Secret deals, cupcakes, and the law firm tug of war that started it all

Two years earlier, Lipman and Karas’ – who jointly established LK Law’s Adelaide (LKPL) office in 2004 – relationship deteriorated over a proposed restructure that would shepherd in the admission of new equity participants. The two decided to split the business in half.

A sticking point of the separation agreement – signed just a month before Karas’ agreement with MdR – was whether LKHK was to be treated as a joint asset or one solely owned by Karas.

In a Federal Court of Australia judgment handed down in February this year, Justice Patrick O’Sullivan was satisfied LKHK was owned by them both, meaning Karas had breached his duties by attempting to have the Hong Kong practice sold off to MdR.

Karas was also found to have breached his duties by disclosing confidential information to MdR, including remuneration and leave entitlements of employees, three monthly performance reports, and financial accounts for the years ending 30 June 2015 to 30 June 2019.

Karas was ordered to pay the sum of $36,458,048, interest included.

MdR, found to have knowingly assisted Karas’ contraventions, was also penalised with a judgment of just over $21 million, with interest.

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Following the filing of a notice of appeal in March, Justice O’Sullivan stayed the $36 million judgment on the condition that Karas pay LKPL the sum of $5 million within 45 days and provide a bank guarantee for a further $5 million within 30 days.

Karas’ attempt to have those conditions removed was the subject of the most recent proceedings before Justice Nye Perram.

Dealing first with Karas’ notice of appeal, Justice Perram found it to be “arguable”, having noticed several provisions in the separation agreement that would suggest LKHK was solely owned by Karas.

The brunt of Justice Perram’s decision then dealt with how the stay may be enforced without the risk that Karas would be rendered bankrupt, therefore jeopardising his right to practice in Hong Kong.

The Federal Court heard that while Karas has about $13.5 million in substantial assets – including land, securities, some loans, and an art collection – it falls far short of the $35 million judgment debt.

“In short, Karas is undoubtedly a wealthy man, but he is not nearly wealthy enough to meet this judgment sum,” Justice Perram said.

Even if Karas were to sell off all his assets to realise around $13 million, Justice Perram said this would take more time than the deadlines imposed by Justice O’Sullivan. LKPL’s argument that he could obtain bridging finance was dismissed in the face of Karas’ debts.

“No doubt taking the steps sought by LKPL would preserve the status quo of the judgment creditor at least to the extent of $10 million, but it seems also to involve a significant disturbance in the status quo of the judgment debtor and to raise potential future issues about how this fire sale might be reversed if the appeal succeeds,” he said.

In place of the $10 million conditions, Karas offered an undertaking not to dispose of, charge, mortgage, or otherwise encumber any of the assets, other than for the purpose of meeting his ordinary living and business expenses, as well as the costs of the ongoing litigation.

“The choice then is between two ways of securing LKPL’s judgment debt. One involves Karas in a forced sale of most of his assets with concomitant expense, losses and inconvenience which may engender complex future litigation about the rights of restitution in the event the appeal is allowed,” Justice Perram said.

“The other involves Karas in giving an undertaking with none of these problems.

“In my view, the choice is clear. What LKPL seeks is disproportionate.”

Since the stay was granted on the terms sought by Karas, the application for leave to appeal against Justice O’Sullivan’s conditions no longer serves any purpose and must be dismissed.

The litigation continues.

Citation: Karas v LK Law Pty LTD (Stay of judgment) [2026] FCA 807.