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proceeded to negotiate for a Panama Service under his general powers as Postmaster-General of the Colony, and it is under these powers, as define* by the " Post Office Act, 1858," that he now appears to have considered himself entitled to enter into the contract with the Intercolonial Royal Alail Company. That Act empowers the Postmaster-General to enter into Contracts for Postal Services " under such instructions as he shall from time to time receive from the Governor." No instructions were given by the Governor, other than those above quoted. It is clear, therefore, that Air. AVard had no power given him to enter into a Contract for services which were in excess of or antagonistic to the declared will of the Legislature. This the Company were fully aware of prior to their entering into the Contract, Mr. AVard having laid all the above-mentioned documents before the Company's Solicitor, who took the opinion of Counsel on this very point, which was unequivocally adverse to Air. AVanFs possessing the necessary authority to bind the Colony. In the following points, the Contract is in opposition to the declared views of the House: (1.) The cost of the Panama service to the Colony was limited by r the Act and resolutions of the House to £30,000, whereas the Contract proposes to bind the Colony to a payment of £63,000 for that portion of the service. It has been suggested that this latter sum might be reduced by cutting off the Otago and Alelbourne and Sydney and Auckland Intercolonial, and all the Interprovincial services save those provided for in the Contract. But this would be in contravention of the 4th and 6th resolutions of the House, above quoted, and which it will be observed were of equal authority with those at the same time passed in favour of the Panama line. No doubt the Colony would save a portion of the present contribution to the Suez line, and also gain the postages of letters by the Panama line ; but these cannot reasonably be calculated at present at a larger sum than £13.000, leaving an excess of £20,000 payable by-the Colony beyond the vote of the House. (2.) The Resolution of the House '(No. 2) provided that the Service should be so constructed as to confer advantage upon and obtain the support of tho neighbouring Colonies. Under the Contract no Colony save New Zealand would be in a position to have by that Service a four months' course of -post, as the homeward steamers from Sydney would require to sail on the very day of the arrival of the outward steamer, thus conferring almost no postal advantage on the Australian Colonies. (3.) The renewal of the Coleman Contract'of ISSS, and the fixing an Inter-Provincial Service for five years, is in direct opposition to the 7th Resolution above quoted, as well as in opposition to the opinion of the House expressed in the Session of 1863 (which is binding on this Government, although unknown to Air. AVard when he entered into the Contract) — that the Coleman Contract should be determined by notice in October next, and that all future Inter-Provincial Services should be for one year only. By the will of the Legislature as above expressed, this Government are as much bound as was Air. AVard ; and they have no inherent power to bind the Colony to a Contract so greatly in excess of and in such decided opposition to the declared views of the Legislature. Did the Government feel themselves empowered to deal with the Contract on its own merits, they would feel that they had a most difficult task to perform. The votes of the House and the voice of the Colonv have over been propitious to the establishment of the line via Panama. There can be no question that the bringing of this Colony into closer communication with England, and also with those great States of America, North and South, whose growth will be coincident with ours whilst other States decay, would be a great benefit to this Colony, though perhaps more in the future than at the present. To New Zealand at least could be secured a four months' course of post —it would make New Zealand the nearest to England instead of the most distant of the A ustralasian Colonies —and this at a rate confessedly lower than any previous proposal had dreamt of. But, on the other hand, the Government would feel that the cost, however reasonable, was too great for the Colony in its present position alone to bear; that tho Colony could not afford to amputate all its Inter-Colonial and Inter-Provincial Steam Services for the sake of Panama; that the Colony could not afford to ignore the lessons of past history and experience by granting a monopoly for five years of the internal communications (for such are our Inter-Provincial Steamers) of the Colony. The cost of Steam Postal Services to the Colony, if the contract were adopted as it now stands, would be as follows ;— Panama to Now Zealand, per contract £63,000 N(^y Zealand to New South Wales, as per Coleman contract renewed, and which, though temporarily payable by the Imperial Government, would evidently require to be paid by the Colony after 1865 13,000 Inter-provincial Services as per contract 15,000 Additional for three contracts Inter-provincial Services at ss. per mile over 5.000 statute miles per month, about . 4,00'J Two Inter-colonial Services: Sydney and Nelson, and Alelbourne and Otago. which, according to resolution of the House, must be retained 23,000 At loast three additional Inter-provincial Services, absolutely necessary at ss. per statute mile 19,800 £137,800

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FURTHER PAPEES RELATIVE TO THE