BMsMi 
 
 
 Sm 
 

 
 / 4 &= 
 
 l2SS 
 
COEEESPONDENCE 
 
 BETWEEN THE 
 
 
 AND THE 
 
 Bank of New South Wales. 
 
^ CsVvA. '’^V\ 
 
TO THE PROPRIETORS OF THE BANK OF 
 NEW SOUTH WALES. 
 
 Conceiving that many of the shareholders may desire to know the 
 circumstances which led to a rupture of the business relations 
 which for so long a time had existed between the Government and 
 the Bank, the Directors have caused to be put into type the whole of 
 the correspondence that passed between the parties, and now submit 
 it for the information of the proprietary. 
 
 A course of this kind has been rendered the more expedient 
 seeing that there has been issued from the Government Printing 
 Office a pamphlet purporting to be that correspondence, hut in 
 which one, at all events, of the Bank’s letters does not appear, and 
 an important portion of another has, strange to say, been withheld, 
 and in lieu of these is given a lengthy memorandum made by tbe 
 Honorable W. B. Dallet, Esq., which was not transmitted to the 
 Bank, and forms no part of the correspondence. 
 
 Had that memorandum been communicated to the Bank, the 
 Board would have felt it to be their duty to reply to it, and to point 
 out its patent fallacies. They content themselves with now saying 
 with great I’egret that in matter and manner they view it as quite 
 undeserving the respect and deference which every deliberate 
 utterance emanating from the Government of this Colony or its 
 Attorney-General should command, and that no portion of the 
 Bank’s correspondence can be truthfully described by such words as 
 “offensiveness,” “incoherence,” or “insolence,” which the Honorable 
 W. B. Dalley, Esq., has so improperly used. 
 
 The immediate cause of the relinquishment by the Board of the 
 honour of being the Government Bankers was, that of late the 
 management of the finances of the country has been so erratic, 
 there has been such a want of foresight and precaution in providing 
 funds for the Government expenditure (resulting at one time in 
 
4 
 
 enormous overdrafts beyond the provision in the agreement, and 
 consequent drain upon the resources of the Bank of New South 
 Wales; at another, in vast, and to the Bank, embarrassing surplus,) 
 as to make it impossible to conduct the account in accordance with 
 sound banldng principles—in fact rendering the account a trouble 
 and menace to the interests of the Bank, as well as a danger and 
 loss to the country. 
 
 The Bank’s special interest in the question having now ceased, 
 the Directors have no hesitation in expressing them opinion that no 
 advantage whatever will accrue to the Colony through the business 
 of launching loans and inscribing stock being confided to the Bank 
 of England rather than to a Colonial Bank ; and that the credit 
 of the Colony requires no such adventitious support as is erroneously 
 imagined will arise from the Agency of the Bank of England being 
 resorted to. Your Board are however fully persuaded that the 
 change will operate largely to the benefit of your Institution, 
 
 THOMAS WALKER, 
 
 President. 
 
The Treasury, New South Wales. 
 
 Sydney, 9th August, 1884. 
 
 Shepherd Smith, Esq., 
 
 General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour, by direction of the Colonial Treasurer, to 
 inform you that, by letter, dated the 20th June last, the Agent- 
 General advises the Government that the Bank of England object 
 to inscribe any future loan of this colony unless the stock be issued 
 through that bank. This letter confirms the substance of telegraphic 
 messages previously received from Sir Saul Samuel, copies of which 
 were sent you by Mr. Dibbs on the 26th June. 
 
 The announcement of this determination on the part of the 
 Bank of England, after its inscription of three successive loans 
 without any such stipulation, was wholly unexpected, but imposes, 
 nevertheless, upon the Government, the necessity of reviewing the 
 position. 
 
 When, in the early part of last year, it was decided to arrange 
 with the Bank of England for the inscription of our loans, under 
 the protection of an Act of the Imperial Parliament, in contra¬ 
 distinction to the then existing mode of issue by debentures, the 
 subject was carefully considered, and the desirability of the change, 
 on public grounds and in the public interest, was, in the opinion of 
 tbe Government, sufficiently manifest. 
 
 The question which the Government has now to consider is one 
 of great gravity and importance, and after much anxious consider¬ 
 ation, they have arrived at the conclusion that it would be in the 
 best interests of the colony to continue the inscription at the Bank 
 of England, even though it involved the issuing of the loan by 
 that Institution, rather than that recourse should be had again to 
 the former plan of issuing our loans in debentures, or having two 
 sets of inscribed stock at different banks. 
 
 I am directed by Mr. Dibbs to give you the earliest intimation 
 of the decision at which the Government has arrived in this matter, 
 and I am to add that when the arrangements to this end are com¬ 
 pleted, the fact will be formally notified to you, so that your Bank 
 
G 
 
 may liave the opportunity, should you so desire it, of revising the 
 other provisions of the existing contract in terms of clause 6 of the 
 “ conditions of contract.” 
 
 I have the honour to be, 
 
 Sir, 
 
 Your oljedient servant, 
 
 Bank of New South Wales. 
 
 Sydney, loth August, 1884. 
 
 The Honourable 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your favour of the 9th instant, 
 notifying your receipt of an official communication from the Agent- 
 General, that the Bank of England objects to inscribe in its books 
 “ any future loan of this colony unless the stock be issued through 
 “ that Bank.” 
 
 2. That the announcement of such objection hail been “ wholly 
 “ unexpected ” by you, and provocative of the grave and anxious 
 consideration of your Government. 
 
 3. That in view of tlie complications thus unexpectedly forced 
 upon you, “ the Government have arrived at the conclusion that 
 “ it would be in the best interests of the colony to continue the in- 
 “ scription at the Bank of England, even though it involves the 
 “issuing of the loan by that institution, rather than that recourse 
 “ should be had again to the former plan of issuing our loans in 
 “ debentures, or having two sets of inscribed stocks at different 
 “ banks.” 
 
 4. That some further communication will be made to us when 
 arrangements have been completed, so that we may exercise certain 
 of our rights, if we so desire. 
 
 In reply, I am directed by my Board to express to you their 
 high appreciation of the kindly manner in which you have conveyed 
 to the Bank of New South Wales aii announcement by the Bank of 
 England which surprises us as much as it seems to have surprised 
 your Government. ^ 
 
 We with yourselves, had viewed the imposition by the Bank o 
 England of an exceptional initial commission charge of £600 pe: 
 million for inscription, in addition to a like annual charge, as th. 
 distinct recognition by that Bank, of a deliberate and welEconsiderec 
 policy on your part, and as that Bank’s method of compensating 
 
7 
 
 itself for the absence of a profit which, by insisting upon issue as 
 well as inscription, it had hoped to secure. 
 
 We are advised from our London Office, as we have no doubt you 
 must have been by the Agent-General and the Inscription Com¬ 
 missioners of this colony in that city, that the sole object of the 
 Bank of England, so far as the Agent-General can learn, in 
 attempting now to disrupt your policy and our arrangements (made 
 by us, at least, at considerable expense, and temporary incon¬ 
 venience,) is to secure more profit for its shareholders. 
 
 With our long and varied experience of the extreme sensitiveness 
 of the Ministers of this colony to anything approaching, or con- 
 struable into, an attempt on the part of their bankers to interfere 
 with or dictate on matters of Government policy, we can quite 
 understand that this patently coercive action by the Bank of Eng¬ 
 land is as unpleasant as it is “ unexpected ” to yourself and your 
 Cabinet. 
 
 To my Pirectors, after they had made costly arrangements for 
 efficiently carrying on their connection with the Government for a 
 long period, the announcement, now so unexpectedly made to us, 
 presents iiself as in the light, so far as the Bank of England is 
 concerned, of approaching to, if not exactly and legally exemplifying, 
 a breach of banking faith. 
 
 But acknowledging the position in which the unexpected action 
 of the Bank of England has placed both your Government and our¬ 
 selves, as of a trying and exceptional kind, and assuming that until 
 we hear further from you, the Government have arrived at no final 
 arrangements, I am directed by my Board to submit for your con¬ 
 sideration that it may not be in “the best interests of the colony” 
 that these coercive proceedings of the Corporation of the Bank of 
 England should be allowed to disturb or upset your policy, and 
 existing banking and financial contracts. 
 
 In obedience to that direction, I respectfully submit— 
 
 1. That there is no natural connection by way of community of 
 interest between the Government of this colony and the Banking 
 Corporation named the Bank of England, to be compared with the 
 interests existing in common between the Government of this colony 
 and the Banking Corporation named the Bank of New South 
 Wales. 
 
 2. That if the Bank of England has attained a world-wide repu¬ 
 tation for strength (and that alone) as compared with other joint 
 stock banks in England, such reputation is entirely due to the fact 
 that it is identified in certain ways with the Government of Eng¬ 
 land ; has been, and is, in certain ways, supported by that Govern¬ 
 ment ; and has been and is in consequence (as its paid financial 
 agent) capable of rendering its patron (as the reflector of its own 
 
wealth) active and constant banking and financial assistance and 
 support. 
 
 3. That the success of the connection between the (government 
 of England and the trading Corporation called the Bank of England 
 teaches a lesson, if it teaches anything at all, that this colony 
 should attach to itself some local Corporation of the like kind, 
 pulsating in harmony with the financial interests of this country 
 rather than with any Corporation entirely free and separated from 
 them. 
 
 4. That the Bank of England has no special interest, as a 
 Corporation, in sustaining or protecting the credit of this colony, 
 either in England or elsewhere. That it has never lent the colony 
 one shilling. Tliat it never, in any of its agreements with your 
 Government, did other than stipulate that long previous provision 
 in coin must be made for every farthing whicli it would undertake 
 to pay on account of the colony. That it is neither specially 
 experienced, nor qualified, as compared with ourselves or other 
 London Banking Corporations, in the fioating of general loans, or 
 the conduct of colonial financial concerns. 
 
 5. That this Bank is so identified with the financial interests of 
 the country, that it caimot be other than vitally concerned in the 
 success of any financial operation entrusted to it here, or on the 
 London Market. 
 
 G. That we have proved ourselves willing and competent to deal 
 with the loan operations of this colony in London for many years 
 past, even when those operations involved very huge advances, 
 directly and indirectly. 
 
 7. That more than one of the recent loans of the colony, as you 
 are aware, must have been publicly declared as marked failures, had 
 we not, at your request, and to the extent of millions of money, 
 directly and indirectly, upheld the credit of your securities. 
 
 8. That your relations with the Bank of England provide for 
 no such support ; and that from the well-known habits of business 
 of that Corporation, you can in no wise expect it to be given. 
 
 9. That the Corporation of the Bank of New South \Vales can 
 better issue and fioat (and at least as well inscribe) the stock of the 
 colony than the Corporation of the Bank of England, and that 
 certainly at a very great saving of expense per annum to the country, 
 as any comparison between the amounts paid to the Bank of 
 
 England, and the rates offered by ourselves will, as we think, 
 startlingly demonstrate. 
 
 To these points I might add others, but at ])resent I onlv desire 
 to arrest if may be, any final decision on the part of the Govern¬ 
 ment until you have afforded me an opportunity to consider with 
 you the whole position, for I am urged by our London Managing 
 director to advise you strongly to float your next loan in 40 yea^’ 
 
A COMPARISON of the arrangements for the conduct of the 
 Banking business of the Government of New South Wales recently 
 made between the Government and the Bank of England and the 
 Associated Sydney Banks with the terms of the now broken 
 arrangement between the Government and the Bank of New South 
 Wales will not justify the assertions which have been made that the 
 country will be a considerable gainer by its change of Bankers. 
 
