Pluzak v. Gerling Global Life Insurance Company
Pluzak v. Gerling Global Life Insurance Company [Indexed as: Pluzak v. Gerling Global Life Insurance Co.]
52 O.R. (3d) 520
[2001] O.J. No. 34
Docket No. C32161
Court of Appeal for Ontario
Carthy, Austin and Rosenberg JJ.A.
January 11, 2001
- Application for leave to appeal to the Supreme Court of Canada dismissed September 13, 2001 (Gonthier, Major and Binnie JJ.). S.C.C. File No. 28442. S.C.C. Bulletin, 2001, p. 1576.
Insurance--Life insurance--Relief from forfeiture--Section 98 of Courts of Justice Act not available as basis for reviving lapsed term life insurance policy--Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98.
When the respondent and her husband separated, he agreed to make the premium payments on a life insurance policy issued by the appellant. The respondent left the family home and did not inform the appellant of the separation or of her new address. The respondent's husband did not keep up the premium payments and the policy lapsed. The respondent's husband died in a motor vehicle accident. The respondent first discovered that the policy had lapsed when her lawyer sought payment of the death benefit. The respondent brought an application seeking relief from forfeiture pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The applications judge found that s. 129 of the Insurance Act, R.S.O. 1990, c. I.8, the provision dealing with relief from forfeiture, does not preclude the application of s. 98 of the Courts of Justice Act. He then found that under the proper circumstances, relief from forfeiture can be granted under s. 98 in cases dealing with life insurance policies. Applying the three-step test for relief from forfeiture, he asked: (1) Was the conduct of the respondent reasonable in the circumstances? (2) Was the object of the right of forfeiture essentially to secure payment of money? (3) Was there a substantial disparity between the value of the property forfeited and the damage caused by the breach? Answering those questions in the affirmative, he granted the application. The appellant appealed.
Held, the appeal should be allowed.
Section 98 of the Courts of Justice Act is not available as a basis for reviving a lapsed term insurance policy. Relief from forfeiture should be granted in appropriate and limited circumstances for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of the result. This principle has no application to term life policies after death. There is no provision for security to assure a result. There has been no forfeiture of security. There has been a simple failure to pay for ongoing coverage. Life insurance claims tend to be for large sums and the beneficiaries of them are often needy, but the court cannot be in the position of rewriting a contract out of sympathy. If there is a policy reason for isolating insurance contracts from others it should be legislated, and should include appropriate criteria for granting relief which can be assessed by insurers and dealt with as a commercial factor in setting premiums.
APPEAL from a judgment of Ferrier J. (1999), 1999 14791 (ON SC), 44 O.R. (3d) 49, 29 C.P.C. (4th) 60 (Gen. Div.) granting relief from forfeiture.
Khan v. Primerica Life Insurance Co. of Canada (1998), 1998 31614 (ON CJ), 13 C.C.L.I. (3d) 171 (Ont. Gen. Div.); Liscumb v. Provenzano (1985), 1985 2051 (ON SC), 51 O.R. (2d) 129, 40 R.P.R. 31 (H.C.J.), affd (1986), 1986 2595 (ON CA), 55 O.R. (2d) 404n (C.A.); Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691, [1973] All E.R. 90, [1973] 2 W.L.R. 28, 117 Sol. Jo. 34 (H.L.), consd Other cases referred to Boa Estate v. Crown Life Insurance Co., [1996] O.J. No. 2086 (Gen. Div.); Chamberlin v. Saskatchewan Government Insurance (1995), 1995 3945 (SK CA), 131 Sask. R. 54, 123 D.L.R. (4th) 501, 95 W.A.C. 54, [1995] 6 W.W.R. 129, [1995] I.L.R. 1-3220 (C.A.); Loney v. Northern Life Assurance Co. of Canada (1989), 1989 4119 (ON SC), 67 O.R. (2d) 717, 33 O.A.C. 125, [1989] I.L.R. 1-2423 (Div. Ct.); Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490, 20 Alta. L.R. (3d) 296, 115 D.L.R. (4th) 478, 168 N.R. 381; Wohl v. Grain Insurance & Guarantee Co. (1993), 1993 14879 (MB QB), 86 Man. R. (2d) 195, [1993] 6 W.W.R. 108, [1993] I.L.R. 1-2961, 14 C.C.L.I. (2d) 29 (Q.B.); Yao v. Exide Canada Inc. (1987), 1987 7091 (MB CA), 44 Man. R. (2d) 287, 15 C.C.E.L. 265 (C.A.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98 Insurance Act, R.S.O. 1990, c. I.8, ss. 122, 129, 206(1)
D. Gordon Bent, for appellant. William A. McClelland, for respondent.
The judgment of the court was delivered by
Introduction and Background
1CARTHY J.A.: -- The essence of this appeal is whether the remedy of relief from forfeiture is available to recover the benefit of a term life insurance policy which had lapsed for failure to pay premiums prior to the death of the insured.
