In 1896 Butler was released from prison. The news of his release was described as falling like a bombshell among the peaceful inhabitants of Dunedin. In the colony of Victoria, where Butler had commenced his career, it was received with an apprehension that was justified by subsequent events. It was believed that on his release the New Zealand authorities had shipped Butler off to Rio. But it was not long before he made his way once more to Australia. From the moment of his arrival in Melbourne he was shadowed by the police. One or two mysterious occurrences soon led to his arrest. On June 5 he was sentenced to twelve months' imprisonment under the Criminal Influx Act, which makes it a penal offence for any convict to enter Victoria for three years after his release from prison. Not content with this, the authorities determined to put Butler on trial on two charges of burglary and one of highway robbery, committed since his return to the colony. To one charge of burglary, that of breaking into a hairdresser's shop and stealing a wig, some razors and a little money, Butler pleaded guilty.  
But the charge of highway robbery, which bore a singular resemblance to the final catastrophe in Queensland, he resisted to the utmost, and showed that his experience in the Supreme Court at Dunedin had not been lost on him. At half-past six one evening in a suburb of Melbourne an elderly gentleman found himself confronted by a bearded man, wearing a long overcoat and a boxer hat and flourishing a revolver, who told him abruptly to "turn out his pockets." The old man did ashe was told. The robber then asked for his watch and chain, saying "Business must be done." The old gentleman mildly urged that this was a dangerous business. On being assured that the watch was a gold one, the robber appeared willing to risk the danger, and departed thoroughly satisfied. The old gentleman afterwards identified Butler as the man who had taken his watch. Another elderly man swore that he had seen Butler at the time of the robbery in the possession of a fine gold watch, which he said had been sent him from home. But the watch had not been found in Butler's possession.
 
On June 18 Butler was put on his trial in the Melbourne Criminal Court before Mr. Justice Holroyd, charged with robbery under arms. His appearance in the dock aroused very considerable interest. "It was the general verdict," wrote one newspaper, "that his intellectual head and forehead compared not unfavourably with those of the judge." He was decently dressed and wore pince-nez, which he used in the best professional manner as he referred to the various documents that lay in front of him. He went into the witness-box and stated that the evening of the crime he had spent according to his custom in the Public Library.
 
For an hour and a half he addressed the jury. He disputed the possibility of his identification by his alleged victim. He was "an old gentleman of sedentary pursuits and not cast in the heroic mould." Such a man would be naturally alarmed and confused at meeting suddenly an armed robber. Now, under these circumstances, could his recognition of a man whose face was hidden by a beard, his head by a boxer hat, and his body by a long overcoat, be considered trustworthy? And such recognition occurring in the course of a chance encounter in the darkness, that fruitful mother of error? The elderly gentleman had described his moustache as a slight one, but the jury could see that it was full and overhanging. He complained that he had been put up for identification singly, not with other men, according to the usual custom; the police had said to the prosecutor: "We have here a man that we think robbed you, and, if he is not the man, we shall be disappointed," to which the prosecutor had replied: "Yes, and if he is not the man, I shall be disappointed too." For the elderly person who had stated that he had seen a gold watch in Butler's possession the latter had nothing but scorn. He was a "lean and slippered pantaloon in Shakespeare's last stage"; and he, Butler, would have been a lunatic to have confided in such a man.
 
The jury acquitted Butler, adding as a rider to their verdict that there was not sufficient evidence of identification. The third charge against Butler was not proceeded with. He was put up to receive sentence for the burglary at the hairdresser's shop. Butler handed to the judge a written statement which Mr. Justice Holroyd described as a narrative that might have b............