 Comparing the terms of the Bank of England for floating and 
 inscribing loans with the terms of the Bank of New South Wales 
 it will be found that the very contrary is the fact. 
 
 The Bank of England did charge a preliminary commission of 
 £600 per million (whether this charge is still made is not clear). 
 It receives a commission of ^ per cent, for floating, and an 
 annual commission of £600 per million for inscribing. 
 
 The Bank of New South Wales made no preliminary charge, 
 accepted a commission for floating of ^ pei’ cent, on the first million, 
 and ^ per cent, after, and offered to inscribe for £400 per million 
 annually. 
 
 Taking the recent loan of £5,500,000. The Bank of England’s 
 charges would be— 
 
 Initial charge of £600 per million ... ... ... £3,300 
 
 ^ per cent, for floating ... ... ... ... 27,500 
 
 £600 per million, for 40 years, for inscribing ... 132,000 
 
 £162,800 
 
 or assuming that the Bank foregoes the initial charge when 
 it has the complete conduct of a loan, this total will 
 
 be reduced by £3,300 to ... ... ... ... £159,500 
 
 while the Bank of New South Wales charges would have been— 
 Initial charge... ... ... ... ... ... Nil. 
 
 ^ per cent, on £1,000,000 for floating ... £2,500 
 
 4 per cent, on £4,500,000 for floating ... 5,625 
 
 - £8,125 
 
 £400 per million for 40 years for inscribing ... 88,000 
 
 £96,125 
 
 If instead of inscribing stock the Government had kept to the 
 system of issuing debentures. 
 
 The charges of the Bank of New South Wales would have 
 been— 
 
 ^ per cent on £1,000,000 for floating ... £2,500 
 ^ per cent, on £4,500,000 for floating ... 5,625 
 
 - £8,125 
 
 ^ per cent, for paying £192,500 coupons (annual 
 interest on £5,500,000, at 3^ per cent.) £481 53. 
 annually. Total for 40 years ... ... ... 19,250 
 
 £27,375 
 
 and these comparisons take no account of the loss of interest on tlie 
 difference between these amounts. 
 
 The other business effected in London comprises—the rate of 
 interest allowed on deposits, and the rate charged on advances. 
 
 The Associated Banks allow 1 per cent, below the Bank of 
 England rate (but not more than 5 per cent.) up to £1,000,000. 
 and £100,000 of the deposit is not to carry interest. 
 
 The Bank of New South Wales allowed 1 per cent, below the 
 Bank of England rate on the whole Government deposit. The 
 whole of a £5,500,000 loan might thus have been in deposit with 
 the Bank of New South Wales, bearing full interest. 
 
 xVs to the amount of advances in London and rate of interest 
 thereon— 
 
 Both the Associated Banks and the Bank of New South 
 Wales are bound to advance on the same terms, i.e., 1 per cent, 
 above Bank of England rate, but not less than 5 per cent. 
 
 The Associated Banks are bound to advance up to £250,000 
 without security, and £1,000,000 with security, while the Bank of 
 New South Wales was bound to advance up to £100,000 without 
 security, and £750,000 with security. 
 
 For the transfer of money from London to Sydney the Associated 
 Banks give the Government a premium of 7s. 6d. per cent., and 
 will transfer not more than £500,000 a month. The Bank of 
 New South Wales gave the Government a premium of 10s. per 
 cent., and agreed to transfer £350,000 on application, £350 OOO 
 thirty days after, and £500,000 every thirty days after. ’ 
 
 Thus on the transfer of £5,000,000— 
 
 The Associated Banks give ... ... £18 75u 
 
 And the Bank of New South Wales gave 25,000. 
 
 There is clearly then great loss to the Colony involved in almost 
 every item of change effected by the Government in the conduct of 
 their London business. 
 
 As to the transactions in the Colony— 
 
 The rates for transferring and paying moneys are the sauie by the 
 Associated Banks and the Bank of New South Wales, the only 
 difference in tlie terms referring to the amount taken on deposit and 
 the amount allowed on overdraft. The Associated Banks will take 
 on deposit at 8 per cent. £750,000, beyond £100,000 bearing no 
 interest. The Bank of New Soutli Wales took on deposit at 3 per 
 ^nt £^0,000 beyond £50,000 bearing no interest. But the 
 Bank of New South Wales took £500,000 on fi.xed deposit for 
 12 months at 3 per cent, while the Associated Banks are not 
 r^uired to take a fi.xed deposit at all. The Bank of New South 
 
 tYe h’J" deposit at 3 per cent, interest as 
 
 the other Banks, and received £50,000 less free of interest. 
 
 As to overdraft— 
 
 The Associated Banks will allow £500,000 without security and 
 £•■.00 OUO W.U. «c„r tj, at a rate of 5 pe^ cent., while Suk of 
 New bouth Wales allowed £250,000 with and £250 OOO without 
 security at the same rate. 
 
 Bat as a matter of fact it will be found that the Bank of New 
 South Wa es allowed the Government to overdraw very much in 
 excess of the contract, and at the contract rate, the advance havino- 
 amounted to over £2,000,000, without security ^ 
 
9 
 
 Debentures at 3^ per cent, interest, and a consideration of this 
 suggestion may influence your action. 
 
 You of course remember that the floating of the next Two 
 Million Loan has been formally committed to our charge, and that 
 we long since issued instructions at your request respecting it. 
 
 I shall be glad to wait upon you with reference to the whole 
 matter if you will kindly name a time when you can conveniently 
 give me audience. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 SHEPHERD SMITH, 
 
 Gbneeal Manager. 
 
 The Treasury, New South Wales, 
 
 Sydney, 2Gth August, 1884. 
 
 The General Manager, 
 
 Bank of New South Wales. 
 
 Sib, 
 
 I have the honour, by direction of the Colonial Treasurer, 
 to acknowledge receipt of your letter of the 15th instant, in answer 
 to Treasury communication of the 9th instant, on the subject of the 
 “issue” as well as the “ inscription ” of our future loans by the 
 Bank of England. 
 
 I am to inform you, in reply, that the decision of the Govern¬ 
 ment in this matter, as conveyed to you in the communication above 
 referred to, is final, and that the requisite authority to carry out the 
 new arrangement was forwarded to the Agent-General on the 13th 
 instant. It would, therefore, answer no practical purpose to give 
 the subject that re-consideration to which Mr. Dibbs is invited. 
 
 Under such circumstances it would also appear to be unneces¬ 
 sary to notice in detail the various remarks, suggestions, and 
 proposals contained in the letter now under reply, were it not for the 
 very erroneous impression, adverse to the Bank of England, which 
 you appear desirous to establish—namely, that in this new arrange¬ 
 ment that Bank had coerced the Government, interfered with its 
 policy, and placed its financial affairs in a position of complication 
 and difficulty. Nor can Mr. Dibbs pass unchallenged your equally 
 erroneous suggestion that the action of the Bank of England, in 
 stipulating for the “ issue ” of our loans, “ approaches to, if not 
 “ exactly and legally exemplifies, a breach of banking faith.” 
 
 On this point I am instructed to say that although the announce¬ 
 ment of the Bank of England’s objection to inscribe future loans 
 without issuing the same was unexpected by the Government, yet 
 
that a recent correspondence between the Agent-General and the 
 Bank of England authorities furnishes satisfactory reasons why 
 such objection was not put forth at an earlier date. The arrange¬ 
 ments made, in the first instance, by the Agent-General and those 
 acting with him, were not of a general and comprehensive character 
 so as to embrace future loans, but were limited to particular opera¬ 
 tions, as the necessity of dealing with each of them arose. Up to 
 this time (irrespective of the converted debenture loan) the Bank of 
 England has inscribed two loans of £3,000,000 each, both of which 
 had been issued by the Bank of New South Wales. With respect 
 to the first of these loans, issued in July, 1883, Mr. iMay, chief 
 cashier of the Bank of England, writing to the Agent-General, 
 under date 1st ultimo, states, “ That in their personal conversation 
 “which took place on the 28th May, 1883, when the terms 
 “ on which the Bank would undertake the inscription of the 
 “ stock of the colony were discussed, the Governors fully under- 
 “ stood that as regards the loan of £3,000,Op0 issued under the 
 “ terms of the prospectus, dated 9th July, 1883, arrangements had 
 “already been concluded with the Bank of Xew South Wales, and 
 “ they therefore raised no objection to it, but they certainly did not 
 “ contemplate the future issue of the stock otherwise than by the 
 “ Bank.'’ With respect to the second of these loans, issued in 
 December, 1883, Mr. May, in the same letter, further states that 
 the Bank of England had no notice of the ])roposed loan and the 
 contemplated use of its name as the inscribing Bank " until the 
 “ afternoon of the day preceding the publication of the prospectus in 
 “ the papers,” and that when informed in this way “ any objection 
 “ which the Bank might naturally have made to the inscription of the 
 “ stock would have so seriously prejudiced the loan that they waived 
 “ their undoubted right to make such objection.” i\Ir. May adds 
 “ that it was witli the view of preventing all misconception in the 
 “ future that they thought it necessary to define clearly to yourself 
 “(the Agent-General) and Mr. Larnach, personally, on the 11th 
 “ultimo, and subsequently by letter of 13th ultimo, the Bank’s 
 “ position in the matter.” These explanations have been considered 
 by the Government and accepted as satisfactory. The correspon¬ 
 dence discloses no attempt to coerce the Government, or to interfere 
 with its policy or to place its financial affairs in a position of com¬ 
 plication and difficulty. It simply defines, at a later period, those 
 distinct terrns of business whicli, in contra-distinction to “ under¬ 
 standings, should have been settled by our representatives at the 
 commencement of operations. For the assumption that any breach 
 of faith has been committed by the Bank of England there is no 
 ground whatever. 
 
 With respect to other portions of your letter, in which you 
 deprecate the withdrawal from your Bank of the issue, inscription, 
 
11 
 
 and management of future loans, I am directed by Mr. Bibbs to 
 call your attention to the text of the agreements made with your 
 Bank for the conduct of our “ local ” and “ London ” business, since the 
 30th June, 1876. It will be seen, upon reference to those agree¬ 
 ments, that the Government, from the above date, has specially 
 reserved to itself the right (continued and maintained in the now 
 subsisting contract) to make arrangements, at any time during the 
 currency of those agreements, with the Bank of England, for the 
 future management of the debt, whether inscribed or debenture. 
 The reservation of this right, established and maintained by suc¬ 
 cessive administrations, indicates a settled policy which, in the 
 fulness of time, would take effect. For well-considered reasons, 
 the Government has decided that the time has now arrived when it 
 would be advantageous to the colony to transfer the issue and 
 management of our inscribed debt to the Bank of England, and of 
 the possibility of this change it cannot be denied that your Bank 
 has had an ample notice. 
 
