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colony by Messrs. Gilchrist, Watt, and Co., of Sydney, covering a memorandum of account amounting to £1,729 16s. 2d., alleged to be due to the San Francisco Mail Contractors by this colony for the carriage of mails from Auckland to San Francisco by the s.s. " Vasco de Gama," in November last. The Postmaster-General has directed me to inform you, in reply, that the two contracting Governments do not consider the Contractors were carrying out the contract on the occasion for which subsidy has been claimed. The Government of New South Wales is now in communication with the Contractors on the matter. This colony is therefore unable to recognize the claim rendered by Messrs. Gilchrist, Watt, and Co. I have, &c., W. Gray, The Manager, Bank of IS ew Zealand, Wellington. Secretary.

No. 74 Messrs. Gilchrist, Watt, and Co. to the Postmaster-General, Wellington. Sir, — Sydney, 12th January, 1876. We have now the honor to advise that, the break-down of the " Colima" having delayed the commencement of the regular service, we have taken the earliest opportunity for placing the service on the proper footing. The " Mikado " proceeds from this to Auckland, there to receive the Southern mails from " Cyphrenes," or if that ship has proceeded to San Francisco, having failed to be joined by a steamer from this port, then from such vessel as the Pacific Mail Steamship Company Agent has arranged with for the conveyance of mails to Auckland. " Mikado," after having received the mails, will proceed to Kandavau, and thence through to San Francisco. The " City of San Francisco" leaves this 14th instant for Kandavau, there to junction " Grenada" from San Francisco, and proceed to Auckland and thence to Port Chalmers, and be the through ship to San Francisco for February. We must leave to your equitable consideration the subsidy to be paid for the services of the " Cyphrenes.' 7 We have availed of the only means at our disposal to maintain the continuity of the service; and although the ship is not up to contract tonnage and speed, she has done the work. If she proceeded through to San Francisco, we trust the full subsidy will be paid for her trip, and the other 1 advantages in remission of port charges be made in favour of the Contractors. If she has transferred her mails to " City of Melbourne " at Kandavau, then we trust you will recognize that the Contractors are fairly entitled to a pro rata remuneration for the work done. The Government of New South Wales, having chartered the " City of Melbourne " to convey their mails hence to San Francisco, intimated that that ship would be available for the February mails from San Francisco. The General Agent thereupon offered to telegraph to San Francisco to arrange for the non-despatch of a Pacific Mail Steamship Company's ship for February, so as to avoid complication with the ship chartered by the Government of New South Wales, provided that the non-despatch of a Pacific Mail Steamship Company's steamer from San Francisco concurrently with the " City of Melbourne " would not be held as breach of contract by New Zealand or New South Wales, and that the Contractors would be exonerated from all consequences that would flow from such non-despatch. This proposal was not accepted, and the matter must remain for arrangement in San Francisco. We hope to have the " Colima " ready for next month, and the " Granada" should also be here. We have, &c, The Hon. the Postmaster-General of New Zealand, Gilchrist, Watt, and Co. Wellington, New Zealand.

No. 75. Mr. Rose to Messrs. Gilchrist, Watt, and Co. Gentlemen, — General Post Office, Wellington, 31st January, 1876. I have been directed by the Acting Postmaster-General to acknowledge the receipt of your letter of the 12th instant, respecting the San Francisco Mail Service, and to inform you in reply that a copy of your communication has been forwarded to Sir Julius Vogel, who will shortly visit Sydney. I have, &c, Thomas Rose, Messrs. Gilchrist, Watt, and Co., Sydney. (for the Secretary). [For proceedings of Conference by telegraph, referred to in subsequent letters, see F.—3a.] 6—F. 3.