Lawyer’s Massive Backdoor Sale Penalty
In a stinging rebuke to ethical back-room deals, an Australian Federal Court has found that Jason Karas, former partner at Lipman Karas (now LK Law), secretly brokered a deal to hand over the firm’s Hong Kong practice to London legal powerhouse Mishcon de Reya.
The court ruled that Karas negotiated the deal without informing his co-founder Skip Lipman or disclosing the extent of the transfer.
Judgment, handed down by Patrick O’Sullivan, found Karas guilty of multiple breaches, including fiduciary duties, misleading and deceptive conduct, and concealing a substantial business transaction from his partner and the firm.
The Judge said that the then chairman of Mischcon, Kevin Gold and fellow board member Bambo Georgiou “either wilfully shut their eyes to the obvious, recklessly failed to make inquiries that an honest and reasonable person would have made, or had knowledge of circumstances indicating Mr Karas’ breach of fiduciary duty”, said O’Sullivan.
He criticised Gold’s approach to record-taking, stating that “Remarkably, for an experienced commercial law practitioner, he said that he kept no notes”.
As a result, the court ordered him to pay a total of A$41.25 million. That sum comprises approximately A$27.5 million in equitable compensation to LK Law, plus additional amounts reflecting diverted profits and remuneration to Skip Lipman (pictured).
The roots of the dispute run back to a once-promising partnership formed in 2004, Karas and Lipman launched Lipman Karas, expanding into Hong Kong and building a cross-jurisdictional footprint. Their relationship frayed around 2019, reportedly over equity allocation delays for salaried partners.
Rather than renegotiate or disentangle amicably, Karas struck a covert deal with profile, powerful London-based law firm Mishcon de Reya effectively transferring the firm’s Hong Kong revenues and operations while executing a separation agreement that excluded disclosure to Lipman.
The case turned ugly when celebrations involving cupcakes, bearing a congratulatory note from Mishcon de Reya, arrived at the Hong Kong office in 2021, alerting Lipman to the undisclosed merger. The court judgment found that the concealment deprived Lipman and LK Law of any opportunity to protect their interests or value.
This Court ruling reinforces that fiduciary duty in a law-firm context isn’t academic fluff but a serious legal and ethical obligation. Hidden merger or lateral-move agreements will not survive if there’s an ongoing partnership or un-wound equity structure.
Mishcon de Reya itself emerged bruised as the court held that it “knowingly assisted” Karas in the breach, triggering profit-reallocation and damages. The firm is reportedly to appeal the decision on what it says are “very strong grounds”.
