FEDERAL COURT OF AUSTRALIA

LK Law Pty Ltd v Karas (No 5) [2026] FCA 129

ORDERS

THE COURT DECLARES THAT:

A.    The first respondent breached his equitable fiduciary duties to the first applicant by:

(i)    entering into negotiations with the fourth respondent for the sale of a practice conducted in Hong Kong by the first respondent trading as “Lipman Karas” (LKHK) without the first applicant’s knowledge or authorisation;

(ii)    entering into an agreement with the fourth respondent dated 30 March 2021 titled “Framework Agreement" (Framework Agreement) without the first applicant’s knowledge or authorisation;

(iii)    promising to conduct the practice of LKHK on account of the fourth respondent whilst in a position of owing fiduciary duties to the first applicant;

(iv)    promising to transition the first applicant’s Hong Kong revenue stream to the fourth respondent whilst in a position of owing fiduciary duties to the first applicant;

(v)    disclosing confidential information of the first applicant in the course of such dealings whilst in a position of owing fiduciary duties to the first applicant; and

(vi)    failing to disclose the above matters to the first applicant prior to entering into an agreement with the applicants and the second respondent dated 25 May 2021(Separation Agreement).

B.    The first respondent breached his equitable duty of confidence to the first applicant by disclosing confidential information of the first applicant in the course of his dealings with the fourth respondent by disclosing:

(a)    a due diligence memorandum dated 26 January 2021 together with a suite of supporting documents comprising:

(i)    a schedule setting out details regarding each employee of LKHK including their remuneration, leave entitlements, standard charge out rate and annual salary cost by position;

(ii)    an email summarising the terms of the current lease of the Hong Kong office premises;

(iii)    monthly performance reports of LKHK for June 2019, June 2020 and October 2020;

(iv)    schedules of itemised invoices rendered separately by LKPL and LKHK during the financial years ended 30 June 2018, 30 June 2019 and 30 June 2020;

(v)    LKHK’s financial accounts for the years ended 30 June 2015 to 30 June 2019; and

(vi)    a debtor and work-in-progress report for LKHK;

(b)    a performance report for the period up to December 2020;

(c)    a list of LKHK’s active matters as at 16 March 2021;

(d)    LKHK’s trial balance as at 30 June 2020, LKHK’s draft financial statement for the financial year ended 30 June 2020 and LKHK’s trial balance as at 31 December 2020; and

(e)    a list of matters opened by LKHK between 8 March 2021 and 10 May 2021.

C.    The first respondent breached his duties to the first applicant under ss 181, 182 and 183 of the Corporations Act 2001 (Cth) by engaging in the conduct referred to in paragraphs A(1) to A(vi) above.

D.    The first respondent engaged in misleading and deceptive conduct contrary to s 18 of the Australian Consumer Law by:

(a)    failing to disclose to the applicants his negotiations with the fourth respondent including that he had negotiated with the fourth respondent in relation to the first applicant’s Hong Kong revenue stream; and

(b)    ailing to disclose to the applicants the fact that he had entered into the Framework Agreement.

E.    By his silence, the first respondent induced the applicants to enter into the Separation Agreement in breach of s 7(1) of the Misrepresentation Act 1972 (SA).

F.    By reason of the fourth respondent’s knowledge of the first respondent’s dishonest and fraudulent design and the fourth respondent’s actions in entering into the Framework Agreement on 30 March 2021 and approving its terms on 23 April 2021, the fourth respondent knowingly assisted the first respondent’s contraventions of his fiduciary duties to the first applicant.

G.    The releases of liability contained in cl 8 of the Separation Agreement do not operate in favour of the first respondent and, to the extent that the release and indemnity clauses comprised by cl 8 and/or cl 12 of the Separation Agreement are otherwise operable, such clauses are unenforceable pursuant to s 237 of the Australian Consumer Law.

H.    The first respondent is liable to pay equitable compensation to the first applicant by reason of the first respondent’s breaches of fiduciary duties in the sum of A$27,500,000, together with interest to the date of this Order in the sum of A$8,958,048.44, being compound interest at the rate of 4% above the Cash Rate Target from time to time set by the Reserve Bank of Australia in accordance with paragraph 2.2 of Federal Court of Australia General Practice Note – Interest on judgments (GPN-INT) (Relevant Cash Rate), compounded at yearly rests.

I.    The fourth respondent is liable to account to the first applicant for the value of the benefit it received by reason of its knowing assistance in the First Respondent’s breaches of fiduciary duties to the First Applicant in the sum of A$15,600,000, together with interest in the sum of A$5,799,540.24, being compound interest at the Relevant Cash Rate, compounded at yearly rests.

AND THE COURT ORDERS THAT:

1.    There be judgment for the first applicant against the first respondent in the sum of A$36,458,048.44, inclusive of interest.

2.    There be judgment for the first applicant against the fourth respondent in the sum of A$21,399,540.24, inclusive of interest.