 But notwithstanding the termination of the loan portion of our 
 business, Mr. Bibbs does not view it as a necessary consequence 
 that you should cease to conduct those other portions of our 
 business—local and London—which have been so well managed by 
 your Bank since 1868, and your valuable services in relation to 
 which are cheerfully acknowledged. The proviso, in the agreements 
 before referred to, while it establishes the right of the Government 
 to make the change now effected, also reserves to your Bank the 
 right to revise the “ other terms ” of the contract subsisting at the 
 time such change may be effected, “ should you so desire it.” 
 Should it be the wish of the Bank to make such revision, I am to 
 say that Mr. Bibbs will be prepared to meet you with an earnest 
 desire to settle the terms of a mutually satisfactory amendment of 
 the existing agreement. 
 
 I am to add, with reference to that portion of your letter in 
 which you say that the “ floating of the next £2,000,000 loan has 
 “ been formally committed to your charge”—(meaning thereby the 
 unused balance of an authority to float up to £5,000,000, which 
 had been forwarded to the Agent-General) that in making this 
 statement you assume a right to deal with the balance of the 
 authority referred to which Mr. Bibbs cannot admit. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 G. EAGAE. 
 
’1 
 
 12 
 
 Bank of New South Wales, 
 
 Sydney, 30tli August, 1884. 
 
 The Honourable 
 
 The Colonial Treasurbb, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of the 26th instant, 
 and to convey to you the respectful expression of my Board’s sur¬ 
 prise that your Government has finally arranged to supersede this 
 Bank in its relations to the future loan business of the colony without 
 affording to us the slightest previous opportunity of consultation 
 with you, either as regards the subject generally, or as to the 
 probable bearing of such action upon other sections of our banking 
 contract, or as to its intended immediate effect upon your, at present 
 unarranged for and daily increasing, overdraft at this office. 
 
 In proposing to deal with us thus summarily, we are satisfied 
 that you are not even within your most rigid legal right, but whether 
 so or not, my Directors desire me to intimate to you forthwith their 
 clear and deep conviction that after the special exertions and risks 
 the Bank of New South Wales has made and undertaken for years 
 past in connection with the loans of this colony, and notably with 
 those of which you and your colleagues have ordered the floating, 
 you might, at least, have extended to it some little reciprocal con¬ 
 sideration, and confidential courtesy, without either loss of indepen¬ 
 dence or injury, in the smallest degree, to the interests you have in 
 charge. 
 
 My Directors feel, however, that if, after absolutely saving two 
 of your late loans from whole and partial failure, the standard of 
 your gratitude for those services is to be measm-ed by the action you 
 now finally notify, then perhaps it is well, at least for the Bank, 
 that its connection with the loan business of the Government 
 should without prejudice to existing rights, have been brought to a 
 close, however much they may deprecate the manner in which it has 
 been done. 
 
 Under the circumstances my Directors quite agree with you that 
 no practical purpose could be served by your consenting to review 
 with me what you designate as “the various remarks, suggestions 
 and proposals ’ referred to in my letter of the 15th instant. 
 
 ihe principles involved in those varieties must, we think, be 
 found worth discussing presently in the interests of the colony but 
 
 fh.vZlT efficiently, nay liberally cUb- 
 
 chaiged our duty in offering to consider them with you and we 
 should have been better content if, whilst declining to d^iscuss those 
 important matters, you had not forced us into "further comment 
 lespecting the recent action of the Bank of England 
 
We note carefully all that you have volunteered in defence of that 
 Institution, and we specially mark that you base it upon “ a recent 
 “ coiTespondence between the Agent-General and the Bank of England 
 “ authorities,” which as yet, however, we are in no position to refer to, 
 but which we venture to think will not (as a whole) support the 
 deductions you have drawn from it. 
 
 You demur to, and challenge, what you call the erroneous impres¬ 
 sions and suggestions contained in my letter of the 15th instant, and 
 we are sorry for that, because it necessitates our producing evidence 
 in proof of the allegations which you so describe and challenge. 
 
 We said on the 15th instant in effect ; A. That you have been 
 coerced by the Bank of England into a policy and action never 
 intended or expected by you, as regards the floating of, at least, 
 your next loan. B. That the action of the Bank of England in 
 now stipulating for the issue of your next and all future loans, 
 approaches to, in the opinion of my Directors, if it does not exactly 
 and legally exemplify, a breach of banking faith ; and you must 
 allow us now to emphatically repeat those affirmations. 
 
 It is difficult for us to understand, indeed, how you can attempt 
 to deny coercion, for if you have not been forced unwillingly 
 as well as unexpectedly into these “ new arrangements,” in that 
 event your conduct to us, in authorizing and requesting us to 
 arrange for the floating of a further loan for you during the present 
 year—in committing us to preparations for that transaction—and 
 then, in willingly, and from preference, throwing us overboard, 
 would, we submit, deserve to be characterized in language such as we 
 should be very sorry to be compelled to use. 
 
 Of the two positions, my Board considers that the bank has 
 very much less to complain of, if the Government have been coerced, 
 than if you could prove the contrary ; but I submit for your con¬ 
 sideration the following facts and comments which, we believe, 
 establish coercion conclusively :— 
 
 1. On the 3rd October, 1883, you forwarded to us, by letter, an 
 Order in Council duly signed by His Excellency, which letter and 
 order read as follows :— 
 
 “ Sir, 
 
 “ I have the honour, by direction of the Colonial Treasurer, to 
 “ hand you, enclosed, an order of His Excellency the Governor and 
 “the Executive Council, bearing date the 2nd instant (October, 
 “ 1883), authorizing the issue of a further loan of £5,000,000 
 “ inscribed stock. 
 
 “ The ‘ Order in Council ’ explains pretty fully the object of the 
 “ Government in providing for a further trial of the English money 
 “market. Experience shows that it is quite possible to be placed in 
 “ a position of disadvantage in not being able (as under the existing 
 
14 
 
 “ system) to avail at once of favourable conditions of the market, under 
 “ which loans, of varying magnitude, may be successfully floated; and 
 “ having in view the desirability of making timely provision for our 
 “ railway works, now rapidly progressing, and of their necessary 
 “ extensions, it is considered expedient to place an open authority in 
 “ the hands of the Agent-General and your London Office, to the 
 “ aggregate extent of Five Millions, under which, at your joint 
 “ discretion (limited, as follows), the authority may be acted upon. 
 
 “I am, therefore, to state that, having due regard to the condi- 
 “ tion of the money market, you are authorized, with the acquiescence 
 “ of the Agent-General, to float a loan to the said aggregate amount 
 “ of Five Millions, the stock to be inscribed by the Bank of England, 
 “ in terms of the ‘ Order in Council’—that is to say, either wholly or 
 “ in part—at times which you deem to be suitable for a favourable 
 “ realization, and after obtaining the approval of the Government, 
 “ who are to be advised by wire of any proposed operation, and of 
 “ the minimum price for tender. 
 
 “ I am also to enclose three (3) certified copies, each of the 
 “ Acts of Parliament under which the loan is to be issued, namely:— 
 “ 41 Victoria, No. 7 
 
 “43 „ No. 11 
 
 “ 44 „ No. 12 
 
 “44 „ No. 28 
 
 “ Beyond these instructions, the Government leave the conduct 
 “ of the loan in your hands and those of the Agent-General, satisfied 
 “ that you will do your best for the interests of the colony. 
 
 “I have, &c., 
 
 “(Signed) G. EAGAE. 
 
 “ P.S. A copy of this letter will be sent by to-morrow’s mail 
 “ to the Agent-General, who is asked to place himself in communi- 
 “ cation with your London office.” 
 
 “ Order in Council. 
 
 u w-ir^ Excellency the Right Honourable Lord Augustus 
 u M ^ Spencer Loftus, Knight Grand Cross of the 
 
 Most Honourable Order of the Bath, a member of Her Majesty's 
 Most Honourable Povy Council, Governor and Commanderin. 
 Chief of the Colony of New South Wales and its Dependencies. 
 
 “(Signed) AUGUSTUS LOFTUS, 
 
 “ Governor.” 
 
 “ wolt Colonial Treasurer jn view of the rapid progress of railway 
 provide for necessary extensions of existing 
 
 “ (rovemorSthTF"'^^‘'u^^^^ Excellency thf 
 
 Governor and the Executive Council, the desirability of making 
 
15 
 
 “timely provision for these services by the raising of a further 
 “ aggregate sum of Five Millions in the English money market, in 
 “ such amounts, and at such times as may be recommended by the 
 “ Agent-General, and the London Banking Agents of the Govern- 
 “ ment, who will be instructed to watch the course of the market, 
 “ and avail themselves (subject to the approval of the Government) 
 “of favourable opportunities of floating the loan, either wholly or 
 “ in part. 
 
 “ And His Excellency in council having considered the proposals 
 “ so submitted, is pleased, upon tbe further recommendation of the 
 “ Colonial Treasurer, to authorize, and to order, and direct the issue 
 “ of a loan in the form of stock to be inscribed by the Bank of 
 “ England, to the aggregate extent of Five Millions, under the Acts 
 “ 41 Victoria, Ho. 7, 43 Victoria, No. 11, 44 Victoria, No. 12, and 
 “ 44 Victoria, No. 28, such issue to be made in London at convenient 
 “ opportunities, and according to the state of the English money 
 “ market. 
 
 “ Passed the Executive Council at Sydney, in tbe colony of 
 “New South Wales, this second day of October, 1883. 
 
 “(Signed) ALEX. C. BUDGE, 
 
 “ Clerk op the Council.” 
 
 We submit to you that these documents clearly place an open 
 authority in the hands of the Agent-General, and our London 
 Office conjointly, to float a loan of Five Millions on the London 
 Market “ in such amounts and at such times ” as, subject to 
 the approval of the Government, they may deem expedient and 
 favourable. We submit to you that these Five Millions are expressly 
 stated to be floated by ourselves, and inscribed by the Bank of England, 
 and that it is no less expressly contemplated that the aggregate 
 shall be floated in “loans of varying magnitude, having, in view the 
 “ desirability of making provision for our railway works, now rapidly 
 “ progressing.” 
 
 We submit to you that, having careful regard to these instructions, 
 we floated three of these Five Millions in December last, and that 
 now, when your need is urgent, and the time opportune, it is neither 
 legally nor equitably within your rights to withdraw the floating of 
 the remaining two millions from our hands merely because the Bank 
 of England have “ unexpectedly ” assumed a new position. 
 
 We further submit to you that if in July, 1883, that Bank raised 
 no objection to our floating a loan which they were to inscribe, simply 
 because “ arrangements had already been concluded by you with the 
 “ Bank of New South Wales,” then such reasons must apply with 
 equal force to the two millions balance, to which I have above 
 referred : and finally under this head— 
 
 We submit to you that if after you have obtained overdraft 
 
16 
 
 advances from us and are daily taking more on the strength of oui 
 reliance that your next loan will be floated through our on on 
 office, the Bank of England unexpectedly declines to inscribe unless 
 it also floats, then it not only coerces you, but it does so incon¬ 
 sistently and capriciously. . 
 
 2. On the 26th June last you favoured me with ^copy tele¬ 
 grams exchanged between yourself and the Agent-General, as 
 follows ;— 
 
 “ Agent-Genehal, London, to 
 
 “ Colonial Secretary, Sydney. 
 
 “ 18th June, 1884. 
 
 “ Bank of England object inscribe further loans unless they also 
 “issue. Particulars by mail.” 
 
 “ Colonial Treasurer, Sydney, to 
 
 “Agent-General, London. 
 
 “21st June, 1884. 
 
 “ Cable full particulars reasons for change, and terms asked by 
 “ Bank England for floating.” 
 
