Aug 5
The claimant company issued a large number of shares to the defendant on its incorporation. A dispute arose as to whether the defendant was obliged to pay in cash or could pay by transferring shares in another company. On the claimant’s claim the judge found for the claimant, and granted two declarations to the effect that: (i) the shares held by the defendant were unpaid; and (ii) since the claimant had served a valid call notice requiring the unpaid sum to be paid and, the sum remaining unpaid after 14 days, had served a valid notice of intended forfeiture, it was entitled under its articles of association to forfeit the shares. Subsequently the claimant exercised its right to forfeit the shares. The defendant remained liable under the claimant’s articles of association to pay for the shares and the claimant brought a second claim seeking payment. The master dismissed the claim, holding that the claimant’s cause of action in its second claim had merged with the judge’s declarations and so been extinguished. The claimant appealed, contending that the doctrine of merger did not apply to declaratory judgments. The judge allowed the appeal, holding that although there was no reason in principle why the doctrine of merger could not apply to a declaration, on the facts of the present case the doctrine did not operate to extinguish the claimant’s right to payment for the shares.
On the defendant’s appeal—
Held, appeal dismissed. The basis and development of the doctrine of merger showed that it had no application at all to declarations. The doctrine was a rule of substantive law that was strictly applied. It did not involve the exercise of any discretion by the court. At a time when the means available to the courts to control abusive litigation were significantly less than they have since become, merger played an important role. There was now an extensive range of tools available to control the abuse of the court’s process. There were no circumstances in which those tools would not be sufficient to prevent abuse, even if merger ceased to exist. There was, of course, no question of abolishing merger, but there was no good reason for widening its scope beyond its established bounds. A doctrine that prevented a party bringing a second claim to recover a remedy that had already been the subject of a judgment between the same parties made obvious sense. A doctrine that would prevent a party from bringing a claim for an enforceable remedy, such as a judgment for debt or damages, because it had earlier obtained a declaration as to its rights and the defendant’s obligations served no obvious purpose, if the circumstances were such that the second action was not an abuse of the court’s process. It was not easy to discern from the authorities the precise scope or limits of the doctrine of merger. What did, however, clearly emerge from the authorities was that merger applied where an obligation under the cause of action was embodied in, and replaced by, a final order of the court. A declaration was a quite different remedy from judgment for a debt or damages. It made sense to speak of a merger of a claim for a debt or damages into a judgment for the payment of a specified sum as debt or damages, so creating “an obligation of a higher nature”. The lesser right was merged into the higher. The same simply could not be said of a purely declaratory judgment, which itself imposed no obligation but only confirmed the obligation which already existed. In the present case, although the judge had been wrong to consider that the application of merger to declarations would depend on the terms of the declaration, on any footing he had been right to hold that the declaration made in the present case did not prevent Zavarco from bringing its second action to recover judgment for the unpaid calls (paras 27–29, 31, 37–42, 43, 44).
Robert-Jan Temmink QC and Tom Nixon (instructed by Teacher Stern LLP) for the defendant.
Patrick Lawrence QC (instructed by Needle Partners LLP) for the claimant.