3.    Pursuant to s 237 of the Australian Consumer Law, cls 8 and 12 of the Separation Agreement are unenforceable.

4.    The Cross-Claim be dismissed.

5.    The respondents pay the applicants’ costs of the proceedings on a party-party basis.

6.    The applicants’ claim against the second and third respondents be dismissed with no order as to costs.

7.    The applicants’ claim against the fourth respondent under the Corporations Act be dismissed.

8.    The applicants’ claim against the fourth respondent under the Australian Consumer Law be dismissed.

9.    The amount of the costs referred to in paragraph 5 of these orders be fixed as a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) in an amount to be assessed by a Registrar unless otherwise agreed.

10.    The applicants file and serve a costs summary in accordance with paragraphs 4.10 to 4.12 of the Costs Practice Note (GPN-COSTS) by 27 February 2026, save that the page limits in those paragraphs is doubled.

11.    The first and fourth respondents file and serve any costs responses in accordance with paragraphs 4.13 to 4.14 of the Costs Practice Note (GPN-COSTS) by 27 March 2026.

12.    The lump sum assessment, including the determination of any further or different procedural steps, be referred to a Registrar of the Court for determination pursuant to s 35A(1)(f) of the Federal Court of Australia Act 1976 (Cth).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’SULLIVAN J:

1    On 26 November 2025, the Court delivered reasons in this matter: LK Law Pty Ltd v Karas (No 4) [2025] FCA 1461 at which time the parties were ordered to provide the Court with draft orders reflecting the reasons. The parties were to be heard on the question of interest and costs.

2    The parties have been unable to agree orders (which includes the terms of declarations), nor interest, nor costs.

3    There remain five issues for determination:

(1)    The terms of the declarations sought by the applicants;

(2)    The quantum of the pre-interest liability sums against the first and fourth respondents;

(3)    The basis and quantum of interest on the pre-interest liability sums;

(4)    Whether the claim against the second and third respondents should be dismissed; and

(5)    Costs, including whether any costs should be awarded in favour of various of the respondents on discrete issues upon which they were successful at trial.

4    It is for the reasons which follow that:

(a)    declarations will be made in terms of the declarations sought by the applicants;

(b)    the applicants are entitled to interest on the pre-interest liability sums calculated on a compound basis at yearly rests;

(c)    there will be judgment entered against Mr Karas in favour of LKPL in the sum of A$36,458,048.44 (inclusive of interest);

(d)    there will be judgment entered against MdR in favour of LKPL in the sum of A$21,399,540.24 (inclusive of interest);

(e)    the claims against the second and third respondents are dismissed with no order as to costs; and

(f)    the respondents are not entitled to costs orders on the issues upon which they were successful at trial.

Declarations

5    Each of the applicants, the Karas respondents and MdR have put forward various iterations of the declarations they seek.

Principles

6    The principles are not in dispute.

7    The Court has power to make declarations: s 21 of the Federal Court of Australia Act 1976 (Cth); Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97-99.

8    Whereas it is common for declarations to be made in a regulatory context, declarations may also be made in private law proceedings for a number of reasons, including to fully and publicly record the outcome of an action: Macks v Viscariello (2017) 130 SASR 1; (2017) 353 ALR 201 at [683]-[684].

Consideration

9    I have considered the parties’ submissions in relation to the form of the declarations. The declarations sought by the applicants reflect accurately the matters to which they are directed and there is utility in making the declarations on the basis, amongst other things, that it publicly records the outcome of a long and complex action.

10    There will be declarations accordingly.

The principal (pre-judgment) judgment sum

11    The Karas respondents submit judgment should be entered against Mr Karas for 50% of the amount assessed against him (A$27.5 million) i.e. A$13.75 million.

12    MdR submits that judgment should be entered against it for 50% of the sum assessed against it (A$15.6 million) i.e. A$7.8 million.

The parties’ submissions and consideration

13    The Karas respondents submit that because Mr Karas held 50% of the shares and control of LKPL at the time of breach, then the judgment against him should be for half the amount assessed.

14    In support of that submission, the Karas respondents refer to a passage of the reasons where the Court was dealing with Mr Lipman’s claim that Mr Karas had breached his equitable fiduciary duties, whether as a partner in an overarching partnership or being owed ad hoc duties: reasons at [2241]-[2244].

15    In that section of the reasons, the Court found that Mr Lipman is entitled to equitable compensation from Mr Karas in the sum of A$13.75 million (50% of the equitable compensation due from Mr Karas to LKPL). On that basis, the Karas respondents submit Mr Karas is entitled to a 50% reduction in his liability to LKPL.

16    I do not accept that submission, which is based on a misreading of the relevant passages of the judgment and conflates an individual’s right to equitable compensation as a partner or as the recipient of ad hoc fiduciary duties, with a claim brought by a corporation against one of its directors for, amongst other things, breaches of fiduciary duty.

17    In further support of its submissions, the Karas respondents also refer to the article, “The Respective Liabilities of Dishonest Fiduciaries and Their Knowing Assistance” (2025) 48(2) Melbourne University Law Review 436 at 469-470 (Glister and Ridge) where the authors tentatively suggest that depending on the facts, “… it will be more commonly appropriate to regard the recovery of profits from one defendant as reducing or eliminating the compensatory liability of another”.

