Peace was restored by the Treaty of Madrid in June 1721, when the Assiento contract was renewed in favour of the Royal Company instead of that of the South Sea. So much dissatisfaction had been created by the concession for a trading ship, however, that the English did not insist upon its continuance, and therefore only slave vessels were to be permitted to visit the Indies in future. Everything that had been seized from the South Sea Company was to be restored, or its equivalent value paid, but the amount actually received only came to £200,000, which did not go far to help the unfortunate shareholders.

Thus, this small measure of free trade with the Spanish Indies came to an end, and things went on much the same as before. English, Dutch, and French vessels still carried on the contraband traffic, doing all they could to evade the law, often with the assistance of the local authorities. The Spanish settlers got their supplies so much cheaper in this way than through the usual channels, that they were not likely to give up buying as long as the smugglers ran the risk. At last, however, the authorities received very strict orders to enforce the law, with the result that vessels were often captured, their cargoes confiscated, and crews imprisoned. Then the Spanish guarda-costas claimed the right to search vessels of other nationalities, and to confiscate them if they found produce from their colonies on board, or other evidence that they were carrying on illicit trade.

This led to another dispute with England, which claimed compensation for such seizures and the abolition of the right of search. English vessels had always resented this overhauling, and latterly several had fought the guarda-costas rather than submit, with the result that, when captured, their crews were treated with a severity often amounting to cruelty. In 1739 several petitions were presented to the British Parliament, complaining of such outrages, and asking the Government to obtain redress. Among them was one from Captain Jenkins, the master of a Scottish vessel, who was examined by the House. His story was that he had been boarded by a guarda-costa, the Spaniards from which searched his vessel without finding anything contraband. Apparently enraged at their discomfiture, and possibly annoyed by the jeers of the English, they cut off one of Jenkins' ears and told him to carry it to his king with the message that they would do the same to him if he came near the Main. Finally, according to Jenkins' statement, he was further tortured and threatened with death. "What did you think when you found yourself in the hands of those barbarians?" asked a Member of the House; to which the captain replied, "I recommended my soul to God and my cause to my country." The severed ear he exhibited in Parliament as he had done elsewhere whenever he told the story.

It was then stated that the losses from Spanish depredations by plundering and the taking of fifty-two vessels, since 1728, amounted to £340,000. In every case the masters and crews were brutally treated, and in some cases murdered. The English demand for compensation was met by the reply that the king had ordered inquiries to be made, and that if any of his subjects were found guilty they would be punished according to their deserts; also that orders would be given to conform exactly to the treaties. It was, however, claimed that the treaty of 1667 did not contain any clause bearing on the navigation and commerce of the Indies, and that the English had been wrong in supposing they had a right to sail and trade there; they were only permitted to sail to their own islands and plantations, and were therefore subject to confiscation if they changed their course to make for the Spanish possessions without necessity. There were then in Havana fifteen British vessels which had been detained on one pretext or another, and about the same time the Success from London to Virginia was captured off Montserrat, and her captain and crew set adrift in an open boat to find their way ashore as best they could.

In January, 1739, a convention between Great Britain and Spain was arranged, under which the latter agreed to pay £95,000 on account of these demands, less the value of certain vessels which they agreed to restore. This did not satisfy the West India merchants, and they petitioned against it. The indemnity was to be paid on the 10th of July, but that date having passed without a settlement, Great Britain issued letters of marque and ordered all Spanish vessels in her waters to be seized. Spain commenced reprisals the following month, and war was actually declared by Great Britain on the 19th of October. The declaration stated that for several years past unjust seizures and depredations had been carried on, and great cruelties exercised. The British colours had been ignominiously insulted, against the laws of nations and solemn treaties, and Spain had lately ordered British subjects from her dominions within a shorter period than had been covenanted by express stipulation in those treaties.

In July previous a fleet under Admiral Vernon had sailed from Spithead, and after a short cruise off the Spanish coast, went over to the West Indies, arriving at Antigua the 27th of September. Going on to Jamaica, Vernon prepared for a grand raid on the Spanish settlements, leaving for Porto Bello on the 5th of November with six vessels and 2,500 men. They arrived on the 21st, and bombarded the forts, which made a stout resistance; but while this was going on, the British landed and took the town, thus compelling the forts to capitulate. Two warships and several other vessels were captured, as well as specie to the amount of ten thousand dollars, but the town was not pillaged, although the guns were either taken away or rendered useless, and the forts as far as possible demolished. This was virtually the end of that stronghold, as it was afterwards allowed to fall into decay, to be ultimately replaced by Chagres, Grey Town, and Colon. Later, also, the treasure from Peru had much diminished, and the isthmus sunk in importance, especially after the way round Cape Horn and through the Straits of Magellan was adopted more and more.

As the dispute with Spain had arisen from her action in the Indies, so retaliation on the part of Great Britain was greatest on the Main. In February, 1740, Vernon again sailed from Jamaica, and on the 6th of March bombarded Santa Martha, but did not capture it. After repairing damages at Porto Bello he went on to Chagres, took a Spanish man-of-war from under the guns of the fort, captured the place, and demolished it. In January, 1741, Sir Chaloner Ogle came out from England with a fleet, and joined him, making a force of 12,000 men in twenty-nine sail-of-the-line besides smaller vessels.

This great fleet sailed for Hispaniola in hopes of encountering that of Spain and France, but not finding it went on to Carthagena. This, the other great stronghold on the Main, was guarded by two powerful batteries, a boom across the entrance to the port, and four Spanish men-of-war just inside. After a long cannonading the batteries were silenced, a landing accomplished at night, and a passage made by which the fleet entered the harbour. Here, however, further progress was checked by sickness and disagreements among the commanders, with the result that the siege was raised and partial success ended in miserable failure. This was followed by another check at Santiago de Cuba, which virtually terminated all hopes of further great exploits, although attempts were made on La Guayra and Puerto Cabello.

Yet with all this the Spaniards undoubtedly received a great lesson. Their men-of-war were captured from under their fortresses, and small English or colonial vessels performed such deeds of daring as had hardly been equalled since the Elizabethan age. The old spirit still existed although it might lie dormant for a time—the men were there when the hour came. In 1740 Captain Hall in a New England privateer came to an anchor under the fort of Puerto de la Plata, pretending to be a Caracas trader. He wanted to land in the night and surprise the town, but found that the inhabitants kept such a good watch that he had to give up that idea. However, the Governor was sick and sent to ask the loan of Hall's surgeon, and here was the opportunity he wanted. The surgeon, quartermaster, and an interpreter visited the Governor, and at the same time seven of Hall's crew landed and surprised the fort, dismounted the guns, marched into the town and plundered it, finally escaping with the loss of only one man.

Peace was at last concluded on the 7th of October, 1748, but nothing was said in the treaty of the right of search. The Assiento contract was confirmed, and one English trading ship allowed as formerly; free trade with the Indies, however, was still one of those things which could never be conceded.