Australian and New Zealand Banking Group Limited v Richard Kay Liebmann

Australian and New Zealand Banking Group Limited v Richard Kay Liebmann - [2010] NSWSC 545 - NSWSC 2010 case summary — Zoe

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ii. The 2001 Agreement included (at ECB 173-4, emphasis added): We are pleased to outline the facilities and conditions for the Equity Partners of the Partnership . In this letter: ... " Equity Partners " means those equity partners of the Partnership as at 31 December 2001 and who are listed in Schedule One [which include Mr Liebmann - see: ECB187] ... " Facility " means the commitment by us to provide loans in accordance with the conditions set out in this letter of offer as amended, varied, replaced or novated from time to time. " Participating Equity Partner " means an Equity Partner whose request for a drawdown has been accepted by us and paid in accordance with clause 4.1 and whose loan has not been fully repaid " the Partnership " means Coudert Brothers Australia , being an Australian partnership conducting business in Australia and consisting of the Equity Partners and various non-equity partners from time to time. ... This Partner capital contribution Facility is to enable the Participating Equity Partners to subscribe for capital in the Partnership. These funds will then be on lent by the Partnership to Coudert Brothers Worldwide . An Equity Partner may utilise this facility by signing a drawdown notice in accordance with the drawdown condition below. When we accept a drawdown notice a separate loan will then be made to that partner on the terms set out in this letter. Neither the Partnership nor any other Participating Equity Partner nor Coudert Brothers Worldwide will be under any liability in relation to any loan made to a Participating Equity Partner under this facility . The Partnership's liability under this Facility will be limited to: (a) payment of all fees payable in connection with this Facility; (b) compliance with the terms set out in this letter as applying to the Partnership; (c) compliance with each Irrevocable Authority provided to the Partnership by a Participating Equity Partner; and (d) provision of the CBLLP Irrevocable Authority to Coudert Brothers Worldwide in accordance with clause 4.4(c).

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I confirm that the representations in clause 5 of the General Conditions Second Editions 2001 are made by me and are true and correct on the drawdown date ... 14 Accordingly, it is clear that enforceable loan contracts came into existence between ANZ and Mr Liebmann (personally) and that Mr Liebmann's personal liability in respect of both loans is now governed by the 2002 Agreement: see ECB 237, ECB257 at paragraph 5. 15 On 16 August 2005, the equity partners of CBLLP passed a resolution ("Resolution") amending the partnership of CBLLP and authorising the executive board of it to take such actions as were necessary in order to sell all of the assets of any or all offices of the "Firm": ECB277. After the resolution, CBLLP ceased to do business and filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. 16 On 15 September 2005, the Bank wrote a letter to the CBA Partnership and the persons listed in Schedule 1 (including Mr Liebmann) (ECB280) in relation to the 2002 Agreement. In the letter, the Bank indicated its view that the Resolution constituted a material adverse event under clause 7.2 of the relevant agreement and under one or more of the events of default under the General Conditions, including clauses 10(1)(h), 10(1)(k) or 10(4) of the General Conditions: ECB201. The evidence given by the witnesses Mr Brailey 17 Evidence was called by the bank from Mr Brailey. In my view, he was a witness whose credit should be accepted. Although it had become necessary for him to replace another witness in explaining relevant bank records and certain procedures, he was in a position to do so. The cross-examination by the defendant's counsel failed to further the defendant's case. The witness was taken through a number of documents. It was put to him that there had been negotiations in relation to the transaction between particular partners of Norton Smith and officers of the ANZ Bank in relation to the 2001 loan agreement. The cross-examiner sought to put to the witness that there had been "a mate's deal". That question was rejected. On a number of occasions questions put to the witness were simply disallowed as irrelevant. Ms Reddy 18 Evidence was also given by video link by Ms Reddy who had, in December 2001, been an assistant manager reporting to Mr Harvey, a manager in the corporate banking division. At that time Mr Harvey had been responsible for ANZ's file relating to CBA, which included the capital contribution loans provided by ANZ to partners of CBA in December 2001. 19 Her role in relation to the 2001 loans included, amongst other things, assisting Mr Harvey to negotiate and arrange the terms of the 2001 loans, collating and checking what she referred to as the "executed letter of offer" dated 28 December 2001 and what she referred to as the "executed annexures to the letter of offer" to that letter, ensuring that the 2001 loan documents had been approved by ANZ's internal legal department and arranging for the 2001 loans to be drawn down. Her further evidence was as follows