18    The Karas respondents’ submit that the facts are such as to tend strongly in favour of treating satisfaction from one respondent for market value as reducing or eliminating the liability of the other.

19    The article does not assist the Karas respondents for a number of reasons.

20    First, the article is heavily qualified, with the authors accepting that their tentative view depends on the facts of the case.

21    Second, there is no suggestion of double recovery. There is no doubt, as I have repeatedly expressed to the parties, and as the applicants expressly accepted in the course of its closing submissions, that LKPL cannot recover the same amount twice.

22    Third, the Karas respondents’ submissions conflate liability with enforcement.

23    Next, the Karas respondents submit that entering judgment for LKPL in the sum of A$27.5 million would work an injustice. In doing so, they rely on a number of equitable maxims, including that the cardinal principle of equity is to ensure that, “the remedy … be fashioned to fit the nature of the case and the particular facts”: Warman International Limited v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 559, and that, “… in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.”: Warman at 561.

24    Whereas it may be recognised immediately that the objective is to achieve what is practically just, this is a case where LKPL had an asset which Mr Karas dealt with by negotiating its acquisition by MdR. Mr Karas executed the Framework Agreement, which dealt with that acquisition, whilst owing fiduciary duties to LKPL and concealing his dealings with MdR from Mr Lipman and therefore LKPL.

25    Against that background, arguments advanced by the Karas respondents that equity has a preference for substance over form, such that there should be a reduction in the principal liability against Mr Karas: Burke v LFOT Pty Ltd [2000] FCA 1155; (2000) 178 ALR 161 at [127], does not assist the Karas respondents.

26    Finally, the Karas respondents’ submissions overlook the fact that LKPL is a corporation. Whereas it may have been that at the relevant time Mr Karas owed 50% of the shares and control of LKPL, this does not mean that he had a proprietary interest in its assets. Further, an assertion that Mr Karas should be entitled to a reduction of 50% of the equitable compensation payable consequent upon his breaches of duty was neither pleaded nor argued by any of the respondents.

27    MdR adopts the same approach as the Karas respondents. MdR submits further that any payment by MdR pursuant to its liability to LKPL should result in a pro-tanto reduction of Mr Karas’ liability with respect to the market value of LKHK.

28    I do not accept MdR’s submissions for the same reasons I do not accept the Karas respondents’ submissions.

29    Accordingly:

(a)    LKPL is entitled to judgment against Mr Karas in the sum of A$27.5 million plus interest; and

(b)    LKPL is entitled to judgment against MdR in the sum of A$15.6 million plus interest.

Interest

30    The applicants seek equitable interest on the principal sum calculated on a compound basis at yearly rests.

31    The respondents oppose the award of compound interest and contend that any interest should be awarded on a simple interest basis.

Principles

32    Section 23 of the Act provides:

23 Making of orders and issue of writs

The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.

33    Sections 51A(1) and (2) of the Act provide:

51A Interest up to judgment

(1)    In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a)    order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

(b)    without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

(2)    Subsection (1) does not:

(a)    authorize the giving of interest upon interest or of a sum in lieu of such interest;

(b)    apply in relation to any debt upon which interest is payable as of right whether by virtue of an agreement or otherwise;

(c)    affect the damages recoverable for the dishonour of a bill of exchange;

(d)    limit the operation of any enactment or rule of law which, apart from this section, provides for the award of interest; or

(e)    authorize the giving of interest, or a sum in lieu of interest, otherwise than by consent, upon any sum for which judgment is given by consent.

34    In Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [547]-[552] (Finn, Stone and Peram JJ), the Full Court considered an award of compound interest. That was a case in which the Full Court was considering the application of equitable interest as part of equitable compensation.

35    In Chu v Lin, in the matter of Goldstone Capital Pty Ltd (Trial Judgment) [2024] FCA 766, Jackman J considered the question of the availability of compound interest in relation to breaches of trust or fiduciary duty. Referring to Grimaldi, his Honour noted that the Court had the power to award compound interest pursuant to s 23 of the Act: at [250]. See also Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 9) [2023] FCA 462 at [27]-[31] (Beech J).

36    There is no doubt that an equitable right to interest exists independently of statute: Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 at 148 (Mason CJ and Wilson J) citing Wallersteiner v Moir (No 2) [1975] QB 373. See also President of India v La Pintada Compania Navigacion S.A. [1985] AC 104 at 116 (Lord Brandon).

37    Section 23 is a general power. To the extent an award of compound interest is, on its face, inconsistent with s 51A(2)(a), there are at least three answers to that contention. First, as observed in Hungerfords, an equitable right to interest exists independently of statute. Second, within s 51A(2) there is a carve out for any rule of law which provides for an award of interest. The right to equitable interest on a compound basis comes within that provision. Third, an award of equitable interest forms part of the equitable compensation.

38    Accordingly, the Court has the power to award compound interest, whether pursuant to s 23 or independently of statute, as part of an award of equitable compensation.