2The appellant, Gerling Global, appeals against the finding of Ferrier J. in Pluzak v. Gerling Global Life Insurance Co., reported at (1999), 1999 14791 (ON SC), 44 O.R. (3d) 49. Ferrier J. granted the respondent, Mrs. Pluzak, relief from forfeiture for missing premium payments for a life insurance policy covering the death of her husband. He awarded her $280,000 due under the policy, less unpaid premiums and interest.
3In 1988, Gerling Global issued a life insurance policy to Mr. and Mrs. Pluzak. Both were owners of the policy and each was named a beneficiary in the event of the other's death. Initially, premiums were paid by automatic withdrawal from the husband's business account. The policy allowed a 31-day grace period for non-payment of a premium and a further provision for reinstatement within three years of a lapse with evidence of insurability and payment of the arrears. All communications from Gerling Global were at all times sent to Mr. and Mrs. Pluzak, at their original home address.
4In 1989, the policy lapsed for failure to pay premiums and was later reinstated. In 1992, the respondent separated from her husband. He agreed to make the premium payments on the policy, but in subsequent family law proceedings a consent order made no mention of the insurance. Mrs. Pluzak left the family home and instructed Canada Post to redirect her mail, but did not inform Gerling Global of the separation or her new address.
5During the summer and fall of 1992, Gerling Global sent three successive letters addressed to Mr. and Mrs. Pluzak at the matrimonial home informing them that the premium due on July 25, 1992 had not been paid. Gerling Global received no response to these letters, and no further premiums were paid.
6In December 1992, Mr. Pluzak died in a motor vehicle accident. The first knowledge Mrs. Pluzak had of the lapse of the policy was in early 1993 when her lawyer sought payment of the death benefit and was told that it had lapsed. After some delay, the respondent initiated an application seeking relief from forfeiture pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43. Section 98 reads:
- A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.
The Decision Below
7Ferrier J. found that Mrs. Pluzak's action was not statute-barred by s. 206(1) of the Insurance Act, R.S.O. 1990, c. I.8, and that finding is not appealed. He then found that s. 129 of the Insurance Act, the provision dealing with relief from forfeiture, does not preclude the application of s. 98 of the Courts of Justice Act.
8Section 129 of the Insurance Act reads:
- Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.
9Section 122 of the Act reads:
- Except where otherwise provided and where not inconsistent with other provisions of this Act, this Part applies to every contract of insurance made in Ontario, other than contracts of,
(a) accident and sickness insurance;
(b) life insurance; and
(c) marine insurance.
10Ferrier J. noted that s. 129 deals only with lapses that occur in the process of proving the loss. He relied on the dictum of Major J. in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490 at p. 505, 115 D.L.R. (4th) 478 at p. 488:
However, I would note that the existence of a statutory power to grant relief where other types of insurance are forfeited (Insurance Act, ss. 201, 205, 211) does not preclude application of the Judicature Act to contracts of life insurance. The Insurance Act does not "codify" the whole law of insurance; it merely imposes minimum standards on the industry. The appellant's argument that the "field" of equitable relief is occupied by the Insurance Act must therefore be rejected.
11I agree with Ferrier J. that the Insurance Act provisions do not preclude resort to s. 98 of the Courts of Justice Act.
12As a next step Ferrier J. turned to decisions in Boa Estate v. Crown Life Insurance Co., [1996] O.J. No. 2086 (Gen. Div.) and Loney v. Northern Life Assurance Co. of Canada (1989), 1989 4119 (ON SC), 67 O.R. (2d) 717, 33 O.A.C. 125 (Div. Ct.). He concluded on the basis of those decisions that under the appropriate circumstances, relief from forfeiture can be granted under s. 98 of the Courts of Justice Act in cases dealing with life insurance policies. This is an issue that he did not deal with in detail and to which I will return.
