Birss J

The court allowed the appeal and held that a declaratory judgment can in principle be a form of "relief" capable of supporting the doctrine of merger, but whether merger applies depends on the terms and effect of the particular declaration. The declarations obtained by Zavarco in the earlier proceedings did not extinguish the company’s pre-existing contractual right to payment for the shares and therefore did not operate to merge or extinguish the cause of action for €36 million. The court also rejected the respondent’s contention that the present debt claim was an abuse of process under Henderson v Henderson / Johnson v Gore Wood: although Zavarco risked proceeding in a way that might have been objectionable, the circumstances did not show misuse of the court process.

Background and parties:

• Zavarco Plc (the claimant/appellant) brought proceedings seeking €36 million claimed to be unpaid sums for 360 million ordinary shares allotted to the respondent, Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir (the defendant/respondent).
• Earlier proceedings in this Division (judgment dated 14 November 2017) had declared the shares unpaid and that Zavarco was entitled to forfeit them after steps required by the Articles had been taken. That judgment stayed the practical effect of the declarations pending any appeal.

Procedural posture and issues:

• Chief Master Marsh dismissed Zavarco’s later claim for the debt on the ground that the doctrine of merger operated (his order and reasons are reported at [2019] EWHC 1837 (Ch)). Zavarco obtained permission to appeal. The appeal raised three principal issues: (i) whether merger applies to declaratory judgments of the kind obtained by Zavarco; (ii) whether forfeiture of the shares creates a new contractual debt such that any post-forfeiture obligation could not have merged into the earlier declaration; and (iii) whether pursuing the money claim after obtaining the declaration was an abuse of process under Henderson v Henderson / Johnson v Gore Wood.

Court’s reasoning:

• On merger the court accepted that some declarations will amount to relief that can, in principle, be the basis for merger. The decisive question is not a general rule that declarations never support merger but whether the particular declaration given has the effect of extinguishing the pre-existing right. The declarations in the 2017 judgment were formal statements as to Zavarco’s existing contractual right to be paid and did not substitute a new judgmental right that extinguished the underlying cause of action for payment. Accordingly merger did not extinguish the claimant’s right to pursue the €36 million debt.
• On forfeiture the judge noted the arguments about whether forfeiture gives rise to a new debtor-creditor obligation, but held it unnecessary to decide the point. He observed there is force in the Chief Master’s reasoning that the contractual obligation remained the same, yet did not make a final determination on that issue because it was not required for the outcome.
• On abuse of process the court applied the Johnson v Gore Wood principles and concluded that although Zavarco and its advisers had taken a risk by not pleading the debt earlier, the earlier order and its paragraph staying enforcement made it clear that enforcement could follow the declaration and there was no misuse or abuse of the court’s process such as to justify dismissal.

Result: the appeal was allowed and the claim for the unpaid sums was permitted to proceed.

Appeal allowed. The court held that declaratory judgments can in principle be remedies capable of supporting merger, but whether merger operates depends on the terms and effect of the particular declaration; here the declarations did not extinguish Zavarco’s pre-existing contractual right to payment, so the cause of action for €36 million was not merged and the claim may proceed. The court also held that pursuing the money claim was not an abuse of process under Henderson v Henderson / Johnson v Gore Wood.

Appeal from the order of Chief Master Marsh dismissing the claim dated 23 July 2019 (see [2019] EWHC 1837 (Ch)). The earlier substantive judgment in the Division was given by Mr Martin Griffiths QC on 14 November 2017 (proceedings brought in 2016); that judgment granted declarations that the shares were unpaid and that Zavarco was entitled to forfeit them. This appeal was heard by Mr Justice Birss with judgment dated 20 March 2020.