39    In Herrod v Johnston [2012] QCA 360, the Queensland Court of Appeal (Muir JA, Gotterson JA and Applegarth J agreeing) considered the circumstances in which an award of compound interest might be made when awarding equitable interest: at [25]-[50].

40    A number of principles arise out of the authorities to which I have referred:

(a)    a right to equitable interest exists independently of statute: Hungerfords at 148 and the cases cited therein;

(b)    the power to award compound interest is not restricted to those cases where there is a claim for profits: Herrod at [31]-[32] and the cases cited therein;

(c)    the awarding of compound interest instead of simple interest is a matter entirely in the discretion of the Court bearing in mind all the circumstances of the matter: Herrod at [34] referring to Jacob’s Law of Trusts in Australia 6th Edition 1987 at [2209]. The objective is to do what is “practically just” which will depend on the circumstances of the case: Herrod at [39] referring to Spence v Crawford [1939] 3 all ER 271 at 288 (Lord Wright);

(d)    that exercise will take into account the objective of ensuring the applicants are properly compensated and that whilst not being imposed by way of a penalty, an award of compound interest nonetheless reflects equity’s disapproval of the seriousness of the breach. An award of compound interest is designed to make good the innocent parties’ loss: Directed Electronics OE at [27]-31];

(e)    it is not necessary to demonstrate that the defaulting fiduciary has made a gain, although such a finding could fortify a claim for compound interest: Herrod at [30] referring to Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 702;

(f)    the awarding of compound interest is not punitive: Herrod at [50];

(g)    “an award of compound interest is a device of equity to minimise the possibility that any profit can remain in the trustees’ hands”: Herrod at [35] referring to Hagan v Waterhouse (1991) 34 NSWLR 308 and Ford and Lee, Principles of the Law of Trusts, 2nd ed (1990) [1713.2] at 733;

(h)    the two main circumstances which may justify an award of compound interest are:

(i)    where there are strong findings of a breach of duty or contumelious disregard of the interests of those to whom fiduciary duties are owed; and/or

(ii)    where money has been used by the fiduciary for his or her own commercial purposes: Hungerfords at 148; Herrod at [35] citing Kearney J in Hagan at 393 [50]; see also Chu at [251]; and

(i)    the reasoning relevant to these two main circumstances applies equally to third parties who have either knowingly procured or induced a breach of trust or fiduciary duty or have knowingly assisted in a dishonest and fraudulent design by the trustee or fiduciary: Chu at [251].

The parties’ submissions and consideration

41    The applicants submit that the applicable rate is identified in the Court’s “Interest on judgments Practice Note(GPN-INT)” whether that be for simple or compound interest. That rate is 4% above the cash rate last published by the Reserve Bank of Australia in respect of the period from 1 January to 30 June in any year and in respect of the period 1 July to 31 December in any year. I accept that submission.

42    MdR accepts that the Court has power to award compound interest in equity upon being satisfied of a number of discretionary factors that weigh in favour of it being just to do so, and that the power stands apart from both the statutory sources of power or prohibitions. However, it submits that an award of compound interest as against MdR would be impermissibly punitive.

43    MdR submits that no attempt was made by the applicants to plead or prove a claim consistent with the evidentiary burden recognised in Hungerfords at 149-151 (Mason CJ and Wilson J).

44    With respect, that submission misunderstands the nature of the claim for an award of compound interest in equity, which is not only directed at ensuring that LKPL is properly compensated for its loss, but that no profit from the actions of Mr Karas and MdR remains in their hands: Herrod at [50]. See also Cureton v Blackshaw Services Pty Ltd [2002] NSWCA 187 at [115] referring with apparent approval to Southern Cross Commodities Pty Ltd (in liq) v Ewing (1987) 11 ACLR 818 at 843; Hagan at 393 (Kearney J referring to Ford and Lee, Principles of the Law of Trusts, 2nd ed (1990) [1713.2] at 733); Directed Electronics OE at [26]-[30] (Beech J).

45    Further, the evidentiary burden being discussed at 149-151 of Hungerfords concerned the second limb in Hadley v Baxendale (1854) 9 Exch 341, which involves different considerations from this matter.

46    Next, MdR submits that equity’s task is to do what is practically just which in turn depends on the circumstances in each case.

47    I accept that is equity’s task and that an award of compound interest should not be punitive. Such an award has the purpose being to ensure the applicants are properly compensated and to minimise the possibility that any benefit or profit can remain in the hands of the defaulting fiduciary: see BCEG International (Australia) Pty Ltd v Xiao [2022] NSWSC 972 at [394] (Reese J), referring to Southern Cross Commodities at 848. I also accept that what is practically just depends on the circumstances in each case.

48    Next, MdR submits that the approach of Jackman J in Chu is erroneous on the basis that it contends his Honour automatically applied compound interest without reference to the important considerations and enquiry as to whether compound interest is necessary to restore the position of the beneficiary and to ensure any profit made by the third party no longer remains in their hands.

49    I do not accept that his Honour took that approach. It is clear in his Honour’s reasons (at [252]) that his Honour had made findings as to misappropriation of the money in question by the respondents who had profited from the breaches of trust, such that compound interest at yearly rests should be paid on the amount of those misappropriations.

