share of it?—That is one point; but, on public grounds, I maintain that the sum given was a great deal too large, and that that sum was not given to merchants and shipowners in India, but to a London company.

2159. To whomever it was given, £60,000 would have been the sum for which shipowners would have been ready to do the service?—Yes.

2160. You had a knowledge of the fact, at the time the tender was open to you, that it could be done for £60,000?—I had not money enough to do it.

2161. Were you not in communication with all the principal shipowners who signed the petition?—Yes.

2162. Did you get up the petition which was presented on the 8th of August?—I did.

2163. Are those parties whose names were signed to it parties who had capital to compete for a good contract, if it was to be had?—Certainly.

2164. Did they, or any of them, send in a tender to the Board of Admiralty to do this service for £60,000?—No; they stated their belief that it was of no use to send in a tender, as it would not be attended to; that the contract would be sure to be given to the Peninsular and Oriental Company, whatever they chose to ask.

2165. Did you tell Mr. Green, and all the other parties who signed the petition, that Mr. Sidney Herbert had told you that it was open to you to send in a tender?—My impression is that it was known to them, but Mr. Green said, “No, let them alone; they are too strong for us.”

2166. Then it was known to Mr. Green, and all the other parties who petitioned, that they had an opportunity to make a tender?—The expression they used was, that it was taken out of their hands, and that it was of no use their doing it; but I do not know that I saw Mr. Green after that time.

2167. Do you mean to represent that the principal shipowners having information that the Secretary of the Admiralty had stated that the contract was open, were nevertheless of opinion, that if they offered to do the service for £60,000, the Board of Admiralty would still give the contract to a party who required a much larger sum?—I hardly know how to answer that question. I cannot say that I saw Mr. Green after the petition, but his impression was that it was of no use to compete with that powerful Company.

2168. Do you mean to represent to the Committee your opinion that while the Board of Admiralty told you that you might compete if you pleased, they had in point of fact made up their minds to give the contract to the Peninsular and Oriental Steam Packet Company at a much higher price?—That was our firm belief, that they had made up their minds to give it to them. This I know as a fact, that when the matter was handed over from the East India Company, and the East India Company had nothing to do with it, the Peninsular and Oriental Company asked £170,000, and they had it all their own way; but the East India Company said that they would not pay more than a certain amount annually; they were to pay a certain proportion, but they said, “We will do nothing of the kind; you may do as you like: we will have nothing to do with it beyond paying a certain amount.”

2169. Did it occur to you that if so scandalous a spirit of jobbing as you describe had actuated the Board of Admiralty, you might have put them completely in the wrong by offering a contract from parties competent to perform the service for £60,000, which you laid down as the proper sum?—I can answer the question in this way: it is all very well to say, “Why did you not send in a contract?” but it is a contract that required a large capital and great arrangements. It is impossible to make all those great arrangements in two days; the Peninsular Company, by obtaining under false pretences £20,000 for the Calcutta mail, had put all other parties out; and if you say, “Will you make a contract in a couple of days now for £60,000?” it is impossible; it requires a large fleet and great capital. Mr. Green has a large fleet, but they are employed in other parts; and his expression was, “It is of no use competing with the Peninsular Company, for they are too powerful for us; their influence is so great.”

2170. You mean to represent that all the shipowners in London acquiesced in the opinion that public money to a large amount was going to be given from favouritism to the Peninsular and Oriental Steam Packet Company; but that it was of no use, on account of the secret influence which the Peninsular and Oriental Steam Packet Company had got at the Admiralty, to contend with them?—That was my own individual belief, and the petitioners, I think, agreed in that.

2171. Did you lend a large share in the drawing up of this petition?—I did.

2172. Is it your composition?—I do not know that it is.

2173. In the petition you object not to one contract in particular, but to the system of contracts altogether?—We object not to the whole system of contracts, but to the system under which it has been carried on; in the first place, there are put into the contracts conditions which are never acted upon; that I consider extremely wrong; it keeps all honest men away.

2174. The stringent conditions put into the contracts keep all honest men away?—That is going too far; I mean to say that you are asked to agree to very strict conditions, which a man cannot honestly say, “I agree to.” If the condition says that if I am half an hour behind time I shall forfeit £500, a man naturally asks himself, “Shall I enter into the contract? for if those clauses are inserted, I am a ruined man, and therefore I cannot guarantee that.”

2175. If you and your friends had tendered this service for £60,000, you would have required more reasonable conditions?—I should have no objection to being bound to all reasonable conditions. The late contract for the mail to the Brazils is as it ought to be; there is no kind of trap of so many hours; the condition is simply this, the ships are to be efficient vessels.

2176. No honest man, in your opinion, would have undertaken such a contract as that which the Peninsular and Oriental Company undertook, for £60,000?—What I mean is this, that no honest man would undertake a thing which he was not competent to perform; for instance, he would not undertake that the passage shall be a certain number of hours; and putting in those strict conditions would prevent an honest man from taking part in it.

2177. I understood you to say, that no honest man would undertake, and therefore I presume you would not have recommended anybody to undertake, so strict a condition as that of which we are speaking?—I am afraid you are putting a wrong construction upon what I said; I say, no honest man would undertake a condition which he could not honestly say he could perform. If I bound myself to go in a certain number of hours between certain points, an honest man would say, if that was a great speed, “I cannot bind myself to accomplish that.”

2178. That would prevent an honest man from complying with the conditions imposed upon the Peninsular and Oriental Steam Packet Company?—That is putting it in the other way; I am certain that I would have taken the contract, because I know that Government would not exact the penalty.

2179. You would have taken it, though an honest man would not have taken it?—I am afraid you are misinterpreting me; you use the words “honest man” in a different sense from that in which I use them. I mean to say that an honest man could not honestly undertake to do a thing which was almost impracticable; but, as I know the Government would not have exacted the penalty, I would have taken the contract if I had had an opportunity; but I had no opportunity.

2180. You would have taken the contract?—Yes, anybody would take the contract for £170,000 a year; nobody would have refused it.

2181. You were under the impression that the Peninsular and Oriental Company were so strong that nobody could compete with them?—Yes, and that is the impression now.

