Part 3

“On the 6th January, 1848, the Admiralty gave notice to the Peninsular and Oriental Company, for the termination of the contract, at the end of twelve months, on the 18th January, 1849. Their object in so doing was, to ascertain whether the service could not be done at a cheaper rate. There had previously been correspondence on the subject between the Admiralty, the Treasury, and the Post-office; and the Treasury, by a Minute, dated 4th February, and communicated on the 5th, requested the Admiralty to give this notice. On the 27th of March the Admiralty wrote to the Treasury, proposing that an advertisement should be issued, calling for tenders for conveyance of mails to and from Alexandria. On the 5th of April the Treasury approved. The advertisement appeared in the _Gazette_ of the 21st of April. It was for the monthly conveyance of the Calcutta and China Mails and despatches between England and Alexandria, by way of Gibraltar and Malta, leaving England on the 20th of each month. The contract was to commence on the 8th of January, 1849, and to last at least three years. On the 18th of May two tenders were received, one from the Peninsular and Oriental Company, for the following sums: for the first year of contract, £27,500; for the second, £27,000; for the third, £26,500; for the fourth, £26,000; and so on, reducing £500 for each subsequent year that the contract remained in force, with two vessels of 450-horse power, and a reserve vessel of 250-horse power. Another tender was received from the India and Australia Company for £25,650, offering the ‘Minerva,’ of 400-horse power, 627 tons; the ‘Admiral,’ of 400-horse power, 929 tons; and one spare steam vessel, of 250-horse power. The Peninsular and Oriental Company accompanied their tender by a letter, in which, after stating the grounds upon which they considered that the Government ought not to take away the conveyance of the Mails from a Company which had embarked so much capital in the undertaking, and had performed the service satisfactorily, they propose, that if the contract is continued to them they will submit the accounts of all their transactions connected with the mail service, from time to time, to the inspection of such competent persons as the Government may appoint; and that when the financial position of the Company, with respect to such mail service, shall be such as, after making the customary allowance for the repairs, wear and tear, and sea risk of the vessels and property, a maximum dividend of 10 per cent. can be realised, any surplus of earnings over and above such maximum dividend shall be placed at the disposal of the Treasury, for the benefit of the public. On the 19th of May the Admiralty wrote, that, previous to coming to a decision upon the tender, they were anxious to ascertain whether this proposal, if adopted, might be expected to cause any deduction, and, if so, to what extent, from the account that would be paid by the public if their tenders were accepted; they therefore begged to be informed what surplus of profit beyond a dividend of 10 per cent., after deductions for repairs, wear and tear, sea risks of vessels and property, might be expected, from the calculations the Company were able to make; and whether, in case a satisfactory reply could not be given to this question, two officers deputed by the Admiralty might at once have access to the accounts, for information on that point, and previous to a decision being come to on the tenders. This latter alternative was at once adopted by the Directors of the Company, and they opened all their accounts to the inspection of Captain Ellice and Mr. Bond, who made a report on the subject, from which it appeared that the Shareholders had never received a dividend of 10 per cent., and that the balance of receipts, after payment of all expenses and charges, was not then sufficient for a dividend of that amount; the Admiralty having ascertained that no diminution of the tenders was likely to accrue from this proposal, and, considering both tenders too high, declined them both. The Admiralty then made an offer to the Peninsular and Oriental Company, founded on the mileage rate, viz., 4s. 6d. paid to them for the Lisbon and Gibraltar Line. This was not accepted--but after several interviews with the Directors of the Company, it was signified to the Admiralty that they would be willing to undertake the service for £24,000 a year, diminishing annually by £500, until the expiration of the contract, which was not in any case to cease before the 1st of January, 1853. The India and Australia Company also made an offer, which was, however, not admissible, for it required a fourteen years’ contract; it was for a mileage of 5s. 6d. a mile for the first seven years, and at 4s. 6d. a mile for the remaining seven years. They afterwards modified the offer as to the duration of the contract; and the Government, finding that there were competing offers before them, determined upon affording another opportunity for public competition; and on the 2nd of November, 1848, tenders were again sent in, in accordance with a public advertisement, from the same parties. The tender of the Peninsular and Oriental Company was higher than their offer made in pursuance of private negotiation, though the terms were the same. It was for £26,750, with a diminution of £500 after the first four years, in the event of its being continued, and £1,000 additional a year, if the port of embarkation were removed to Plymouth. The India and Australia Company tendered for £18,450, in two vessels of 400-horse power, and one reserve of 150-horse power; the same vessel being mentioned in both tenders, as in the former one. The lowest tender was directed by the Treasury to be accepted, provided they could furnish satisfactory security for the due performance of the service they were to undertake. Much inquiry and negotiation then took place, and the Company were allowed until the sailing of the last packet provided for under the expiring contract, to prove that they had capital sufficient for the undertaking,--but they failed in showing that they possessed sufficient paid-up capital, and they did not actually possess the vessels mentioned in their tender, so that on the 20th December, the Board of Admiralty closed that negotiation, and having obtained the consent of the Peninsular and Oriental Company to renew their former offer of £24,000, recommended it for the sanction of the Treasury, and it was adopted in the existing contract.”