 “ Agent-General, London, to 
 
 “ Colonial Treasurer, Sydney. 
 
 “ 25th June, 1884. 
 
 “ No reason for change, except determination to have pecuniary 
 “ advantage. Bank states ours only colony for which they inscribe 
 “ and don’t issue loans. Decline to name charge to us until specific 
 “ proposal before them to issue loans. New Zealand and Queensland 
 “ pay half per cent. This would doubtless be the charge to you. 
 “ Am remonstrating against change, urging contrary to our arrange- 
 “ ment. No expectation they will alter.” 
 
 And we submit to you that these demonstrate unmistakeably,— 
 
 Firstly. A surprise on the part of the Agent-General at new and 
 unexpected action taken by the Bank of England. 
 
 Secondly. Your own admission that a “change” was being 
 forced by them. 
 
 Thirdly. That no reason could be assigned for their action, 
 “ except determination to have pecuniary advantage,” and 
 
 Fourthly. That the Agent-General was “ remonstrating against 
 “ change.” 
 
 You have not favoured us with view of any correspondence 
 between the Agent-General and the Bank of England, but we are 
 sanguine that it will show, and we know distinctly from Mr. 
 Larnach, who was present at the interviews between your representa- 
 
17 
 
 tives in London and that Bank, that the remonstrance referred to 
 in the telegrams took substantially the form in which we had the 
 honour to represent it to you in our letter of the 15th instant. 
 
 3. Your own letter to us of the 9th instant refers to the action 
 of the Bank of England as “ unexpected,” and as raising a question 
 “ of great gravity and importance,” involving “ much anxious con- 
 “ sideration.” 
 
 And you must allow us to assume that you could never willingly 
 have brought such trouble upon yourself. 
 
 We have no desire to establish anything “ adverse to the Bank 
 “ of England,” as you suggest, but if they have not applied coei’cion in 
 this matter, the best judgment my Directors cair bring to bear upon 
 it is much at fault. Had we attempted at any time any such like 
 action, we should have expected plain resentment. 
 
 As regards the other question, whether the Bank of England has 
 approached what may be fairly termed a breach of banking faith, 
 we feel that we need not discuss it. You will realize that although 
 you and they were more directly concerned in the arrangements 
 under notice, yet, as arising out of the connection, we necessarily 
 became involved with them in the negotiations. 
 
 We bow to your judgment, whenever we can, in all matters in 
 which the views of the Government should fairly have effect with us. 
 In any question of propriety of conduct between Bank and Bank, we 
 are satisfied that you will, on reflection, allow us to form and retain 
 our own opinions. 
 
 We have never been forgetful of the clause in our recent agree¬ 
 ments with the Government which provides for the possibility of an 
 arrangement being made with the Bank of England for the manage¬ 
 ment of the loans of the colony. It was first inserted by the 
 present Premier ; but we are not aware that it ever indicated a 
 settled policy, and the fact of its having remained so long 
 inoperative was, in our estimation, proof rather that successive 
 administrations had no belief in the wisdom of giving it practical 
 effect. We may think that it will prove, when really tested, a very 
 expensive effort and failure for the country, but we urge no right to 
 prevent its application. We think we might reasonably have been 
 heard before it was brought into operation, and we deny that it can 
 equitably apply to the next loan, so much so that we must claim 
 commission on that transaction to the extent of the two millions 
 hereinbefore referred to. 
 
 I am directed to thank you for your recognition of the services 
 the Bank has hitherto rendered in the management of the Govern¬ 
 ment banking business. 
 
 Whether my Directors may desire to revise the terms of the 
 Bank’s agreement with the Government under the altered circum¬ 
 stances, or what steps they may take in the matter, must depend 
 
IS 
 
 upon the new arrangements you have ordered with the Bank of 
 England, and their bearing on the London portion of the existing 
 contract. We shall feel obliged if you will inform us definitely on 
 this subject directly your arrangements conveniently admit of it. 
 
 I have the honour to he, 
 
 Sir, 
 
 Your obedient servant, 
 
 SHEPHERD SMITH. 
 
 General Manager. 
 
 The Treasury, New South Wales, 
 
 Sydney, 9th September, 1884. 
 
 Shepherd Smith, Esq., 
 
 General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour, by direction of the Colonial Treasurer, to 
 acknowledge receipt on the afternoon of the 3rd instant, of your 
 letter of the 30th ultimo, and in doing so, 1 am directed to inform 
 you that various circumstances referred to in your letter do not 
 seem to the Treasurer to be in any way legitimate matter of obser¬ 
 vation and criticism on your part and consequently ought not to 
 form the subjects of correspondence between the Government and 
 yourself. 
 
 2. It cannot conduce to a satisfactory solution of any difficulty 
 which you may deem to have arisen in the necessarily changed 
 financial relations of the Government in connection with the 
 inscription of stock that this correspondence should be made the 
 vehicle of offensive and unwarranted imputations on the conduct of 
 the Bank of England, the publication of which would be improper 
 and unjust. 
 
 3. And while it would be impossible for the Government to 
 permit these imputations to be made without protest against both 
 their want of accuracy and propriety, it would be forgetful of its 
 dignity to engage in any public discussion on such a matter else¬ 
 where than in Parliament, should the question be there legitimately 
 raised as a subject of debate. 
 
 4. You will not fail to remember that the services of your Bank 
 in the satisfactory conduct of the business of the Government have 
 been more than once acknowledged with cheerfulness. But you 
 entirely misconceive the relations of your Bank to the Government 
 if you suppose that you can be permitted, without protest, to adopt 
 
19 
 
 precisely tliat course of action whicli you erroneously charge the 
 Bank of England with pursuing, viz.:—coercing the Government 
 into a certain line of conduct. Acquiescence in such pretensions 
 would be to concede to the Bank political control of financial 
 arrangements instead of confining it to its proper functions. And 
 on this point I am instructed to express the regret of the Treasurer 
 that you should have thought fit to charge the Government with any 
 want of “ reciprocal consideration,” or “ confidential courtesy.” The 
 tone of your letter is not that which ordinarily characterises business 
 communications which are for purposes both of convenience and 
 courtesy uniformly and properly marked by the absence of any 
 personal element. 
 
 5. It is, I am directed to point out to you, quite unnecessary to 
 re-open a discussion on many of the points raised in your letter of 
 the 15th ultimo, and reiterated in that of the 30th ultimo—those 
 that are material having been sufficiently answered in Treasury 
 communication of 26th ultimo. It does not appear to the Treasurer 
 that it is either desirable or expedient to add to a correspondence 
 which has been unnecessarily prolonged, and in which the real 
 merits of the subject have been long since disclosed and discussed. 
 
 6. I am further instructed to say that with respect to the last 
 paragraj^h of your letter, desiring to be informed of the new 
 arrangements with the Bank of England, the Government learns by 
 telegram from the Agent-General, received on the 3rd instant, that 
 the Bank has agreed to undertake the issue and inscription of the 
 new £5,000,000 loan. The full details of the arrangement are not 
 expected earlier than by the return mail, which will bring answers 
 to the letters which left this on the 13th August last. It is 
 intended, as far as can be determined at present, that the proceeds 
 of the loan shall be handed over to the Bank in London doing our 
 general business. It will be equally agreeable to the Treasurer, for 
 the purpose of enabling your Bank (if so desired) to act upon its 
 right to revise the subsisting contract at the earliest possible 
 moment, to regard the arrangement with the Bank of England as 
 completed now, or as completed when the arrangements shall be 
 advised by letter. In whatever way you decide as to the time 
 when revision should take place, the Treasurer wishes it to be clearly 
 understood that the Government is not desirous to remove its large 
 general business, local and London, from your institution, but on 
 the contrary, would much prefer that it remained with you on 
 mutually satisfactory terms. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 G. EAGAE. 
 
20 
 
 Bank of New South Wales, 
 
 Sydney, 12th September, 1884. 
 
 The Honourable 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your favour of the 9tb instant, 
 and to offer to you the assurance of my Directors that neither in my 
 letter to you of the 30th ultimo, nor in any other communication 
 ever yet made by them to the Government, have they consciously 
 referred to “various” or indeed to any “ circumstances ” which in their 
 soundest judgment, are other than “ legitimate matter of observation 
 “ and criticism,” or to such as, “ ought not to form subjects of 
 “ correspondence between the Government and the Bank.” 
 
 Every subject and circumstance referred to in my letter of the 
 30th ultimo, the Bank is directly and substantially interested in, 
 and we entertain no doubt whatever that it is our clear legitimate 
 privilege and duty to comment upon, and to present to you our 
 views, respectfully yet freely, respecting all subjects and matters, 
 in which you and we are mutually interested and concerned, and 
 that especially so when we are under the firm conviction that you 
 are rupturing contract engagements with us, or are otherwise doing 
 us wrong, and such legitimate privilege we have certainly not 
 exceeded. 
 
 We have no desire, and claim no right that you should corres¬ 
 pond with us on any subject derogatory to your proper “ dignity,” 
 but if you, in your own discretion, and on your own motion, write 
 to us on any subject whatever and express views, or propound to us 
 either political or financial dogmas, or standards of banking pro- 
 priety, or rules for the conduct of ordinary business communications, 
 with which we cannot agree, you can have no possible right to 
 blame us if we respectfully respond to your implied and unsolicited 
 invitation to discuss such subjects, and we submit that you should 
 not temjit us to discuss them roughly by suggesting that we are 
 making the correspondence “ the vehicle of offensive and unwarranted 
 “ imputations, the publication of which would be improper and 
 “ unjust,” or by your telling us, as apropos to nothing, that we cannot 
 be ‘‘^ ■permitted ’ to coerce the Government, as “ acquiescence in such 
 ^^pretensions would be to concede to the Bank political control of 
 “financial arrangements, instead of confining it to its proper 
 “ functions.” 
 
 Nothing will be found in my letters to provoke, or warrant, or 
 excuse^ this^ style of address to my Directors, and how their 
 “ dignity ” is to be maintained without some danger to your own if 
 you indulge us with such undeserved denunciations, I do not vet 
 quite understand. ^ 
 
21 
 
 But, seeing that you have abandoned the discussion ofthe real points 
 at issue between us, and have carefully avoided consideration of the 
 (as we think) indisputable proofs submitted in our letter of the 30th 
 ultimo (which proofs we believe we can strengthen, if hereafter you 
 should at any time desire it), we have no intention to agonize such 
 side issues as those raised in your last favour, for whatever may be 
 our views respecting the action of the Bank of England, or of your 
 treatment of us in connection with that action, you cannot suppose 
 that if we desire to express them publicly, we should dream of 
 choosing the “ vehicle ” you mention, as either the readiest or the 
 most effective for our purpose, nor do we credit for one moment that 
 you really believe that we have pretensions to coerce the Government 
 politically, or to interfere with, or even to know, its financial policy, 
 beyond what may be absolutely necessary for the protection of its 
 own and the Bank’s interests. 
 
 We are quite content to rest upon our letters of the 15th and 
 30th ultimo, as expressing our duty and views on the subject matter 
 of tliis correspondence. 
 
 We have some difficulty, in the absence of detailed information 
 respecting the new arrangements between the Government and the 
 Bank of England, in determining what we shall do with reference 
 to our relations to the general business of the Government, local and 
 in London, but we thank you for the intimation of your preference 
 that we shall arrange to retain it on mutually satisfactory terms, 
 and I shall communicate with you upon the subject as soon as I 
 possibly can. 
 