2182. That was your impression at the time you lent your aid to the drawing up of that petition?—Yes, it was.

2183. It was the impression, you believe, of the parties who signed the petition?—Yes.

2184. Is that, in point of fact, one of the allegations of the petition?—I do not know.

2185. Are not the allegations of the petition totally of a different effect; are they not against contracts in general?—Certainly not against contracts in general; they are against contracts being given without fair competition; they are not against contracts generally, for contracts must be had somehow, but they should be fair and open.

2186. The prayer of the petition is “that public money granted for the purposes of steam navigation shall be applied, not for the exclusive advantage of any companies or individuals, but so that all engaged in shipping may fairly participate therein, or equally compete; therefore affording to your petitioners the opportunity of showing to your Honourable House the truth (if doubted) as to facts and principles of all the statements of this their humble petition.” If you were under the impression that the Admiralty were actuated by so corrupt a spirit that it was not of any use for solvent parties to send in tenders, will you explain to the Committee why it was that you left that out, as one of the allegations of the petition which you drew up at the time?—I do not understand the question.

2187. Your grievance was, that you were shut out from fair competition by a corrupt predetermination at the Admiralty to exclude you, and to give the contract, at all hazards, to the other Company?—In answer to that, I state the fact that I was not allowed to compete with them in any way.

2188. You have told me that you did not send in a tender to the Admiralty, and that you prepared a petition which you presented to Parliament; that petition contains no allegation of such a corrupt predetermination on the part of the Admiralty; having, therefore, such a feeling in your mind at the time, you neither put it to the test by sending in a tender to the Admiralty, nor did you venture to state that in the petition to the House of Commons?—The petition will speak for itself; it is there.

2189. There is no such allegation in the petition. What information has come to your knowledge, since you petitioned Parliament, which justifies you now in making such an improbable statement here, viz., that there was that corrupt predetermination at the Board of Admiralty?—I did not use the word “corrupt.”

2190. Have you learnt anything since you presented the petition, which justifies you in making a charge now, which you would not have been equally justified in making then: it appears that the petition presented on the 8th August, 1844, contains no such charge of favouritism against the Board of Admiralty; what information have you received since that time, which you think justifies you in making the charge now?—I think it is self*-evident that there most have been favouritism, or the public would have been admitted, and also from the way in which the contract has been carried out. The Peninsular Company have several times broken their contract, and no penalties have been exacted. There was one distinct case of favouritism, which was this: one of the reasons assigned to me why the China contract was given to them was, that the Peninsular and Oriental Company had offered to do it with vessels of 400-horse power for £45,000 a year; apparently at the same price as our tender. but ours was to be reduced the third year, and theirs was to continue at the same rate; but their condition was, that they were to find vessels, from the 1st July, 1846, of 400-horse power, and they failed to do so; and in consequence of their not providing those vessels, the vessels were overworked, and the mails were delayed; but yet the penalty has not been exacted, and that arises from favouritism.

2191. Is your impression that it is one part of the duty of the Admiralty to take care that the parties tendering are in the possession of efficient vessels, and are men of sufficient property and respectability to afford a security that the contract will be performed?—My opinion is, that a contract of that kind is a matter which ought not to be left to the Admiralty; it is a matter more concerning the Board of Trade than the Admiralty; and it is all a mistake for one department of the Board of Admiralty to have the management of it.

2192. Be so good as to inform me whether you think the Government, in making a contract, are bound to foresee, as far as may be possible, whether the parties will really be able to fulfil it. You have stated that the Peninsular and Oriental Company have repeatedly broken or not performed their contract. Do the Committee understand you to mean that it is one part of the duty of Government to take precautions beforehand, that the parties who make a contract shall be capable to perform the contract?—It is their duty, but I believe in that instance they neglected it.

2193. Do you think that if they had selected the owners of the steamer “India,” they would have selected people more competent to perform the contract?—To perform the China line; and I may state as the reason, that we gave them a distinct account of the number of ships at work there; the expense of the ships, and also a description of the seas; and the very letter which I wrote to them, as to the necessity of having a peculiar kind of vessel for the China seas, has turned out perfectly true; and the protest, of which we heard at the last meeting of the Committee, was in consequence of that. The letter sent in to the Admiralty stated that the Calcutta Company were in a better position to do that local service than the Peninsular and Oriental Company, who have so many interests to look after.

2194. The reason you did not compete with the Peninsular and Oriental Company between Suez and Calcutta, was the impression that you had that there was a determination at the Board of Admiralty to favour them. Did you make any attempt to compete with them between Ceylon and Hong Kong?—As to Suez and Calcutta contract, it is like asking a man who has his hands tied behind his back, to swim; as to Ceylon and Hong Kong contract, the answer is plain enough on record, that we sent a tender and got no answer.

2195. Am I right in understanding you to say, that you abstained from competing with regard to the service between Suez and Calcutta, because you thought the Peninsular and Oriental Company too strong for you?—That was one reason expressed by many persons; but if you ask my reason for not competing, it was this: when I proposed to tender, the “Precursor” party were in possession of the “Precursor,” but in the interim the Peninsular and Oriental Company very advantageously obtained possession of the “Precursor,” and we had no large vessels, and it was of no use tendering without them.

2196. The reasons for not tendering for the contract between Suez and Calcutta were two-fold; first, because there was favouritism at the Admiralty, and secondly, you had not the means of making the tender?—If the tenders were reasonable, I ought to have had the means, because we ought to have been allowed to build vessels; when they had bought the “Precursor,” we were not in so good a position as we had been in before.

2197. If it was an object with the Government to make the contract immediately, you would not be in a condition to make a tender?—There was no necessity for a new contract; there was no necessity for any change then, but it was got up by the Peninsular and Oriental Company, by political agitation.

2198. I understand you to say, that if there was to be a contract immediately, you were not in a condition to tender for it, as far as regards Suez and Calcutta?—I was in a position to tender for it, if reasonable tenders had been allowed.

2199. By reasonable tenders you mean that the Government, instead of taking for the service ships that were then ready to do it, should have waited eighteen months, in order that you might be put in the same position?—There was no necessity to wait, as the ships were bound to carry the mails, whether there was a new contract or not.

