The British squadron had been detached on the previous day from the British North Sea fleet under Admiral Adam Duncan, which was cruising off the Batavian fleet anchorage at the Texel, while the Batavian squadron was returning to the Netherlands from the Norwegian coast where it had been sheltering since suffering defeat at the action of 22 August 1795 the previous year.

Duncan's blockade of the Texel was instrumental in British control of the North Sea, and a year later it would achieve a decisive victory at the Battle of Camperdown.

The French reorganised the country into a client state named the Batavian Republic, and ordered the Dutch Navy to operate in the North Sea against British maritime trade routes.

Although the remainder of his squadron exchanged fire with the Batavian ships, damaging the frigate Argo, Alms' force was unable to prevent their escape into Eigerøya.

[6] Pegasus and Sylph encountered one another shortly before 05:00 on 12 May close to Duncan's fleet south of the Texel but without having located the Batavian squadron.

Argo and her consorts had sailed close to the Danish and German coasts during the night, seizing in passing a British cutter named Duke of York, travelling from Yarmouth to Hamburg.

[5] The Batavian captain, finding such a large force bearing down on him, ordered the brigs and cutter to separate from the frigate, turning with the wind in an effort to escape with Donnelly close behind.

He also turned Argo away from the pursuing Phoenix, but was unable to decide whether to fight or flee and as a result changed course a number of times.

In just 20 minutes, Phoenix had torn much of Argo's rigging, sails and masts and inflicted heavy casualties of eight killed and 28 wounded.

With his ship damaged, Duncan's fleet in sight and Leopard not far behind Phoenix, the Batavian captain surrendered at 08:35, allowing Halstead to take possession of his vessel.

The Batavian captain had thrown 14 cannon overboard in an effort to lighten his ship and allow it to escape British pursuit, but without success.