In 1857, Graham opposed Lord Palmerston's Gunboat diplomacy when bombarding Canton after the Chinese authority's seized the Lorcha "Arrow". Notwithstanding the unpopularity of this decision he was returned in the election at Carlisle. However, the Peelite party had been routed, to all intent it was no more. He contested Carlisle again in 1859, where with his nephew their joint election went against the general trend and returned two liberal candidates. Later that year a group of 280 like minded members, including Graham and Lawson, met in Willis's Rooms to form the Liberal Party. A two party system had returned to British politics.