2200. Your opinion is, that there was no necessity for a new contract?—No, not for five years.

2201. In your opinion there ought to have been no contract at all?—Not for the Bengal and Suez line, for five years.

2202. What ships were bound to carry the mails?—The three ships which were bound to do the service were bound to maintain a monthly communication.

2203. By what engagement?—By an engagement with the East India Company they were bound to make a monthly communication for £20,000 a year.

2204. Was there any such arrangement with the East India Company?—Yes. I had ascertained that there was that arrangement by correspondence, which is the usual way with great companies.

2205. Did you ever read the correspondence which passed?—No; I know that certain deputations went; when I came home from India, I found among the papers of the East Indian Steam Company a document proving the terms upon which they were to undertake it.

2206. Was it not an offer of the East India Company to give £20,000 a year upon certain conditions?—Certainly not; there was no offer of the East India Company.

2207. Your impression of the correspondence that you saw was, that it was a distinct engagement on the part of the East India Company to give that sum, and a distinct engagement on the part of the Peninsular and Oriental Steam Packet Company, at all hazards, to perform the service?—Yes; but I should go farther than that, in explanation.

2208. Your impression is, that it was an engagement binding upon both parties; that the East India Company were bound to pay that sum, and that the other parties were bound to perform the service, whether they liked it or not?—My answer to that is, that this £20,000 a year originated in an amalgamation, or at least a pretended amalgamation, between the East Indian Steam Company and the Peninsular and Oriental Steam Packet Company, in 1841. But inasmuch as on 14th October, 1839, the East India Company had replied to the East Indian Steam Company in London, and again in Calcutta, on the 27th of May, 1840, to the inhabitants of Calcutta generally, “that to any well-devised measures, by which the established means of communication might be extended, the Court would be ready to afford due encouragement; but in the present state of circumstances they are unwilling now to enter into any arrangement affecting the measures in progress regarding the communication between Suez and Bombay;” that letter and publication was considered as an engagement on the part of the East India Company to support the extension of a line between Calcutta and Suez. The consequence of that was, that the “Precursor” built for, and the “India” was employed upon that line, under the supposition that they would, when they had adopted this measure, be remunerated. A junction was proposed between the small section of the London shareholders of the East Indian Steam Company and the Peninsular and Oriental Company; and what I say is, that they communicated, either by deputation or by letter, with the East India Company, and proposed that they should give them a grant of £20,000 a year, holding forth that the three parties were to be united. This was a long time in abeyance, but some time in July, as it appears to me, the proposal of the Peninsular and Oriental Company was accepted by the East India Company; but at the time it was accepted, it was accepted upon the recorded opinion that the interests of the “India” and the “Precursor” party were likely to be amalgamated with those of the Peninsular and Oriental Company who had made the offer, and that upon certain terms which are there stated; they were granted the 20,000 a year provided they made four voyages the first year, six voyages the second year, and maintained a monthly communication the third, fourth, and fifth year, with vessels of 500-horse power, between Calcutta and Suez.

2209. Am I to understand you to state that the proposal or contract to which you referred the other day, that the steamers should be 500-horse power, originated with the East India Company?—No, it originated with the Peninsular and Oriental Steam Packet Company.

2210. Then that excluded the “India?”—Yes; the conditions are already in evidence, in answer to question 1819.

2211. What was the date of that condition which required vessels of 1,600 tons and 500-horse power?—It was a proposal made originally by the Peninsular and Oriental Company, early in the year. I believe it was accepted about the middle of July, 1841; but I was not in this country at the time.

2212. From that time to the present, the “India” was excluded from the benefit of the arrangement?—She was excluded in this way——

2213. Was she of the requisite horse power?—I was going to state how it was proved that she was not.

2214. That arrangement was made in the year 1841?—Yes; the arrangement was made by the Court of Directors in July 1841.

2215. Then the “India” was from that time excluded from the benefit of the arrangement?—Under the clause requiring 500-horse power, the “India” was excluded; but the Peninsular and Oriental Company proposed to purchase her, and after a good deal of squabbling they offered us £23,000——

2216. We do not want to go into that matter; but I understood you to say that by the original conditions imposed by the East India Company, in 1841, the steamer “India” was excluded from the benefit of the arrangement?—She was excluded, but the Peninsular and Oriental Company asked them to accept her.

2217. In your former examination, in answer to question 1835, you stated, “The 500-horse power was put in purposely to exclude all but the Peninsular Company’s vessels.” Will you state upon what grounds you attribute to the Admiralty, in 1844, a condition which appears to have been in force against you, by the orders of the East India Company, as early as 1841?—I had intended to commence the examination by referring to my statement with respect to that very case. It is so put here that I really cannot understand it myself, and I must request to be allowed to make the explanation of horse power; if you will allow me to make the explanation of what I mean by horse power, I shall be able to make my answers intelligible.

2218. Are you a person of experience in nautical matters?—I profess to know all that a man who has devoted his life to the subject can know of the building and working of ships.

2219. And not only sailing ships, but steam vessels?—Yes.

2220. Are there two meanings to the term “horse power!”—No; “horse power” has no meaning at all; if you will allow me to give an explanation I can state what it is.

2221. Before you give your explanation, allow me to ask this question, whether you mean to say that the term “horse power” has no meaning?—It has no meaning as to the capacity of ships for carrying the mails; that I assert.

2222. Then when the East India Company, in 1841, put in a clause that no vessel employed in carrying the mails should be less than 500-horse power, they put in a clause which had no meaning at all?—The East India Company never put in the clause at all; it was put in by the Peninsular and Oriental Company, with the very object of excluding us.

2223. Whoever put it in, it had no meaning?—No, it has not, to my knowledge.

2224. Then, having no meaning, it had no operation or effect?—It had the effect of excluding any other vessels but their own, so long as it was allowed to remain.

2225. How did it have that effect?—The Peninsular and Oriental Company having vessels of 500-horse power, which no others had got, they of course obtained the contract.

