Aunt Maud comes into the room to find Merton and Kate standing by the fire. She starts up a conversation and says it's a shame that Merton couldn't stick around Venice to be with Milly. She went to all that trouble to smooth the way for him, and he hasn't taken advantage.
Merton says to Maud that he simply didn't have the courage to face Milly's illness.
Maud says it's a shame that Milly is dying, especially with so much to live for. More specifically, it must be tough to die so young and so rich. Yes, you know where Maud's head is at.
Later, Merton goes for a walk with Kate and sits with her under a wintry tree. Under this tree, he tells Kate that things are over between them. They've played their game and lost, since there's no way Maud will ever consent to their marriage. The time is now: they need to announce their engagement immediately or never at all.
Kate wants to know why Merton has suddenly changed his mind about waiting for marriage. He says he's been waiting long enough, but she asks him to wait some more. She says she needs a good reason for why their situation is suddenly so different, something better than Merton's impatience.
Kate says that Merton seems to know something that makes their situation different, and if he'll simply say it, she'll marry him right away. In fact, it sounds like Kate is the one who knows something that'll make their marriage possible, but is trying to figure out if Merton knows it too.