Zavarco Plc v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir
| Jurisdiction | England & Wales |
| Judge | Sir David Richards,Lord Justice Warby,Lord Justice Henderson |
| Judgment Date | 05 August 2021 |
| Neutral Citation | [2021] EWCA Civ 1217 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2020/0670 |
[2021] EWCA Civ 1217
Lord Justice Henderson
Lord Justice Warby
and
Sir David Richards
Case No: A3/2020/0670
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Mr Justice Birss
Royal Courts of Justice
Strand, London, WC2A 2LL
Robert-Jan Temmink QC and Tom Nixon (instructed by Teacher Stern LLP) for the Appellant
Patrick Lawrence QC (instructed by Needle Partners LLP) for the Respondent
Hearing dates: 29 April 2021
Approved Judgment
In accordance with the Covid-19 protocol for handing down judgments, this judgment has been handed down by Lord Justice David Richards remotely by circulation to the parties' representatives by way of e-mail, by publishing on www.judiciary.uk and by release to Bailii. The date and time for hand down will be deemed to be Thursday, 5 August 2021 at 10:30.
Introduction
The issue raised by this second appeal is whether the doctrine of merger, whereby a judgment on a cause of action precludes a new action for further relief on the same cause of action, applies where the judgment is for declaratory relief only. It appears that this is an issue on which there is no decided case either in this country or in any other Commonwealth country. The current edition of a leading textbook, Spencer Bower & Handley: Res Judicata (5 th ed. 2019), expresses the view that merger does not apply in the case of a purely declaratory judgment, as have all previous editions since the first edition published in 1924.
The present proceedings were dismissed by an order of Chief Master Marsh dated 23 July 2019, which declared that the court had no jurisdiction to hear the claim. The order was made on the basis that the doctrine of merger applied in the case of a prior declaratory judgment, so as to preclude a subsequent claim on the same cause of action for payment of a debt. By an order dated 30 March 2020, Birss J (as he then was) allowed an appeal against the Chief Master's order. Permission for a second appeal was given by Newey LJ.
Facts
So far as relevant to the issue raised by this appeal, the facts may be summarised as follows.
The claimant company, Zavarco plc (Zavarco), was incorporated in England on 29 June 2011 as a public company. On incorporation, 360 million ordinary shares of €0.10 each, representing 30% of its issued share capital, were allotted to the appellant (Mr Nasir) and the balance were allotted to a Mr Ranjeet Singh Sidhu. On 25 July 2011, the entire issued share capital of Zavarco Berhad (ZB), a company incorporated in Malaysia, was transferred to Zavarco. A subsidiary of ZB held licences to develop a fibre optic telecommunications network in Malaysia. The transfer of ZB to Zavarco, and the flotation in August 2011 of Zavarco on the Frankfurt Stock Exchange, were carried out in order to raise capital for development of the telecommunications network. The background to Mr Nasir's involvement in Zavarco is complex but it is not germane to the issue on this appeal.
On 5 June 2015, Zavarco served on Mr Nasir a call notice, requiring him to pay up in cash at par the 360 million shares issued to him on incorporation (the shares), making a total of €36 million. Mr Nasir contested any liability to pay up the shares, asserting that they had been issued in consideration for the transfer of shares in ZB. On 15 June 2016, Zavarco served on him a notice of intended forfeiture of the shares pursuant to provisions in its articles of association. Both parties issued proceedings in respect of this dispute. The first in time was a Part 8 claim issued by Mr Nasir. Subsequently, Zavarco issued a Part 7 claim, seeking declarations that the shares were unpaid, that the call notice and notice of intended forfeiture were valid and that Zavarco was entitled to forfeit the shares, and alternatively, if the call notice or the notice of intended forfeiture were held to be invalid, a declaration that Zavarco was entitled to serve new notices. No claim for payment of the par value of the shares or other relief was made by Zavarco.
Both claims came on for trial before Mr Martin Griffiths QC (sitting as a Deputy Judge of the High Court) over four days in October 2017. He gave judgment for Zavarco, finding that there was no agreement that the shares were to be paid up otherwise than in cash. By an order dated 14 November 2017, he made declarations that the shares were unpaid and that “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” (the 2017 order).