2226. You came here, on the previous day, charging the Admiralty with having, in 1844, made a certain condition for the purpose of excluding you, and you have now stated that that condition was in force under the arrangement made by the East India Company as early as 1841. Will you have the goodness to explain to the Committee how it is that you attribute that to the Admiralty in 1844, which appears to have originated with the East India Company in 1841?—I was mistaken if I said it originated with the East India Company; it originated with the Peninsular and Oriental Steam Packet Company. The horse power of a vessel gives no means of knowing what the efficiency of the vessel is. There is a good deal of the evidence of the former day which is of no use, unless you allow me to explain what horse power is. Those answers, as they stand, I cannot understand myself.

2227. Do you mean to say, that unless you are to be allowed to show that the ordinary words “horse power,” when introduced into a contract, render that contract unintelligible, you cannot explain your case?—I never said that. May I be allowed to state what I do mean; it takes a little time and a little trouble to explain the meaning of “horse power.” The putting in the “horse power” had no reference to the efficiency of the steam vessels.

2228. Whatever the horse power meant in 1841, it meant in 1844?—Yes; but you are mistaken in supposing that I attribute it to the East India Company putting in that condition; I attributed it to the Peninsular and Oriental Company.

2229. We have here a contract made in 1844, by the Admiralty on one side, and the Peninsular and Oriental Company on the other; and you charge the Admiralty with having introduced a certain condition for the purpose of excluding you, and of favouring the Peninsular and Oriental Company?—No; I said that the Peninsular and Oriental Company introduced the condition as to the 400-horse power.

2230. How did they introduce it?—Because they proposed it.

2231. Do you find fault with a competitor for having proposed vessels of a higher horse power than yourself?—I do; because they did it to keep all other Companies out.

2232. What would you have had the Admiralty do?—I would have had the Admiralty go and ascertain what the vessels were, and not go upon the nominal horse power.

2233. You complain of the Admiralty going upon the individual horse power?—-I do; it is a wrong system.

2234. Why do you complain of the Admiralty having done that in 1844, which we find was part of the existing arrangement between the East India Company and the Peninsular and Oriental Company in 1841?—The question of horse power began with the Peninsular and Oriental Company in 1840.

2235. And I to understand from you, that in your opinion the Admiralty should have laid down no general condition about horse power, but should have inquired into the capabilities of each particular ship; is that your view?—Certainly, that is one view; But as you said, just now, I had stated that the Peninsular and Oriental Company had originated that condition about horse power; that is the hinge upon which all the mischief has turned; and I will now, if I may be allowed, explain how it occurred.

2236. The hinge upon which all the mischief has turned, has been that condition about horse power?—Yes.

2237. Whatever imputations you have made against the Admiralty of favouritism, have turned upon improperly requiring a compliance with that condition?—I do not say that; I say the two things are quite distinct; but if you will allow me to state how it did occur, I can explain it; I have a statement here to show how it originated, and another statement to show what “horse power” really means. I beg to state that the question of horse power originated in 1840, and it was the proposal of the Peninsular and Oriental Company; it originated with them, and not with the Admiralty or the East India Company.

2254. Do you impute corrupt conduct to the Admiralty, in reference to the ship “India?”—Certainly not; I think the Committee are labouring under a mistake in that respect.

2255. If, in any part of your former examination, you have been understood to impute either to the Board of Admiralty, or to any other Government department, any favouritism towards the Peninsular and Oriental Company, to the exclusion of their competitors, you have been misunderstood?—As far as the facts are on record, I could get no answer to my tender; I imputed certainly not a corrupt motive, but I said that all along I believed they were under a mistake, induced by this nominal “horse power.”

2256. In answer to question 2216, you stated that in 1841 the steamer “India” was excluded, by the conditions imposed by the East India Company, but that the Peninsular and Oriental Company wished them to accept her?—Yes, that is so.

2257. It was, therefore, the East India Company, and not the Peninsular and Oriental Company, who insisted upon the higher amount of horse power?—The two things are quite distinct.

2258. Do you adhere to your answer to question 2216?—So far it is correct that she was excluded, but the Peninsular Company, after they had bought her, urged the East India Company to accept her, and said she was an efficient vessel; they had abused her before, but they then said she was efficient.

2259. Are you now speaking of 1841?—Yes.

2260. Whose property was the steamer “India” in the year 1841?—She was the property of the Comprehensive party, who sent her out; at the time this negotiation was going on she was in Calcutta; I do not know what particular month this alludes to.

2261. It does not signify where she was?—It occurred in this way: we will say it was in June; two months would alter the matter altogether; there was a negotiation; the Peninsular and Oriental Company told the representative of the “India” in this country, Mr. Mackillop, that they would amalgamate with him; but the moment they got the engagement signed, they abused the “India” as much as they could; but when they found they could get her for little or nothing, then they said they would take her for £23,000, and they said “We will take her if the East India Company will pay £20,000 for her hire.” And then they write to the East India Company, and they say, notwithstanding the condition about the 500-horse power, that she was an efficient vessel.

2262. That was the opinion of the Peninsular and Oriental Company?—Yes; after she was theirs.

2263. But at that time it was not the opinion of the East India Company, and they refused it?—Yes. If you will allow me to explain, I will show that there is a wide difference between the mail contract and the engagement made with the Peninsular Company.

2264. In your opinion the Admiralty, making the mail contract on behalf of the public, were bound to accept a vessel that was not good enough for the East India Company?—I never said so; but perhaps you will allow me to put in an explanation of the horse power; I have taken great pains in preparing it.

2265. This vessel, whatever be her merits, was rejected by the East India Company in 1841, though tendered by the Peninsular and Oriental Company at that time?—She was rejected in a different way——

2266. She was rejected, whatever the mode of rejection?—The mistake is this: you fancy me to have said that the nominal horse power was fixed by the East India Company or by the Government; now that is a mistake; neither the one nor the other fixed it.

2267. Can you answer the question whether the vessel was or was not rejected by the East India Company?—She was rejected because the Peninsular Company had proposed the condition with regard to 500-horse power.

2268. Was the steamer “India” tendered to the East India Company at the suit of the Peninsular and Oriental Company in the year 1841, and rejected by the East India Company?—I was not in this country at the time, but it must be in the records of the Company.

2269. Do you believe that your answer to question 2216 was a true answer?—Yes, it was a true answer.

2270. And your case now against the Admiralty is, that they rejected in 1844 the same ship which the East India Company had rejected in 1841?—I cannot see that they have any reference to each other.

