Zavarco Plc v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir
| Jurisdiction | England & Wales |
| Judge | Mr Justice Birss |
| Judgment Date | 20 March 2020 |
| Neutral Citation | [2020] EWHC 629 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH-2019-000221 |
| Date | 20 March 2020 |
[2020] EWHC 629 (Ch)
Mr Justice Birss
Case No: CH-2019-000221
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
APPEALS (ChD)
On appeal from the Order of Chief Master Marsh made on 23rd July 2019
In action BL-2018-002129
Royal Courts of Justice
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Patrick Lawrence QC (instructed by Needle Partners Limited) for the Appellant
Robert-Jan Temmink QC (instructed by Teacher Stern) for the Respondent
Hearing dates: 11th March 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an appeal from the order of Chief Master Marsh made on 23 rd July 2019 in which he dismissed the claim on the ground that the court has no jurisdiction to hear it. His judgment is [2019] EWHC 1837 (Ch). The Chief Master gave permission to appeal because he recognised that the conclusion on the point of law was contrary to a clear statement in the leading textbook in this area.
I will refer to the appellant as Zavarco and the respondent as Mr Nasir, without any disrespect to him (bearing in mind his title).
The action which the Chief Master dismissed was a claim issued on 11 th October 2018 by Zavarco in which it claims €36 million owed by Mr Nasir. This debt arises because Mr Nasir was allotted 360 million shares in Zavarco of €0.10 each on its incorporation and they remain unpaid. Mr Nasir's case (amongst other things) was that he was not obliged to pay for those shares with cash but rather that it was agreed that the par value would be satisfied by transfer to Zavarco of shares in another company (“ZB”). ZB stands for Zavarco Berhad, a Malaysian company. However in a judgment in this division dated 14 th November 2017 following proceedings brought in 2016 the judge (Mr Martin Griffiths QC) rejected Mr Nasir's case about that. The judge held there was no agreement that Mr Nasir's shares would be paid for otherwise than in cash (paragraphs 72 and 89) and that Mr Nasir took the shares on the terms of the Memorandum and Articles of Association and no other terms (paragraph 73). The judge found that Mr Nasir was obliged to pay for the shares in cash (paragraph 79). This meant that under the Articles, Zavarco would be entitled to forfeit the shares as long as they complied with certain steps in relation to Mr Nasir. These were to serve on him a valid call notice requiring the unpaid sum to be paid, and, assuming the sum was not paid after 14 days, to serve a notice of forfeiture. The judge held that the call notice and notice of forfeiture sent by Zavarco were valid (paragraph 95).
On giving judgment Mr Griffiths QC granted two declarations as follows:
“1. The shares held by Mr Nasir in Zavarco Plc, namely 360 million ordinary shares of €0.10 each (“the Shares”) are unpaid.
2. Zavarco Plc, having taken steps required under the Articles of Association and Mr Nasir having failed to pay for the same is entitled to forfeit the Shares.”
In addition to other irrelevant orders, the judge also gave a direction pending any appeal at paragraph 9:
“9. Pursuant to CPR 52.16, the effect of paragraphs 1 and 2 of this Order be stayed, with the consequence that Zavarco Plc may not take steps to enforce payment for or forfeit the shares presently registered in the name of Mr Nasir pending the outcome of any application made by Mr Nasir to the Court of Appeal for permission to appeal …”.
[Chief Master's emphasis]
Permission to appeal from that order was refused.
After the judge's judgment Zavarco forfeited the shares. By Article 75.3 of the Articles, even if a person's shares have been forfeited, that person remains liable for all sums payable under the Articles, subject only to a point that they would be entitled to credit for any sum the company obtained in return for allotting the shares to someone else. In fact Zavarco has not allotted them to anyone else. This may or may not be explained by the background to this dispute. Mr Griffiths QC found that the business was being ramped, offering unrealistic hope of future profit based on very little and that it had no value unless it could secure substantial capital investment (paragraph 114). In any event the shares were suspended.
