Marshall v City Mutual Life Assurance Society Ltd [1934] HCA 44; (1934) 51 CLR 666 (5 October 1934)

Marshall and Others Plaintiffs, Appellants; and The City Mutual Life Assurance Society Limited Defendant, Respondent.

The question upon which this appeal depends is whether a policy of life insurance was effectually surrendered before the death of the insured. He died on 6th June 1932, and, by the judgment under appeal, Murray C.J. has decided that a surrender, or binding contract to surrender, was effected on 12th May 1932. The policy had been assigned by way of security and the assignees, with the full authority of the insured, determined to surrender the policy, and, on that date, informed the insurers, a mutual society, of their determination. The insured executed the formal receipt for the moneys representing the surrender value, but his death occurred before the document was presented to the insurer and before the moneys were paid over.

The policy of insurance does not itself contain any provision for actual surrender, but it expressly provides that, "so long as the surrender value, as fixed by the board" sufficed, the policy should not become void by non-payment of a premium, if it had been in force two years. The policy also contains a condition that the insurance should at all times and in all circumstances be subject to the articles of the society, and the articles include provisions with reference to surrender. By one article, it is provided that the directors may fix the rates of payment which may be made by the society for the surrender of policies of any description and may from time to time alter such rates, and, by another, that after three years' payments have been made on any policy it shall acquire a surrender value. The latter article proceeds to deal with the use of the surrender value so fixed by the board to preserve the policy notwith-standing non-payment of premiums. The former is subject to a proviso empowering the directors to allow as the surrender value of a policy such sum as they might deem expedient and equitable. Rates have in fact been fixed by the directors under these articles. If, upon their proper construction, they mean to require the society to pay the surrender value as ascertained by the rates fixed, to the insured, who, of course, in virtue of the insurance becomes a member of the society, then by notifying the society of their decision to surrender, the assignees of the policy might well be considered to have exercised an election from which they could not retract to take the surrender value and terminate the insurance upon the life. But it is open to doubt whether the language of the articles bears this construction. The rates to be fixed are "the rates of payment which may be made by the society for the surrender of policies" not, which shall be made. The words are permissive and confer a power rather than express a requirement. On the other hand, a definite statement is made that a policy shall acquire a surrender value, a statement at least capable of meaning that it shall acquire a value expressed in money obtainable on surrender. But, perhaps, it should be understood as meaning no more than that the policy should have ascribed to it a surrender value for the purpose of keeping the policy alive.

In South Australia, however, there is a special legislative provision relating to surrender value which must be considered with the articles. Sec. 47 of the Life Assurance Companies Act 1882 contains the following enactment: "Every life assurance society shall declare the surrender value at which the said society becomes bound to accept their policies, and no policy shall lapse to the society for non-payment of premium so long as the premiums and interest in arrear are not in excess of the surrender value." This provision is in a very different form from that enacted in New Zealand two years afterwards, namely, sec. 32 of the Life Assurance Policies Act 1884 N.Z., upon which, as sec. 64 of the Life Insurance Act 1908 N.Z., Equitable Life Assurance Society of the United States v. Reed[1] was decided, and also from the still later Queensland adaptation of the New Zealand provision, namely, sec. 22 of the Life Assurance Companies Act 1901 Q., upon which Equitable Life Assurance of the United States v. Bogie[2] was decided.

It seems not unlikely that the framers of the South Australian provision intended to require life societies to give their policies surrender values which should be payable in cash as well as available to answer unpaid premiums. But the Supreme Court of South Australia has construed the section as meaning not that the societies shall become bound to accept surrenders and provide for premiums at surrender values which they must declare, but that, if they do bind themselves to accept surrenders, they shall declare the rates or values (Re Mutual Life Association of Australasia and Citizens' Life Assurance Co.[3]). It must be conceded that some support for this view of the enactment may be found in the form of the eleventh question in the Seventh Schedule, which by sec. 20 life societies must answer. It would appear from Equitable Life Assurance Society of the United States v. Reed[4] that the obligation to "declare" the surrender values should be understood as referring to the answer to this question. But the Schedule speaks of "a table of minimum values (if any) allowed for the surrender of policies." The "if any" suggests that it is left to the society to adopt a system of surrender values, or not to do so. Further, if sec. 47 imposes an obligation to allow a surrender value, in terms it appears to apply to all cases. But it is difficult to believe that it was intended to give a policy a surrender value, although not more than one premium had been paid. On the other hand, to construe sec. 47 as requiring no more than a declaration of surrender values, if any have been adopted, does not seem to give it any more effect than sec. 20 and the eleventh question of the Seventh Schedule combine to produce. Murray C.J., following the decision of the Full Court, treated the society as under no obligation to have a surrender value, but, proceeding upon the footing that the insured had no right to payment of a surrender value and that it lay within the power of the society to refuse a surrender, he held, nevertheless, that the parties had arrived at a concluded agreement for a surrender. Unless this conclusion appears erroneous, it is unnecessary to decide the question whether sec. 47, or the clauses in the articles, or both in combination, give the assured a right to a surrender at the rates fixed by the directors. Upon the assumption that he has no such right, we think the conclusion of Murray C.J. is not erroneous, but gives a just effect to the communications between the parties. In these circumstances, we think it is better to leave undecided the question whether that assumption is correct. But, in considering the effect of what the parties did, the articles of association cannot be left out of account. One important consequence of the articles, and perhaps of the section, is that tables exist by which the surrender value of the policy in question must be ascertained. These tables of rates had been fixed by the board and governed the amount which, in the event of a surrender, must be paid, unless the board did, what was not in contemplation, viz., increased the amount by a special direction.