2271. Do you complain of the steamer “India” being rejected by the Admiralty in 1844?—Yes.

2272. She having been rejected by the East India Company in 1841?—It was not for the same service, but for a very different service; but she was, in fact, employed upon the line.

2273. I understood you to complain, that in the year 1844, the Board of Admiralty laid down a certain condition with regard to the horse power of the vessels to be employed in conveying the mails between Suez and Calcutta, which condition excluded the steamer “India?”—Yes.

2274. I understood you also to say, that that very same condition as to the horse power had been previously laid down by the East India Company, and that in the year 1841 the steamer “India” was pressed upon the East India Company by the Peninsular and Oriental Company, who had expected to buy her as a good bargain; and that the East India Company, being so pressed, refused to accept her?—I can now explain it.

2275. Is all that true?—Partly so, but not in the way you put it.

2276. But are the facts true; yes or no. I have collected the facts from your previous answers, and am putting them to you again; if any one of them be inaccurate, point out the one which is inaccurate?—You ask whether she was rejected in 1841; she was. But allow me to give the reasons.

2277. Was she rejected for the service between Suez and Calcutta in the year 1841?—She was refused to be received under a certain engagement.

2278. Did the East India Company, in the year 1841, refuse to accept the “India” steamer for the line between Suez and Calcutta?—Yes, but that had no reference to her capacity as a mail steamer.

2279. Be so good, then, as to explain the difference between the two cases?—The difference was this: in 1841 it was the voluntary proposition of the Peninsular and Oriental Company to undertake the communication between Suez and Calcutta, with vessels of 520-horse power; it was not for a mail contract, a mail contract not being necessary; and they put in the 520-horse power with the intention, I believe, of shutting out the “India” and other vessels. It was for a passenger line, not for a mail line, because the same mails were carried by Government vessels to Bombay, and therefore there was no necessity for a mail line, or for her service as a mail packet; but it had been an object of great consideration, both by the Government at home and the inhabitants of India, to have a passenger communication with Calcutta the same to which the remuneration had been promised. The “India” was on the spot, about to establish that, and the “Precursor” was being prepared to extend it; the Peninsular and Oriental Company came in with an engagement to do, for, apparently, a very small sum, what those vessels were then about doing; that was for the purpose of maintaining the passenger communication between Calcutta and Suez. They offered to do this with vessels of 520-horse power as a passenger line, which was, of course, a good deal better than doing it with vessels of 300-horse power, because the object was the accommodation of passengers, and, no doubt, a vessel of 520-horse power must have a great deal more accommodation for passengers than one of 300-horse power; and therefore, in asking the East India Company to accept a vessel of 300-horse power, instead of a vessel of 520-horse power, they were simply asking them to take a very considerable sum off their engagement. That was a very different thing from carrying the mails, which the “India” might have done; and, in fact, the experience of one year has proved that she was capable of doing it.

2280. You having stated your view of the reasons which influenced the East India Company, whether you are right in your view of those reasons or not, the fact was, that the steamer “India,” being pressed upon the East India Company by the Peninsular and Oriental Company, was rejected; is that so?—I understood that she was rejected, because it was not——

2281. Whatever were the reasons, was the fact so?—Yes.

2282. And your opinion was, that the Admiralty ought to have made in 1844 a different set of conditions, which would have included the steamer “India?”—I think the Admiralty, having the plans and specifications of the ship “India” before them, ought to have judged from them as to the sufficiency of the vessel, and not from the nominal horse power.

2283. Do you think that if a public department, instead of laying down specific rules to which all parties must conform who make engagements with regard to the specifications of particular vessels, that would be a better mode of excluding favouritism than the mode which is now pursued?—Most assuredly it would be a proper mode.

2284. Am I right in understanding that the “India” was, afterwards, employed upon this very line by the Peninsular Company?—Yes, and they got £15,000 a year by her. They bought her for less than £15,000, and they patched her up for £1,000, and then got her surveyed in 1845, and she remained for two or three years in the contract ready to be employed, after being so patched up.

2285. Was she there as a reserve vessel?—Yes.

2286. Was there any difference in the specification of horse power for a reserve vessel, in comparison with the vessels which were to carry the mails regularly?—Yes, there was a difference, and she was admitted upon that.

2287. What was the amount of horse power required by the contract for a reserve vessel?—I suppose it must have been less than 300-horse power.

2288. Have you seen the contract?—Yes, but I do not recollect whether it was 300 or 250-horse power.

2289. Is it not customary that the reserve vessel is of less tonnage than the vessels which are regularly performing the voyages with the mails?—Yes, it is so, and we intended her to be so originally.

2290. When you tendered the “India,” did you propose her as a reserve vessel, or as one of the regular vessels to carry the mails?—We proposed her for the China line.

2291. You never proposed her for this line at all?—We could not.

2292. With reference to the Ceylon and Hong Kong contract, in the year 1844, did you tender the steamer “India” for the Ceylon and Hong Kong contract?—-Yes.

2293. Your intention being that the mails should be carried as far as Point de Galle by the Peninsular and Oriental Company, and taken up at that point by you, and carried in your ships to Hong Kong?—Yes.

2294. How many vessels would that service have required?—It would have required three vessels.

2295. How many vessels were you in possession of, at that time?—We had one vessel.

2296. Where did you intend to get other vessels from?—We offered to hire them in India, where we had four or five at our disposal.

2297. You said the other day that it was not possible for you to guarantee any particular vessels in the Indian Seas as being obtainable by you for that purpose?—We stated in the tender that we would hire such vessels as we could procure, but we could not do that, because no time was allowed.

2298. You said the other day that the “India,” being a paddle ship, and over-built, was not particularly well qualified to deal with the typhoons in the China seas?—She was not the vessel that I would have chosen.

2299. You also told us that you had in your eye, as one of the other vessels of the contract, a steamer which had gone to China in the year 1830?—Yes.

2300. Will you be so good as to state what, according to your intention, was to have been the third ship by which the contract was to be performed?—The tender states that two vessels were to be built within a year for that purpose.

2301. But, speaking of time present, you intended to employ the “India,” and to take the chance of a steamer which went out to China in the year 1830, and to take the risk of your being able to pick up a third vessel; was that your intention?—Yes; but a company, of which I was a large proprietor, had five ships in India besides the “India.”