50    That consideration is to be taken into account with his Honour’s observations (at [251]) that the two main circumstances in which compound interest may be awarded were, relevantly:

(a)    where the trustee is guilty of fraud, serious misconduct or contumelious disregard of the interests of beneficiaries; and

(b)    where the trustee or fiduciary has wrongfully made a profit out of the breach.

51    At [251], his Honour continued that the principle should apply equally to third parties who have either knowingly procured or induced a breach of trust or fiduciary duty or have knowingly assisted in a dishonest and fraudulent design by a trustee or fiduciary.

52    It is evident from those paragraphs of his Honour’s judgment that Jackman J did not automatically award compound interest simply by reason of the conduct of the respondents but also in view of his Honour’s findings as to misappropriation of the money in question and the fiduciary’s misconduct.

53    With respect, I agree with his Honour that these principles should apply equally to third parties who have either knowingly procured or induced a breach of trust or fiduciary duty or have knowingly assisted in a dishonest or fraudulent design by a trustee or fiduciary. Such an approach is consistent with the principles set out above.

54    Next, MdR submits that any award of compound interest on the facts of this matter against it would be punitive. I do not accept that submission.

55    The decision as to whether or not to award compound interest is discretionary with the power to be exercised against the relevant principles. The overall approach is to determine what is practically just with the aim being to make good the innocent party’s loss and to minimise the possibility that any benefit or profit remains in MdR’s hands.

56    An award of compound interest based solely on the seriousness of the identified breach may result in an award of compound interest being punitive. Were that the only reason to award compound interest in this matter, I do not consider that would be just.

57    What then, is the nature of the loss sustained by LKPL?

58    A number of the authorities dealing with compound interest involve the misappropriation of funds. Those circumstances present a relatively straightforward basis upon which to consider whether compound interest should be applied.

59    In this matter, the loss as found is comprised of two components: first, the market value of LKHK, and second, the loss of LKPL’s HK revenue stream over two years.

The market value of LKHK

60    Mr Karas dealt with LKHK for his personal benefit. Put in monetary terms, Mr Karas dealt with LKHK as an asset to the value of A$15.6 million. Conversely, LKPL lost an asset to that value.

61    To ensure that LKPL is properly compensated for its loss, LKPL is entitled to receive the value of that asset.

62    Further, since LKPL has been deprived of the value of its asset, an award of compound interest representing the value of an ongoing business will ensure that LKPL is properly compensated for its ongoing loss. It is well-settled that it is not necessary to demonstrate that the defaulting fiduciary has made a gain (Herrod at [30] and the cases cited therein) but in any event, an award of compound interest will minimise the possibility that no benefit or profit remains in Mr Karas’ hands, at least for the period in question. That would not be the case should simple interest be applied.

LKPL’s HK revenue stream

63    LKPL was deprived of its HK revenue stream which totalled A$11.9 million over two years – one year of A$5.5 million and one year of A$6.4 million.

64    Applying compound interest to these amounts at yearly rests reflects the loss LKPL suffered by being deprived of that income stream. In contrast, simple interest would not ensure LKPL is properly compensated nor does it minimise the possibility that any benefit or profit remains in Mr Karas’ hands.

MdR’s benefit

65    MdR received an asset in the form of LKHK. In so doing, it received a benefit.

66    MdR’s liability was assessed on the basis that there was no evidence that it received LKPL’s Hong Kong revenue stream over the two-year period in question. However, it cannot be disputed in any sensible way that by acquiring LKHK, it has received a benefit. Consistent with the principle that the award of compound interest has, as one of its functions, the aim of minimising the possibility that no benefit or profit remains in the hands of either the defaulting fiduciary or any party who assisted the defaulting beneficiary in a dishonest and fraudulent design, I am satisfied that an award of compound interest is appropriate. Further, I am satisfied that an award of compound interest is practically just and is not punitive.

67    Insofar as MdR is concerned, LKPL is entitled to judgment in the sum of A$21,399,540.24 comprising a principal sum in the amount of A$15.6 million plus interest compounded at yearly rests in the sum of A$5,799,540.24.

68    As to Mr Karas, I noted in the reasons (at [1673]-[1675]) that Mr Karas pursued his interest in clear conflict with his fiduciary duties and made a calculated decision not to disclose his conduct to Mr Lipman. That conduct comprised serious breaches of his fiduciary duty such that he engaged in a dishonest and fraudulent design.

69    In all the circumstances, an award of compound interest is justified against Mr Karas as reflecting the serious nature of his breaches of fiduciary duty, to minimise the possibility that any benefit remains in his hands from his breach of fiduciary duties, and to ensure that LKPL is properly compensated for its loss. That is so both in relation to the market value of LKHK and the loss of LKPL’s Hong Kong revenue stream for the two-year period identified in the reasons. An award for compound interest will not be punitive and is practically just.

70    As against Mr Karas, LKPL is entitled to judgment in the sum of A$36,458,048.44 comprising a principal sum in the amount of A$27.5 million plus interest compounded at yearly rests in the sum of A$8,958,048.44.

