Krammer v Lukes [2018] NZHC 3016 (21 November 2018)

Last Updated: 27 November 2018

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2018-406-15 [2018] NZHC 3016

BETWEEN	MICHAEL COLIN KRAMMER Appellant
AND	SALLY MARNA LUKES Respondent

Hearing:	7 August 2018 (via AVL)
Appearances:	Q A M Davies and J S Marshall for Appellant M Hardy-Jones and N J McKessar for Respondent
Judgment:	21 November 2018

JUDGMENT OF CLARK J

[1] Ms Lukes applied for summary judgment in respect of an alleged debt of
$45,000 which, Ms Lukes says, she advanced to Mr Krammer by way of a loan. On 6 April 2018 Judge Zohrab gave summary judgment for Ms Lukes with interest running from the first time Ms Lukes formally demanded payment from Mr Krammer.¹ In the Judge’s view, it defied common sense to suggest the parties ever contemplated there would be no repayment if an investment to which they each contributed did not come to fruition.²

[2] Mr Krammer appeals the District Court judgment. This judgment determines Mr Krammer’s appeal.

¹ Lukes v Krammer [2018] NZDC 6736.

² At [26].

KRAMMER v LUKES [2018] NZHC 3016 [21 November 2018]

Background

[3] Mr Krammer and Ms Lukes met in 2004. Their romantic relationship lasted approximately 10 years. Towards the end of 2013 Ms Lukes told Mr Krammer of an investment proposal her friend, Kevin Caffrey, had commended to her.

[4] The proposal involved Mr Caffrey investing $500,000, Ms Lukes investing
$200,000 and Mr Krammer, $300,000. Mr Krammer and Ms Lukes anticipated a return on their investment of some $4 million, of which Ms Lukes would receive $3 million. Apparently, the disparity recognised Ms Lukes’ efforts in completing the investment arrangements.

[5] Around early June 2014 Mr Krammer went with Ms Lukes to his bank. He broke a term deposit to obtain his $300,000 contribution to the investment. Mr Krammer tried to transfer the $300,000 from his account into an account into which Mr Caffrey directed the money should be deposited. This account was with the Santander Bank but the money was frozen by Santander Bank in London. Eventually Mr Caffrey was able to obtain release of the funds although, according to Mr Krammer’s evidence, more money had to be given to obtain the release.

[6] At that point, Mr Krammer no longer wanted anything to do with the investment but Ms Lukes insisted he should continue otherwise she and Mr Caffrey would lose the $200,000 and $500,000 they respectively had paid. As Ms Lukes had successfully transferred her funds into the account which Mr Caffrey nominated she and Mr Krammer agreed he would withdraw $300,000 from his account and deposit it into Ms Lukes’ account. Ms Lukes then sent the money on Mr Krammer’s behalf. The investment proposal turned out to be a scam. Neither party knew that until after October 2014.

[7] Meanwhile, Mr Krammer had ordered an SSV Holden Commodore Utility vehicle built to his specifications. Some of the purchase price was paid at the time of the order but the balance of $45,000 was due on collection. When the car was ready for collection, and the balance owing was due, Mr Krammer did not have the money as there had been (unsurprisingly) no return on the investment. The bank would not lend to him because he was a beneficiary. For the same reason neither would Quick
Cash. Ms Lukes agreed to loan Mr Krammer $45,000 to complete the purchase of his car.

[8] Mr Krammer does not dispute that Ms Lukes suggested he sell the vehicle when the parties realised the investment was a scam. His explanation for not doing so was that he wanted to keep it so he had something from his inheritance. He had inherited approximately $800,000 from his father in 2011. He spent more than
$600,000 on Ms Lukes’ daughter, Ms Lukes and what Mr Krammer described as Ms Lukes’ investment. In June 2013, Mr Krammer had purchased a property for Ms Lukes’ daughter and partner at a total cost of approximately $285,000 (the Dillons Point Road property). He entered into a ‘rent to own’ agreement with the couple. Around the same time, Mr Krammer bought a car for approximately $37,000 and gifted it to Ms Lukes. Although it is of marginal relevance, Mr Krammer did not dispute Ms Lukes’ evidence that his gift was in recognition of her care of Mr Krammer during a period of illness.