Mr Nasir's application for permission to appeal was refused on 24 May 2018, following which Zavarco forfeited the shares on 11 June 2018. By then, there was no market for the shares and they were not sold.
On 11 October 2018, the present proceedings (the second action) were issued, claiming €36 million and interest. Permission was given to serve the claim form out of the jurisdiction on Mr Nasir in Malaysia. On 22 November 2018, Mr Nasir issued an application under CPR 11.1, disputing the jurisdiction of the court and seeking an order to set aside service of the claim form.
The application was heard on 30 May 2019 by Chief Master Marsh, who gave judgment in favour of Mr Nasir on 17 July 2019, declaring that the court had no jurisdiction to hear the claim and dismissing the claim.
The application was made on two bases. First, it was said that the claim for payment of the amount due on the shares was barred by virtue of the doctrine of merger, applicable as a result of the declarations made in the 2017 order. Alternatively, it was argued that the claim for payment made in the second action should have been included in the first action and the failure to do so rendered the second action an abuse under the principles established in Henderson v Henderson (1843) 3 Hare 100.
The judgment of Chief Master Marsh
In a clear and careful judgment, the Chief Master reviewed the more recent authorities which discuss the doctrine of merger, particularly the observations of Lord Sumption in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160 ( Virgin Atlantic) and of Arden LJ in Clarke v In Focus Asset Management and Tax Solutions Ltd [2014] EWCA Civ 118, [2014] 1 WLR 2502 ( Clarke). From these he deduced that merger was the automatic consequence of a final judgment on a cause of action when all aspects of the cause of action have been dealt with; see [31] and [39].
As regards the view expressed in Spencer Bower & Handley (at that time in its 4 th edition, published in 2009), the Chief Master agreed that there was a real difference between a judgment that may lead to enforcement and one that merely declares what the parties' legal position is. However, he did not agree that a declaration could not qualify as a judgment granting relief. It depended on the nature of the claim and the declaration made. Where the declaration was that a liquidated sum was due under a contract, the claim was not only based on a recognisable cause of action, unlike for example a declaration as to status, but the court must have considered and determined all the facts that form the cause of action, just as it would if it were asked to give judgment for the liquidated sum. These considerations led the Chief Master to say at [46]:
“The essence of the doctrine of merger is that the cause of action merges in the judgment. The cause of action is thereby extinguished by a combination of the judicial determination of the facts forming the cause of action and manifestation of that determination in the order, or judgment, of the court that follows. Even accepting that a declaration does not have any executory or coercive effect, a declaration that is based upon findings of fact that relate to a recognisable cause of action, still determines the issue and it is hard to see why it should not have the effect of extinguishing the cause of action. It is after all a matter for the claimant to decide whether additional relief may be needed. A determination and grant of declaratory relief followed by a second stage when the court is asked to consider additional claims for relief is clearly unobjectionable if it is made within the same claim based on prayers for relief sought in the claim form.”
The judgment of Birss J
On appeal, Birss J agreed with some of the points made by the Chief Master. For example, he agreed that a declaration was, in a case such as the present, a judgment granting a remedy for a cause of action and that it made no difference that it was a discretionary remedy. He also agreed that the justification given in Spencer Bower & Handley for saying that declarations cannot support merger, viz that declarations do not constitute relief or a remedy, is too widely expressed. He said at [24]:
“In my judgment this case illustrates that a declaration can be a remedy for a cause of action and since it can be, there is no reason why the doctrine of merger could not apply when it is the sole remedy granted. A declaration is a remedy which the claimant can “recover” (to use the word stressed by the appellant) based on a cause of action. In that sense I agree with the Chief Master.”
Taking the example of a claim for a liquidated sum of £x, merger would result from a declaration that £x was due and payable, even if no judgment for payment of such sum was sought or given. By analogy with Republic of India v India Steamship Co Ltd (The Indian Grace) [1993] AC 410, albeit that the relief there was judgment for damages of £6,000, “the critical thing…was that the first judgment had placed a value on...
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