2302. Was that company, of which you were a large proprietor, able to guarantee that there would be other vessels to perform the contract?—Certainly. I made this tender quite certain that they would be very glad to employ their vessels there.

2303. Why, then, did you say, in answer to question 1931, that you could not guarantee any vessels?—If we had not time to offer it to them, and get an answer from them, I cannot say that they might not turn round and refuse to let us have the vessels.

2304. Did you expect the Admiralty, in the absence of any guarantee, to form a contract with you to take the “India,” which in your judgment was bad of her kind, as one ship, and to take a steamer which went to China in the year 1830, and which you thought you probably could get as a second ship, and the chance of some third ship then in the Indian seas; upon that basis, did you expect the Admiralty to form a contract with you; was that so?—What I expect is stated in my former evidence.

2305. The “India” lay for a long time for sale in the London docks, did she not, in 1839?—I think, for three or four months, she lay there for sale.

2306. Was she not put up for sale at Lloyd’s?—Yes, I believe she was.

2307. Who were the owners of the “India” when she sailed for India?—An old gentleman from Norfolk, a Mr. Banyan, was the registered owner.

2308. He was not the real owner?—Yes, he was a real owner; she belonged to a company got up by Captain Ross, and he represented them.

2309. When she went to India, was she not mortgaged?—Yes, she was.

2310. To what amount?—She was under two mortgages, I understood, but what the other mortgage was I do not remember. There was $20,000 advanced to the builders, as stated in answer to question 1814; but she was not under mortgage when I tendered her for contract mail service. The real owners were some forty residents and natives in India, and seven firms and individuals in England, who purchased her from the mortgagees, and established the India Steam Company of Calcutta in 1841.

2311. You have stated that the “India” has been running on the line between Calcutta and Suez?—I never said that she was running on the line; she was employed on the line; she was receiving a certain portion of the money paid for the contract. I suppose about £15,000 a year would be her proportion.

2312. Are you aware that she never left her moorings?—Yes.

2313. The Peninsular and Oriental Company bought her, did they not?—Yes; after a desperately hard bargain.

2314. Are you aware that she was full of dry rot at the time they bought her?—Yes, but I am aware that they deducted £1,300 from the £15,000 which they engaged to pay, in consequence of that; and I am also aware that they told me it would require £15,000 to repair her when they offered £23,000 for her; and I sent in the same drawings that I had sent in to the Admiralty, and offered to do it for £8,000, upon which they said, we will give you £15,000.

2315. Are you aware that the “India” has been broken up?—I never heard it till now.

2316. You stated that the Peninsular Company sent out to the China line two old vessels?—Yes, they were used in the Peninsular lines.

2317. What were their names?—The “Lady Mary Wood” was one, and the “Braganza” was the other.

2318. Are you not aware that in 1844 the “Lady Mary Wood” was only two years old?—Yes, I know it perfectly.

2319. Would you call her an old vessel?—Yes, she had been a good deal used there; the best proof of her age is, that she was inefficient before she could be relieved.

2320. How do you know that?—I have heard so.

2321. Are you aware that the “Braganza” was within a few months of the same age as the “India?”—I do not know that; I know that she had some repairs before she went there; such repairs as I should have given the “India.”

2322. You said that you expected to hire in India a vessel called the “Fire Queen?”—I never said a word about the “Fire Queen;” the “Fire Queen” we had nothing to do with; the vessels which I mentioned are mentioned here.

2323. It is in the answer to question 2135: “In Bengal, the ‘Forbes,’ ‘India,’ ‘Dwarkanauth Tagore,’ ‘Henderson,’ and ‘Gordon;’ at Singapore, ‘The Royal Sovereign,’ ‘Express,’ and ‘Windsor Castle;’ on her passage out to India, the ‘Fire Queen,’ built for a Calcutta Company?”—If you look you will see that those are mentioned as the ships that are in India, I did not say that I had them; that is a quotation from a letter to Mr. Sidney Herbert, stating that there are those vessels there.

2324. But the India Steam Company possessed no other vessel than the “India,” did they?—No.

2325. In one of your answers you stated first, that “no honest man,” which you afterwards qualified by saying, “no man intending to act honestly, would sign a contract with such stringent clauses and penalties for over-times on arrivals?”—I did not say, “no honest man” would sign it. I said that you would not like to undertake such things, if you could not honestly undertake to do them.

2326. Did you allude to the penalties for non-arrival in proper time?—Yes.

2327. I suppose you have read these contracts attentively?—Yes.

2328. And know them by heart, probably?—No, I do not think I know them by heart.

2329. Has it escaped you that there is this clause in the contract: “The contractors are not to be liable to any penalties under this contract for any matters arising from circumstances over which they and their servants had not and could not have had any control, and which shall be so proved to the satisfaction of the said Commissioners?”—I do not recollect that particularly; there was some such clause.

2330. Did you ever see that clause before?—I see that if a vessel should have a very foul wind and could not get on, that clause would perhaps meet that case. But there are a great many causes from which an engine might break down, which would not be provided for by that clause.

2331. You particularly specified stringent clauses, and alluded to the penalties for arrival after time; you said that the clauses were so stringent that no honest man, or no man intending honestly, would sign the contract, because there were penalties for arriving over time?—I was speaking then with reference to the tenders, which I got in 1840. This is the contract I was speaking of. I saw that the first condition was, that they were to be properly built and efficient vessels of 400-horse power; and then there are a number of clauses which I have marked here; the result of them is, first, that the contract was to provide for the passages being performed in a certain number of hours, under a penalty of £500 for twelve hours’ delay.

2332. With such a clause as that you would be afraid to make such a contract?—It exactly amounts to what I say; it is of no use to put such a condition into a contract, except to keep people away.

2333. In answer to a question put to you by the Chairman (1816), which was, “Whatever the nature of the arrangement between the India Company and the Peninsular Company was, the result is that they received £20,000 a year for five years, from the spring of 1841, for doing certain services; is that so?” you answer, “Yes.” Is that answer correct, that for five years they received £20,000 a year?—That is a mistake; they were to receive that.

