In a characteristically careful and considered judgment handed down today, Chief Master Marsh declared that the Court had no jurisdiction to hear a claim for €36,000,000 and dismissed the Claimant’s action against the Defendant.

The Claimant, Zavarco PLC, sought €36m and accrued interest as a debt from the Defendant, Mr Nasir. The basis of the claim was that the Defendant had formerly held shares in the claimant company; he was required to pay for the shares in cash but had failed to do so. The Defendant maintained that his shares in the Claimant had been paid for by the transfer to the Claimant of valuable shares in another company. That defence was dismissed in a claim brought in 2016 and, as a result, the Claimant forfeited the Defendant’s shares. Despite forfeiting the shares the Defendant remained liable to the Claimant as a debtor for the nominal value of the shares.

The Court in the first proceedings made two declarations:

  1. That the Defendant’s shares in the Claimant were unpaid;
  2. That the Claimant having taken steps under the Articles to call for payment, and payment not having been made, the shares could be forfeited by the Company.

It was not suggested by the Claimant that it had been unable to include a claim for payment in the 2016 proceedings either in addition to, or in the alternative to, the claims for declarations. Nor did the Claimant assert that the 2016 proceedings were simply preliminary issues, leaving over an entitlement to pursue further relief, or that the Claimant could have sought further relief in the 2016 proceedings.

Faced with a second claim, served on the Defendant in Singapore, the Defendant applied pursuant to CPR Part 11.1 for a declaration that the Court had no jurisdiction to hear the claim through the operation of the doctrine of res judicata by merger.

The basis of the claim was that the facts pleaded in both sets of proceeding were identical; the parties were identical and the causes of action were identical.

The Chief Master considered the leading cases on res judicata by merger: the judgment of Arden LJ in Clark v In Focus Asset Management [2014] 1 WLR 2502; Lord Goff in Republic of India v India Steamship Co Ltd (No.2) [1998] AC 878; and Lord Sumption in Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd [2014] AC 160. The Chief Master also carefully considered passages from Palmer on Companies and Spencer, Bower & Handley on Res Judicata.

The Claimant’s submissions contended there had been no merger and accepted that there was no authority within England & Wales which either supported or contradicted the view in Spencer Bower & Handley that the doctrine of res judicata by merger did not apply in the case of a declaratory judgment. The Defendant submitted that the text book did no more than express an opinion on that issue and in any event the declarations sought and obtained by the Claimant in the 2016 proceedings were valuable (enabling the Claimant to forfeit 360,000,000 shares). The Chief Master agreed with the Defendant’s submissions: whilst the grant of a declaration may not lead to merger in every case, that depends on the nature of the claim and the terms of the declaration: the doctrine of merger will only apply if the cause of action in both claims is the same. As for determining whether the cause of action is the same in two claims, it is right to look at the substance of the claims and to consider whether they arise from the same breach.

In this case all the essential elements of merger had been made out. The Claimant’s cause of action merged in the judgment of the Court in the 2016 proceedings and was thereby extinguished. Accordingly, the court had no jurisdiction to deal with the claim and the Claimant’s second proceedings were struck out.

What this case really highlights is the necessity to bring all elements of a claim before the Court in one go. The Court will look to the substance of a cause of action to determine whether there has been res judicata by merger and will be astute to ensure that Claimants can’t keep using the Court’s resources on a repeated and piecemeal basis when all matters could have been dealt with in one go. On this occasion the Court did not need to consider the Defendant’s further submissions about Henderson v Henderson abuse which might also have been a route by which the Court managed further proceedings by the same parties on the same facts arising from the same cause of action.

The judgment can be read here: Zavarco PLC v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir [2019] EWHC 1837 (Ch)