Zavarco Plc v Yusof & Anor

The doctrine of merger may apply where an earlier judgment grants declaratory relief, depending on the nature of the claim and declaration. The decisive question is whether the later claim arises from the same cause of action. A company’s claim for unpaid share capital remains a contractual debt under Companies Act 2006, s 33. Articles preserving liability after forfeiture preserve the existing liability; they do not create a new cause of action. Where the earlier proceedings determined the essential facts establishing liability, a later debt claim is barred by merger, even if the earlier claim sought declarations and the later claim seeks payment.

Zavarco Plc claimed €36 million from the defendant for unpaid shares. In earlier proceedings, the court declared that the shares were unpaid and that Zavarco was entitled to forfeit them. The claimant did not seek payment in those proceedings. After the shares were forfeited, it issued the present debt claim, relying on the articles of association, including the provision preserving liability after forfeiture.

The defendant applied under CPR 11.1, arguing that the earlier judgment had extinguished the cause of action by merger and that the court therefore had no jurisdiction. The central issue was whether the earlier declaratory judgment merged the cause of action relied on in the later debt claim.

The application was granted. The court declared that it had no jurisdiction to deal with the claim because the claimant’s cause of action had merged in the judgment and order made in the earlier proceedings.

1. Merger and declaratory relief. Merger is the automatic consequence of a judgment on a cause of action, but the context of the judgment must be examined. A judgment on preliminary issues will not ordinarily cause merger before all aspects of the cause of action have been determined. Similarly, a declaration will not necessarily cause merger in every case. The result depends on the nature of the claim and the terms of the declaration.
2. A declaration concerning a liquidated contractual sum may cause merger where the court has determined all the facts constituting the cause of action. The absence of executory or coercive relief does not prevent merger where the declaration finally determines the underlying liability.
3. Identity of causes of action. The court should examine the substance of the claims and whether they arise from the same breach. The earlier proceedings required determination that the shares were unpaid and that a valid call notice had been served. Those were the same essential facts relied on for the later debt claim. The later pleading of forfeiture and the articles’ preservation of liability added narrative and consequences, not a new cause of action.
4. Nature of the liability. Under s 33(2) of Companies Act 2006, money payable by a member under the company’s constitution is an ordinary contractual debt. The provision in article 75.3.4 preserved the defendant’s liability after forfeiture. It did not convert a contributor’s liability into a new debt or create a fresh cause of action.
5. The claimant could have sought judgment for the debt in the earlier proceedings. Its decision to seek declarations alone did not avoid merger. Since the essential elements of merger were established, it was unnecessary to determine the alternative Henderson v Henderson argument.