[9] In July 2016, the Dillons Point Road property was sold. There was some dispute over the sale proceeds. That was resolved in April 2017. Ms Lukes was a party to the deed of settlement. Mr Krammer’s evidence is that Ms Lukes did not raise at that time any issue of the $45,000 being paid back from the sale proceeds. Ms Lukes’ evidence does not contradict Mr Krammer’s. Ms Lukes simply deposes to not being repaid the loan from the settlement proceeds.

[10] In September 2016 Ms Lukes’ solicitor wrote to advise Mr Krammer’s legal adviser that he had recently received instructions from Ms Lukes and was in the process of obtaining the file from her previous solicitor. Upon receipt of the file, action would be taken to seek repayment of the loan. In the meantime, it was hoped the matter might be capable of a quick and sensible solution.

[11] Formal demand for repayment of the loan was made in a lawyer’s letter dated 29 September 2017.

[12] On 25 January 2018 Ms Lukes applied for summary judgment. Mr Krammer opposed the application on the grounds there was a clear agreement between the
parties that repayment was conditional on receipt of the return from the investment; the return had not been received and Ms Lukes was estopped from altering the terms of the loan to Mr Krammer’s detriment.

Decision under appeal

[13] The application was heard by Judge Zohrab on 6 April 2018 following which he delivered oral judgment. The Judge took the view that, on first principles, Ms Lukes was entitled to summary judgment. Judge Zohrab concluded that, notwithstanding the disputed facts, there was a “clear contract” where there was “an expectation of repayment”:³

It defies common sense that the person who has advanced the monies can be expected, effectively, to forgo the monies that they advanced, given that the investment has not crystallised.

[14] Judge Zohrab regarded the agreement between Ms Lukes and Mr Krammer as being no different from a situation where a borrower expects to repay a loan advance from a term investment but, because the finance company goes into liquidation, there are no assets. Judge Zohrab said on those facts one could not say “the return on my term deposit or bank deposit has not crystallised, therefore I do not owe you the money”.⁴

[15] Judge Zohrab said:⁵

... it defies common sense to suggest that it was ever contemplated by the parties that there would be no repayment if the investment did not come to fruition.

[16] The Judge found the parties anticipated payment would be made upon the anticipated crystallisation of the investment. The fact Mr Krammer had no access to ready cash in any other way did not change the basic principle that where monies were advanced with the requirement they be repaid, and Ms Lukes had demanded

³ Lukes v Krammer, above n 1, at [25].

⁴ At [25].

⁵ At [26].

repayment, Mr Krammer could not reasonably argue that the failure of the investment meant Ms Lukes could not demand repayment.⁶

Grounds of appeal

[17] Mr Krammer appeals upon the broad ground the Judge was wrong to hold he had no defence to the claim. Specifically, there was no direct evidence to support the Judge’s conclusion the loan was repayable despite the fact the investment had not crystallised. Ms Lukes’ evidence that she understood Mr Krammer would repay the loan “within a couple of months” was inconsistent with her awareness Mr Krammer had no ability to repay her.

[18] A further ground of appeal is based on inconsistency between the Judge’s conclusion and the outcomes in similar cases namely, Lauder v Lauder⁷and Craig v Donaldson.⁸

Approach to appeal

[19] An appeal against a refusal to grant summary judgment proceeds by way of rehearing.⁹ In an appeal such as the present an appellant is entitled to judgment in accordance with the opinion of the appellate court.¹⁰ The appellate court has the responsibility of considering the merits of the case afresh.¹¹

[20] The weight to be given to the reasoning of the court below is a matter for the appellate court’s assessment.¹² The appellate court should form its own opinion of the acceptability and weight to be accorded to the evidence rather than deferring to the lower court’s assessment of the evidence.¹³

⁶ At [26].

