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Native born Australian John Batman was interested in opening up new pastureland and promoting the growth of the colonies. He applied for land in the Westernport Bay area of southern Australia, now Victoria, but was not granted any. In May 1835, he led a syndicate calling themselves the 'Port Phillip Association' to explore Port Phillip Bay, looking for suitable sites for a settlement. On 6 June 1835, Batman signed a 'treaty' with the Aborigines, giving him free access to almost 250,000 hectares of land. 2 months later, Governor Bourke declared Batman's treaties invalid, and issued a proclamation warning off him and his syndicate as trespassers on crown land. Despite the attempts at government intervention, the foundling settlement of Melbourne remained, and flourished.

The new township was surveyed and named as Melbourne on 3 March 1837, in honour of the British Prime Minister, Lord Melbourne.

John Pascoe Fawkner tried to take the credit for discovering the site of Melbourne. Whilst Batman had begun the unofficial settlement of Melbourne, Fawkner established Melbourne's first hotel, soon followed by Melbourne's first newspaper, The Advertiser. After Batman died in 1839, Fawkner took the opportunity to promote himself as the founder of Melbourne, gaining many followers.

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