Federal Court of Australia

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

ORDERS

THE COURT ORDERS THAT:

1.    If the parties are unable to agree on the appropriate costs order, they file and serve and written submissions on costs limited to 2 pages within 7 days.

2.    The parties bring in short minutes of order giving effect to these reasons within 7 days.

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

ORDERS

THE COURT ORDERS THAT:

1.    The parties bring in short minutes of order giving effect to these reasons within 7 days.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

PERRAM J:

1    On 20 February 2026 O’Sullivan J gave judgment against the applicant, Mr Karas, and in favour of the first respondent, LK Law Pty Ltd (‘LKPL’), in the sum of $36,458,048.44. On 20 March 2026 Mr Karas filed a notice of appeal in proceeding SAD58/2026.

2    On 18 May 2026 his Honour stayed the judgment on condition that Mr Karas pay LKPL $5 million within 45 days and that he provide a bank guarantee for a further amount of $5 million within 30 days.

3    On 19 May 2026 Mr Karas filed an application for leave to appeal from the orders granting the stay subject to conditions. This became proceeding SAD120/2026. This was an unorthodox course to take. The Court in its appellate jurisdiction has the power to grant a stay and this means that filing an application for leave to appeal from the judge who refused the stay (or granted it subject to conditions considered undesirable) is pointless.

4    On 29 May 2026 Mr Karas then filed an interlocutory application in the leave application SAD120/2026 seeking a stay of the original judgment sum and of the conditions imposed on the stay of that judgment.

5    At the outset of argument I raised with the parties that it made more sense for the application for the stay to be pursued in the appeal proceeding SAD58/2026. Both parties then agreed that the stay application should be treated as being pursued in the appeal proceeding SAD58/2026. I will return to what to do with the leave application later in these reasons.

6    So understood, the application came before me on Tuesday 23 June 2026. Mr Karas was represented by Mr Dunning KC with whom Dr O’Mahoney of counsel appeared. LKPL was represented by Mr Roberts KC with whom Mr Besanko SC and Mr Day of counsel appeared.

7    The Court in its appellate jurisdiction is given power to determine an interlocutory application by the Federal Court of Australia Act 1976 (Cth) s 25(2B)(ab). That power may be exercised by a single judge. A party may apply for a stay of a judgment or orders following a trial. The power to do so is conferred by the Federal Court Rules 2011 (Cth) r 36.08(2). In Lehrmann v Network Ten Pty Ltd [2024] FCA 1226 at [30]-[32] Abraham J reviewed the authorities relating to when it will be appropriate to grant a stay pending an appeal. There are two requirements. First, there must be an arguable point in the appeal or, as it is sometimes expressed, there must appear some rational prospect of success. Secondly, the balance of convenience must favour the grant of the stay.

Arguable point on appeal?

8    I am satisfied that the appeal is arguable. At the heart of the debate is an agreement known as the Separation Agreement which dealt with how Mr Karas and LKPL were to go their separate ways after many years of practising law together. This agreement was dated 25 May 2021. The main question at trial was whether Mr Karas’ law practice in Hong Kong (then known as LKHK) was to be treated as an asset jointly owned by Mr Karas and LKPL or whether it was solely owned by Mr Karas. The immediate irritant for the litigation appears to have been the discovery by Mr Lipman, the principal of LKPL, that Mr Karas had entered into arrangements with a London law firm, Mishcon de Reya LLP (‘MdR’) under which it would acquire LKHK and Mr Karas would become a partner of MdR. Those arrangements took their first form on 30 March 2021 when Mr Karas and Mdr entered into a Framework Agreement which took effect on 30 April 2021 but there were negotiations prior to the date of the Separation Agreement.