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v. Lastly, whether the "terms of the facility documents and particularly clause 10(i) of the General Conditions" are "unenforceable by reason of being unconscionable under the Trade Practices Act "? Breach of fiduciary duty 36 Mr Liebmann has alleged that ANZ constituted itself a partner in the businesses conducted by Mr Liebmann and his then partners and, in that capacity, owed fiduciary duties to Mr Liebmann. 37 The allegation of partnership rests on the contention that ANZ carried on its business with a view to profit and involved the provision of sums which, together with fees and interest, "were designed to be repaid out of a share of the profits of a business or businesses conducted by Mr Liebmann and his partners until about 28 November 2003 as Participating Equity Partners of CBLLP". 38 This contention must be rejected. ANZ was and remained a financier to the partnership (and to the individual partners) and did not thereby become a partner in the business conducted by the partners. That is, ANZ and the partners were not carrying on business in common with a view of profit. 39 Because ANZ was not Mr Liebmann's partner, it is not necessary to determine what the scope of any fiduciary duty may have been. Even if it were necessary, none of the duties pleaded by Mr Liebmann could constitute a fiduciary duty; Mr Liebmann has asserted breach of a series of positive "fiduciary duties" to act in his interests. However, a fiduciary relationship only gives rise to proscriptive duties, namely to avoid a conflict of interest and to avoid obtaining an unauthorised benefit or advantage. [Breen v Williams (1995) 186 CLR 71 at 113, 137-138; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 198, 214; Rexstraw v Johnson [2003] NSWCA 287 at [119] to [123]] Equitable estoppel 40 Mr Liebmann has pleaded that, by reason of ANZ's failure to make "effective demand" of the partners prior to the bar date (31 January 2007) for claims against CBLLP in its Chapter 11 Bankruptcy in the United States, ANZ is estopped from making its current claim against Mr Liebmann. Mr Liebmann says that, by 28 November 2003, he had no interest in CBLLP and had no notice of any demand at the time he retired from that partnership. 41 However, Mr Liebmann has not identified any sufficiently unambiguous representation by ANZ) or any alleged conduct of ANZ which induced Mr Liebmann to make an assumption from which it would be unconscionable for ANZ to depart. Laches 42 Mr Liebmann has pleaded that ANZ did not demand payment under the facilities at the time he ceased to be a partner or at any time prior to the claims against CBLLP becoming barred on 31 January 2007 pursuant to the entry by CBLLP into Chapter 11 Bankruptcy. 43 Laches may operate as an equitable defence to an equitable (but not legal) claim. The defence is, therefore, of limited relevance; it is only relevant to ANZ's equitable estoppel claim [Orr v Ford (1989) 167 CLR 316 at 340; Meagher, Heydon and Leeming, Meagher Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002) at [36-005]; Young, Croft and Smith, On Equity (2009) at [17.100]]. 44 Mr Liebmann needs to demonstrate either that ANZ acquiesced in Mr Liebmann's conduct or that its delay either caused Mr Liebmann to alter his position in reasonable reliance on ANZ's alleged acceptance of the status quo or otherwise permitted a situation to arise which it would be unjust to disturb [Meagher, Heydon & Leeming, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (4th ed, 2002) at [36-005]]. 45 Neither matter can be established. As to acquiescence, ANZ pursued its claims. Whether or not its attempted communications reached Mr Liebmann, there is no question that ANZ did not acquiesce in its loan not being repaid. 46 At all times from at least 29 August 2005 Mr Liebmann well knew that his loan had not been repaid and no explanation was given to him of how it would be: Affidavit of 19 June 2009, paragraphs 81, 84, 87. Mr Liebmann had no expectation that it would be repaid by the partnership. 47 From this point, Mr Liebmann made no attempt to contact ANZ or provide it with updated contact details. 48 Despite an extensive cross-examination, Mr Brailey was not challenged on this issue - cf: Poricanin v Australian Consolidated Industries Limited [1977] 2 NSWLR 419 at 426, 427. 49 It is inherently unlikely that Mr Liebmann had left the firm when these calls were made; otherwise, the person answering the call would not have taken a message. It is inherently unlikely that his messages were not passed on to Mr Liebmann. 50 Mr Sutherland sent an email to Mr Liebmann on 18 November 2005, copied to Mr Brailey: ECB288. Whether or not the email was received by Mr Liebmann, ANZ was entitled to assume Mr Liebmann read this email. 51 Mr Sutherland provided to Mr Brailey Mr Liebmann's contact details on 30 November 2005: ECB289. 52 On 15 September 2005, ANZ wrote to each of CBA and CBLLP (and the people listed in the letters) noting that the Resolution passed by CBLLP on 16 August 2005 constituted a material adverse event under cl 7.2 of each agreement and one or more of the events of default under the General Conditions: ECB280, 283. 53 Throughout late 2005, Mr Brailey left telephone messages for Mr Liebmann at his then firm on approximately two to five occasions, but his telephone calls were not returned. ANZ was told, on 23 December 2005, that Ms Harpur had sent an email to those partners whom she understood had not repaid their respective loans: ECB291. 54 By letter to Mr Liebmann dated 11 January 2006, ANZ extended the time for repayment of the loans to 13 February 2006: ECB295. Mr Liebmann says that he did not see this letter, that it was addressed to him at Norton White Lawyers and he was no longer at that address and that he cannot explain why it was not forwarded to him. 55 Whether or not Mr Liebmann knew of these communications, or attempted communications, need not necessarily be decided. However, I accept that on the balance of probabilities would seem unlikely that there was a comedy of errors of such proportions as to permit a finding that he was in fact unaware. In any event and even if he knew of none of them, which is unlikely, he did know he had not repaid his loans and he did nothing to contact ANZ to determine or discuss the position. It is the debtor's obligation to pay a debt, not the creditor's obligation to demand payment [Hexiva Pty Ltd v Lederer [2006] NSWSC 1129 at [61], [67], per Brereton J]. Mitigation 56 Mr Liebmann has pleaded that ANZ has failed at any time since Mr Liebmann left the partnership on 28 November 2003 to make any effort to mitigate its loss. 57 ANZ's claim is for recovery of a liquidated debt, not an unliquidated claim for damages. It follows that the question of a duty to take reasonable steps to mitigate loss does not arise. [White & Carter (Councils) Ltd v McGregor [1962] AC 413; Hexiva Pty Ltd v Lederer [2006] NSWSC 1129 at [66], per Brereton J]. Unconscionability 58 Mr Liebmann asserts that the "terms of the facility documents and particularly clause 10(i) of the General Conditions" are "unenforceable by reason of being unconscionable under the Trade Practices Act". There is no clause 10(i). 59 Although Mr Liebmann does not specify which provision he relies upon, it is assumed to be one of those found in Part IVA of the Trade Practices Act. Whichever provision is relied upon (and assuming for present purposes it could apply to the facts of this case (which is not admitted)), none of the conduct in this case could fall within the concept of "unconscionability" within the meaning of Part IVA. 60 Unconscionability is a concept which requires a high level of moral obloquy or circumstances which are highly unethical [Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 at [121], per Spigelman CJ]. 61 The present case involves little, if anything, more than a standard commercial transaction in which a sophisticated borrower does not wish to repay his loan. The alternative claims by ANZ 62 Although it is strictly unnecessary to examine the alternative claims by ANZ, bearing in mind the nature of the issues it is appropriate to deal with those claims. 63 In short were it not for this Court's contractual finding that Mr Liebmann is responsible for repayment of loans, ANZ has succeeded in its contentions under cover of its following alternative claims. Estoppel Claims 64 ANZ contends for an estoppel by convention to the effect that:

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iii. it would be unconscionable (or unconscientious) to permit Mr Liebmann to depart from the representations, such that he is now estopped from denying the truth or accuracy of the representations and from asserting that the loans were not made to him or that he has no liability in respect of the loans. [See Walton Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 428-429 (Brennan J); Meagher, Heydon & Leeming, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (4 th ed, 2002) at [17-050]; Vukic v Luca Grbin; Estate of Zvonko Grbin [2006] NSWSC 41 at [28] (Brereton J).] 69 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. 70 Common sense demands the conclusion that the false representation played a role in inducing the plaintiff to enter into the contract. The very structure of the loans required that drawdown notices be received from the relevant equity partners, seeking the loans. It is clear that loans would not have been made in the absence of them. The acknowledgments and representations in the drawdown notices were clearly objectively important to ANZ when providing unsecured loans to individual partners with several liability. 71 In any event, ANZ did in fact rely on the representations: Affidavit of Ms Reddy, 2.11.09 at [7]-[11]; ECB 223. 72 The unconscionability which attracts the intervention of equity is the defendant's failure, having induced or acquiesced in the adoption of the assumption or expectation with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise avoid the detriment which that failure would occasion: Walton Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 423 (Brennan J). Misleading or deceptive conduct 73 As with the estoppels claims, this claim only arises if Mr Liebmann succeeds in defending ANZ's contractual claim. 74 ANZ says that:

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