13Ferrier J. then applied the three-step test for relief from forfeiture enunciated in Liscumb v. Provenzano (1985), 1985 2051 (ON SC), 51 O.R. (2d) 129 at p. 137, 40 R.P.R. 31 (H.C.J.), affirmed (1986), 1986 2595 (ON CA), 55 O.R. (2d) 404n (C.A.):
(1) Was the conduct of the plaintiff reasonable in the circumstances?
(2) Was the object of the right of forfeiture essentially to secure payment of money?
(3) Was there a substantial disparity between the value of the property forfeited and the damage caused by the breach?
14On finding that the second and third branches of the test were met, he devoted the balance of his reasons to the reasonableness of the respondent's conduct. I question whether there was security for the payment of money under step two and whether there was a breach of contract under step three, but I will return to these points when dealing with the larger issue of the applicability of s. 98 to a term life insurance policy.
15After his detailed analysis of the conduct of Mrs. Pluzak and her circumstances, Ferrier J. concluded that she acted reasonably. He was also unconvinced by the evidence suggesting that her husband suffered from a mental illness that would have prevented him from demonstrating insurability and obtaining reinstatement. These are findings of fact, albeit without the benefit of cross-examinations to raise credibility issues, and are deserving of deference in this court. I see no misapprehensions of the evidence or any error which would justify displacing either of these findings.
Analysis
16All of which leaves the single issue of whether s. 98 of the Courts of Justice Act is available as a basis for reviving a lapsed term insurance policy. Speaking without the benefit of jurisprudence on this issue, my impression is that this is not an appropriate application of the remedy of relief from forfeiture.
17Section 98 speaks of relief from penalties and forfeitures. Each word lends meaning to the other. "Penalties" is derived from penal and connotes punishment. "Forfeiture" is a giving up of a right or property and when allied with "penalties" suggests something of the nature of goods being forfeited to customs officials. Neither penalties nor forfeitures are compensatory and both connote an added element to any money damages when associated with a breach of a contract. For example, when security is seized for breach of the covenant to pay, a court may grant relief from the forfeiture of the security upon payment of arrears and costs. Similarly, courts are reluctant to impose penalties in commercial contracts and attempts are made, from time to time, to disguise them as pre-determined damages. There is good purpose in the courts having the power to grant such relief. Without it, strict observance of the terms of a contract may lead to an undeserved benefit or detriment for a technical breach.
18The failure to pay premiums on a term life insurance policy and the consequent lapse of that policy engage none of the above considerations. The premium is the payment for coverage for the next term. Subject to the grace provision, there is no coverage for that term when a payment is not made and the insurer arranges its commercial affairs accordingly. In these circumstances, the contract terminates on its own terms and not by a breach. There is no forfeiture in the sense of a loss of property. To be sure, the coverage has been lost, but it wasn't paid for in the first place. For example, a magazine subscription is not "lost" if not renewed by a payment. Nor is a life insurance policy a contract akin to a conditional sales contract of a car, where payments must be made throughout a term to avoid seizure and a claim for the balance due. Unlike the car purchaser, the insured is free to stop payments at any time as a signal to the insurer that the contract is at an end. In that event, the insurer has not pocketed an extra benefit which, on equitable principles, should be returned. It has gained nothing more than that which was called for under the policy -- premiums for the period of coverage.
19The policy in issue on this appeal contained a right to convert to whole life insurance at age 70 and also provided security against uninsurability during its term. Even if these are "rights" which were forfeited, they were not rights which were or could be the subject of this application. When Mr. Pluzak died, both his insurability and future conversion became redundant. The relief sought by the respondent is payment of the benefit of the policy, not reinstatement of the policy.
20Viewed overall, I see none of the indicia which guide relief from forfeiture. To apply an equitable remedy in these circumstances would be a kindness to the respondent, but fails to achieve a balance between the parties such as when, for example, possession is given back to a tenant after arrears are paid. The insurer was entitled to assess other premiums and conduct its business as if this risk was not on the books. The insurer has no control over the conduct of its insured and should not in fairness be exposed to liability to former insured who can convince a court that their conduct surrounding the failure to pay premiums was reasonable in the circumstances.