9    One of the issues at the trial was whether, on its proper construction, the Separation Agreement proceeded on the basis that LKHK was owned solely by Mr Karas and not jointly by Mr Karas and LKPL. There are several provisions in the agreement which suggest that the Hong Kong practice was owned by Mr Karas. O’Sullivan J concluded that these provisions did not relate to beneficial ownership and that the evidence satisfied him that LKHK was beneficially owned by Mr Karas and LKPL jointly. I was taken to various provisions of the Separation Agreement. I am satisfied that there is a real issue about the proper construction of the Separation Agreement and hence that the appeal is arguable with some rational prospects of success.

Balance of convenience

10    The judgment sum is $36,458,048.44. There is a debate between the parties about what Mr Karas’ actual net asset position is. However, his available liquid assets are not remotely sufficient to meet this sum. Were he to realise all his assets, both liquid and illiquid, a very substantial shortfall would still remain. And it would continue to remain even if he were to realise assets belonging to his wife and children. In short, Mr Karas is undoubtedly a wealthy man, but he is not nearly wealthy enough to meet this judgment sum.

11    Consequently, if the judgment debt is not stayed there is a risk that Mr Karas will be rendered bankrupt. If Mr Karas is rendered bankrupt then two further risks will arise. The first is that his trustee in bankruptcy may not pursue the appeal. The second, which arises only if the first is surmounted, is the risk that it may not be possible to restore Mr Karas to the position he was in prior to his bankruptcy in the event the appeal is allowed.

12    In that circumstance one may accept that the bankruptcy is likely to be annulled, but by that time Mr Karas will have lost his right to practice in Hong Kong (where it is not possible for a bankrupt to practice) and his trustee in bankruptcy will, no doubt, have expended substantial assets of the estate both in running the appeal and in seeking to realise the other assets of the estate in accordance with his statutory duties.

13    The avoidance of these risks therefore provides a good reason to grant a stay of the judgment sum.

14    If the Court grants a stay of a judgment it seeks to preserve the status quo by protecting the judgment creditor from the risk of loss by framing orders, which, as far as practical, ensure that the existing value of the judgment appealed against will still be available to the judgment creditor if the appeal fails: Penson v Titan National Pty Ltd (No 2) [2015] NSWCA 120 at [45] per Campbell AJA (‘Penson’) applying Kalifair Pty Ltd v Digi-Tech (Aust) Ltd [2002] NSWCA 383; 55 NSWLR 737 at 742 [28] per Handley, Sheller and Ipp JJA (‘Kalifair’).

15    The question therefore becomes how may the status quo be most fairly preserved. The status quo is that Mr Karas owns substantial assets consisting of land, securities, cash, some loans and an art collection. These would appear to be worth about $13.5 million. There are other assets which are available to Mr Karas which are either in the names of close relatives or in family trusts. However, these are not Mr Karas’ assets and to bring them into an analysis of the appropriate security would involve improving LKPL’s position as a judgment creditor rather than preserving the status quo.

16    That this should not be done is illustrated by Kalifair. In that case the judgment debtors sought a stay pending a determination of their appeal. The judgment debts were worthless because the judgment debtors had no assets (at [23]). The judgment creditor sought the imposition of a condition on the stay which provided security. At 743 [29] the Court rejected this submission:

Security for these judgments is not needed to protect the judgment creditor from the risk of loss caused by the stay. The judgments are already worthless and the judgment creditor is not entitled to have conditions imposed on the appellants for the purpose of increasing their value. These appellants are therefore entitled to orders staying the execution on the judgments without any conditions requiring security.

17    In light of that, the appropriate orders in this case will be ones which preserve the status quo so far as the judgment creditor is concerned, neither diminishing it nor improving it from what it currently is. At the moment, the judgment creditor has a judgment which entirely exceeds the value of all of Mr Karas’ assets. The risks it faces are twofold. The first is that Mr Karas will dispose of his assets and thereby decrease the value of the judgment debt. The second, which is advanced by LKPL, is that with the passage of time substantial interest will continue to accrue on it.

