ANZ v Liebmann [2010] NSWSC 545

The lender sought to recover amounts owing under a series of loans made to a partnership law firm of which Liebmann was a member. Liebmann denied personal liability for any of the loans, arguing that the firm was liable, there was an absence of authority to enter the loan agreements on his behalf, or that the loans were void for uncertainty.

The central issue was the interpretation of the loan contracts, as the terms bore upon the extent of Liebmann’s liability. In addition to his contractual liability, the lender also claimed he was estopped from denying liability by reason of his conduct, and that representations he made as to his personal liability were misleading and deceptive.

Liebmann argued the power of attorney he granted to execute the loan was by deed poll and so did not comply with Powers of Attorney Act 2003 (“the Act”). However, the loans were executed prior to the Act’s commencement and the Act only had a limited retrospective operation. The power of attorney was found to be valid.

Justice Einstein also found that the partnership firm’s repayment obligations under the loan agreements did not discharge Liebmann from his personal liability as a member of the partnership.

Liebmann argued that no consideration moved from the lender to him. Justice Einstein found this to be immaterial. The advance of funds to a third party at the request of the borrower constitutes good consideration. In support of that proposition Justice Einstein quoted from Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at [66]:

The first respondent advanced one other consideration argument – that the lender conferred no benefit on the first respondent, and that the first respondent “was not a party to any consideration”. This argument is fallacious. Consideration must move from the promisee (the lender); it need not move to the promisor (the first respondent)]

His Honour also quoted Dunlop Pneumatic Tyre Co Ltd v Selfidge & Co Ltd [1915] AC 847 per Viscount Haldane at 858:

A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promiser or to some other person at the promises request….

The funds were advanced at Liebmann’s direction to the partnership firm which had the effect of discharging Liebmann’s liabilities to contribute to partnership capital or conferred a benefit on him of contributing to partnership capital.

The terms of the loan agreement were sufficiently clear and unambiguous to satisfy the requirements of contractual formation.

The argument that ANZ had made itself a partner in the firm and owed fiduciary duties to Liebmann and the other partners was also rejected. The lender’s role was that of financier and it did not thereby become a partner.

The lender succeeded in its contractual claims.

Although it was not necessary to do so, Justice Einstein considered the lender’s remaining claim of equitable estoppel. His Honour summarised the relevant legal principles as follows:

The essence of the doctrine of equitable estoppel is that in all the circumstances it would be unconscionable (or unconscientious) for the defendant to depart from a representation made or an assumption induced by him and upon which the plaintiff has relied to his or her detriment – see, for example: Giumelli v Giumelli (1999) 196 CLR 101 at 123.
Justice Einstein found that in entering the loan agreements Liebmann had made representations that gave rise to an assumption by the lender that he would be personally liable for the debts. For example, the loans required that drawdown notices be received from the equity partners, including Liebmann. The lender had been induced to enter the loan agreements by that assumption. The unsecured loans would not have been made without those acknowledgements. The lender would suffer a detriment if Liebmann was allowed to resile from the representation as to personal liability to repay the debts, which justifies equity’s intervention. Liebmann was prevented from resiling from the representations that he was personally liable.

Justice Einstein also indicated he would have upheld the lender’s alternative claim that Liebmann’s representations in the Loan Drawdown Notices were misleading and deceptive in breach of s 42 of the Fair Trading Act (NSW).   

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