On 19 February 2025 the Supreme Court handed down judgment in Nasir v Zavarco Plc [2025] UKSC 5, dismissing the appeal and holding unanimously that the doctrine that a cause of action merges in judgment does not extend to declarations.
The appellant, Tan Sri Nasir (“Nasir”), had subscribed to 360 million shares in the respondent company (“Zavarco”) upon its incorporation in 2011. Nasir subsequently transferred to Zavarco all of his shares in Zavarco’s Malaysian subsidiary, Zavarco Berhad. In 2015, Zavarco then served a call notice on Nasir requiring him to pay €36 million (the par value) in cash for his shares in Zavarco. Nasir refused, alleging that he had already provided good consideration in the form of the shares which he had transferred to Zavarco.
In the litigation that followed, a Deputy Judge of the High Court granted declarations in Zavarco’s favour to the effect that the shares held by Nasir were unpaid and that Zavarco was therefore entitled under its articles of association to forfeit them. Zavarco then commenced the proceedings which were the subject of this appeal, seeking payment of the nominal value of the shares (€36 million) as a debt. Nasir in turn argued that the cause of action on which Zavarco’s debt claim was based had merged into its declaratory judgment and had therefore been extinguished. The Chief Master accepted Nasir’s argument but Zavarco appealed and its appeal was allowed by Birss J. Birss J’s decision was upheld by the Court of Appeal but Nasir appealed again, to the Supreme Court.
The Supreme Court unanimously dismissed Nasir’s appeal. Lord Hodge, who gave the only substantive judgment, cited previous authorities on merger (dating back to the beginning of the 17th century) and observed that they had all been confined to judgments involving the payment of money or enforcing a right of property by ordering the return of the property (‘coercive judgments’).
Lord Hodge approved (at [50]) the statement of Sir David Richards in the Court of Appeal below that:
“It makes 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 is merged into the higher. The same simply cannot be said of a purely declaratory judgment, which itself imposes no obligation but only confirms the obligation which already exists.”
Lord Hodge also identified several reasons of policy why the doctrine of merger should not be extended so as to apply to declaratory judgments. These included the fact that there can be justifiable reasons for litigants to seek a declaration before pursuing their claim for a coercive remedy. Indeed, his Lordship considered that it had made good sense in the current case to resolve the dispute over whether Zavarco was entitled to forfeit the shares before exercising its right to forfeiture and before pursuing its claim for payment of those shares ([51]).
However, the Supreme Court, saying that it had not heard argument on the issue, expressly left open the question whether the doctrine of merger extends to final injunctions so that the grant of a final injunction enforcing a right would preclude a later claim to damages arising from the same facts ([49]).
4 New Square Chambers’ Patrick Lawrence KC and Charles Phipps acted for the successful respondent, instructed by Needle Partners Ltd.
A link to the judgment is here.