⁷ Lauder v Lauder HC Rotorua CIV-2003-463-107, 23 April 2004.

⁸ Craig v Donaldson [2012] NZHC 2224.

⁹ High Court Rules 2016, r 20.18.

¹⁰ Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].

¹¹ Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31].

¹² Austin, Nichols & Co Inc v Stitchting Lodestar, above n 10, at [3].

¹³ McKay v Sandman [2018] NZCA 103, [2018] NZAR 707 at [29]–[31].

Parties’ positions

[21] Counsel for Mr Krammer, Mr Davies, characterised the arrangement the parties entered into as “pay-when-paid”. The facts are similar to those in Craig v Donaldson where the principal issue was whether a loan to the defendant was repayable by the defendant whether or not the funds relied on were released.¹⁴ In Craig v Donaldson Justice Fogarty accepted the defendant’s evidence and was satisfied the circumstances of the loan did not involve a promise to pay the plaintiff back “in any event”.¹⁵

[22] Mr Davies argued that, in order to determine the nature of the obligations and the actual contractual position between the parties, the matter needed to proceed to full trial. As well, whether Ms Lukes is responsible for some or all of Mr Krammer’s
$300,000 loss needs to be investigated.

[23] Counsel for Ms Lukes, Mr McKessar, argued Ms Lukes was to be paid at some point. That is evident from the fact she took out a bank loan to fund Mr Krammer’s purchase of his car, she sold shares and she sought secondary employment. Mr McKessar submitted one could infer from these circumstances Ms Lukes’ expectation the loan was to be repaid.

[24] Mr McKessar described the couple as naïve in the sense that they did not contemplate the investment may not crystallise. They did not discuss that possibility and they did not discuss what would happen if the investment did not eventuate. Consequently, Mr McKessar submitted, the terms of the loan are not clear and in that situation, it is a loan payable on demand.

Summary judgment principles

[25] A court may give judgment against a defendant if the plaintiff satisfies the court the defendant has no defence to the plaintiff’s claim.¹⁶ The principles are settled. They

¹⁴ Craig v Donaldson, above n 8, at [32].

¹⁵ At [66].

¹⁶ High Court Rules, r 12.2(1).

are encapsulated in the following passage from the Court of Appeal’s decision in

Krukziener v Hanover Finance Ltd:¹⁷

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[26] Summary judgment will be denied if it appears to the court there is an issue worthy of trial.¹⁸

Assessment

[27] In her statement of claim Ms Lukes pleads Mr Krammer entered into a loan agreement and failed to repay the loan at the end of 2014. Alternatively, he defaulted when he failed to repay on written demand.

[28] The issue for my determination is whether Ms Lukes has discharged the onus of demonstrating, on the balance of probabilities, that Mr Krammer has no defence to the cause of action pleaded in her statement of claim.¹⁹ For reasons that follow I have determined that Ms Lukes has not discharged the onus of satisfying the court Mr Krammer has no defence to her claim.

[29] Both parties accept the agreement between them was a loan agreement. The parties dispute, however, the terms of their agreement.

¹⁷ Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].

¹⁸ At [27].

¹⁹ High Court Rules, r 12.2(1).

(a) In her affidavit filed in support of her application for summary judgment Ms Lukes deposes to “understanding ... this was only ever going to be a temporary loan and the defendant would pay it within a couple of months”. Ms Lukes denies there was ever any agreement that the money would be repaid on the return of the investment.

(b) Mr Krammer’s evidence is that when Ms Lukes offered to lend him
$45,000 to complete the purchase of the SSV they “agreed at the time that I would pay it back when the investment came through”. Mr Krammer described their agreement as a clear oral agreement that he “would pay her back only when the money from the investment was received”.

[30] Thus, there is a conflict of evidence about a key term of the parties’ agreement.