* * * * *

The result of this transaction has, there is every reason to believe, satisfied the Government of the correctness of the opinions which were pressed upon its attention, on behalf of this Company, in the course of the proceedings above detailed, namely:--

1. That fully recognising, as one of the first duties of a Government, the protection of the public interests, by economising the public resources, the mode adopted for doing so, by closing at short periods and re-opening to public tender these large Contracts for the Mail Service, is neither effective for benefiting the public, nor altogether equitable as regards the interests of those private parties who had embarked capital in the formation of the extensive steam navigation enterprises, by means of which these important postal communications were first established.

2. Because experience has amply proved, that capitalists cannot be induced to embark their money in any extensive steam navigation enterprise, intended to compete with one previously established.

3. Because the very act of terminating these Contracts at short periods, and then putting them up to public competition, increases the difficulty of obtaining _bonâ fide_ competitors, inasmuch as no capitalist of ordinary prudence will embark in an enterprise dependent for its success upon its employment in a public service of so uncertain or transient a duration.

4. Because, were it even possible to create a competing Company on so extensive a scale as would be required to perform efficiently the Contract Mail Services alluded to, the two Companies would either, one or both of them, be ruined--or, what is much more probable, for the protection of their mutual interests would coalesce, and thus establish a stronger monopoly than could ever be effected by a single Company.

5. Because it is but just that parties who have embarked so large an amount of capital in the establishment of such enterprises, and who have thereby, as has already been shown, been the means of effecting important public benefits, should have a preference of employment,[5] so long as they perform the public service efficiently, and are willing to do so on terms realising to them no more than a fair commercial profit.

6. That there is no practical difficulty in protecting the public interest, without opening these Contracts to public tender, by either of the following means:--

First, By stipulating for a diminishing scale of payments, on the plan adopted by this Company in their Contract for the Southampton and Alexandria Mail Service. The public, by this plan, derive a benefit from any increase of income which, by the progressive development of their enterprise, the Contractors may obtain from the increase of commercial traffic.

Secondly, By stipulating that, at intervening periods of the Contract, the question of reduction should be submitted to two competent arbitrators, one to be appointed by the Government, who should investigate the Contractor’s transactions, and make an award as to whether any and what reduction ought to be made in the payment for the Mail Services.

The Committee of the House of Commons seem to have recognised the eligibility of the principle of the last mode of proceeding, in the third and concluding resolution of their Report, namely--“They suggest that if it be decided to renew the existing Contracts, the most strict and searching inquiry should be instituted, by some responsible department of the Government, into the cost of the execution, into the manner in which the Service has been performed, and into the profits resulting from the several transactions to the Companies by which they have been respectively carried on.”

This suggestion, it has been shown, was anticipated by the Directors of the Peninsular and Oriental Company, in offering their books and accounts to the inspection of Government.

ABSTRACT

OF

EVIDENCE TAKEN BEFORE THE COMMITTEE.

_Efficiency of Performance of the Mail Service._

Extract from Mr. T. C. Croker of the Admiralty’s evidence.

1115. Has the contract been well performed?--I can speak from a knowledge of nine years to the manner in which that contract has been performed, and it has been performed most admirably, and has given general satisfaction; in fact, the only fault which has been found with the manner in which it has been performed is, that it has been done too well.

1116. Will you explain what you mean by being done too well?--The vessels arrived sooner than it was calculated they should have done, which was made matter of public complaint.

1176. At our last meeting we had brought your examination down to the period at which the alteration took place in the arrangements between the Peninsular Company and the Government?--Yes.

1177. The Committee then understood from you that up to that period the contract had been carried on, as far as you were aware, in a satisfactory manner?--Highly so; here are the testimonials of the Admiralty as to the satisfactory manner in which the contract was carried on.

1606. With reference to the Indian part of it, is it within your knowledge how far that contract has been performed?--It has been well performed.