Costs

71    The applicants seek an order that the respondents pay their costs of the proceedings on a party-party basis.

72    The respondents seek orders that the applicants pay their costs for those matters upon which the applicants failed.

73    MdR seeks:

(a)    its costs of the ACL claim, given the applicants’ failure to establish that MdR was not knowingly involved in the breaches by Mr Karas of the ACL;

(b)    its costs of the Corporations Act claim, given the applicants’ failure to establish that MdR was not knowingly involved in the breaches by Mr Karas of the Corporations Act;

(c)    its costs thrown away by reason of the applicants abandoning the rescission claim in relation to the Framework Agreement; and

(d)    its costs incurred by reason of the applicants’ failure to establish that the Project Swift Teams channel documents had not been deliberately destroyed by MdR.

74    The Karas respondents seek an order that they receive their costs by reason of the applicants abandoning the rescission claim in relation to the Separation Agreement.

Principles

75    There is no issue between the parties as to the applicable principles:

(a)    s 43 of the Act vests the Court with power to award costs in all proceedings before it: New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski (No 2) [2011] FCAFC 152 at [11]; and

(b)    the Court’s power to award costs is a discretionary exercise which is unfettered, save that it must be exercised judicially: New South Wales Lotteries Corporation at [11].

76    The general rule is that costs follow the event. In relation to some matters, where plaintiffs succeed on one basis but not on another, the disposition of costs in any case involving competing considerations will reflect a broad evaluative judgment of what justice requires.

77    In C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Ltd [2007] FCAFC 117 at [7], the Full Court observed:

7    Where a plaintiff succeeds on one basis but fails on another, it is frequently necessary to consider whether that mixed result should be reflected in any order for costs. In many, perhaps most, cases the different bases will merely reflect different legal mechanisms by which the same result might follow from the same facts. In such a case the extent of the costs solely attributable to the unsuccessful ground will frequently be very limited. Generally, that situation does not lead to separate orders for costs in connection with separate issues or to reduction in the successful party’s costs. In other cases, the alternative bases for the case may be quite discrete, and the unsuccessful basis may take up substantially more time, and account for substantially more of the costs, than does the successful basis. In those circumstances justice may require that the unsuccessful defendant not be compelled to pay the costs of the issue upon which it has succeeded.

See also Bostick Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38].

78    In Umoona Tjutagku Health Service Aboriginal Corporation and Walsh [2019] FCAFC 32; (2019) 268 FCR 401 (White, Perry and Banks-Smith JJ) the Full Court said at [42]:

42    Thus, while the ordinary rule is that the successful party will receive her or his costs, that is not an absolute rule: Oshlack at [40] (Gaudron and Gummow JJ); Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 (Ruddock) at 234-235 (Black CJ and French J). As the Full Court explained in Queensland North Australia Pty Ltd v Takeovers Panel (No 2) [2015] FCAFC 128; (2015) 236 FCR 370 at [11], after referring to the decisions in Ruddock and Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 with approval:

11.    These decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs. However they contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party’s conduct of the case.

79    The Court continued at [45]-[46]:

45    The breadth of the discretion as to costs is reflected among other things in s 43(3)(c) and (e) of the FCA Act which respectively permit the Court to make orders that the parties bear costs in specified proportions and to award costs in favour of or against a party irrespective of whether the party is successful in the proceeding: see also Oshlack at [40]. Thus, as the High Court held in Gray v Richards (No 2) [2014] HCA 47; (2014) 89 ALJR 113:

2.     The disposition of costs is within the general discretion of the Court. Ordinarily, that discretion will be exercised so that costs are awarded to the successful party, but other factors may have a significant claim on the discretion of the Court. The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires.

(emphasis added; citations omitted)

46    The interests of justice include considerations of the cost-effectiveness of litigation. Thus a court may conclude that a departure from the general rule is warranted where substantial issues are raised by the successful party which unduly extend the time and expense of litigation: A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27 at [6]-[11] (the Court). As counsel … pointed out, the relevance of such considerations is highlighted by the obligation imposed upon a party and a party’s lawyer by subss 37N(1) and (2) respectively of the FCA Act to conduct proceedings in a way that is consistent with the overarching purpose in s 37M, namely, to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

80    In Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53; 327 ALR 192 at [6], the High Court observed (in the context of a departure from the general rule that costs follow the event) that there were:

… good reasons not to encourage applications regarding costs on an issue by issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.

The parties’ submissions and consideration

81    At the outset, it should be observed that this case raised a number of legally and factually complex issues. The trial extended over a number of weeks and involved a significant number of exhibits comprising tens of thousands of pages.

82    Any consideration of an application for a separate costs order or a reduction in costs as a result of the non-success of any particular issue must be considered against the overall context of the proceedings, in particular the length of the trial, the complexity of the matters and whether the issues in question unduly extended the time and expense of the litigation.