[31] Mr McKessar submitted the evidential dispute is immaterial to the question of whether the loan is now repayable because, in the absence of evidence as to the terms of the repayment, the loan was payable on demand. Mr McKessar relied on two High Court authorities for the proposition that a loan is payable immediately unless there are clear contractual terms as to when it is to be paid.²⁰

[32] Mr McKessar also referred to decisions of the Court of Appeal and Supreme Court of British Columbia the effect of which has been to classify a loan that is repayable when the debtor “is able to pay” as a contingent loan, payable within a reasonable time of the contingency not occurring.²¹

[33] I have not located any reference to this line of authority in the case law of the United Kingdom, Australia and New Zealand. In any event, the Canadian decisions turned on their particular facts. As well, I observe that the characterisation of the loan

20. DFC New Zealand Ltd v McKenzie [1993] 2 NZLR 576 (HC); Lauder v Lauder HC Rotorua CIV-2003-463-107, 23 April 2004.

²¹ Berry v Page [1989] BCJ 1285 (BCCA); Bellamy v Ward 2011 BCSC 551; Kharoud v Sekhon

2015 BCSC 333.

as either a contingent loan or a demand loan had consequences for determining when the cause of action arose, and whether or not the action was statute-barred.²²

(a) In Berry v Page Mr Berry loaned Ms Page $30,000. She assured him she would repay the loan when the family property was sold. The Court of Appeal noted the sale of the property was an event solely within Ms Page’s control and therefore, should the sale not occur the debt would become due upon expiration of a reasonable time.²³ Further it was clear to the Court of Appeal that the parties intended the loan to be for a short term and seven years had passed since the date of the loan. Ms Page’s failure to sell within the time contemplated by the parties did not negate her obligation to repay within a reasonable period should the sale not take place.²⁴

(b) In Bellamy v Ward, another instance of a “contingent loan” payable within a reasonable time the Supreme Court applied Berry v Page and found on the evidence that a reasonable time for repayment of one loan was ten years from the date the funds were advanced, and in respect of a further loan, five years.²⁵

(c) In Kharoud v Sekhon, Mr Sekhon was sued for repayment of a $100,000 debt. Three men decided to purchase three lots in a subdivision and each build a home. Monies were advanced to Mr Sekhon. At the centre of the suit was the question whether the payments to him were a loan or investment. Hundreds of pages of evidence were before the Judge but ultimately the assessment centred on the competing versions of event that emerged from the testimony of nine witnesses.²⁶ The Judge relied on Bellamy v Ward and Berry v Page to conclude the loan was a contingent loan repayable after a reasonable time.²⁷

²² Berry v Page, above n 21, at [8]–[9].

²³ At [14].

²⁴ At [16] and [20].

²⁵ Bellamy v Ward, above n 21, at [34]–[37].

²⁶ Kharoud v Sekhon, above n 21, at [3] and [5].

²⁷ At [28] and [30].

[34] The facts of this case are distinct. The parties were in a close relationship when they entered into the loan agreement. Mr Krammer said of their 10-year relationship that Mr Lukes’ daughter saw him as a step-father. Mr Krammer exhibited a photograph showing Ms Lukes and Mr Krammer walking her daughter down the aisle at her wedding at which both he and Ms Lukes jointly gave the daughter “away”.

[35] The loan agreement was entirely oral. It is not correct to say, however, as Ms Lukes contends, that there is no evidence of terms. Evidence of the term of the loan is contained in the affidavits each party has sworn. Ms Lukes’ evidence differs from Mr Krammer’s in an important respect. Mr Krammer deposes to a specific term of their agreement governing repayment namely, that the loan was repayable only when the return on their combined investment was received. While Ms Lukes rejects Mr Krammer’s evidence she advances no alternative term but deposes only to her “understanding” the loan would be repaid within a short time.

