This decision, added to the indisposition of Lower Canada to the policy of westward expansion, is understood to have convinced Sir E.B.  Lytton that annexation of the Winnipeg basin to Canada was impracticable, and that the exclusive occupation by the Hudson’s Bay Company could be removed only by the organization of a separate colony.  The founder of British Columbia devoted the latter portion of his administration of the Colonial Office to measures for the satisfactory arrangement of conflicting interests in British America.  In October, 1858, he proposed to the directors of the Hudson’s Bay Company that they should be consenting parties to a reference of questions respecting the validity and extent of their charter, and respecting the geographical extent of their territory, to the Judicial Committee of the Privy Council.  The Company “reasserted their right to the privileges granted to them by their charter of incorporation,” and refused to be a consenting party to any proceeding which might call in question their chartered rights.

Under date of November 3, 1858, Lord Caernarvon, Secretary of State for the Colonies, by the direction of Sir E.B.  Lytton, returned a dispatch, the tenor of which is a key not only to Sir Edward’s line of policy, but, in all probability, to that of his successor, the Duke of Newcastle.  Lord Caernarvon began by expressing the disappointment and regret with which Sir E.B.  Lytton had received the communication, containing, if he understood its tenor correctly, a distinct refusal on the part of the Hudson’s Bay Company to entertain any proposal with a view of adjusting the conflicting claims of Great Britain, of Canada, and of the Company, or to join with her Majesty’s government in affording reasonable facilities for the settlement of the questions in which Imperial no less than Colonial interests were involved.  It had been his anxious desire to come to some equitable and conciliatory agreement, by which all legitimate claims of the Company should be fairly considered with reference to the territories or the privileges they might be required to surrender.  He suggested that such a procedure, while advantageous to the interests of all parties, might prove particularly for the interest of the Hudson’s Bay Company.  “It would afford a tribunal preeminently fitted for the dispassionate consideration of the questions at issue; it would secure a decision which would probably be rather of the nature of an arbitration than of a judgment; and it would furnish a basis of negotiation on which reciprocal concession and the claims for compensation could be most successfully discussed.”