Quick question: “If a star rainmaker built ‘their’ office, do they get to secretly take it with them – or does the partnership own everything they touch?”
Ben Thomson
When the Australian Financial Review recently devoted a major feature to “the $36 million box of Hong Kong cupcakes”, it wasn’t really about baked goods – it was about how a high‑performing litigation boutique managed to blow itself up in plain sight, but also provided some key insights into business partnerships everywhere.
For law firm leaders, the saga is a live‑fire case study in partnership governance, fiduciary duties and what happens when rainmakers decide they’re bigger than the firm.
As the AFR recounts, the drama kicked off in late 2021 when a box of cupcakes arrived at a Hong Kong office, addressed to star litigator Jason Karas (pictured above). Staff were invited to help themselves. The real problem sat on top of the box: a note reading, “Congratulations on our new association, from Mishcon de Reya.”
The message revealed what co‑founder Scipio “Skip” Lipman (above) in Adelaide had not been told that Karas had been negotiating for months to shift the Hong Kong practice under Mishcon’s umbrella, and had already signed a framework agreement while the pair were still partners.
LawFuel has previously reported on the Federal Court’s blistering judgment, which found Karas breached fiduciary duties and that Mishcon “knowingly assisted” in the breach, leading to an A$41.25 million hit including equitable compensation and diverted profits.
The cupcakes merely exposed what the court later described as a “dishonest and fraudulent design”: a secret “financial merger” of the Hong Kong practice, negotiated behind Lipman’s back while the partnership was still very much alive.
On one view, this is a familiar story in the sense that it involves a boutique that started as Adelaide’s proudest litigation export, expanded to Hong Kong and London, and then ran head‑first into the age‑old fight between the partner who wants to go big offshore and the partner who wants to consolidate at home.
Karas saw Adelaide as a regional feeder city and believed the future and the money lay in Asia while Lipman wanted broader equity in Adelaide and more institutional structure. When Lipman moved to force the issue, which included cancelling Karas’ monthly dra, Karas started looking elsewhere.
What makes the case genuinely alarming for managing partners, or any business partners, is how the court dealt with the so-called ‘rainmaker defence’. In this case it was that “the Hong Kong office is my business”.
Karas’ firm view was that he had built the Hong Kong practice, taken the risk and effectively owned it. The court disagreed, treating the offshore office as a fully integrated part of the joint enterprise and stating that partners in such firms owe each other duties of loyalty and full disclosure when dealing with core assets like practices, people and future income streams.
The Court’s credibility findings turned this from a messy break‑up into a career‑defining rebuke. Karas, a larger‑than‑life figure in Hong Kong and South Australia, was labelled an “unsatisfactory” and “evasive” witness whose evidence at times “stretched credulity”, with earlier Hong Kong regulatory issues cited as evidence of a willingness to bend rules to achieve his objectives.
Lipman, by contrast, was largely accepted as a “witness of truth” on the structure of the firm and the status of the Hong Kong office.
For Mishcon, the decision is an equally sharp shot across the bows. The court held that the firm either shut its eyes to the obvious or failed to make inquiries that an honest and reasonable firm would make about Karas’ ongoing obligations, and that was enough for “knowing assistance”.
That finding alone should send a chill through every international firm looking at lateral hires or bolt‑ons: it’s not enough to take the candidate’s word that they’re “free to trade”.
So what are the risk lessons for firms that don’t fancy starring in the next cupcake‑themed judgment? There are a few standout issues that emerge from this debacle. Consider some of them –
- Partnership deeds must actually match reality. If offshore offices or key practices are genuinely personal ventures, the documentation needs to say so with brutal clarity. Courts will look past informal understandings when the money is big enough. And if often is.
- You can’t fight a war with ambushes. Unilaterally cancelling a partner’s draw or firing off draft statements of claim, as happened here, may “force their hand” but it can be highly risky and also pushes people into the arms of rival platforms and invites exactly the kind of secret planning this judgment punishes.
- Lateral‑hire hygiene is non‑negotiable. Any serious firm contemplating a tie‑up or association with a still‑embedded partner needs a due diligence process that goes beyond “are you in any disputes?”. That includes independent verification of partnership and exit terms, and a clear paper trail of the questions asked.
There is also the less comfortable truth identified by Melbourne‑based law business expert Joel Barolsky and echoed in the AFR coverage: partnerships behave more like marriages than corporations, and their break‑ups are driven as much by emotion and perceived betrayal as by legal rights.
Once one partner believes the other has gone behind their back, the incentives to litigate – and to destroy value on the way out – spike dramatically.
Handled differently, the Lipman Karas story could have been a neat case study in succession, de‑merger and international association.
Instead, it is a cautionary tale for every firm that depends on a small cadre of rainmakers, runs on opaque understandings about who “owns” what, and assumes that fiduciary duties are just law school theory.
