Dramatic bust up of Adelaide law partnership … Booming business in Hong Kong … Lure of Mishcon de Reya … Hunt through the emails … Full Feds on the case … Fiduciary duties … Misleading and deceptive conduct … Max Shanahan reports
Messrs Jason Karas and Scipio John Lipman built a successful business after jumping ship from Adelaide law shop Fisher Jeffries at which they were both partners to start Lipman Karas Pty Ltd (LKPL) in 2004.
Business boomed at the new outfit, to such an extent that the duo resolved to start a branch of the firm in Hong Kong.
Since Lipman was not admitted as a solicitor in Hong Kong, the firm would be unable to provide services to local clients. Thus, LK decided on the strategy of allowing Karas – who was admitted – to set up a Hong Kong operation, named Karas Lawyers, as a sole proprietor.
Meanwhile, LKPL registered as a foreign firm in Hong Kong, providing advice to overseas clients. Karas Lawyers signed as association agreement with LKPL which stipulated that LKPL would allow Karas Lawyers to use their offices, staff and systems, for which Karas Lawyers would pay a fee.
After three years, per local regulations, LKPL was permitted to operate as a local firm. At this point, Karas changed the name of Karas Lawyers to Lipman Karas Hong Kong (LKHK).
LKPL and LKHK operated under an arrangement by which LKHK used LKPL’s lawyers on their projects. This generated significant revenue for LKPL.
When the relationship between Karas and Lipman broke down in 2019, as part of the separation agreement, it was stipulated that this arrangement would continue until the conclusion of the separation.
However, in March 2021, before the split was finalised, Karas and LKHK entered into an agreement with leading British firm Mishcon de Reya (MDR) for a financial merger between the two businesses.
As part of the agreement, Karas was to be appointed a senior equity partner of MDR. According to the Federal Court, Karas “had been in communication with MDR about the possibility of such an agreement for some time prior”.
All this was down without the knowledge of Lipman, who didn’t become aware of the arrangement until after the separation agreement had been finalised.
Feeling betrayed by his former partner, and facing the loss of a lucrative stream of income, Lipman turned to his IT crew. As part of the original arrangement between LKPL and LKHK, LKPL provided IT services to the latter.
Their technology policy stipulated that all emails were the property of LKPL and “should not be considered private … management may have cause to … access your individual email account”.
Access it he did, with Lipman ordering searches of Karas’ emails between July and October 2021. Armed with dossiers of correspondence Lipman, through LKPL, commenced proceedings against Karas, arguing that he breached the fiduciary duties he owed to LKPL as a director, and engaged in misleading and deceptive conduct.
Hitting back, Karas filed his own cross-claim, alleging a breach of confidence by LKPL in accessing his confidential emails, and seeking orders restraining their use in court.
Ultimately, Karas’ claim was undone by the old rule that information does not have the necessary quality of confidence where it’s subject matter is the existence of an iniquity.
Justices David O’Callaghan and Craig Colvin were critical of Karas’ attempts to claim confidentiality:
“There is an attempt to rely upon confidentiality to prevent disclosure to parties with a real and direct interest in redressing that conduct [breach of duties] which has been established on a prima facie basis.”
The judgment – which found against Karas on both the original claim and the cross-claim – was suppressed when it was handed down in March, pending an application for redactions/suppressions by the parties.
Karas sought orders suppressing swathes of the judgment, relating in some cases to mentions of the arrangements between LKPL and LKHK, and in other cases to seemingly innocuous paragraphs summarising his own statement of claim. The full bench said as much:
“Many of the proposed redactions seek to suppress parts of the joint reasons which do no more than summarise allegations or uncontroversial matters of context derived from the statement of claim, without any reference to the documents covered by the suppression order … Other portions of the join reasons sought to be suppressed involve conclusions or observations about the existence of reasonably arguable claims against Mr Karas.”
Despite the short shrift given to the suppression application, the court did agree to redact one paragraph and five words from another which “recite details about the contents of one of Mr Karas’ ‘private emails’.”
Despite Lipman’s loss of revenue from Karas’ breach and Karas’ continued court losses, it is unlikely either will be in too much trouble. Karas sails off into the sunset with his MDR partnership, while LKPL continues to operate in Adelaide and London under the guise of LK Lawyers.