Durham in his turn maintained that all he wished was to exercise the superintending authority he possessed as Governor-General. He admitted that Arthur had the power of pardoning for treason delegated to him, but would argue that that power was exempt from "the general subordination to instructions from the Governor-General."[[38]] Durham then proceeds to give his opinion of Sir George Arthur's policy in the following terms.

"Your Excellency's explanation of the policy which you had determined on adopting with regard to the prisoners convicted at Niagara does not immediately strike me as indicating a course so obviously correct that I can dispense with the information which I required in my despatch of the 16th instant. I cannot quite admit the propriety of selecting some one subject of Her Majesty to share the fate of Morreau, the leader of the expedition, who happened to be a citizen of the United States. The fate of Her Majesty's subjects should be determined on a view of their own conduct, and of the circumstances which have led the juries to accompany their verdict of guilty, in every case, with a recommendation to mercy."

A further despatch of Lord Durham to Arthur on September 18th went into the case of Jacob Beamer in some detail. Beamer had been singled out by the Executive Council as the scape goat and was alone to suffer the death penalty. To this Durham would not agree but requested that the case be referred to Lord Glenelg. This despatch is interesting since it shows that the Executive Council of Upper Canada was at this time none too friendly towards Lord Durham and was quite willing to stir up strife between the Governor-General and the Lieutenant-Governor.

In the meantime the correspondence between Arthur and Durham had continued at some length and not always with the best of feeling. But no actual breach seems to have occurred and at length the vexed problem of the political prisoners seemed likely of solution. A general amnesty was to be proclaimed for all except a certain few who were to be named in the proclamation. But by this time Lord Durham was preparing to return to England.

Among the despatches sent by Sir George Arthur to the Earl of Durham is one dated July 9th, 1838, which deals with the political condition of Upper Canada. This letter establishes without a doubt the close adherence of Sir George Arthur to the Family Compact party, all the more so because Sir George tries to claim his independence of all party affiliations. It also shows that the Lieutenant-Governor had received instructions from the Home Government "to pursue the policy and measures of Sir Francis Head." This Arthur apparently had attempted to do in so far as his support of the dominant party in the province was concerned. He had fallen in completely with their way of thinking and had failed to distinguish between reformers and rebels. He even warned Lord Sydenham that Dr. Egerton Ryerson was "a dangerous man" chiefly because Ryerson supported Mr. Bidwell, who had been Speaker of the Legislative Assembly and had been forced to leave the province on account of persecution by Sir Francis Head and his Executive Council after MacKenzie's Rebellion. In this letter of July 9th Sir George Arthur attempts to combat the opinions of Mr. Isaac Buchanan, a reformer, who had been presenting his views on the Upper Canadian political situation to Lord Durham. According to Arthur, Mr. Buchanan was endeavouring to prejudice Durham's mind "against some of the most respectable and most highly esteemed men in the province," and the Lieutenant-Governor hastened to defend his friends. One or two sentences from this despatch deserve quotation as showing Arthur's attitude towards the self-constituted aristocracy of Upper Canada.

"In this Colony, as in other countries, respectable station, united with superior talents and good conduct, gives a certain degree of influence which is natural and salutary, and it would be of all things ungracious and discouraging, as well as impolitic, if the Government were to manifest a jealousy of an influence so honorably acquired. It is, so far as I have been able to judge, most unobtrusively exercised and I am satisfied, from what I have experienced, that so far as he can conscientiously do so, your Lordship will have the most cordial co-operation of the Chief Justice and of all the Family Compact, in all its ramifications throughout the Province."[[39]]

In this same despatch Arthur informs Durham that he had "amicably discussed with the Leaders of each Denomination, the long contested Clergy Reserves Question," and had the intention of "bringing in a Bill to reinvest those lands in the Crown" if better means could not be found of providing a settlement. He also thought that he would be able to carry any measure he desired successfully through the Provincial Parliament. It should be remembered that the ultra-tory assembly of 1836, at whose elections Sir Francis Head so distinguished himself, was still in existence and that Sir George Arthur thought that it would pass any measure brought forward by the government. Already on a previous occasion Sir George had written to the Governor-General on the same subject of the Clergy Reserves and had expressed a hope that asperities had been already softened and that at the next meeting of the Legislature he would be able to see this long-pending contest terminated upon nearly the same principle as it had been settled in Van Diemen's Land during his administration there. But in this pious hope Arthur reckoned without the opposition of the Reformers.

The aim of Sir George Arthur and the Executive Council was "to secure the removal of the Clergy Reserves question from the hostile arena of the Upper Canada Legislature to the friendly atmosphere of the English House of Commons, and the still more friendly tribunal of the House of Lords—where the bench of bishops would be sure to defend the claims of the Church to their royal patrimony."[[40]] This project the Reformers and opponents of the Clergy Reserves were determined to resist to the uttermost. A long controversy raged during 1838 and 1839. In December, 1837, a bill had been brought forward to reinvest the Reserves in the Crown, but a despatch from the Home Government which arrived soon after showed that the British Parliamentary authorities had no desire to interfere in the settlement of this vexed question. During 1838 Sir George Arthur still hoped that the scheme for reinvesting the Clergy Reserves in the Crown would carry as the references in his despatches, cited above, show. Such a bill would have suited the members of the Executive Council and Family Compact generally. It would have meant that the Church of England would have still profited at the expense of the other denominations. As it was, in 1837 out of a total of £10,852 11s 8d the Church of England received £7,291 5s Od, the Church of Scotland £1,425, the United Synod of Upper Canada £636 6s 8d, and the Roman Catholic clergy £1,000.[[41]] The Wesleyan Methodists and other denominations did not receive one penny from the "one-seventh of all Crown lands set aside for the support of a Protestant clergy."

Upon the reassembling of the Upper Canadian Legislature in February, 1839, Sir George Arthur stated that "the settlement of this vitally important question ought not to be longer delayed" and hoped that the contending parties could be amicably adjusted, but added meaningly that if all their efforts failed it would only remain to reinvest the Reserves in the hands of the Crown. Various bills on the subject were introduced and finally the Legislative Council amended one sent to it by the Assembly in such a way as to put complete control of the Clergy Reserves in the hands of the Imperial Parliament. This bill as amended was passed in the Assembly in a thin house by a majority of one. Sir George Arthur and his party had triumphed by a narrow margin. But the royal assent was never given to the bill owing to an objection raised in England that the Upper Canadian Legislature, being a subordinate authority, could not make such a delegation to the Imperial Parliament.

A compromise bill which was devised to meet the approval of the majority of people in Upper Canada was submitted to the House of Assembly in January, 1840, but it was the work not of Sir George Arthur, but of Lord Durham's successor, Mr. Poulett Thomson (Lord Sydenham). It provided that the remainder of the land should be sold and that the annual proceeds of the fund, when realized, be distributed one half to the Church of England and the Presbyterians and one half to the other denominations who wished to share it. This bill was passed in Upper Canada and sent to England where it met its death blow in the House of Lords. The vexatious Clergy Reserves problem still remained unsettled.