Thus Zavarco now seeks payment of the €36 million debt from Mr Nasir. It issued the claim which came before the Chief Master. Mr Nasir applied to have the claim dismissed on two grounds, first that the doctrine of merger applied and so the cause of action had been extinguished by the judgment of Mr Griffiths QC, and second because the action was an abuse of process on Henderson v Henderson grounds, i.e. that the claim could and should have been brought in the first action and to bring it now was an abuse. The Chief Master decided that the merger doctrine applied and so he dismissed the claim. It is common ground that if merger does apply then no discretion is involved. The consequence is automatic. The Chief Master did not need to examine Henderson v Henderson.
The decision on merger turns on a short question of law – does merger apply to declaratory judgments? There is no authority directly on the point. The leading textbook in this area is Spencer Bower and Handley (5 th Ed, November 2019). The textbook expresses the clear view that it does not (paragraphs 20.01 and 20.08) but cites no authority on the matter. The reason given is that what is required is a judgment granting relief, and a declaration of right does not qualify as relief. I will come back to the judgment in more detail below but briefly put, the Chief Master was not persuaded that a declaration, at least of the kind in this case, was not a form of relief. He recognised that certain kinds of declarations will not support merger, but this case was not one of them.
The first question on this appeal is therefore concerned with merger. If the appeal is allowed on that ground then the Henderson v Henderson point has to be considered. Although the Chief Master did not (and did not have to) address it, neither party suggested that Henderson v Henderson should be remitted instead.
Before turning to the point of law, it is worth looking briefly at how this dispute got here. There is no evidence explaining why the first proceedings only claimed declarations and did not include a claim for the money. Counsel for Mr Nasir submitted that Zavarco or its legal team had just made a mistake and that did not justify Zavarco not being visited with the legal consequences of that error. The Chief Master clearly suspected that the true reason for the absence of a claim for damages or a debt in the first action was an attempt to avoid the £10,000 court fee it would have attracted, whereas a claim for declarations alone attracted a much lower fee. As he pointed out, there could have been an application to amend to include a money claim (and pay the higher fee) but that did not happen. Counsel for Zavarco before me submitted that I should not assume it was a mistake. He suggested, without saying this is what did happen, that his clients' approach may have been to obtain clarity about their ability to exercise the self-help remedy of forfeiting the shares before they did so, which the declaration gave them. He also referred to paragraph 9 of the judge's order, which clearly contemplated that there could well be attempts to enforce payment after the judgment, but which stayed any such attempt pending appeal.
Merger – the law
Before getting into the legal theory, it is worth setting out the easy example which illustrates merger. If a claimant has a cause of action which gives them a legal right to a sum of money from a defendant (e.g. a claim for breach of contract), then before judgment is given, the claimant's legal right is that which the law provides for as arising from the cause of action. The parties may disagree about the merits of the claimant's right and go to trial. Assuming the claimant wins the trial, they will obtain a judgment ordering the defendant to pay them that sum of money. The claimant now has a legal right to the money from the defendant, based on the judgment itself. This new legal right is different from the old one. For example the way the limitation rules apply differs and the accrual of interest may well be different too. If you think about it, the claimant cannot still have their old legal right to the sum of money for breach of contract, otherwise they would now have two rights and might end up with a right to double recovery. So the idea is that the old right, or cause of action, has merged into the new right, the judgment. Whether “merger” is the best metaphorical description of this idea does not matter. It makes sense.
Merger is similar to but not the same as other doctrines which come into play when a party or a dispute comes back to a court a second time after a previous decision. They include res judicata, issue estoppel and the rule in Henderson v Henderson. In Virgin Atlantic Airways v Zodiac Seats [2013] UKSC 46, [2014] AC 160 Lord Sumption deals with this at paragraph 17. He said as follows:
“17. Res judicata is a portmanteau term which is used to describe a number of different legal principles with different juridical origins. As with other such expressions, the label tends to distract attention from the contents of the bottle.
The first principle is that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”. It is properly described as a form of estoppel precluding a...
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