Zavarco Plc v Nasir

The doctrine of merger does not automatically extinguish a cause of action merely because the earlier judgment was declaratory. The court must examine the legal right said to have merged and the terms of the declaration. Merger applies where the judgment determines and replaces the relevant right, such as by fixing the amount recoverable. It does not apply where the declaration simply confirms that an existing right continues. The separate rule against abuse of process remains a broad, merits-based inquiry. A claim which could have been brought earlier is not necessarily abusive; the court must assess all the circumstances, including whether the claimant reasonably appeared to reserve or preserve the right to seek further relief.

Zavarco appealed against the order of Chief Master Marsh, reported at [2019] EWHC 1837 (Ch), dismissing its claim for €36 million against Mr Nasir. The debt arose from unpaid shares. In earlier proceedings, the court had declared that the shares were unpaid and that Zavarco was entitled to forfeit them, but had not ordered payment of the debt.

The Chief Master held that the debt claim had merged into the earlier declaratory judgment. On appeal, the issues were whether merger applied, whether forfeiture created a new obligation, and whether bringing the debt claim later was an abuse of process under Henderson v Henderson and Johnson v Gore Wood.

1. Appeal allowed. The earlier declarations did not extinguish Zavarco’s contractual right under the Articles to payment of €36 million. The claim was therefore permitted to proceed.
2. Merger is a substantive and automatic rule concerning the legal effect of an English judgment. It is distinct from cause of action estoppel, issue estoppel and the broader procedural rule against abusive proceedings.
3. A declaration may qualify as a judgment granting relief and may support merger. The relevant question is not whether declarations as a class are remedies, but whether the particular declaration extinguished and replaced the earlier right. A declaration which merely confirms that the claimant has, and continues to have, a right does not do so.
4. Where a declaratory judgment determines an issue such as the amount recoverable, any larger claim based on the same cause of action may be extinguished to that extent. That was not the effect of the declarations in this case, which confirmed the right to payment without determining or replacing it.
5. The court did not finally decide whether forfeiture converted the pre-forfeiture obligation into a new debt. The Chief Master’s view, based on section 33(2) of the Companies Act 2006, had force, but the issue was unnecessary to the appeal.
6. The abuse-of-process issue was governed by the broad, merits-based approach in Johnson v Gore Wood. Although Zavarco could and should have pleaded the debt claim earlier, the surrounding circumstances showed that enforcement after the declaratory judgment was contemplated. Bringing the later claim was therefore not an abuse.

• High Court (Chancery Division): Chief Master Marsh dismissed the claim for want of jurisdiction on the basis that the cause of action had merged into the earlier judgment: [2019] EWHC 1837 (Ch).
• High Court (Chancery Division): Mr Justice Birss allowed the appeal and held that merger did not extinguish the payment right. The claim ought to proceed.