Zavarco Plc v Nasir: Does The Doctrine Of Merger Apply To A Declaratory Judgment?

• Published date: 12 November 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, M&A/Private Equity, Corporate and Company Law, Trials & Appeals & Compensation
• Law Firm: Gatehouse Chambers
• Author: Ms Sally Wollaston

In Zavarco plc v Nasir, the '36million question was: does the doctrine of merger apply to a declaratory judgment?

The Court of Appeal's clear and unequivocal answer (merger "has no application at all to declarations") would suggest that this was a simple point, however the experienced judges who grappled with the question in the lower courts reached contrasting conclusions. It remains to be seen whether the appellant will pursue the point to the Supreme Court in the hope of a different answer.

What is merger?

The doctrine of merger is the principle that the legal rights associated with a cause of action are extinguished when judgment is entered, and replaced by the legal rights arising from the judgment.

Merger is a companion to, but distinct from, various procedural doctrines which have been developed by the courts to prevent abuse of process and preserve the finality of litigation, namely res judicata, issue estoppel and the rule in Henderson v Henderson.

The simplest illustration of how the doctrine of merger works in practice is where judgment is entered on a claim for payment of a sum of money. From that point on, the judgment creditor's right to payment (and interest) arises from the judgment. The underlying cause of action ceases to exist and the creditor cannot rely upon it as the basis for a second claim to seek further relief.

Prior to Zavarco plc v Nasir, little judicial consideration had been given to the application of merger to declaratory relief. The leading textbook on the subject, Spencer Bower & Handley: Res Judicata had, since the first edition was published in 1924, expressed the author's view that a purely declaratory judgment would not qualify as a judgment granting relief and that merger would not apply, but had never cited any authority for that proposition.

Zavarco plc v Nasir: sequence of events

First Instance Decision - 17 July 2019

The Second Claim was heard by Chief Master Marsh, who gave judgment for N. He concluded there was no reason to regard declarations as being materially different from other forms of final relief. Z's cause of action had merged in the 2017 Order and the court had no jurisdiction to hear a further claim.

First Appeal - 20 March 2020

Birss J allowed Z's appeal and directed that the Second Claim should be permitted to proceed.

Declaratory judgments could constitute final relief on a cause of action and it was therefore possible that a declaratory judgment could give rise to a merger. This would depend...