The liver is responsible for making proteins found in the blood which help to maintain it's "oncotic pressure", the 'pull' factor that holds water inside the blood vessels. These proteins cannot pass through the blood vessels into the tissues, so they hold water within the blood. When the liver fails, these proteins are not produced and thus the 'oncotic pressure' of the blood falls; without this, water leaks out of the blood vessels through osmosis, as the tissues now have a higher oncotic pressure. Leakage of water into the tissues causes them to swell up, producing the oedema.