 Meanwhile, will you allow me to again remind you that without 
 arrangement for any such sum, your local general account with us is 
 overdrawn to the extent of nearly one millon sterling, and that if we 
 were to dishonour the Treasury cheques to-morrow you could have no 
 possible right to complain of our action ? And will you permit me 
 to suggest that it is not reasonable that you should thus un- 
 authorizedly be straining our resources to protect your credit at the 
 very time that you are transferring some portion of your business to 
 another banking institution 1 
 
 We are anxious, and we have prepared ourselves, to meet your 
 every probable requirement, but we prefer that your overdraft shall 
 not drift indefinitely, and without arrangement, and we shall be 
 thankful if you will indicate to us to what extent, and for what 
 period, you desire us to provide you with the necessary funds to pay 
 the Government cheques in excess of our contract engagements. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 SHEPHERD SMITH, 
 General Manager. 
 
22 
 
 The Treasury, [New South Wales, 
 
 Sydney, 16th October, 1884. 
 
 The General Manager, 
 
 Bank of New South Wales, 
 
 Sir, 
 
 I have the honour, by direction of the Colonial Treasurer, to 
 request that you will transfer from your London Branch to the 
 credit of the public account of the Government in your Bank here 
 the sum of £350,000 (Three hundred and fifty thousand pounds) 
 on this present application ; £350,000 (Three hundred and fifty 
 thousand pounds) thirty days afterwards and £500,000 (Five 
 hundred thousand pounds) thirty days thereafter ; under the pro¬ 
 visions of the 20th section of the “ Terms ” of the existing contract. 
 
 I am to add that the Bank of England is instructed, by cable, 
 to pay your London branch the sum of £1,000,000 (One million) 
 for credit of the public account of the Government in your said 
 branch. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 G. EAGAK. 
 
 Bank of New South Wales, 
 
 Sydney, 17th October, 1884. 
 
 The Honourable 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your favour of the 16th 
 instant, requesting us to transfer from our London Branch to the 
 credit of the Public Account of the Government here the sum of 
 £1,200,000 on certain specified dates, under the provisions of the 
 20th section of the “ Terms ” of the existing contract, 
 
 I am directed to inform you, in reply, that immediately the 
 revision of the Terms of our Agreement, now being negotiated, has 
 been satisfactorily arranged, your letter shall have our best 
 attention ; pending that settlement, we assume that you cannot 
 desire us to take action. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 CHAS. M. PALMEE, 
 
 Manager. 
 
23 
 
 The Treasury, New South Wales, 
 
 Sydney, 18th October, 1884. 
 
 The General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour to acknowledge receipt of your letter of the 
 17th instant, and I am directed by the Colonial Treasurer to point 
 out that in his opinion the contract of February, 1881, is still 
 current, and must remain so until a revision has been made in terms 
 of that agreement. 
 
 It was under the 20th section of the now subsisting agreement 
 that the request for the transfer of certain moneys—of date 16th 
 instant—was made. 
 
 The Treasurer cannot permit any delay, or non-compliance with 
 his request, to take place, pending negotiations for such revision of 
 the contract. I am therefore instructed to request that you will 
 at once intimate your intention of carrying out the demand made for 
 transfer of funds—or your refusal to comply with such demand— 
 as the action of the Government will be guided by your reply. 
 
 The Agent-General has been instructed to supplement the sum 
 at the Government credit in your London office by the payment of 
 one million sterling from the proceeds of the late loan. 
 
 As intimated by the Treasurer in a letter to you of Wednesday 
 last, the revision of the existing and current agreement will be 
 proceeded with without delay, and as soon as the pressing business 
 of the Government will permit. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 G. EAGAR. 
 
 Bank of New South Wales. 
 
 The Honourable 
 
 Sydney, 21st October, 1884. 
 
 The Colonial Treasurer. 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your favour of the 18th 
 instant, and to intimate to you with very great reluctance and only 
 because in almost intimidating terms you require that it shall be 
 presented to you in this strained form : 
 
 Firstly .—That the Bank declines to recognise the right of the 
 
24 
 
 Government to “ demand ” the transfers therein referred to until the 
 terms of the agreement between the Government and the Bank 
 shall have been revised and mutually re-arranged. 
 
 Secondly. —That the Bank will not consent to make such 
 transfer until such revision shall have been satisfactorily completed. 
 
 Thirdly. —Tiiat the Bank sees no way to practically recognise 
 any power on the part of the Treasurer to say with any effect what¬ 
 ever that he “ cannot permit any delay or non-compliance with his 
 request to take place” when the Bank in the free exercise of its own 
 judgment believes, him (the Treasurer) to be demanding that which 
 is essentially inequitable, beyond his legal rights, and manifestly, 
 if not designedly, injurious to the Bank’s interests. 
 
 Fourthly. —That the Bank is not influenced in the slightest 
 degree by any covert threats, such as may be suggested by the words 
 which you unprovokedly convey to us, viz. : that “ the action of the 
 “ Government will he guided by your reply.” 
 
 You have been aware for many weeks past, and ever since the 
 floating of the last loan was taken out of our hands (iUegally in 
 respect to some portion of it, as we believe), that a revision of the 
 terms of the agreement had been rendered by you absolutely 
 necessary. 
 
 You know full well that revised terms have, even down to detail, 
 been considered between yourself and the General Manager of the 
 Bank after deliberate appointments and in free consultation. 
 
 You have been in possession of the Bank’s views, as to the main 
 terms on which it proposed in future to conduct the banking 
 business of the Government. 
 
 You have been specially alive to the fact that the clause relating 
 to transfers was one which the Bank required to be revised and 
 altered, and you can hardly forget that, weeks ago, you made and 
 afterwards withdrew applications for transfers, on our express repre¬ 
 sentation, and your verbal acknowledgment, that before any further 
 transfers could be made, new terms should be agreed upon. 
 
 You have postponed, and postponed, a settlement until your 
 loan has been floated. You have meanwhile gone on overdrawing 
 your account with us, contrary to all your agreement terms, to the 
 extent of £1,300,000, in Sydney, without previous arrangement 
 with us of any kind, and we cannot now consent (it is strangely un¬ 
 reasonable, indeed, that you should ask us to consent) to further 
 disorganise and tear about in this huge and spasmodic fashion all 
 our financial strength and arrangements, by having forced upon us 
 repayments on the other side of the world of debts due by you here, 
 and so accepting under conditions and on terms calculated to place 
 us at unwarrantable disadvantage, involving us in troublous incon¬ 
 venience and serious loss. 
 
 You seem to be unaware that whilst you are using provocative 
 
25 
 
 language to us of dictation and threat, you are, and have been for 
 some time past, absolutely dependent upon our self-sacrificing willing¬ 
 ness to pay your daily cheques, for even if we complied with your 
 request to-morrow to transfer £350,000 from London to your credit 
 here, you would still then be overdrawn with us about a million of 
 money, and you have no contract, nor any other right whatever, to 
 any such accommodation. 
 
 We notify you now, formally, that you are breaking your contract 
 covenants every day, and that if you force us into tliat position we 
 shall hold you responsible for your breaches. 
 
 The agreement between the Government and the Bank expressly 
 states that in the event of the transfer of your loan business to the 
 Bank of England we shall have the right to revise. The letter and 
 the spirit of the agreement alike affirm that if by your action you 
 strike away any portion of the contract business affecting our 
 remuneration or profit we shall, as a matter of course, have the 
 right to revise the remaining terms. The law, the equity, and the 
 common sense of the position are, we submit to you, beyond 
 question, that any such action of yours and our revising rights must 
 be simultaneous. You can have no power, you should have no 
 inclination, under the circumstances, to take from us any paying 
 part of the contract, and fix us at the same time to other non-pay¬ 
 ing portions of it. 
 
 We are perfectly willing to make allowances for your delay in 
 revising, whether it arises from sickness, or pressure of business, or 
 any other cause. We are not pi’epared to allow your delay to be 
 rendered conducive to your profit and our loss. It is not reasonable 
 that it should be so. 
 
 If you are unable to consider the whole question of revision 
 forthwith, we are ready to revise the terms of your first requested 
 transfer of £350,000, and to make that transfer on terms to 
 be arranged, leaving a few days, without prejudice to us, for the 
 arrangement of other points involved ; but the Bank has been sub¬ 
 jected to such financial surprises, disturbances, and loss, by the 
 erratic, eccentric, and entirely unprovided for fluctuations of the 
 Government account during the last year and three-quarters, that it 
 is quite resolved that, in its own interests and in the interests of all 
 connected with it throughout the country, embracing very equally all 
 classes, it must now insist upon some reasonable early re-arrange¬ 
 ment of its contract with the Government, or it must surrender the 
 honour of serving the Government as its bankers. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 CHAS. M. PALMEE, 
 
 Manager. 
 
26 
 
 The Treasury, New South Wales, 
 
 Sydney, 15th November, 1884. 
 
 Shepherd Smith, Esq., 
 
 General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour, by direction of the Colonial Treasurer, to 
 inform you that he has received a cablegram from the Agent- 
 General to the effect that your London Office had declined to receive 
 a sum of £900,000 which, under instructions from the Treasurer, 
 the Agent-General had tendered for the credit of the Public Account 
 of the Government in your said London Branch. 
 
 I am to state that Mr. Dibbs considers this refusal as contrary 
 to the spirit and intent of the existing agreement, and I am to ask 
 that you will be good enough to take steps, by immediate communi¬ 
 cation with your London Branch, to prevent any such violation of 
 the contract. 
 
 I am also to request a definite answer to Treasury communication. 
 No. 249, of date 18th ultimo, upon the point whether you intend or 
 not to carry out the demand made upon you by letter of the 16 th 
 ultimo for the transfer of £1,200,000 at the dates specified in said 
 letter. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 G. EAGAR. 
 
 Bank op New South Wales, 
 
 Sydney, 19th November, 1884. 
 
 The Honourable 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of the 15th instant, 
 delivered after business hours at the Bank on Saturday last, and to 
 intimate to you that my Board is quite willing to instruct our 
 London Office to receive the £900,000 to which you refer, so long 
 as it is distinctly understood that it, and all other such transfers 
 from the Bank of England, proceeds of the late loan, are recognised 
 as received by us as non-interest bearing, pending the mutually 
 
27 
 
 satisfactory revision of the agreement entered into between the 
 Government and this Bank in February, 1881. 
 
 My Board directs me to repeat to you in writing, that which our 
 General Manager expressly communicated to you, verbally, long ago 
 —that the Bank can neither allow interest upon, nor transfer any 
 such moneys to Sydney on any assumption that either the spirit or 
 intent of the agreement of 1881 requires the Bank to do so, until 
 the terms of such agreement have been revised. 
 
 We reluctantly respond to the last paragraph of your letter, in 
 which you request a definite answer to Treasury communication, No. 
 249, of date the 18th ultimo, because we feel that we can only 
 answer by sending you our letter of the 21st ultimo, which you are 
 aware was then, and has only since been, held back from that date 
 by mutual agreement to admit of consultations and negotiations for 
 revision, which, until late on Friday last, we had every right to con¬ 
 clude had been conducted to satisfactory re-adjustment. 
 
