In the following spring he was moved into Europe, going to North America with the flag of Rear-Admiral Mariot Arbuthnot, and on 21 September 1779 was promoted to the command of the sloop Victor, newly captured from the enemy.
In December 1780 he was appointed to the Crescent of 28 guns, attached to the fleet under George Darby, which relieved Gibraltar in April 1781, and was sent on to Menorca in company with the Flora under William Peere Williams-Freeman.
In the ensuing Battle of Cape St Mary, one of the Dutch frigates, the Castor (commanded by Pieter Melvill van Carnbee), struck the Flora, while the other, the Den Briel, overpowered and captured the Crescent.
Pakenham had, however, refused to resume the command of the Crescent, maintaining that by his surrender to the Den Briel his commission was cancelled, and that when recaptured the ship was on the same footing as any other prize.
For the loss of his ship he was tried by court-martial and honourably acquitted, it is proved that he did not strike the flag till, by the fall of her masts and the disabling of her guns, further resistance was impossible.