Chief Master (Marsh)

The Chief Master held that the claimant's claim in debt for €36 million was barred by the doctrine of merger. The court concluded that the claimant had already obtained a final judgment in earlier proceedings (the 2016 proceedings) which determined the same cause of action and therefore the underlying cause of action had merged in that judgment and been extinguished.

The judgment analysed the Articles of Association (in particular Articles 69, 72, 73, 74 and 75.3.4) and relevant provisions of the Companies Act 2006 (section 33 and the provisions referred to in the Deputy Judge's judgment) to determine the nature of the cause of action. It reviewed authority on merger and res judicata (including Clark v In Focus Asset Management and Virgin Atlantic) and concluded that a declaratory judgment based on facts that constitute a recognisable cause of action can give rise to merger where the judgment was final and on the merits.

Background and parties: The claimant, Zavarco Plc, sought to recover €36 million from the defendant, Mr Nasir Yusof, as a debt said to be due on unpaid shares originally allotted on incorporation. The defendant had been registered as holding 360 million ordinary shares at €0.10 each. The claimant relied on a call notice dated 5 June 2015 and on provisions of the claimant's Articles of Association, particularly Article 75.3.4 which preserves liability after forfeiture.

Procedural history and nature of the application: The claim was issued on 11 October 2018. The defendant applied under CPR 11.1 challenging the court's jurisdiction on the ground that the cause of action had already merged into a prior judgment of Mr Martin Griffiths QC in the 2016 proceedings (judgment dated 14 November 2017 and order of 28 November 2017) which declared the shares unpaid and that Zavarco was entitled to forfeit them. The 2016 proceedings had been brought as claims for declaratory relief; no claim for payment of the call sum was made then.

Issues framed by the court:

• Whether the claimant's present cause of action for a debt was the same cause of action as had been decided in the 2016 proceedings;
• whether the doctrine of merger (a species of res judicata / former recovery) applied so as to extinguish the claimant's cause of action; and
• whether declaratory relief given in the 2016 proceedings could support a plea of merger in relation to a later claim for a liquidated sum.

Court's reasoning and findings: The Chief Master reviewed the Articles (Articles 69–75) and relevant statutory provisions (including section 33 Companies Act 2006) and concluded the claim in both proceedings derived from the same contractual obligation under the Articles to pay for the shares. The court considered authorities on merger and res judicata, including Clark v In Focus Asset Management, Virgin Atlantic and The Indian Grace, and the commentary in authorities such as Spencer Bower & Handley and Palmer's Company Law. The Chief Master rejected the argument that because the 2016 proceedings were framed as a claim for declarations (and not as a claim for payment) merger could not operate. Where declaratory relief is founded on the facts that constitute a recognisable cause of action and is final and on the merits, merger can extinguish the underlying cause of action. Applying those principles, the court found that the essential elements for merger were made out: the earlier judgment was final, the tribunal had jurisdiction, the parties and causes of action were the same, and the earlier decision had been pronounced and was operative. Consequently the claimant's cause of action for the €36 million had merged in the 2016 judgment and been extinguished.

Relief sought: The claimant sought enforcement of the Call Amount as a debt together with interest. The defendant sought a declaration that the court lacked jurisdiction and/or that the court should decline to exercise jurisdiction because of merger or the rule in Henderson v Henderson. The Chief Master declared the court had no jurisdiction to hear the claim because of merger.

Subsidiary findings: The judgment records the Deputy Judge's earlier findings (that the shares were unpaid, the call and notice were valid, and the claimant was entitled to forfeit the shares) and notes that forfeiture occurred after the Deputy Judge's judgment and after refusal of permission to appeal.

The court declared that it had no jurisdiction to deal with the claimant's present claim because the claimant's cause of action had merged in the earlier 2016 judgment and order and thereby been extinguished. The Chief Master accordingly dismissed the claimant's claim on the ground of merger, applying authorities on merger and res judicata and analysing the Articles and Companies Act 2006 provisions relevant to the obligation to pay for shares.