The assignees of the policy had, in March 1932, obtained from the society a statement, subject to confirmation by the actuary, of the amount of the surrender value less overdue premiums, loan moneys and interest. They then expressed an intention of surrendering. Some delay occurred during which the assignees interviewed the insured. Then, in May 1932, the surrender was again discussed with the society. As a result, the assignees wrote that they had now, with the full collaboration of the insured, definitely decided to surrender the policy immediately, and would be pleased to receive a cheque for the surrender value in due course. The society, on 12th May 1932, replied that they regretted to note that, after consultation with the insured, it had been decided to surrender the policy. The letter continued—"The following are particulars of the surrender value, subject to confirmation by the actuary." It then set out the surrender value and the deductions for overdue premium and loan, calculating interest up to a day or so before the actual date of the letter. It went on: "The necessary discharge forms are enclosed herewith which will require to be signed by" the assignees and the insured. The letter ended by requesting completion of the forms and their return to the office, "when the matter will be attended to." The forms were completed but not returned because the death of the insured intervened.

These communications appear to us to express a consensus ad idem that the policy should be surrendered, not in the future, but immediately, and that the amount of the surrender value, ascertained according to the appropriate tables of the society, less overdue premium, loan moneys and interest to that time, should be paid to the assignees. The calculation of the amount was not intended to precede final mutual agreement but was to be done in pursuance of the common agreement for surrender. The failure of the assignees or the insured to express agreement upon the figures stated by the society and the reservation contained in the words "subject to confirmation by the actuary" are alike unimportant. Neither relates to a necessary term of the agreement. They relate to the ascertainment of the money sum in the manner agreed upon. No intention appears of making the execution of the receipts a condition of the surrender. The surrender was agreed de presenti, the receipts were to be acknowledgements of payment. (See per Lord Dunedin in Ingram-Johnson v. Century Insurance Co.[5]).

For these reasons we think that the contract of insurance expressed in the policy was rescinded or discharged by an agreement for surrender.

The City Mutual Life Assurance Society Ltd. issued to Walter Richard Fry Marshall a policy of life assurance dated 3rd September 1930, on his life, for the sum of £3,000. Marshall assigned this policy to the Adelaide Development Co. Pty. Ltd. Some correspondence took place concerning the surrender of the policy. On 6th May 1932 the Adelaide Development Co. Pty. Ltd. wrote the following letter to the insurance society:—"Following on the interview by the writer, when various aspects of the policy were discussed, we have now definitely decided, with the full collaboration of Mr. Marshall, to surrender the policy immediately, and shall be pleased, therefore, to receive a cheque for the surrender value in due course."

Marshall died on 6th June 1932, but the discharge forms, though completed, were never returned to the insurance society. The executors of Marshall, and the Adelaide Development Co. Pty. Ltd., brought an action against the society for the moneys assured by the policy. The action was tried before the learned Chief Justice of the State of South Australia, who held, and in my opinion rightly held, that the parties, in the letters already set out, concluded an agreement surrendering the policy for an amount calculated according to the society's tables, less loan and interest due to the society. The society, in the ordinary course of its business, accepted the surrender of its policies and had tables in use from which surrender values might be calculated. This practice was common in Australia, with many if not all insurance offices, and was well known to business men and others in the community. The business meaning of the letters, in these surroundings, is that the parties took advantage of the practice and made an agreement to surrender the policy on the table terms, less what was owing to the society. "Subject to confirmation by the actuary" is a mere stipulation that the actuary shall settle the figures in pursuance of the agreement. The discharge forms sent with the letter are mere acknowledgments of payment. In this view, I do not find it necessary to express any opinion upon the other matters raised in argument and in the judgment of the Chief Justice.

[1] (1914) A.C. 587.

[2] [1905] HCA 55; (1905) 3 C.L.R. 878.

[3] (1908) S.A.L.R. 99.

[4] (1914) A.C., at p. 596.

[5] (1909) S.C., at p. 1036.

High Court of Australia

Marshall v City Mutual Life Assurance Society Ltd [1934] HCA 44; (1934) 51 CLR 666 (5 October 1934)

HIGH COURT OF AUSTRALIA