1607. Throughout?--Yes.

_No Breaches of Contract committed._

Mr. Croker further examined--

1152. Would not the Admiralty agent on board those packets be cognizant of any breach of contract which had occurred?--Certainly.

1153. Do not they make reports to the Admiralty through the officers conducting the packet service at Southampton?--Certainly.

1154. Would not any breach of contract come immediately to the knowledge of the Admiralty, through the report of the Admiralty agent?--Certainly.

1155. Therefore the absence of any such report is direct proof that the contract has not been broken, provided the Admiralty agent does his duty?--Certainly.

_Complaints made to the Admiralty against the Company._

1974. At your last examination you carried down a statement of any complaints, or in the absence of any complaints, to a certain date, with respect to the performance of the contracts of which we were then inquiring, of the vessels of the Oriental Company; have you furnished yourself since with any further particulars upon that subject?--This is a _précis_ of the correspondence respecting complaints of the manner in which the contract mail service in the Indian and China Seas has been performed.

1975. At what date does that _précis_ commence?--The 23rd of August, 1846.

1976. Does that _précis_ come down to the present time?--It does.

1977. Who is responsible for that being a correct statement of what has taken place?--Mr. Worth, the head of the packet department.

1978. Have you sufficiently examined that _précis_ to be able to give to the Committee a statement of the number of complaints which are contained in it?--I should say there were three or four complaints; I have read it through.

1979. Were any of those complaints on examination found to be just?--I think the last complaint is at present undergoing investigation.

1980. What is the date of the last complaint?--October, 1848.

1981. Will you state the general grounds of the complaints; were the complaints of the state of accommodation and the conduct of the officers on board, or of the time that the vessels occupied upon the voyage, whether beyond the limited time or not?--The first complaint states that “Lady Mary Wood” was much out of repair.

1982. What is the date of that?--The 23rd of August, 1846.

1983. From whom is that complaint?--Captain Ellice, the superintendent of the packet service at Southampton.

1984. He is a Government officer?--Yes; the complaint was that in consequence she exceeded the contract time by nineteen hours.

1985. By nineteen hours on the whole voyage, or between England and Suez?--The statement is, that in her last voyage from Hong Kong to Ceylon she exceeded the contract time by nineteen hours.

1986. How is it that the Government agent at Southampton makes a report of the state of a vessel in the Indian Seas; did he transmit a complaint from somebody else?--He transmitted a letter from the Admiralty agent on board.

1987. What was the result of that complaint?--“The contractor was acquainted that the Board of Admiralty had been informed that the ‘Lady Mary Wood’ was getting exceedingly out of repair, and requested to be informed when a vessel, such as is required by the contract, will be substituted for her. The contractors stated in reply that the information furnished to the Admiralty was exaggerated; this vessel had no defects but what could be made good on her return to Hong Kong, defects mostly caused by the severity of the passage from that port to Point de Galle; and they inclosed a copy of the carpenter’s report, and extract of the commander’s letter. They further stated, that (as the Admiralty is, no doubt, aware) in consequence of the recent demand in engineering and shipwright work, the builders have not possibly been able to fulfil their contracts in point of time; and the result is, that of six steam ships of 450-horse power building for them, not one is yet completed, though contracted to be delivered within the last year. They fully expect to be able to despatch one of those vessels in substitution of the ‘Lady Mary Wood,’ in November next, and a second of the same class and power about three months after, in substitution of the ‘Braganza.’”

1988. What is the date of that letter?--The 28th of August.

1989. What is the date of the complaint?--The 23rd of August.

1990. What is the date of the complaint transmitted?--That does not appear from the _précis_. The Admiralty agent employed on the voyage from Hong Kong to Ceylon writes this complaint, which reaches Captain Ellice about the 23rd August, 1846.

1991. What would be the ordinary length of communication between Ceylon and Southampton?--That is arranged by the contract; as I have had very little to do with the contracts in the Indian Seas, I am not prepared to say.

1992. Is it not about five months?[6]--Yes.

1993. Taking it at five months preceding this date of the complaint, they say that another vessel will be ready by November of the same year?--Yes.

1994. What was the result of the complaint as to the want of punctuality in the time?--The contractors were acquainted, on the 23rd of August, with this complaint, and what I have read is their explanation.

1995. The explanation which you have read is with reference to the non-repair of the vessel, it is not with reference to the time at all. Is there any letter from the Admiralty, either admitting the excuse to be satisfactory or otherwise?--The Admiralty seem to have admitted the excuse, for they minute the letter, acknowledging the receipt of it.