[36] I am not convinced that it defies common sense to suggest the parties ever contemplated there would be no repayment if the investment did not come to fruition. Although counsel, and Judge Zohrab, referred occasionally to the agreement as a “contract”, it is not clear from the evidence that the parties intended to enter into a legal relationship. The agreement was imprecise. Many important details were left unsettled. This may have been oversight. The parties were not legally advised. The point is a lack of precision about repayment might reflect a particular motivation or impetus on the part of a lender. For example, the lender may have a sense of moral obligation (arising from historical interactions between the lender and borrower) or the lender may be willing to assume the risk of non-payment in the long term because of the nature of the relationship between the two, as perhaps a parent might with regard to a child, or domestic partners with regard to each other.

[37] Mr Krammer’s claim is not without a credible foundation. He had no money to contribute to the investment and needed to break a term deposit in order to do so. Ms Lukes accompanied him to the bank when he made this arrangement. The two were still in a close relationship at this point and Ms Lukes was aware of Mr Krammer’s financial position and his inability to repay the loan without the anticipated return on their investment.
[38] In Craig v Donaldson Fogarty J considered a factual matrix not dissimilar to the facts of this case.²⁸ The plaintiff and the defendant were victims of three frauds. The plaintiff sued the defendant to recover losses of around $420,000. The principal issue at trial was whether the funds transferred into the defendant’s bank account for on-payment to recipients in South Africa were loans, payable whether or not the funds were released, or repayable independently of whether or not funds were released.²⁹

[39] In respect of one of the loans Fogarty J could not be satisfied that during the conversation between the plaintiff and defendant it had been made clear the money was advanced only on the basis the defendant had an obligation to repay the sum. The Judge kept in mind the “close and trusting relationship between the parties”.³⁰ Ultimately the evidence about this particular loan fell short of establishing a legally enforceable contract.³¹ In respect of other loans the plaintiff had not proved on the balance of probabilities a debt obligation on the part of the defendant to repay.³²

[40] Fogarty J reached his conclusions following a detailed examination of the evidence bearing on the parties’ negotiations. In my view Ms Lukes’ claim cannot be determined without a similar exploration of the circumstances in which she and Mr Krammer reached their agreement. For example, in April 2016 when the parties settled their dispute over the proceeds of the sale of the Dillons Point Road property, Ms Lukes made no demand for any amount owed to her.

[41] Mr Davies submitted two further factors are particularly relevant to the parties’ agreement. First, Ms Lukes introduced Mr Krammer to what turned out to be a scam. When the money could not be transferred from his account the funds were, instead, paid into Ms Lukes’ account and she then arranged for the money to be paid. The second point relates to the pressure it is said Mr Krammer was under when he became tentative about the investment proposal. Ms Lukes exhorted him to invest $300,000 or she would lose her $200,000.³³

²⁸ Craig v Donaldson, above n 8.

²⁹ At [32].

³⁰ At [66].

³¹ At [67].

³² At [76].

³³ See above at [6].

[42] These factors may or may not be relevant to the ultimate issue which is whether Mr Krammer was under an obligation to repay the loan notwithstanding he received no return on his investment. This issue is worthy of trial.³⁴

[43] I am satisfied the appeal must be allowed. I am not satisfied Mr Krammer has no defence. The summary judgment procedure offers the very real advantages of expedition and reduced cost to a plaintiff who has a claim to which there is no true defence. But the summary judgment process is inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the court. In this case a key term of the agreement between the parties is in dispute and it cannot be resolved without a proper exploration of the evidence and the circumstances relevant to the loan agreement between the parties. Mr Krammer raises a legally meritorious defence and it cannot be said his evidence is inherently lacking in credibility.³⁵

Result

[44] The appeal is allowed.

[45] As Mr Krammer is legally aided, and there are no exceptional circumstances justifying an award of costs, costs lie where they fall.³⁶



Karen Clark J

Solicitors:

Gascoigne Wicks, Blenheim for Appellant Hardy-Jones Clark, Blenheim for Respondent

³⁴ Krukzienier v Hanover Finance Ltd, above n 17, at [27].

³⁵ Cf Krukziener v Hanover Finance Ltd, above n 17, at [26].

³⁶ Legal Services Act 2011, s 45.