Review of Jurisprudence
21The jurisprudence on this subject has been gathered and carefully analyzed by Cullity J. in Khan v. Primerica Life Insurance Co. of Canada (1998), 1998 31614 (ON CJ), 13 C.C.L.I. (3d) 171 (Ont. Gen. Div.). The analysis of the case law by Cullity J. is so complete and erudite that I can do no better than to incorporate large segments of his reasons into my own.
22The facts of Khan are similar to those on the instant appeal. It involved a term life policy that had lapsed for non- payment of premiums, notices by the insurer requesting the premiums, a notice of the lapse, and finally, an offer to reinstate upon proof of insurability. The difference between that case and this one was that the beneficiary's insured husband was, at all material times, missing and thus unable to establish insurability. After synopsizing counsel's positions for and against the application of relief from forfeiture to life insurance policies, Cullity J. continues at pp. 177-80:
Relief From Forfeiture
While the issues raised by counsel are clearly defined, they are by no means simple. Their resolution could have profound effects not only on the law governing insurance policies, but on the law of contract in general. Acceptance of the submissions of counsel for the Plaintiff would extend the principles governing relief from forfeiture far beyond their traditional boundaries and significantly beyond the different points reached in recent decisions in England, in the Privy Council on appeal from Hong Kong, and in Australia. Although Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691 (H.L.), which was the genesis of the recent developments in this jurisdiction and in the Supreme Court of Canada, has been influential in broadening the scope of relief from forfeiture in these other jurisdictions, the decisions to date appear to stop far short of the extension I am asked to make. Many of them, and of the scholarly essays and comments they have engendered, are referred to in Timothy G. Youdan, "Equitable Relief for Defaulting Purchasers of Land", in Equity, Fiduciaries and Trusts, 1993 (Carswell), chapter 12.
The three decisions on which counsel for the Plaintiff relied heavily were Williams Estate v. Paul Revere Life Insurance Co. (1992), 1992 7494 (ON SC), 11 O.R. (3d) 700 (Gen. Div.), reversed, (1997), 1997 1418 (ON CA), 34 O.R. (3d) 161 (C.A.), Boa Estate v. Crown Life Insurance Co. (1996), 1996 22104 (ON CJ), 38 C.C.L.I. (2d) 76 (Ont. Gen. Div.), and Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490. In Williams at first instance and in Boa, it was held that equitable relief from forfeiture could be granted when an insurance policy lapsed for failure to pay premiums. In the former decision, the Court relied heavily on the reasoning of Harradence J.A. in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. (1992), 1992 ABCA 204, 92 D.L.R. (4th) 372 (Alta. C.A.). Williams Estate was followed in Boa Estate where reference was also made to the Reasons delivered in Loney v. Northern Life Assurance Co. of Canada (1989), 1989 4119 (ON SC), 67 O.R. (2d) 717 (D iv. Ct.). The decision in Saskatchewan River Bungalows Ltd. was subsequently reversed by the Supreme Court of Canada and an appeal from the decision in Williams Estate was upheld in the Court of Appeal. In each appeal the question whether the lapse of the policy should be regarded as a forfeiture against which the Court could relieve was expressly left open, it being held that if the jurisdiction existed, the conditions governing its exercise, as expounded in Liscumb v. Provenzano et al. (1985), 1985 2051 (ON SC), 51 O.R. (2d) 129 (H.C.), aff'd, (1986), 55 O.R. (2d) 404 (C.A.) had not been satisfied.
Saskatchewan River Bungalows Ltd. involved a claim under a term life insurance policy made after the death of a person insured. A premium payable one year earlier had not been received by the insurer and the corporation responsible for paying the premiums had been advised that the policy had lapsed. The issues were whether the insurer had waived its right to treat the policy as at an end and, if not, whether the corporation and the beneficiary were entitled to relief against forfeiture under provisions of the Judicature Act of Alberta that preserved the equitable jurisdiction of the Court to relieve against penalties and forfeitures. A majority of the Alberta Court of Appeal held that the claim should be allowed. Harradence J.A., alone, based his decision on the ground that the Court had power to relieve against forfeiture and that it should do so. The other member of the majority, Hetherington J.A., held that there had been an effective waiver by the insurer and that, in consequence, it was not necessary to consider the question of forfeiture. The dissenting member of the Court, McClung J.A., held that relief from forfeiture was not available and that there had been no effective waiver. In the Supreme Court of Canada the appeal was allowed. It was held that, on the facts, there had been a waiver but that it was no longer in effect when late payment of the premium was made. As indicated above, the Court held that, if there was jurisdiction to grant relief from forfeiture pursuant to the Judicature Act, relief would not be granted on the facts. The Reasons of the Court, delivered by Major J. continue as follows [at pp. 505-06]:
As the respondents are barred by their conduct from recovering, it is not necessary to determine whether our general power to relieve against forfeiture under s. 10 of the Judicature Act applies to contracts regulated by the Insurance Act. However, I would note that the existence of a statutory power to grant relief where other types of insurance are forfeited (Insurance Act, ss. 201, 205 and 211) does not preclude application of the Judicature Act to contracts of life insurance. The Insurance Act does not "codify" the whole law of insurance; it merely imposes minimum standards on the industry. The appellant's argument that the "field" of equitable relief is occupied by the Insurance Act must therefore be rejected.