The ACL claim

83    MdR submits that the applicants were unsuccessful in pursuing the ACL claim, which it also submits was unjustifiable and unreasonable. They refer to the observations of Stewart J in Scott v Aulich, in the matter of Aulich Civil Law Pty Ltd (in liq) (costs) [2025] FCA 1557 at [23].

84    In that matter, his Honour observed that departure from the general rule should only occur where special circumstances exist, such as raising an unsuccessful issue which was not justified; or so unreasonable that it is fair and just to make an order apportioning costs; or whether a particular issue was clearly dominant or separable.

85    MdR submits that whether or not the ACL claim was prosecuted by the applicants based on the same facts as other matters in which the applicants were successful, in particular Mr Karas’ breach of his fiduciary obligations, that does not take account of the additional time and expense caused by the applicants’ failed attempts to secure evidence to overcome the jurisdictional bar that MdR was not carrying on business in Australia.

86    MdR refers to correspondence seeking discovery of documents in connection with Mr Shmith and SBL Shmith Lawyers. MdR also refers to numerous applications for discovery by the applicants together with a number of affidavits which were prepared and filed in relation to this issue, some of which were lengthy. Those applications involved interlocutory hearings, as well as notices to produce and subpoenas which, MdR contends, resulted in it incurring significant costs.

87    I do not accept those submissions for a number of reasons.

88    First, the various applications brought by the applicants seeking documents were successful. Viewed at a general level, the expense about which MdR now complains is a result of it having to comply with its discovery obligations.

89    Second, it is important to note that in an affidavit of MdR’s Managing Partner, Mr James Libson affirmed on 5 October 2023, in opposition to an application by the applicants for discovery on this point, Mr Libson deposed that MdR, “… has no association with SBL Shmith Lawyers and has not derived any financial benefit from the conduct of its practice.”

90    In cross-examination, Mr Libson accepted that evidence was incorrect although he denied he knew it was incorrect when he made it. In the reasons at [1977], I found that MdR had an association with SBL Shmith, albeit through a consultancy agreement.

91    Armed with that affidavit, the inaccuracy of which was established at trial, I do not consider that the applicants’ pursuit of the ACL claim was in any way without merit.

92    Next, MdR submits that oral and written submissions were advanced in relation to the issue of the jurisdictional bar in both opening and closing addresses. On that point, they point to a hearing before a Registrar of the Court during which counsel for the applicants conceded that the ACL would not apply if MdR was correct that it was not carrying on business in Australia. That concession was made properly, however I do not consider that a concession of the obvious advances MdR’s application in relation to the costs of the ACL claim in any way.

93    Next, MdR submits that there was no prospect of the ACL claim succeeding. I do not accept that submission. On no view could the applicants’ pursuit of this claim be considered to be without merit. On the contrary, armed with Mr Libson’s evidence that MdR had no association with SBL Shmith Lawyers and had not derived any financial benefit from the conduct of its practice, which was incorrect, the applicants were more than justified in pursuing the matter.

94    Next, MdR submits there was no financial benefit in advancing the claim. I do not accept that submission, which is made with the benefit of hindsight. Had jurisdiction been established, there was a serious question over whether the ACL claim would succeed.

95    Next, MdR submits that the enquiry as to whether MdR was carrying on a business in Australia was a separate and discrete enquiry which did not overlap with facts relating to the Karas respondents or the other substratum of facts. It submits that it was a discrete issue.

96    I accept that the question of whether MdR was carrying on business in Australia was a discrete issue, but it was contained. The balance of the ACL claim concerned matters which applied equally to other causes of action brought by the applicants.

97    Next, MdR submits that because the documents which were ultimately produced contained confidential information, costs were incurred in protecting that information. That may be so, but that was a cost of complying with its obligations.

98    The applicants submit that the time spent during the proceedings and at trial on this issue constituted work undertaken to ascertain the true factual position in relation to whether MdR was conducting business in Australia. In that context, the applicants submit that when the costs involved in obtaining proper discovery are put to one side, the time taken at trial on the ACL claim was de minimis. I accept that submission.

99    I have dealt with the costs of obtaining discovery in relation to the ACL claim earlier in these reasons.

100    The justice of the case is such that I do not consider that MdR should have its costs of successfully defending the ACL claim.

Corporations Act claim

101    MdR submits the Corporations Act claim against it, which required establishing actual knowledge of the essential facts constituting the alleged contravention, had no reasonable prospects of success.

102    The Court found that the applicants had not established actual knowledge of the essential elements constituting the alleged contraventions.

103    As with the ACL claim, MdR submits that there was no financial benefit in advancing the claim. It submits further that it might be classified as a strategic decision. I infer from that submission, that MdR submits the claim should not have been brought.

104    MdR submits that for the same reasons as those advanced in relation to the ACL claim, MdR should have its costs of the Corporations Act claim.

105    I do not accept MdR’s submissions. The Corporations Act claim was substantially the same as the knowing assistance claim, save that actual knowledge of the essential elements constituting the alleged contraventions was required.

106    Whereas the question of knowledge was a significant part of the claims against MdR and the applicants pressed for actual knowledge, ultimately the Court found that that was not the case. However, on the same facts, the Court found the requisite knowledge. The claim cannot be said to have been the subject of a strategic decision, nor can it be said that it had no prospects of success.