2334. For how many years did they receive that £20,000 under the letter of the East India Company?—For two years.

2335. You have been speaking about screw vessels; did you ever command one?—No.

Inspection of the Company’s Affairs by the Government.

It will have been observed, from the evidence of Mr. Croker of the Admiralty (see page 27), that in consequence of the Directors offering to the Government the permission to investigate the accounts and books of the Company, the Admiralty appointed Capt. A. Ellice, R.N., the comptroller of steam machinery, and previously superintendent of the packet service at Southampton, together with Mr. W. H. Bond, an experienced accountant, connected with the civil department of the naval service, to make that Investigation. The following is their Report, which, although it was considered by the Admiralty as a confidential one, and therefore not to be published without the consent of the Company, the Directors had no hesitation in permitting to be produced to the Committee, and which has, accordingly, been published in the Appendix to the Committee’s Report.

Report by Captain Ellice and W. H. Bond, on the Peninsular and Oriental Steam Packet Company.

Sir, Admiralty, 17 June, 1848.

In obedience to their Lordships’ instructions of the 30th ultimo, I have inquired into the matters therein mentioned respecting the Peninsular and Oriental Contract Steam Packet Company, having called to my assistance, for this purpose, Mr. W. H. Bond, purser of her Majesty’s navy; and I have now the honour of enclosing the Report thereon for their Lordships’ information.

H. G. Ward, Esq.,
&c., &c., &c. (Signed) A. Ellice.

This Report being founded on certain documents which were confidentially placed in my hands, I consider that this Report should be confidential also.

(Signed) A. E.

Admiralty, 16 June, 1848.

In compliance with the instructions of the Lords Commissioners of the Admiralty, contained in their minute of the 30th ultimo, “To ascertain whether the profit of the voyages between Southampton, Malta, and Alexandria, have been such as would provide a dividend of 10 per cent. per annum on the capital, after the ordinary deductions of wear and tear, and sea risk of vessels,—if the directors had not thought fit to invest a portion of their profits in the extension of the stock, by the purchase of additional vessels:”

“Also to endeavour to institute a comparison between the expenses of carrying on the mail services by the company, and those which are incurred by her Majesty’s naval service in similar duties:”—Application was made to the directors of the Peninsular and Oriental Company to furnish a copy of the balance-sheet for the last half year, ending the 1st March, 1848, together with such other documents as would serve to explain the various items contained in it. These being furnished, the readiest access was afforded to the ledger and other books of the company, for their verification.

As these accounts are kept so as to include all the operations of the company, without distinguishing the profits on the different branches, it became necessary, in order to carry out the spirit of their Lordship’s instructions, to inquire into the state of the company’s affairs generally; and to conduct this inquiry in such a way as to arrive at a satisfactory conclusion on the following points:—

1. Whether the postal duties performed by the Peninsular and Oriental Steam Company are proportionate to the amount paid for those duties.

2. Whether such duties can, with advantage, be transferred from the contract steam vessels to those of her Majesty’s navy.

3. The propriety of throwing these duties open to public competition.

4. The expediency of accepting the Peninsular and Oriental Company’s proposal for a modification of the terms of the contract.

Upon these important points the most careful and mature consideration has been bestowed; all the documents have been closely examined and compared with the books of the company, and the following are the results which are submitted for their Lordships’ information:—

First. That the amount paid to the Peninsular and Oriental Company for the duties it has performed has not hitherto been more than it was justly entitled to receive, on the principle that the shareholders are entitled to a fair commercial profit on the capital invested in the undertaking, and admitting that the affairs of the company have been managed, as they appear to have been, with economy and efficiency. The dividend hitherto made has never reached the amount of 10 per cent. per annum, and the additions made to their shipping and other capital are from reserves to meet contingencies. The principles on which these reserves have been laid aside, instead of being divided as profits, will be hereafter explained in this report.

Second. That the present inadequate means of ascertaining the expense of her Majesty’s steam vessels, especially in the Indian and China seas, renders it difficult to determine the comparative pecuniary results which would follow the transfer of the duties. Considering, however, the difficulty of adapting her Majesty’s vessels to commercial purposes, accommodation of passengers and freight of merchandise, and the superior convenience and advantages of mercantile companies in these respects, the success or expediency of such a change is exceedingly doubtful, except on a necessity, arising from exorbitant demands for carrying the mails by contract.

Third. Considering that the postal duties have been well and satisfactorily performed; that the company has never been fined for any breach of contract; that it has never asked for any increase of remuneration, or decrease of the duties to be performed, as has been the case in other instances of contract with companies; considering, also, the energetic manner in which this company has persevered in extending steam communication through new and untried channels, and that it has formed extensive establishments on the faith of the continued support of the Government, and that it still contemplates an extension of its communications with the farthest southern and eastern point of the British possessions; establishing for these proposes a steam navy of considerable magnitude, at the command of the public, on any emergency,—it appears to be entitled to as much consideration as is compatible with an economical administration of the duties of the Post-office.

Fourth. That for reasons hereafter suggested, the contract may now with great propriety be brought under conditions more favourable to the Government; and that this may be done either by a fixed reduction for a permanent term, or on a scale varying with the profits of the company.

In either case it will appear essential that any new arrangement to be made should rather be of a permanent than of a temporary character, both to ensure confidence to the company in the conduct and extension of their concerns, and efficiency in the discharge of the service entrusted to them.

The reasons for adopting these results, which are submitted with great deference to their Lordships’ consideration, are founded upon facts contained in the following statement:—

First: As regards the duties performed, and payments made.

The annexed table, No. 1, shows the routes, distances, and amounts of the existing contracts. Of these, the third route has been recently transferred to Government vessels. From this return it appears that hitherto the company has been paid the sum of £224,525, which, however, has been reduced by this transfer to £209,000.

For the performance of these duties, and the other business of the company, the establishment of vessels detailed in the annexed table, No. 2, is in efficient operation, with the exception of the “Ariel,” recently stranded in the vicinity of Leghorn.

The original project fixed the capital at £1,000,000, but the amount paid up was, and remains, at the sum of £973,378 16s. 8d. In addition to this capital, reserved amounts have been credited, arising from undivided profits, under the heads of “Repair,” “Insurance,” and “Depreciation” funds, amounting to £306,424 19s. 2d., as will be seen by the annexed statement, No. 3.