 Such re-adjustment, in fact, is now in all points ready for formal 
 ratification, if only the extraordinary proposition in relation to the 
 amendment of the 20th Clause (made by you on Friday last, for the 
 first time, and so much to the Bank’s astonishment), can be removed ; 
 meaning, as it does, that the Bank shall bind itself, if called upon, 
 to lend to the Government in this colony millions of money at an 
 interest rate of three per cent, per annum. My Board cannot realize 
 that, after mature deliberation, you will persevere with such a, to us, 
 impossible and ruinous proposition. 
 
 If that be withdrawn, and the amendments as previously arranged 
 between us are confirmed, we shall be glad to carry out your wishes 
 in accordance with the revised agreement. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 CHAS. M. PALMER, 
 
 Manager. 
 
 Bank of New South Wales, 
 
 Sydney, 21st November, 1884. 
 
 The Honourable, 
 
 The Colonial Treasueer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to direct your attention again to the fact that 
 the general account of the Government is overdrawn with us in 
 Sydney to an extent of between one and two millions sterling. 
 
28 
 
 You have been fully made aware by notices verbal, and by 
 entries in your accounts made on the 30th September last, that for 
 all moneys advanced to you in excess of those specially provided for 
 in the agreement of 1881, we have been, and are now charging you 
 interest at current rates. 
 
 But even on such conditions it is not right that the overdraft 
 should go on indefinitely drifting, and we respectfully urge you to 
 inform us at once to what extent you desire to overdraw, and how 
 progressively you propose to regulate the account, in the way of 
 increase or decrease. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 CHAS. M. PALMBE, 
 
 Manager, 
 
 The Treasury, New South Wales, 
 
 Sydney, 28th November, 1884. 
 
 The General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour, by direction of tlie Colonial Treasurer, to 
 acknowledge receipt of your letter of the 2l8t instant, and, in reply 
 thereto, I am to invite your attention to the terms of the existing 
 contract under which an interest rate of five per cent, per annum is 
 fixed for any local overdraft which the Government may require. 
 
 I am further to inform you that the present state of the account, 
 and the large overdraft here, are solely due to the neglect on the 
 part of your Bank to transfer funds from your London office, as 
 requested by the Treasurer, in terras of the agreement. 
 
 Your letter, dated 2l8t October (but only received at the Treasury 
 on the 20th instant) and that of the 19 th instant, are under the 
 consideration of the Treasurer. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Seiwant, 
 
 G. EAGAR. 
 
29 
 
 Bank of New South Wales, 
 
 Sydney, 28tli November, 1884. 
 
 The Honourable 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of this date, and to 
 inform you in reply, that the attention of the Bank has been very 
 fully given to the terms of the contract of 1881, from the time of 
 its inception to the period at which the Bank’s right to revision, as 
 provided for in it, was rendered necessary by your comparatively 
 recent contract and action with the Bank of England, and since. 
 
 In deference to your request, however, the Bank has again given 
 special attention to those terms, and it can attach no weight to the 
 interpretation you suggest, rather than assert, should be placed upon 
 clause 3. 
 
 That clause is absolutely governed and controlled by clauses 5 
 and 6, so that if by clause 3 “ an interest rate of five per cent, per 
 annum is fixed for any local overdraft which the Government may 
 require,” it is by clauses 5 and 6 provided that the Govenment cannot 
 “ require ” more than an overdraft of £250,000 without security, or 
 more than an additional £250,000 with specified security. The 
 Government has required the £250,000 unsecured overdraft ; you 
 have never provided the security specified for the limited further 
 advance ; and any such contention as that the Government can go 
 on unlimitedly overdrawing with us at a five per cent, rate, is, we 
 think, as contrary to the plain text of that contract, as we know it 
 to be opposed to its intention, and we repeat our formal notification 
 to you, we cannot allow it. 
 
 You are certainly now (and pending revision) being charged 
 current interest rates for advances. Your overdraft, as you are 
 aware, exceeds one-and-three-quarters millions sterling, and, under 
 existing circumstances, we can owe you no legal or other obligation 
 to pay any cheques which from day to day may be presented. 
 
 In our desire to serve the Government, and in our own interests, 
 and in the interests of the country, we beg you to bring the differ¬ 
 ences between the Government and the Bank to an immediate 
 settlement. 
 
 Your averment that “the present state of the (Government) 
 “ account, and the large overdraft here, are solely due to the neglect 
 “ on the part of j^our Bank to transfer funds from your London 
 “ office, as requested by the Treasurer in terms of agreement,” 
 fairly astonishes us, for, in previous letters, we have pointed out to 
 you that even if your transfer rights under that contract had 
 
30 
 
 remained intact, you could not possibly, by any process, under the 
 agreement of 1881, have brought your overdraft within, or even 
 nearly within, the limits provided for, and that is such a patent 
 and easily-proved fact that we confidently invite you to withdraw 
 your statement as unjustifiable. 
 
 We shall anxiously await your early and substantial reply to our 
 letters of the 21st October and 19th instant. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 CHAS. M. PALMEK, 
 
 Manager. 
 
 The Treasury, New South Wales, 
 
 Sydney, 28th November, 1884. 
 
 The General Manager, 
 
 Bank oe New South Wales. 
 
 Sir, 
 
 T iiave the honour, by direction of the Colonial Treasurer, to 
 inform you that the Agent-General, by cablegram received this day, 
 has intimated that upwards of one million and a half (£1,500,000) 
 of money of this Government is now lying in the Bank of England 
 aw'aiting use. 
 
 As, by a previous cablegram from the Agent-General, Mr. Dibbs 
 has learned the recent refusal of your London office to receive on 
 deposit the sum of nine hundred thousand pounds (£900,000), 
 tendered by Sir Saul Samuel for the credit of the public account of 
 the Government, I am further directed to give you notice that Mr. 
 Dibbs will hold your Bank responsible, in due season, for the loss of 
 interest which the colony is now sustaining by reason of your 
 refusal to carry out that portion of the existing agreement which 
 relates to money on deposit in your London office. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 G. EAGAR. 
 
31 
 
 Bank of New South Wales, 
 
 Sydney, 23tLi NoTomber, 1884. 
 
 The Honourable 
 
 The Colonial Theasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of this date, inform¬ 
 ing me that you have received a cablegram from the Agent-General 
 “ that upwards of one million and a half of money of this Govern- 
 “ment is now lying in the Bank of England awaiting use.” 
 
 We do not quite understand to what extent you desire us to 
 comment upon that announcement, but we think it unfortunate for 
 the Government, and we agree with you that it is injurious to the 
 interests of the colony if any such large sum is lying idle in the 
 Bank of England “ awaiting use,” or otherwise, and we are quite 
 persuaded that, pending better arrangements, you should obtain 
 interest for it from the Bank of England, if you can. 
 
 Had you floated your loan through us, we should have allowe;! 
 you interest. You have chosen otherwise. You have broken our 
 contracts, involved us in loss, upset the harmony of the whole of our 
 banking arrangements with the Government, and pending tlie 
 ratification by you of the revision and re-adjustment of our agree¬ 
 ments, we decline to consent that you shall bring to us the dregs of 
 transactions which give to the Bank of England all the profit, and 
 to the Bank of New South Wales all the loss. 
 
 As matters now stand, you can have no right to interest 
 allowance on any of your credit balances in our London office, and 
 you are subject to our current rates of interest on your local over¬ 
 draft. 
 
 On these conditions alone do we continue to pay your local 
 cheques, issue credits, or transact any other portion of your business. 
 
 In response to your notification “ that Mr. Dibbs will hold your 
 “ Bank responsible in due season for the loss of interest which the 
 “ colony is now sustaining by reason of your refusal to carry out that 
 “ portion of the existing agreement which relates to money on deposit 
 “ in your London office,” we deny that during your persistent delay 
 in completing revision, there is anything “ existing ” in relation to 
 deposits in our London office of an interest-bearing character, and 
 we repeat to you that we hold, and shall hold you liable for all losses 
 and damages past, present, and to come, in consequence of your 
 singular and continued disregard of the legal and equitable contract 
 rights between the Government and this Bank. 
 
 I have the honour to be, Sir, 
 
 Your obedient servant, 
 
 CHAS. M. PALMER, 
 
 Manager. 
 
32 
 
 The Treasury, ISTew South Wales, 
 
 Sydney, 6tli December, 1884. 
 
 The General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour to acknowledge receipt of your letters of 
 the 28th ultimo (two in number), received at the Treasury on the 
 2nd instant, which I have submitted to the Colonial Treasurer, 
 by whom I am directed to inform you that the tone of those letters, 
 taken in connection with your jirevious communications, appears to 
 be so studiously disrespectful to the Government—so much at 
 variance with the rules of ordinary courtesy, and so calculated to 
 prevent, instead of facilitate, a settlement of the differences between 
 the Government and your Bank, that Mr. Dibbs desires it to be 
 distinctly understood that, so far as the Government is concerned, 
 this letter must close, up to this point, an unsatisfactory, irritating, 
 and practically useless correspondence. 
 
 I am further to inform you, in reference to the interviews which 
 you have had with the Colonial Treasurer from time to time during 
 the last two months, at which the possibilities were discussed as to 
 the terms likely to be accepted by both parties as a basis for the 
 revision of the existing contract, that as no conclusions have been 
 arrived at on tbe matters then at issue, the' position of affairs 
 necessarily reverts to the status quo ante. 
 
 With a view, however, to terminate, if possible, the present un¬ 
 satisfactory state of things (which appears to be quite incapable of 
 accomplishment by personal conference with you) I am desired by 
 Mr. Dibbs to state, exj)licitly, in writing, for your final acceptance 
 or refusal, the terms upon which the Government will agree to revise 
 the now existing contract, namely : 
 
 1. In lieu of the transfers requested in Treasury letter of 16th 
 October last, a transfer to be, at once, made of One million, from 
 London to Sydney, and £350,000 a month thereafter, to be con¬ 
 tinued until further notice, at one half per cent premium—payable 
 by you. 
 
 2. Tbe receipt by your London Office of such deposits, with 
 continuing interest, as we may, from time to time, desire to make. 
 
 3. The other charges for conducting the Government business, 
 London and local, to remain as at present. 
 
 4. The right to reduce qiro rata with other Banks, the special 
 deposits with the Bank of New South Wales. 
 
 5. Special deposits iqo to £500,000 (liable to pro rata reduction) 
 to be subject to an interest of 3 per cent, per annum. 
 
 6. Three per cent, to be allowed on daily balance, in terms of 
 clause 1 of existing contract. 
 
33 
 
 7. The abandonment of any claim for commission on the unused 
 portion of the projected loans to the aggregate extent of Five 
 millions. 
 
 8. The reduction of the rate of Interest on local overdraft from 8 
 to 5 per cent. 
 
 If these terms be not accepted within fourteen days from date, 
 the Government, notwithstanding that it holds that you have already 
 broken the contract, will then be willing to forego its right to a six 
 months’ notice, and will accept an immediate termination of the ex¬ 
 isting contract, without prejudice to its right to the enforcement of 
 the conditions of such contract, and thereupon make ari-angements 
 for the conduct of its business through other channels, 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 G. EAGAR. 
 
 Bank of New South Wales, 
 
 Sydney, 12tli December, 1884. 
 
 The Honourable, 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of the Gth instant, 
 and to convey to you the thanks of my Directors that you have at 
 last explicitly stated in writing the terms upon which the Govern¬ 
 ment will complete revision of its contract of 1881 with this Bank. 
 