Several of the authorities cited by the appellant involved forfeitures made under statutory insurance conditions, which is not the case here . . . The case of Johnston v. Dominion of Canada Guarantee and Accident Insurance Co. (1908), 17 O.L.R. 462 (C.A.) treated the insurance legislation at issue as a statutory code, and for this reason is no longer good law.
It is also unnecessary to determine whether relief from forfeiture can operate generally as a before-loss remedy in the insurance context. Clearly, the holder of a term life policy has no vested right to benefits until the loss insured against -- death of the insured -- has occurred. However, a modern understanding of the doctrine of relief would likely expand the notion of forfeiture to include less tangible losses, such as the loss of an option to convert a term policy into one under which benefits would be certain, or the loss of one's insurability. This question remains open.
Cullity J. continues at p. 179:
In Williams Estate, the insured had authorized premiums under a sickness and accident disability policy to be automatically paid from his bank account. He subsequently changed his bank branch with the result that the authorized withdrawals ceased to be made. The insured did not notice this and believed that the policy was still in force. Approximately two years after the premium payments ceased, the insured was informed that the policy had lapsed. Shortly afterwards he became ill and applied for benefits under the policy. His application was refused on the ground that the policy was no longer in force. At first instance it was held that, on the facts, the insurer was estopped from denying that the policy remained in force as it had misled the insured into thinking that it was still a subsisting policy. As an alternative ground for the decision, it was held that the lapse of the policy for non-payment of premiums was in the nature of a penalty or a forfeiture against which the Court had jurisdiction to grant relief. On the facts, the Court held that the test in Liscumb had been satisfied. In reversing this decision the Court of Appeal held that the facts did not satisfy the requirements for an estoppel or waiver by the insurer. It was also held that, if the jurisdiction to relieve from forfeiture under section 98 of the Courts of Justice Act could be applied to the lapse of the policy, the requirements for the exercise of the jurisdiction, as set out in Liscumb, had not been satisfied. In delivering the judgment of the Court, Osborne J.A. referred to the decision of the Supreme Court of Canada in Saskatchewan River Bungalows Ltd. and stated [at pp. 173-74]:
In the Supreme Court of Canada, Major J. assumed, but did not decide, that relief from forfeiture is available where a policy has lapsed because of non-payment of premium. He also did not determine if an insured can rely on the general provisions of a statute (the Alberta Judicature Act) providing access to relief from forfeiture when there was not specific provision for relief from forfeiture in the life insurance part of the Alberta Insurance Act. He did, however, make it clear that the absence of a specific relief from forfeiture power in the Insurance Act was not determinative . . . Major J. did not answer the question whether relief from forfeiture under a general statute such as the Alberta Judicature Act or the Ontario Courts of Justice Act is available when there are specific provisions in the relevant parts of the provincial insurance act (as is the case here). He does, however, make it clear that relief from forfeiture is available under the general provisions of the Judicature Act when a policy has lapsed because of non-payment of premium, at least when there are no specific relief [sic] from forfeiture provisions in the relevant provincial Insurance Act . . . For the purposes of my analysis, I am prepared to proceed without deciding that the general provision of s. 98 of the Courts of Justice Act can provide the statutory basis for granting relief from forfeiture in circumstances where there is a specific relief from forfeiture provision in the Insurance Act. That issue can best be left to be considered in another case where it can be fully argued. I thus turn directly to the issue whether relief from forfeiture should be granted on the assumption that it is available to the respondent through s. 98 of the Courts of Justice Act.