The balance-sheet of the company, No. 4, shows the last half-yearly expenditure to amount to £238,404 19s.; and the receipts, including the amount paid by the Government for the conveyance of mails, £301,034 10s. 2d.

Some idea of the extent of this establishment may be formed from the following items of expenditure:—

For the half-year ending the 31st March last, the company disbursed for the shipping department alone—

	£	s.	d.
Coal	93,568	2	4
Oil and tallow	2,687	14	0
Victualling seamen	16,501	14	6
Wages to seamen	29,383	6	0
Incidental expenses	8,114	1	11
Chartering hired vessels	6,326	12	0
	————————
	£158,581	10	9
	————————

---

The receipts under the following heads, for the same periods, amounted to—

	£	s.	d.
Passage-money, after deducting the charge formaintenance	110,508	4	6
Stewards’ fees	1,677	16	8
Freight and parcels	72,894	9	9
Conveyance of mails	112,262	10	0
	————————
	£297,343	0	11
	————————

The company has not thought it prudent to pay a larger dividend than 8 per cent. per annum to the shareholders.

In addition to the dividend, the before-mentioned reserved funds have accrued from the annual profits, viz.:—

Depreciation	£175,183
Insurance	137,162
Repairing	74,079
	————
	£386,424
	————

Beyond 2½ per cent. on the freight and passage-money, paid to the directors under the head of management; and 5 per cent. on the profit balance on closing the account, paid on the same account.

These charges of 2½ per cent. on the freight and passage-money, and 5 per cent. on the balance, include, beyond all other expenses of management, allowance to the managing directors, for conducting the affairs of the company, to the net amount of from £15,000 to 16,000 per annum.

This remuneration is paid to them under the deed of settlement, and has probably secured to the shareholders an efficiency and economy in the general arrangements which have contributed greatly to the success of the concern; at the same time it may be doubted whether, in estimating the profits of the company, the amount paid to the directors may not be considered (beyond the usual compensation for such services) as part of the general profits, rather than as a charge of management.

The principles on which the reserved funds have been laid aside appear fair and reasonable.

The insurance is at a rate of 5 per cent. on the first cost of the vessels employed, after deducting the amount already carried to depreciation account; out of which amount the premiums for insurance at Lloyd’s are paid on such assurances as are effected there, the balance being added to the insurance fund. The portion of the insurance actually effected is at rather a higher rate than the 5 per cent. It would not be fair, therefore, to include any portion of this reserved fund in an estimate of the company’s profits as shipowners or mail contractors. It belongs fairly to them in their character of insurers, as, if they had insured the full value of their property, it would have been paid to underwriters.

The depreciation fund is calculated at a rate of 5 per cent. per annum on the first cost of the vessels, after deducting the amount previously carried to the same account.

The repair fund is at the rate of 10 per cent. per annum, calculated on the same amount as the preceding; and it will be seen that the sum thus reserved for the last six months was £37,633 13s. 3d., which did not provide for the actual expenditure of £39,630 6s. 3d.

So far, therefore, as the affairs of the company have hitherto proceeded, the amount paid to them under the contract would not appear to have exceeded a reasonable remuneration for the services performed, on the principles before stated.

Second: The comparative advantages which might result from the employment of her Majesty’s vessels, instead of contract vessels, for the performance of those duties, appears to be a question of somewhat difficult solution.

The present mode of keeping the accounts of the navy, and the commixture of expenditure for the steam and other departments in the dockyards and public offices, must render it exceedingly difficult to ascertain the cost of any separate branch of service.

Supposing, however, that the financial comparison could be made, yet there are many other important elements in the consideration of the subject.

For the rapid and secure performance of the public mail duty, no branch of the mercantile marine is so well prepared as her Majesty’s naval department. But by the employment of her Majesty’s vessels, light merchandise could not be conveyed; the habits and comforts of the passengers could never be so well provided for as by persons paid for such duties; and as regards the troublesome details of carrying passengers, freight, and merchandise, the war steamer must be less adapted than the merchant vessel.

It must be recollected, also, that a sufficient number of vessels must be fitted up, equipped, provisioned, stored, and specially and exclusively adapted to and employed upon this service; and that fresh arrangements, depôts, and agencies along the lines of route would be required; the preparation for such services would therefore be necessarily attended with an expense which years of any probable saving could scarcely defray.

Third: The question then arises whether, in the continued employment of the Peninsular and Oriental Steam Company’s vessels, considering the actual condition and the established profits and credit of the company, owing in some measure to the existing contract, some modification of the terms, for the advantage of the public, may not be fairly expected.

With a view to the consideration of this question, the following facts are submitted.

The general transactions of the last half-year, the best period for judging clearly the present operation of the company, furnish the following points:

	£	s.	d.
The gross profits, after deducting 2½ per cent. formanagement, and 5 per cent. for repairs, and 2½ percent. for insurance, amount to	62,629	11	2
From which is deducted 2½ per cent, for depreciation	16,915	0	0
	———————
	£45,714	11	2
	———————

The dividend to the shareholders, at the rate of 4 per cent. for six months, or 8 per cent. per annum, on the original capital of £973,378, amounted to £38,933, leaving a surplus balance of about £6,781, to be carried to the next account.

If even the amount paid to the directors from the 2½ per cent. (deducted for charges of management, being for a half year, £8,248 10s. 9d.), were added to the surplus balance of £6,781, and a dividend paid to the proprietors at the rate of 10 per cent., the scale suggested by their lordships, a residue would only be left of about £5,296; from which residue the expenses of management, and ordinary salaries for managing directors, would have to be defrayed.

Their lordships will thus have before them the means of considering what modification of the terms of the contract the present and prospective state of the profits of the company would appear to justify; or whether it would be expedient to adopt such modification to the varying profits of the company in the terms proposed by it; viz., that when the financial position of the company, with respect to such mail services, shall be such as, after making the customary allowances for the repairs, &c., a maximum dividend of 10 per cent. can be realised to the shareholders, any surplus over and above such maximum dividend shall be placed to the credit of the Government.

(Signed) A. Ellice,
Wm. H. Bond.

---