Pagel & Anor v Farman

A gift may be recovered where it was made under a causative mistake of sufficient gravity concerning the legal character or nature of the transaction, or a basic matter of fact or law, and retention would be unconscionable. The mistake need not have been known to or induced by the donee, and carelessness is not necessarily fatal. The court must assess the circumstances and consequences of the alleged mistake objectively and in the round, focusing on its distinctness, centrality and seriousness. In a commercial setting, the court may consider the surrounding bargain and commercial probabilities. The donor failed to establish that the gift was made under such a mistake.

The proceedings arose from disputes between former partners in Gradient Capital Partners LLP. Mr Pagel discontinued his claim for approximately £5.2 million, leaving Mr Farman’s counterclaim for repayment of a gift which had ultimately realised approximately £3.8 million. Mr Farman alleged that he made the gift because of mistaken beliefs about Mr Pagel’s tax liabilities, financial distress and possible insolvency. The central issue was whether the gift was recoverable in equity under the principles stated by the Supreme Court in Futter & anr, Pitt & anr v Revenue & Customs Commissioners [2013] UKSC 26.

1. Applicable principle. A unilateral gift is recoverable where there is a causative mistake of sufficient gravity as to the legal character or nature of the transaction, or as to a matter of fact or law basic to it, and retention would be unconscionable. The mistake need not have been known to or induced by the donee. Carelessness does not by itself prevent recovery, unless the donor deliberately ran, or must be taken to have run, the risk of being wrong. These principles were derived from and applied from Futter & anr, Pitt & anr v Revenue & Customs Commissioners [2013] UKSC 26 (paras 39–41).
2. The inquiry was not confined to the donor’s state of mind in isolation. The court had to examine the facts in the round, including whether there was a distinct mistake rather than ignorance or disappointed expectations, its centrality to the transaction, and the seriousness of its consequences. The court had to make an evaluative judgment whether leaving the gift uncorrected would be unjust or unconscionable (paras 40–41).
3. On the evidence, Mr Farman had not proved that he made the gift because of a mistaken belief that Mr Pagel was impecunious, at risk of insolvency, or urgently required funds for tax. The contemporaneous correspondence, commercial probabilities and the parties’ dealings indicated that the gift was part of a commercial arrangement intended to preserve or re-establish their partnership, and recognised the losses caused by Mr Farman’s trading (paras 55–64).
4. Mr Farman’s counterclaim for repayment of the gift therefore failed. Mr Pagel’s discontinued claim also failed. As to the separate insurance-cost claim, Mr Pagel was directed to pay for insurance if Mr Farman wished to obtain it for the remaining period and underwent the required medical examination; there was no order as to costs on that issue (paras 65–66).

First-instance judgment in the High Court (Commercial Court). The judgment does not state any prior appellate decision in this litigation.