(Italics added)
23At this point in his reasons, Cullity J. examines the italicized sentence in the reasons of Osborne J.A. This sentence appears to suggest the availability of relief from forfeiture if not provided by statute. Cullity J. puzzles over where the basis for this is to be found in the reasons of Major J. in Saskatchewan River Bungalows, notes that there are conflicting Canadian authorities, [See Note 1 at end of document] and concludes that while he may be bound by higher authority, he will continue his analysis. Since this court is one step less bound by stare decisis, I will insert my view on this issue.
24We are here dealing with facts in respect of which there [is] no relief from forfeiture provisions in the Insurance Act. As noted above, s. 129 provides for relief from forfeiture for lapses in the process of making a claim on a policy after the loss, does not refer to failure to pay premiums, and is not applicable to life insurance.
25The italicized statement by Osborne J.A. is clearly obiter. Upon full review of the reasons of Major J., this statement can only be referable to his final obiter remarks quoted by Cullity J. above. As I read this excerpt, Major J. is saying that while other forms of insurance may be subject to relief from forfeiture under the statute, s. 98 is not by that reason precluded from applying to life insurance. His operative words appear at the beginning of the quotation--"it is not necessary to determine whether our general power to relieve against forfeiture . . . applies to a contract regulated by the Insurance Act". His concluding paragraph deals with claims for before-loss remedies. It has no application to a claim for a remedy after death when there is no longer an insurable interest to support any potential relief for conversion or insurability protection.
26In my view, the primary question of the application of s. 98 of the Courts of Justice Act to recovery of benefits under term life policies after a death has not been conclusively decided and remains an open question for this court.
27I now return to the reasons of Cullity J. at pp. 182-86:
In view of these conflicting judicial opinions, the fact that there has been no final determination of the question by the Court of Appeal or the Supreme Court of Canada, the possibility that this case may proceed further, and in deference to the arguments of counsel, I do not believe I should seek to avoid the issue that they have asked me to address.
Under traditional principles of equity, relief from forfeiture was available in very limited circumstances. Although the reasoning of Lord Wilberforce in Shiloh Spinners Ltd. can be regarded as extending the scope of the equitable remedy, this was in the context of a landlord's rights to re- enter and terminate a lease: a context in which relief from forfeiture for failure to pay rent had long been recognized. The House of Lords merely accepted the possibility that the remedy would be available in cases where, under the terms of a lease, the right of re-entry would arise on a breach of certain other covenants of a tenant. The judgment of Lord Wilberforce, with which the other four members of the House of Lords agreed, emphasized the limited scope of the remedy and the importance of preserving the enforceability of contracts [at pp. 723-24]:
. . . it remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word, appropriate, involves consideration of the conduct of the application for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.
(Italics added)
Only Lord Simon appears to have endorsed the existence of a broader jurisdiction. After referring to the relaxation in the Court's approach to the sanctity of contractual rights and obligations that had occurred in the previous 100 years -- a development that, he stated, invited a more liberal and extensively-based attitude of the Courts -- he continued [at pp. 726-27]:
I would therefore myself hold that equity has an unlimited and unfettered jurisdiction to relieve against contractual forfeitures and penalties. What have sometimes been regarded as letters to the jurisdiction are, in my view, more properly to be seen as considerations which the court will weigh in deciding how to exercise an unfettered jurisdiction . . . Prominent but not exclusive among such considerations is the desirability that contractual promises should be observed and contractual rights respected, and even more the undesirability of the law appearing to condone flagrant and contemptuous disregard of obligations. Other such considerations are how far it is reasonable to require a party who is prima facie entitled to invoke a forfeiture or penalty clause to accept alternative relief (e.g. money payment or re-instatement of premises) and how far vindication of contractual rights would be grossly excessive and harsh having regard to the damage done to the promisee and the moral culpability of the promis or. (I do not intend this as an exhaustive list.) It is these internal considerations which may limit the cases where courts of equity will relieve against forfeiture, rather than any external confine on jurisdiction.
While, in the later Canadian cases, the reasoning of Lord Wilberforce has been most commonly referred to, the effect of the decisions at first instance relied upon by the Plaintiff in this case seems more consistent with the comments of Lord Simon. This was, however, not the case in Liscumb which, although extending the remedy of relief from forfeiture into the areas of vendors and purchasers of land, followed closely the reasoning of Lord Wilberforce.
