Canada: 'A Sign Of Our Enduring Friendship' Or A Multi-Million Pound Mistake?

Scott Pagel and Ivor Farman, two former Goldman Sachs types, set up their own hedge fund in the headier days of the early 2000s. Things didn't go so well at first, and the pair renegotiated their 50/50 split of the profits of the LLP they used as a vehicle for the venture. After a better stretch, things really started to go awry -- to the point where Pagel said he was 'flirting with insolvency every five minutes' as a result of large personal tax liabilities in the USA. Push came to shove in 2008, when the fund experienced heavy losses from a position in illiquid stocks chosen by Farman. Farman, in an e-mail, said that if the 'the sh*t' ever hit the fan he would do 'whatever I can to look after you'. The sh*t did exactly that, and while relations between the partners (like the fund's performance) continued to deteriorate, Farman nevertheless made a 'goodwill gesture' of shares which realised ₤3.8 million (in response to Pagel's demand for ₤5 million). Pagel wanted to document the gift as 'a sign of our enduring friendship', but by that point Farman sought the return of the gift, on the grounds that he had made it by mistake and on the basis of misrepresentations by Pagel, who (it was alleged) was nowhere as near the financial brink as he had claimed. First-world problems, these.

The law on this is clear (thanks to Futter v Revenue and Customs Commissioners, [2013] UKSC 26), said Mackie J: 'a gift may be recovered by the donor from the donee where there is a causative mistake of sufficient gravity as to the legal character or nature of a basic transaction or as to some matter of fact or law which is basic to the transaction and where retention of the gift would be unconscionable'; it is 'irrelevant' whether the mistake was not known to, much less induced by, the donee or resulted from the carelessness of the donor: Pagel v Farman, [2013] EWHC 2210 (Comm). The judge noted that gifts like Farman's are 'uncommon in commerce', concluding that he had failed to make his case. While Farman would not have known the details of Pagel's tax position, he would have had a general awareness of it and of the value of Pagel's unredeemed holdings; talk of Pagel's impending ruin was therefore 'probably commercial hyperbole of the kind deployed by Mr Farman himself from time to time', and it was much more likely that Farman was trying to make up for the very large losses he had caused, in order to keep the venture afloat and in spite of the bad blood between him and Pagel.