18    The first requires no explanation. I do not accept the second. As the judgment sum increases with interest this will increase the size of LKPL’s proof of debt in Mr Karas’ bankruptcy in the event that his appeal is dismissed. There is no evidence that the value of Mr Karas’ present pool of assets is going to go up or that it is going to go down. LKPL’s gradually enlarging proof of debt will therefore enjoy an increased share of that pool. It is true that as time passes LKPL is accruing interest which is worth less than its face value. But this is a function of the deficit of Mr Karas’ assets over his liabilities. It would be possible to order Mr Karas to put LKPL in the situation whereby this interest shortfall was covered. However, just as in Kalifair that is not a protection LKPL has at the moment and it would be inappropriate to put it in a superior position by means of security.

19    Thus, the real question is how may LKPL’s interest in not having Mr Karas dissipate his assets best be served. LKPL seeks the payment by Mr Karas of $5 million and the provision of a further $5 million by way of security in the form of a bank guarantee. Mr Karas submits that the Court should accept his undertaking not to dispose of his assets pending the outcome of the appeal.

20    There are real questions as to whether Mr Karas could actually comply with LKPL’s proposed conditions. I accept that if Mr Karas sold all of his assets he could probably realise around $13 million. But this would take time and the conditions imposed by the primary judge would require the $5 million and the bank guarantee to be in place within 45 days. There are, I think, no prospects of Mr Karas being able to sell his various land holdings and art collection in that sort of time frame although I do accept he could realise most of his shares. LKPL’s answer to this is he could obtain bridging finance whilst the sales were in train. Mr Green’s evidence suggests that no bank would lend to Mr Karas in his current state. The problem is the obvious one: Mr Karas owes more than he owns and is a risky venture in that condition. LKPL submitted that this was not a problem as it had not been shown that he could not obtain this kind of finance from a non-bank lender.

21    That, no doubt, is true. However, it is equally true that if Mr Karas were to go down that path, he would end up paying a much higher interest rate. That observation is a convenient juncture to examine the problem from the opposite direction. On the assumption that Mr Karas was able to obtain a bridging loan pending the sale of $10 million of his assets from a non-bank lender and then sold his assets to pay down that facility, what would happen if the appeal were allowed and the judgment debt set aside?

22    Where a judgment is reversed on appeal the appellant is entitled to recover all moneys paid under the judgment that has been set aside and the appellant is ‘entitled to be restored to all things which he may have lost by such erroneous judgment and proceedings’: TCN Channel 9 Pty Ltd v Antoniadis (No 2) [1999] NSWCA 104; 48 NSWLR 381 at 382 [4] per Handley, Beazley and Stein JJA.

23    Clearly enough, this would entitle Mr Karas to recover the interest paid on the bridging facility together with the fees relating thereto and agents’ and solicitors’ fees on the sales. But where Mr Karas had been obliged to dismantle his property portfolio to meet the judgment debt, it is possible, although not entirely clear, that the reacquisition costs of putting it back together again would be recoverable (which would include agents’ and solicitors’ fees and stamp duty). One may doubt whether the portfolio may be re-established so perfectly. The same is true of the art collection. It is one thing to liquidate an art collection acquired over a lifetime; it is another to reassemble it. Then there are issues such as capital gains tax and the difficulty of selling shares at an undesirable time.

24    To force Mr Karas down this path creates the distinct possibility if the appeal is allowed and the judgment debt set aside that there will be complex issues in the future involving how restitutio in integrum is to be achieved.

25    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 of quo of the judgment debtor and to raise potential future issues about how this fire sale might be reversed if the appeal succeeds.

26    Of course, if the status quo of the judgment creditor requires such a discombobulation of Mr Karas’ affairs then this is what must be done.