Liscumb involved a case where there was a default in the payment of installments under an agreement of purchase and sale. The terms of the agreement provided that, in these circumstances, the vendor had an option to avoid it and convert the purchasers into trespasses. The purchasers were husband and wife who originally acquired the property as joint tenants. They subsequently separated and the wife quit- claimed her interest in the land to her husband in return for a mortgage under which he covenanted to make certain payments to her. The husband assumed the responsibility to pay future installments under the agreement of purchase and sale. When he went bankrupt after paying only one installment, the estate of the vendor asserted its right to declare the agreement void and it contended that the wife had no continuing interest in the land. McKinlay J. stated that she could not imagine a more appropriate situation for the exercise of the Court's jurisdiction to relieve the wife from forfeiture. An appeal from the decision was dismissed.
Although, as I have suggested, the decision in Liscumb involves an extension of the traditional principles governing forfeiture, it is to be noted that the subject matter of the contract and of the attempted forfeiture, was an interest in land. There is therefore no inconsistency between the decision and that of the House of Lords in Scandinavian Trading Tanker Co. A.B. v. Flota Petrolera Ecuatorina, ("the Scaptrade"), [1983] 2 A.C. 694 (H.L.) in which it was held that Lord Simon's description of the Court's jurisdiction to grant relief as "unlimited and unfettered" was a "beguiling heresy" and in which it was held that the jurisdiction to relieve against forfeiture is limited to contracts concerning the transfer or creation of proprietary or possessory rights. This, as I have indicated, was the view of McClung, J.A. in Saskatchewan River Bungalows Ltd. in the Court of Appeal of Alberta and appears to be the prevailing view in other Commonwealth jurisdictions. More recently, the Privy Council has also refused to accept the existence of the broad jurisdiction asserted by Lord Simon and refused to grant relief from forfeiture when a purchaser of an apartment tendered payment of the purchase price ten minutes after the time for completion had passed: Union Eagle Ltd. v. Golden Achievement Ltd., [1997] 2 W.L.R. 341 (P.C.). The Judicial Committee referred [at p. 348] to decisions of the High Court of Australia in Legione v. Hateley (1983), 1986 1710 (AB KB), 152 C.L.R. 406 (Aust. H.C.) and Stern v. McArthur (1988), 165 C.L.R. 489 (Aust. H.C.) in which relief from forfeiture was granted in cases where there was a failure to make timely payments of installments of the purchase price of land but did not find it necessary to consider whether the analysis in those decisions should be adopted.
But their Lordships do not think it necessary to consider these Australian developments further because they provide no help for the purchaser in this case. There is no question of any penalty, or of the vendor being unjustly enriched by improvements made at the purchaser's expense, or of the vendor's conduct having contributed to the breach, or of the transaction being in substance a mortgage. It remains for consideration on some future occasion as to whether the way to deal with the problems which have arisen in such cases is by relaxing the principle in Steedman v. Drinkle, 1915 426 (UK JCPC), [1916] 1 A.C. 275, as the Australian courts have done, or by development of the law of restitution and estoppel. The present case seems to their Lordships to be one to which the full force of the general rule applies. The fact is that the purchaser was late. Any suggestion that relief can be obtained on the ground that he was only slightly late is bound to lead to arguments over how late is too late, which can be resolved on ly by litigation . . . In his dissenting judgment, Godfrey J.A. said that the case "cries out for the intervention of equity". Their Lordships think that, on the contrary, it shows the need for a firm restatement of the principle that in cases of recission of an ordinary contract of sale of land for failure to comply with an essential condition as to time, equity would not intervene.
Although, in their emphatic rejection of a jurisdiction to relieve against unconscionable agreements, the Reasons delivered by Lord Hoffman may not be consistent with the trend of the authorities in this country, his comments [at pp. 344-45] on the effect of uncertainty in commercial transactions are equally applicable in this jurisdiction.
The principle that equity will restrain the enforcement of legal rights when it would be unconscionable to insist upon them has an attractive breadth. But the reasons why the Courts have rejected such generalizations are founded not merely upon authority (see per Lord Radcliffe in Campbell Discount Co. Ltd. v. Bridge, [1962] A.C. 600, 626) but also upon practical considerations of business. These are, in summary, that in many forms of transaction it is of great importance that if something happens for which the contract has made express provision, the parties should know with certainty that the terms of the contract will be enforced. The existence of an undefined discretion to refuse to enforce the contract on the ground that this would be "unconscionable" is sufficient to create uncertainty. Even if it is most unlikely that a discretion to grant relief will be exercised, its mere existence enables litigation to be employed as a negotiating tactic. The realities of commercial life are such that this may cause injustice that cannot be fully compensated by the ultimate decision in the case.
