William Lyon Mackenzie, a Scottish native, was a journalist who became the first Mayor of Toronto and a member of the House of Assembly for York County. He was a leading critic of the ruling oligarchic elite of Upper Canada, and in December of 1837 led a small insurrection against the British at York (Toronto). Following his unsuccessful coup d' état, he (with a bounty of £1000 for his capture) and 300 rebel supporters fled to Grand Island, NY and then to Navy Island, and declared it to be the "New Republic of Canada".
Navy Island is Canadian territory as specified in the Treaty of the Ghent, and is the only Canadian Island in the Niagara River. Growing concern over Mackenzie & his rebels on Navy Island, caused the Government of Upper Canada to send militia to bombard Navy Island, with little effect. On January 14th 1838, MacKenzie and his supporters moved to Grand Island again. Both sides continued to bombard each other which threatened to escalate into war with the Americans.
To cut off Mackenzie's line of communication and supply, British troops invaded Fort Schlosser, setting fire to the steamboat "Caroline" and setting her adrift, plunging her over the Falls. The British agreed to pay the Americans for any damage, and General Winfield Scott ordered American troops aboard the steamer "Barcelona" to remove MacKenzie and his supporters from Grand Island and transported to Black Rock (Buffalo) as three armed British Schooners watched. Mackenzie was later arrested by U.S. officials for breach of the Neutrality Act.
More history of Niagara Falls