 Had you kindly adopted that course two months ago, instead of 
 leading us into verbal negotiations, the professed intent and aim of 
 which we can in no wise reconcile with your present action, you 
 would have saved us much expense and inconvenience. 
 
 In some sense we sympathise with your comments upon the 
 enforced and strained tone of our recent letters—we agree that it is 
 such as we should never have been compelled to employ, but we 
 entirely deny that it has really been, as you say it appears to you to 
 have been, “ studiously disrespectful to the Government,” “ or at 
 “ variance with the rules of ordinary courtesy.” 
 
 On the contrary, we are satisfied that all the disrespect (allied 
 with practical injustice, whether intentional or not) has been from 
 your side ; and that the variations from the rules of ordinary courtesy 
 have their origin and are centred in your letters, not in ours. 
 
 Any and every thing extraneous to the dry conduct of our 
 business, to be found in the correspondence, has emanated from 
 
34 
 
 yourself, and we submit it to be simply indefensible that you should 
 exhaust our resources in violation of our contract terms, bleed us of 
 our coin without our consent, overdraw your account to the extent 
 of nearly Two millions (your debtor balance now is above £1,800,000), 
 and then because we remonstrate, meet ns with resentful declarations 
 such as that you are the sole judge respecting Government policy, 
 and with unfounded accusations of studious discourtesy and 
 disrespect. 
 
 Such attitude and expression we hold to be manifestly unreason¬ 
 able and unfair. 
 
 We note your desire to avoid any further conference, and your 
 wish to teiminate correspondence. We apply ourselves, therefore, 
 exclusively to the practical portion of your letter, and we affirm 
 that the Bank cannot acquiesce in any such summary dismissal as 
 you suggest, of the interviews and their results between the Colonial 
 Treasurer, and the Under Secretary (the Hon. Mr. Eagar), and our 
 General Manager, which you state have spread over the last two 
 months. 
 
 According to our views they cannot possibly go for nothing, nor 
 can we a<;ree with you “ that as no conclusions have been arrived at 
 “ on the matters then at issue, the position of affairs necessarily 
 “reverts to the status quo ante "'—for conclusions were arrived at, 
 as your notes, the notes of the Under Secretary (Mr. Eagar), and 
 our General Manager’s notes must prove, and it is not possible that 
 the “ status quo ante ” can be attained ; for in virtue of those con¬ 
 clusions, and trusting in the good faith in which, in our belief, those 
 interviews were held, we have permitted the Government to increase 
 its overdraft with us in Sydney, during the negotiations, above 
 £400,000 (four hundred thousand pounds), and we have strained 
 our resources in many expensive ways in order to meet the wants 
 and wishes of the Government, and to treat those negotiations and 
 conclusions as nothing, would be, we submit, a grievous injury and 
 injustice to the Bank. 
 
 But we contend that the conclusions arrived at during those 
 interviews were and are binding in equity on the Government and 
 the Bank alike. A revision was actually completed as between the 
 Treasurer and our General Manager. The detail was reported by our 
 General Manager to our Board from interview to interview, and the 
 only question left open was as to whether, under clause 20, the 
 Bank should transfer from London to Sydney, in the third month 
 and thereafter, £350,000 or £500,000 per month as the Govern¬ 
 ment might demand. Tf the Government will not consent to alter 
 from £500,000 to £350,000, as we wished them to do, we shall on 
 that point submit, but in all other respects we adhere to the terms 
 of the revision upon which, as the result of at least two months’ 
 negotiations, we have practically agreed. 
 
85 
 
 We enclose herewith copy of those terms. When you projiosod 
 to reopen and vary them by the insertion of a clause tliat we should 
 come under obligation to advance, locally, to you millions of money 
 at 3 per cent, per annum, we were compelled to refuse. 
 
 In like manner, when you propose, as you now do, an entirely 
 new programme, omitting the commission of ^^jth per cent, on the 
 local debit operations of your general account, and omitting the 
 substitution of par for half per cent, premium in the 20th clause, 
 we are also compelled to refuse. 
 
 Those two alterations were at the basis of all our negotiations. 
 They were suggestions in the first instance of your own. 
 
 Your concession on those points was to be followed by our 
 abandoning other commission and interest claims. That wo should 
 now be asked to commence afresh to consider new terms which 
 embody the surrender of all the revisions in our favour, and the 
 retention of all the conditions which tell against us, fills my Board 
 with surjjrise, and the Bank has no hesitation whatever in 
 declining it. 
 
 We beg you to understand us thoroughly, We cannot accept 
 your interpretations of our tone, and have said so ; but we have 
 never had any desire to do other than meet your wishes. We are 
 free from the remotest intention to intrude upon your policy in any 
 way whatever; we should be very sorry if we had shown the Govern¬ 
 ment the slightest disrespect, but for some time past we have lost 
 money largely by the conduct of the Government business, and, 
 valuing as we do the preservation of so old and honourable a con¬ 
 nection, we can only attempt to preserve it on business lines and 
 with some accruing profit to ourselves, and the terms offered in your 
 letter are such as to preclude the possibility of our accepting them. 
 
 If you can see your way to abide by the tei-ms embodied in the 
 enclosed sheets, arranged between us, we are willing to transfer the 
 million you require at once, and forego claims for loan commission, 
 and refund interest charged exceeding 5 per cent, per annum, but 
 failing that we must request you (reluctantly and respectfully) to 
 arrange for the conduct of your banking business through other 
 channels, without prejudice to any of our existing rights and claims. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 CHAS. M. PALMER, 
 
 Manager. 
 
 [It is unnecessary to print the suggested terms referred to in the last 
 paragraph of the preceding letter, as the essential points are embodied in 
 earlier paragraphs of the same letter and their insertion in extenso would 
 occupy many pages.] 
 
36 
 
 The Treasury, New South Wales, 
 
 Sydney, 16tli December, 1884. 
 
 The General Manager, 
 
 Bank op New South Wales. 
 
 Sir, 
 
 I have the honour to acknowledge receipt of your letter of the 
 12th instant, received on the 13th instant. 
 
 I have already intimated to you the desire of the Colonial 
 Treasurer that any further correspondence in regard to the revision 
 of the Bank Agreement should cease—unless your Bank were 
 prepared (pending a discussion of the terms of revision) to carry 
 out its present and existing conditions. 
 
 Of that agreement I am desired to observe that up to the 
 present time there has been no revision, either general or particular. 
 
 At the conferences, of which mention was made in my last com¬ 
 munication, it was distinctly arranged and understood that their 
 object was simply to talk over and discuss, in an informal way, the 
 points tliat were likely to be agreed to as the basis of a revision 
 that would be mutually satisfactory. And it was arranged, specially, 
 that no individual proposition so discussed was to be considered as 
 settled and binding until the whole of the matters at issue were 
 disposed of. It was arranged that when the proposed revision was 
 thus completed it should be submitted, not verbally and in parts or 
 piece-meal, but in writing as a “ whole ” to your Directors for their 
 approval, and by the Treasurer to the Cabinet, which was your own 
 suggestion, concurred in by Mr. Dibbs. Neither course has been 
 followed, as there never was a “ whole” to submit, and it is useless, 
 and but a waste of time on your part, to endeavour to set up a plea 
 that there had been any revision, partial or otherwise, of the present 
 agreement, a plea which is emphatically denied. 
 
 Mr. Dibbs observes that your Board declines to accept the terms 
 mentioned in Treasury letter of 6th instant, and numbered 1 to 
 8 inclusive ; but that, under the appearance of meeting the diffi¬ 
 culty, you propose the immediate transfer of One million, without a 
 word as to allowing us ^ per cent, exchange thereon, and that you 
 avoid binding yourself to receive in London the proceeds of our 
 loans, and allow interest on the amount at the rate specified in 
 clause 2 of the existing contract. On the other hand, you stipulate 
 for concessions which you allege (but which Mr. Dibbs again 
 emphatically denies) were made at the conferences before alluded to, 
 thus claiming everything and yielding nothing. 
 
 I am directed, finally, to state that until the transfer of One 
 million, demanded in Ti-easury letter of the 6th instant, be made to 
 the credit of the Government, with the exchange due thereon, and 
 until you intimate your willingness to receive the funds now in 
 
37 
 
 London, subject to the interest provided in clause 2 of tlio existing 
 agreement, the Treasurer will not give consideration to any con¬ 
 cessions whatever, and will accept your refusal on these two points 
 as a breach of the now existing contract, and make arrangements 
 for the removal of the Government Banking business, as already 
 intimated. 
 
 I have the honour to be, 
 
 Sir, 
 
 Your obedient servant, 
 
 G. EAGAR. 
 
 Bank of New South Wales, 
 
 Sydney, 19th December, 1884. 
 
 The Honourable 
 
 The Colonial Treasurer, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of the 16th 
 instant. 
 
 We had noted, and we note again, your final declaration tliat 
 you desire and have determined to, on your part, end this correspon¬ 
 dence, but so long as you write we presume you really wish us to 
 answer—we shall do it as little as possible. 
 
 We repeat, in short, that the revision provided for in the agree¬ 
 ment of 1881, so far as our duties in connection with it are con¬ 
 cerned, has been fulfilled. There are no such “ present ” or 
 “ existing ” conditions left alive in it as you assume. Those con¬ 
 ditions were equitably and legally wiped out when you availed your¬ 
 self of the right to make contracts Avith the Bank of England, and 
 we claimed revision, and you must forgive our declining to recognise 
 any one-sided revival or application of your extinct privileges. 
 
 Eespecting the meetings and conferences between yourself and 
 our General Manager and their results, we have already written you 
 fully. With the exception of ratification by the Cabinet Ave have said, 
 and we believe, that they amounted in effect to a completed revision. 
 
 No amount of emphasis can possibly remove us from that con¬ 
 viction—we faithfully adhere to the detail terms agreed upon, and 
 we trust that you will do the same. 
 
 We beg of you not to charge us with wasting time or doing 
 anything “ under the appearance ” or deceitfully, for we would 
 almost rather be rude to you than that, and you are perfectly aware 
 that for months past we have verbally and in writing (see for in¬ 
 stance our letter of the 21st October) most plainly and straightly 
 informed you that wc will not allow you half per cent, premium on 
 any transfer from London to Sydney, and we will not receive the 
 
38 
 
 proceeds of your late loan into our London office as other than non¬ 
 interest bearing ; but subject to the acceptance of the revision in 
 terms such as we sent to you in our last letter, we will receive your 
 deposits in London as interest bearing, and we will transfer from 
 London to Sydney at par. 
 
 We have been guided chiefly by the equities in our negotiation 
 of this revision, but my Directors think it may interest you to see 
 that we have been supported also in our affirmations by the legal 
 interpretation of our rights so far as through counsel we have been 
 able to ascertain them, and I enclose you copy of the advice which 
 Ave have so received. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient Servant, 
 
 CHAS. M. PALMER, 
 
 Manager. 
 
 COUNSEL’S OPINION. 
 
 Ex PABTE Bank of New South Wales and The 
 Government. 
 
 1. Reading conditions “1” and “6” together, the notice 
 referred to in condition 1 relates to the termination of the whole 
 agreement after the period of two years from 1st January, 1881. 
 