1996. Did the Admiralty officer on board the ship report anything respecting the improper state of the ship before leaving Hong Kong?--He stated that the “Lady Mary Wood” was much out of repair in her last voyage from Hong Kong to Ceylon.

1997. It was after his arrival in Ceylon that he made that report?--Yes.

1998. But he does not appear to have made any statement of that sort previous to the commencement of the voyage from Hong Kong?--There is nothing in the _précis_ to show that he did.

1999. What is the next complaint?--“On the 28th of September of the same year, Captain Ellice sent a copy of a letter from the Admiralty agent on board the ‘Lady Mary Wood,’ reporting that vessel having grounded on a bank of sand or mud off the town of Penang, and reporting the deficiency of night-signals on board her; and he states that the vessel was got off on the following day, in a fit state to proceed with the mails, and, it was supposed, would proceed with the mails to China.”

2000. What is the next complaint?--The next complaint is transmitted by Captain Ellice, who sends a report of the survey on the “Braganza,” held at Hong Kong; he sent this on the 21st of June, 1847.

2001. What is the result of the survey?--“A copy was sent to the contractors, and the contractors stated, in reply, that they had transmitted orders, some time ago, to their agent at Bombay, to have this vessel docked on the first opportunity, and had reason to believe that this had been done. They also stated that their new steamships ‘Pekin,’ of 1,200 tons and 430-horse power, and ‘Pottinger,’ of 1,400 tons and 450-horse power, are now stationed on the line between Point de Galle and China, in performance of the mail contract service.”

2002. What is the next complaint?--“On the 2nd of October, Captain Ellice transmitted an extract of a letter from the Admiralty agent on board the ‘Pekin,’ reporting the unfitness of that vessel for the mail service.” This forms a part of Lieutenant Waghorn’s complaint, and is already before the Committee.

2003. What was the result of that; was the complaint decided to be well-founded or not?--I think not.

2004. Was Lieutenant Waghorn a passenger on board that vessel?--I put in his letter on the last occasion.

2005. Will you proceed to the next complaint?--“On the 2nd of June, 1848, the Postmaster-general transmitted an extract of a letter from the post-office agent at Suez, stating that the ‘Haddington’ was detained at that port, waiting for the arrival of cargo, until one o’clock A.M. on the 11th ultimo, although the mails were put on board at ten minutes past five o’clock on the previous morning; and, further, that some of the packages forming the cargo were of an unnecessarily cumbersome size.”

2006. What was the result of that?--The contractors were called upon to state whether they can account for this delay; and in reply they state that they are not aware of this delay, but will call upon the agent at Suez for explanation; that the mails being transmitted by land from Alexandria to Suez, there is seldom any variation in the time of their transit, whilst the passengers and baggage, at the period of low Nile (May and June), are frequently retarded in getting the steamers round the bends of the river; and they apprehend that the Admiralty must have been misinformed as to the size of the packages, the weight of which are, by their regulation, limited to under 100 lbs., four of such packages forming a camel load for the desert passage.

2007. Is there any thing further upon that complaint, because the Company seem to doubt the fact?--Nothing further appears upon the subject of the complaint.

2008. Is there any subsequent report from the Company?--No subsequent report from the Company appears to have been received.

2009. Is there any subsequent complaint?--“On the 3rd of October, 1848, another complaint is made: The Indian and Australian Mail Steam Packet Company complain that the Peninsular and Oriental Steam Packet Company do not employ steam vessels of the size required by the contract, between Suez and Calcutta, and between Ceylon and Hong Kong, and offer to do the service at less expense.”

2010. What is the result of that?--“They were acquainted that they had omitted to state in what particulars they considered the contract with this Company is now infringed, that the Admiralty were not aware that any requirements of that contract are not now observed, excepting that the ‘Haddington,’ temporarily employed in the place of another vessel, is 442-horse power instead of 500-horse power.”

2011. Have you any other complaint?--There is no other complaint, but there is another communication from the Indian and Australian Steam Packet Company. They “enter into further explanation and remarks, and hope the contract with the Peninsular and Oriental Steam Packet Companies may be forthwith dissolved.” That is marked as “read.”

2012. With reference to the complaint to which your attention was called the last time you were examined, from Admiral Collier, what is the result of that?--I have here a paper endorsed, “Complaint of irregularities in the performance of the East India and China contract, in the case of the ‘Achilles.’”

2013. Is that the complaint referred to by Admiral Collier?--It is.

2014. Was there a letter or memorial of the merchants of Hong Kong transmitted by Admiral Collier to the Admiralty?--There was.