The approach of McKinlay J. in Liscumb contrasts with that of the Privy Council and, also, the High Court of Australia. This is not because of any express recognition of unconscionability as a ground for relief. McKinlay J. [at p. 137] expounded the test for the exercise of a jurisdiction in broader terms. In the Australian cases that reflect a more liberal approach than that of the House of Lords and the Privy Council, it has generally been insisted that relief from forfeiture is limited to cases involving transfers of proprietary or possessory interests in property where there is unconscionability or, at least, exceptional circumstances. Although the decision in Liscumb is not inconsistent with the first of those requirements, the test propounded by McKinlay J. is far more open-ended if it is taken out of context:
I consider that the following are the appropriate questions to consider in determining whether there should be relief from forfeiture in this case: first, was the conduct of the Plaintiff reasonable in the circumstances; second, was the object of the right of forfeiture essentially to secure the payment of money, and third, was there a substantial disparity between the value of the property forfeited and the damage caused the vendor by the breach?
However, that passage from the judgment follows immediately after a quotation of the part of the judgment of Lord Wilberforce in Shiloh Spinners Ltd. which has been set out above and which confines relief from forfeiture to appropriate and limited circumstances. McKinlay J. did not purport to broaden the principles that govern the exercise of the Court's jurisdiction in cases of forfeiture beyond those stated by Lord Wilberforce. I believe it is clear that she was selecting from those principles the ones that she considered to be relevant to the facts before her. Thus, I do not understand her reasoning to imply rejection of Lord Wilberforce's restriction of the jurisdiction to "appropriate and limited cases . . . for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the Court, and where the forfeiture provision is added by way of security for the production of that result". Nor is there anything in her judgment to suggest that a relief from forfeiture can be available in cases of breach of contract generally and is not to be confined to cases where some proprietary or possessory interest will be forfeited.
28Cullity J. then reviews the question of whether there are policy considerations for extending the remedy beyond the parameters outlined by Lord Wilberforce. He found to the contrary and, while I agree with his reasons and conclusions, I will not further lengthen these reasons by quoting his in full. In summary, Cullity J. concluded that if relief from forfeiture was to apply to life insurance for non-payment of premiums, either a special category would have to be created or the principle would apply as much to any contract requiring the payment of money or the provision of goods and services over time. Further, the second and third tests cited in Liscumb would have to be recast or ignored because in the context of life insurance there is no security for payment and no breach of the contract. This would leave insurers subject to claims based solely on reasonable conduct and the business of insurance would be faced with consequent uncertainty.
Conclusion and Disposition
29My own view is that the principles enunciated by Lord Wilberforce and adopted in Liscumb spoke to very specific circumstances and that relief is appropriate only in those circumstances. That is, a court is empowered to act in a case of a "breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court and where the forfeiture provision is added by way of security for the production of the result". Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691, [1973] All E.R. 90 (H.L.) per Lord Wilberforce. This principle has no application to term life policies after death. There is no provision for security to assure a result. There has been no forfeiture of security. There has been a simple failure to pay for ongoing coverage.
30Life insurance claims tend to be for large sums and the beneficiaries of them are often needy, but the court cannot be in the position of re-writing a contract out of sympathy. If there is a policy reason for isolating insurance contracts from others it should be legislated, and should include appropriate criteria for granting relief which can be assessed by insurers and dealt with as a commercial factor in setting premiums.
31I would therefore allow the appeal and dismiss the application before Ferrier J. The issue is one of first direct impression in this court and, in all the circumstances, there should be no costs here or below.
Appeal allowed.
Notes
Note 1: See Wohl v. Grain Insurance & Guarantee Co. (1993), 1993 14879 (MB QB), 14 C.C.L.I. (2d) 29, 86 Man. R. (2d) 195 (Q.B.); Yao v. Exide Canada Inc. (1987), 1987 7091 (MB CA), 44 Man. R. (2d) 287, 15 C.C.E.L. 265 (C.A.); and Chamberlain v. Saskatchewan Government Insurance, 1995 3945 (SK CA), [1995] I.L.R. 1-3220, 123 D.L.R. (4th) 501 (Sask. C.A.).