 Condition 6 refers to the right of the Government, during the 
 currency of the contract, to make arrangements with the Bank of 
 England for negotiation of loans, the management of the public 
 debt, or the payment of interest thereon, and to the corresponding 
 right of the Bank, upon such arrangements being completed, to 
 demand a revision of the other provisions of the contract. If the 
 Bank demands a revision of all the other proAusions of the contract, 
 and if the Bank and the Government come to an agreement on such 
 revision, the new conditions would date back to the demand for 
 revision and take effect from the date of such demand. If on the 
 other hand no such agreement can be come to, the Bank can put an 
 end to the whole of the contract, and the termination of the 
 contract would date back to the demand for revision, and the Bank 
 would be entitled to charge for any banking business it may have 
 carried on for the Government in the interval, at the ordinary Bank 
 rates, as if no contract had been made. 
 
 The same principle Avill apply if the Bank demands a revision of 
 a part only of the conditions. In that case the original contract 
 would be affected only and so far as relates to the conditions 
 required to be revised. 
 
f 
 
 39 
 
 2. The right of the Bank to demand a revision of the contract 
 arose immediately on the Government completing its arrangements 
 with the Bank of England for the negotiation of the loan. 
 
 3. The right of the Bank is limited to demanding a revision, 
 and the Bank could not refuse to carry on the Government business 
 until it failed to come to an agreement as to the conditions required 
 to be revised. 
 
 4. By demanding a revision the Bank does, in fact, refuse to 
 carry on such business on the terms and conditions of tlie old 
 contract either in whole or in part, as such demand relates to the 
 whole of the conditions or to part. Such revised conditions date 
 back to the demand for revision. 
 
 6. Under the circumstances the Bank cannot be compelled to 
 receive in London any sums of money to the credit of the Govern¬ 
 ment accounts until the terms are revised. 
 
 7. The Bank is justified in refusing to transfer money from 
 London to Sydney upon the terms mentioned in clause 20. 
 
 8. It appears that the Bank entered into the original agreement 
 upon the terms stated therein, in view of the profits which the Bank 
 anticipated from the floating of loans, and that if that profit is 
 taken away, all, or at any rate many of the terms become open to 
 revision, and the Bank cannot be compelled to act on the old terms 
 of the agreement either by receiving money in London for which the 
 Bank would have to account, or in transferring money from London 
 to Sydney upon the old charges. 
 
 The Treasury, New South Wales, 
 
 Sydney, 5th January, 1885. 
 
 The General Manager, 
 
 Bank of New South Wales. 
 
 Sir, 
 
 I have the honour, by direction of the Colonial Treasurer, to 
 acknowledge receipt of your letter of the 19th ultimo, and I am to 
 inform you, in reply, that as you have intimated to the Treasurer, 
 in writing, your refusal to comply with the request contained in 
 Treasury letter of the 16th October last, relative to the transfer of 
 funds from your London office to the credit of the Government 
 account in your Bank here, and, as you have further refused to 
 receive our moneys in London, and pay interest thereon, in accor¬ 
 dance with the terms of the agreement, the Government regards 
 these acts as serious breaches of the contract, and I am directed to 
 infonn you that Mr. Dibbs—as expressed to you in Treasury letter 
 of the 6th December last—has made arrangements for the conduct 
 
40 
 
 of the Government business, here and in London, through other 
 channels. 
 
 I am further instructed to state that, so soon as it may be con¬ 
 venient to you to furnish us with a statement of the Government 
 account, arrangements will be made for its adjustment. 
 
 In the meantime, I am to request that any outstanding cheques 
 of the Government, other than cheques on departmental accounts 
 (for which provision has been made for the current month), may be 
 paid by you to our debit, on presentation thereof, or referred to the 
 Commercial Bank, where provision is made to meet them. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 G. EAGAE. 
 
 Bank of New South Wales, 
 
 Sydney, 7th January, 1885. 
 
 The Honourable 
 
 The Colonial Teeasureb, 
 
 Sydney. 
 
 Sir, 
 
 I have the honour to acknowledge your letter of the 5th instant, 
 intimating that you have ‘‘ made arrangements for the conduct of 
 “ the Government business, here and in London, through other 
 “ channels.” 
 
 Coupled with this acknowledgment, I am directed by my Board 
 to deny explicitly, as we have frequently done before, that the Bank 
 has at any time, or in any respect whatever (either in the ways to 
 which you refer, or otherwise), been guilty of contract breaches. 
 
 The facts, we submit, are entirely opposite, and the breaches 
 have been all on your side. 
 
 We enclose to you herewith statement of your local balances, as 
 at close of business this day, shewing a net indebtedness of 
 £1,858,848 16s. 3d., and shall feel obliged by your paying us this 
 amount forthwith, leaving any further charges and operations to be 
 settled for as they arise. And we shall be glad to facilitate the 
 transfer of your business in any reasonable way within our power. 
 
 I have the honour to be. 
 
 Sir, 
 
 Your obedient servant, 
 
 CHAS. M. PALMEE, 
 
 Manager, 
 
41 
 
 Seeing that in the preface to the foregoing correspondence a certain 
 memorandum made by the Honorable \V. B. Halley, Esq., is 
 referred to, and considering by its publication in the pamphlet 
 issued by the Government this memorandum is evidently regarded 
 by the Ministry as a document having an important bearing on the 
 questions at issue between the Government and the Bank, the Board 
 of Directors think it proper that it, with the other documents, should 
 be seen by the proprietary, and they therefore now place it in their 
 hands. 
 
 T. W. 
 
 Memorandum of the Honorable the Attorney-General for the infor¬ 
 mation and guidance of the Honorable the Treasurer in re 
 Bank of New South Wales and Government Banking Business 
 Agreement. 
 
 I HAVE very carefully re-perused the correspondence between the 
 Under-Secretary for Finance and the Bank of New South Wales 
 (with some portion of which, not including the later letters, I had 
 been familiar from their having been submitted for my perusal some 
 months since by the Treasurer; ; and I have given my best con¬ 
 sideration to the terms of the agreement with the Bank of New 
 South Wales for the conduct of the Government banking business. 
 By the 6th clause of this agreement the Government may, at any 
 time during the currency of this contract (anything contained in 
 the agreement to the contrary notwithstanding), make arrangements 
 with the Bank of England for the negotiation of loans, the 
 management of the Public Debt, or the payment of the interest 
 thereon. Upon the completion of such arrangements any right 
 acquired under the contract by the Bank conducting the Government 
 business for commission or other charge for services of this nature 
 shall cease, and other provisions of the contract will then become 
 subject to revision should the contracting Bank desire it. Before 
 the Government finally exercised its power under this section it was 
 notified to the Bank that arrangements were being made with the 
 Bank of England for the issue as well as for the inscription of 
 future loans, and subsequently (a month later) the Bank was invited 
 to exercise its right of revision if it so desired. A long cor¬ 
 respondence ensued and some personal interviews took place 
 between the Treasury and the Bank, but without apparently any 
 definite conclusion being arrived at. Meanwhile, during the 
 progress of these negotiations, the Treasury requested the Bank 
 
42 
 
 to transfer from the Government funds in England to this Colony 
 the sum of £350,000 at once, £350,000 at the expiration of thirty 
 days, and £500,000 thirty days thereafter. This application was 
 made in precise accordance with the terms of the 20th section of the 
 agreement, which provides that the Bank will transfer the sums 
 specified with a premium of ^ per cent, on such transfers, the debit 
 entries to be made in London simultaneously with the credit entries 
 here. In connection with transfers of this nature it is distinctly 
 provided under the agreement that they are to be made when 
 required without the Government being called upon to produce 
 evidence, other than that by cablegram, that the amount to be 
 transferred is at the credit of the Government in any of their 
 accounts in the Bank in London. The effect of this transfer 
 would have been to place the Government in funds here to the extent 
 of £1,200,000, and the Bank of l^Iew South Wales would have had 
 to pay to the Government the exchange—£6,000. On 17th October 
 the Bank acknowledged this letter and intimated that when the terms 
 of revision had been satisfactorily arranged the matter would be con¬ 
 sidered. In other words that the contract had ceased to operate— 
 that all powers under it were suspended, and that the obligations 
 of the Bank with regard to any banking business were no longer 
 enforcible, because negotiations were pending for the revision of 
 the agreement. To this letter the Treasury replied, that until a 
 revision took place the agreement subsisted, and that such 
 revision could be undertaken without delay. At the same time 
 it was intimated that the Government funds to its credit in the 
 London office of the Bank had been supplemented by the pay¬ 
 ment of one million sterling from the proceeds of the then 
 recently negotiated loan. It is unnecessary for the purposes of 
 this opinion to make any reference to the correspondence which 
 followed, and I am glad to be relieved of the necessity of advert¬ 
 ing to it, since it is marked upon the part of the Bank with an 
 offensiveness and incoherence which ought, in my judgment, to 
 have induced the Treasury to bring so irregular and insulting a 
 correspondence to a close at once. The issue raised is entirely 
 irrespective of these unwarrantably insolent letters, and it is 
 this,—whether the Bank was relieved from the fulfilment of its 
 agreement on the Government making arrangements with the 
 Bank of England for the negotiation of its loans or whether 
 the agreement remained in force until the revision of its terms had 
 taken place. I am of opinion that the agreement did and does 
 remain in full force until its terms are altered by mutual consent. 
 The reasons for this opinion are obvious. To hold anything else 
 would be to leave the whole banking business of the Government 
 without regulation of any kind the instant that the Government 
 exercised a power with regard to a portion of its business, the 
 
43 
 
 exercise of which had been carefully and specifically provided for, 
 and the knowledge of the possible exercise of which at any time was 
 in the mind of the Bank when the agreement was made. It would 
 be to give to the Bank the entire and uncontrolled mastery of the 
 financial situation. Indeed, nothing more clearly and conclusively 
 shows this than the fact that although the agreement provides an 
 interest charge of 5 per cent, per annum on any overdraft which the 
 Government may require in Sydney, the Bank unquestionably 
 violated the agreement by increasing that charge to 8 per cent., 
 and at the same time refused to put the Government in 
 funds here from its moneys held by the Banlv in London, 
 and actually instructed the Bank there to refuse to receive a 
 deposit by transfer from the Bank of England of £900,000. It 
 seems to me that the object of the Bank is to preserve in full 
 force all those clauses of the agreement the present operation of 
 which is advantageous to the interests of the Bank, and to regard 
 as of no force or effect those portions of it which are not 
 beneficial to the Bank. Thus the Bank will swell our local 
 liabilities for which they are charging the Government (illegally 
 I think) 8 per cent, interest, and at the same time refuse to put 
 the Government in funds here from the millions to its credit in 
 England. So preposterous an interpretation of the agreement 
 is undeserving of serious consideration. If the Bank, after the 
 Bank of England arrangement, conceived the agreement to be 
 no longer beneficial, it should have submitted its distinct terms 
 of revision to the Treasury, and if they were not assented to, the 
 agreement might be terminated by the notice required by the 
 1st section of the contract. Although I am strongly impressed 
 with these convictions, I would venture to suggest to my hon¬ 
 ourable colleague the Treasurer that he should make a final effort 
 to arrange, if that be possible, this unpleasant matter by means 
 of a personal interview with the representatives of the Bank of 
 New South Wales ; and that no time should be lost in bringing 
 this arrangement to a satisfactory conclusion. 
 
 WILLIAM BEDE DALLEY. 
 
 Colonial Secretary’s Office, 
 
 6th December, 1884. 
 
 John Sands, Printer, George Street, Sydney.