Introduction
Nasir v Zavarco Plc1 is the first case in which a Court has considered the application of the doctrine of merger to declaratory relief. Previous caselaw has focused on its application in the context of "coercive judgments", namely those where fresh proceedings are pursued by litigants after obtaining a judgment for payment of a sum of money or to enforce a right to property.
The doctrine of merger
The doctrine of merger was developed to promote finality in litigation and to prevent duplicative and vexatious litigation. It applies to treat a cause of action as extinguished once judgment has been given on it, as the cause of action is merged into the judgment. As such, the Claimant's sole right is a right to enforce the judgment and he is prevented from reasserting a claim that has already been decided. This doctrine is related to, but conceptually different to, the broader legal principle of res judicata in the form of cause of action estoppel, which prevents the contradiction of an earlier judgment as to the existence or non-existence of a cause of action.
Background
This case concerned a dispute as to whether Nasir was required to pay €36 million in cash for shares he had acquired in Zavarco, or whether he could make payment in the form of shares in another company, Zavarco Berhad ("ZB"). Nasir contended that the transfer of ZB shares constituted valid consideration, while Zavarco insisted that it was entitled to a cash payment notwithstanding the transfer of the ZB shares.
2016 proceedings
By way of High Court proceedings issued in 2016, Zavarco sought inter alia declarations that the shares in Zavarco were unpaid and that it was entitled to forfeit the shares in question. Those declarations were granted at first instance and the shares were forfeited by Zavarco in June 2018.
The present proceedings
Zavarco's articles of association provided that a person whose shares had been forfeited would remain liable to pay for the unpaid shares and, as such, Zavarco commenced further proceedings against Nasir in 2018 for payment of €36 million plus interest as a debt. Nasir applied to have these proceedings set aside on the basis, amongst other things, that the claim for payment had merged into the declaratory judgment awarded in Zavarco's favour and had been extinguished as a matter of law.
At first instance, Chief Master Marsh held that Zavarco's cause of action was identical to that determined by the judgment in the 2016 proceedings, such that it had been extinguished by operation of law.
That decision was overturned by the Court of Appeal, which held that the doctrine of merger has no application to declarations, and that there is no obvious purpose in a doctrine that would prevent a party from bringing a claim for an enforceable remedy, such as a judgment for a debt or damages, because it had earlier obtained a declaration as to its rights.
The Supreme Court decision
Nasir's appeal of the Court of Appeal decision to the Supreme Court was ultimately dismissed, with the Supreme Court holding that the doctrine of merger does not extend to declaratory judgments and is confined to coercive judgments.
The Supreme Court identified a number of reasons why the doctrine should not extend to declaratory judgments, including that:
- The doctrine of merger was developed before the Courts adopted the practice of awarding declaratory relief.
- There may be justifiable reasons for a litigant to seek a declaration before pursuing a claim for a coercive remedy. In this case, it made sense for Zavarco to resolve the dispute as to whether it was entitled to forfeit the shares which Nasir asserted were fully paid before exercising its right of forfeiture which gave rise to the claim for payment for the shares).
- The doctrine of merger has been criticised for its rigidity and its capacity to cause injustice which is a good reason not to further extend the application of the doctrine.
- To permit a Claimant to obtain a purely declaratory judgment without excluding its right thereafter to seek a remedy such as damages does not give rise to duplicative or vexatious litigation.
- There are more rules and remedies available to the court to achieve finality of litigation and the scope of the doctrine does not need to be extended to address any lacuna.
- The Court was not convinced that a mismatch or divergence between the common law doctrine and section 34 of the Civil Jurisdiction and Judgments Act 1982 ("CJJA") (which states that "no proceedings may be brought by a person in England and Wales or Northern Ireland on a cause of action in respect of which a judgment has been given in his favour") would be created as a result of its decision, and considered that a first judgment which was the equivalent of declaratory relief in the law of England and Wales would not be a judgment on a cause of action to which the section of the CJJA applied.
- Judgment was reserved as to whether the doctrine extends to final injunctions such that the grant of a final injunction enforcing a right would preclude a later claim to damages arising from the same facts.
Practical takeaways
This decision provides helpful clarification regarding the reach of the doctrine of merger and confirms that its application is limited to coercive judgments and does not apply to declaratory judgments. This means that parties remain free to pursue further claims for coercive remedies based on the same facts following a grant of declaratory relief.
The ruling is likely to encourage strategic approaches whereby litigants first seek declarations to clarify their legal position or resolve specific issues before committing to more extensive and potentially costly litigation for coercive remedies. For example, a party may obtain a declaration to confirm their rights or the validity of a contract before then proceeding to pursue a claim for breach of contract and damages. This step-by-step approach can help litigants manage risks and costs more effectively, as they can address uncertainties and solidify their legal standing before engaging in full-scale litigation.
Further clarification regarding (i) the precise scope of judgments deemed to be "coercive"; and (ii) the application of the doctrine to final injunctions is welcomed.
