UK appeal court clarifies ‘doctrine of merger’

The court upheld a claim by Zavarco, a company set up to carry out a telecoms project in Malaysia. Zavarco had sought judgment for payment of €36 million from a former shareholder, a Mr Nasir, in respect of shares in the project that he had failed to pay for. Nasir had sought to resist the claim on the grounds that Zavarco had previously successfully obtained a declaration from the court that the shares were unpaid and that Zavarco was entitled to forfeit them.

Lord Justice Sir David Richards, giving the judgment of the court, referred to leading academic texts on the doctrine of merger, which indicate that it does not apply to ‘declaratory relief’ of the sort already granted to Zavarco – that is, a binding statement by the court of the parties’ respective rights. However, he noted that there had never been a deciding case on the point, whether in England or any Commonwealth country.

Ultimately, he arrived at the same conclusion as the academic texts, allowing Zavarco to bring its second claim against Nasir. In doing so, he partly disagreed with High Court judge Mr Justice Birss, who had found that the doctrine of merger did in fact apply to declarations, but had allowed Zavarco’s claim on the facts.

Lord Justice Richards said: “A doctrine that prevents a party bringing a second claim to recover a remedy that has already been the subject of a judgment between the same parties makes 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 serves no obvious purpose, if the circumstances are such that the second action is not an abuse of the court’s process”.

“A declaration is a quite different remedy from judgment for a debt or damages. 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,” he said.

The doctrine of merger is one of a number of legal principles designed to prevent a party from obtaining more than one decision in respect of the same complaint, known together as ‘res judicata’. The doctrine treats a cause of action as extinguished once judgment has been given on it, and means that the claimant’s only rights in respect of that cause of action are those confirmed by that judgment.  Res judicata also incorporates various forms of estoppel, including ‘cause of action’ estoppel and ‘issue’ estoppel, as well as a more general procedural rule against abusive proceedings.

Although each of the principles which together form res judicata evolved separately, together they form “an extensive range of tools” to prevent abuse of court process, according to Lord Justice Richards. With this in mind, he could see no reason for widening the scope of the doctrine of merger beyond its already established bounds.

“[I]t is my view that the basis and development of the doctrine shows that it has no application at all to declarations,” he said. “Of course, depending on the circumstances of the case, a claimant who first seeks only declaratory relief may be precluded, by the other principles designed to prevent abuse, from bringing further proceedings.”

Dispute resolution expert Richard Bartle of Pinsent Masons, the law firm behind Out-Law, said: “It was no surprise that the court held, in effect, that a party can seek declaratory relief from the court and then bring a new claim for damages if it is successful on the claim for declaratory relief”.

“The principle of merger originated as a means for the court to control abuse of the court process. In circumstances where the court now has various means at its disposal to control such abuse, there was no need for the Court of Appeal to extend the principle of merger to cover declaratory judgments. To have done so would have served no practical purpose,” he said.

Bartle added: “Equally, it would also have conflicted with the overriding objective of enabling the court to deal with cases justly and at proportionate cost. That is because claims for declaratory relief are an efficient and relatively simple way to resolve issues such as an undecided point of law or the meaning, scope and effect of the terms of a contract. As such, once the court gives judgment on the declaratory claim, such that the parties have clarity on their legal rights, any subsequent money claim arising out of the judgment is more likely to be capable of being settled without the need for further legal proceedings”.

“It is therefore important that parties can seek declarations from the court on their legal rights without needing to commit, prior to obtaining the declaration at least, to a more complex claim by which one or both parties seek to enforce those rights,” he said.