107    The applicants submit that the factual matters upon which the Corporations Act claim was pressed are the same matters relied upon in support of the knowing assistance claims, such that the costs attributable to the Corporations Act claim directed to MdR were de minimis. I accept that submission.

108    The justice of the case is such that I do not consider that MdR should have its costs of successfully defending the Corporations Act claim.

Rescission of the Framework Agreement

109    MdR submits that the relief sought by the applicants by way of rescission of the Framework Agreement was abandoned with the consequence that MdR should have its costs on a party-party basis.

110    The applicants submit that the issue added nothing to the trial when considered in its overall context.

111    I accept the applicants’ submission. This was a long and complex trial. When viewed in context, the issue of the rescission of the Framework Agreement occupied virtually no time. Again, the justice of the case is such that I do not consider MdR should have its costs on this issue.

Costs thrown away in relation to the alleged destruction of documents

112    MdR submits that it was forced to confront the serious allegation made by the applicants that MdR had destroyed evidence. As a consequence, it called a new witness, Ms Adams, who was Mr Gold’s Executive Assistant at the relevant time.

113    Ultimately, no finding was made that any documents were destroyed, such that MdR seeks its costs of defending that allegation on an indemnity basis.

114    The applicants submit that it was common ground that MdR had destroyed relevant and discoverable material during the currency of the proceedings. Counsel for MdR disputed that characterisation, however the fact is the documents had been deleted when the Project Swift Teams channel was deleted. That being the case, it is not possible to determine what had been deleted.

115    Further, although the evidence of Mr Patel gave some insight into what had been put on the Project Swift Teams channel, if any exchange between MdR personnel had been placed on the Project Swift Teams channel using the “chat” function, those exchanges were deleted with the deletion of the Project Swift Teams channel.

116    The applicants submit that MdR sought leave to call Ms Adams, having indicated earlier it would not be adducing any further evidence, in order to proffer an explanation for the deletion of the Project Swift Teams channel.

117    The chronology is important. The applicants’ summarised the chronology in their written submissions on this issue in the following terms:

(a)    in the earlier of the applicants’ written closing submissions served on 20 July 2024, the applicants invited the Court to find that MdR intentionally destroyed critical evidence, being the Project Swift Teams channel, within days of orders being made granting the applicants leave to serve it with these proceedings;

(b)    at that stage (on or about 20 July 2024), MdR had made a forensic decision not to call Ms Adams, who was the person who deleted the Project Swift Teams channel;

(c)    subsequently, MdR sought to call Ms Adams, who provided an affidavit on 25 July 2024 and was cross-examined on 26 July 2024; and

(d)    following Ms Adams’ evidence, the applicants no longer pressed for the Court to find that the Project Swift Teams channel was intentionally deleted by MdR. Ms Adams’ evidence permitted a possible alternative explanation.

118    In view of that chronology, the unexplained deletion of the Project Swift Teams channel was a matter which required explanation. That explanation was not forthcoming until a forensic decision was made by MdR late in the trial.

119    Under these circumstances, MdR’s criticisms of the applicants no longer pressing the intentional deletion of the Project Swift Teams channel, serious as such an allegation was, is without merit. Put simply, it was not until there was an explanation from Ms Adams that the applicants were in a position to consider further whether they pressed the allegation.

120    Accordingly, the justice of the case is such that I do not consider MdR should have its costs on this issue.

Rescission of the Separation Agreement

121    The Karas respondents seek their costs by reason of the applicants’ decision not to press the claim for rescission of the Separation Agreement.

122    In fact, the applicants did not abandon the claim per se. Rather, they put the claim for rescission on the basis that, if it was found that the release clauses within the Separation Agreement were unenforceable pursuant to s 237 of the ACL or otherwise on their terms, they would not press for rescission.

123    Ultimately, the applicants succeeded on both grounds, however I accept the Court found that in the circumstances rescission was out of the question.

124    Otherwise, the applicants submit that the issue was de minimis. I do not consider that it was de minimis in terms of its importance, but it was in terms of time and cost.

125    In these circumstances, I do not consider the justice of the case is such that the Karas respondents should have their costs on this issue.

Dismissal of the claims against the second and third respondents

126    Mr Karas seeks an order that the claims against the second and third respondents be dismissed with costs.

127    The applicants submit that the second respondent was joined to the proceedings as a party to the Separation Agreement whilst the third respondent joined as a party to the Framework Agreement and they were both necessary parties for that reason.

128    The applicants submit further that there was no distinction in the cases advanced by Mr Karas and that of the second and third respondents.

129    On that basis, the applicants submit that the respondents should be treated together for the purposes of a costs order with no costs awarded in favour of the second and third respondents.

130    I accept the applicants’ submissions. It is appropriate for the claims against the second and third respondents to be dismissed and there will be an order accordingly. I do not consider that any costs should accompany that dismissal.

Conclusion

131    There will be orders reflecting these reasons.

Associate:

Dated:    20 February 2026

SCHEDULE OF PARTIES