27    However, I am not satisfied that this is required. The terms of any stay must be fair and the Court must weigh considerations such as the balance of convenience and the competing rights of the parties before it: Alexander v Cambridge Credit Corporations Ltd (receivers appointed) (1985) 2 NSWLR 685 at 694 per Kirby P, Hope and McHugh JJA. Mr Karas offers an undertaking not to dispose of, charge, mortgage or otherwise encumber any of the assets he identifies at paragraph 12 of his affidavit of 9 March 2026 other than for the purpose of meeting his ordinary living and business expenses of those of his family, and the costs of and associated with the litigation.

28    A breach of the undertaking would be a contempt of court. Since Mr Karas is a solicitor it would also be the end of his professional career. I therefore proceed on the basis that the undertaking will be effective to prevent Mr Karas from dissipating his assets. LKPL noted that the assets at paragraph 12 did not include the other assets of his family members or those held by trusts but, for the reasons I have given, I do not think that LKPL has an entitlement to improve its position by way of security by forcing Mr Karas to realise assets which LKPL will not have access to in a bankruptcy: Kalifair at [28] and [33].

29    The acceptance of this kind of undertaking is not novel in situations such as the present. Such an undertaking was accepted in Kalifair itself: see [34]. And in Penson Campbell AJA expressly recognised a Mareva-type undertaking as a way of providing security to preserve the judgment creditor’s status quo at [46].

30    The choice then is between two ways of securing LKPL’s judgment debt. One involves Mr Karas in a forced sale of most of his assets with concomitant expenses, losses and inconvenience and which may engender complex future litigation about his rights of restitution in the event the appeal is allowed. The other involves Mr Karas in giving an undertaking with none of these problems.

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

32    Mr Karas advanced a submission that he should not be required to pay money to LKPL because there was a real question about whether it would be able to pay him back. Here the point was that its balance sheet showed that it had a net deficiency of assets over liabilities. In circumstances where there is to be no payment, this issue does not arise.

33    I will therefore grant a stay of any enforcement of the judgment (order 1 of 20 February 2026) on the undertaking proffered by Mr Karas to pursue the appeal expeditiously and on his undertaking not to deal with his assets mentioned above. Order 2 has already been stayed and does not involve Mr Karas (directly). Order 3 is to the effect that the Separation Agreement is not enforceable. Mr Karas seeks an order that this order be stayed. There was no substantial argument about this aspect of the stay before me. It is unclear to me what the practical effect of order 3 is and hence it is not clear to me what staying it would achieve. I will not stay order 3 at this stage but if there is an issue about it, the matter can be relisted for further argument. Orders 4 to 8 dispose of various aspects of the claims and make costs orders. They should not be stayed. Orders 9 to 12 provide for the assessment of the various costs orders. The performance of those orders would be wasteful pending the outcome of the appeal. Orders 9 to 12 will be stayed.

34    It is also necessary to stay order 1 of the orders made on 18 May 2026 which stayed the judgment subject to conditions.

35    LKPL indicated that it wished to be heard on the question of costs. The parties should file written submissions on costs of no more than 2 pages within 7 days.

The Application for leave to appeal

36    Since the stay has been granted on the terms sought by Mr Karas, the application for leave to appeal from the orders of 5 and 18 May 2026 no longer serves any purpose since it has been overtaken by events. The appropriate orders in SAD120/2026 are that the application for leave to appeal be dismissed and that the costs of those proceedings abide the outcome of the substantive appeal. Since the interlocutory application for the stay has been dealt with in the appeal proceeding there should be no order as to costs in relation to that application in the leave proceeding, i.e., its costs consequences are only to be determined in the appeal proceeding. In effect, the interlocutory application is to be dealt with for costs purposes as if it had always been filed in SAD58/2026.

Confidentiality

37    Mr Karas sought to keep confidential the evidence concerning his financial affairs. There are some difficulties with this where much of the material appears in the reasons for judgment given by O’Sullivan J. Further, Mr Karas’ affidavits were read in open court on the present application. As a result, the Harman undertaking no longer applies to them. It seems to me unlikely that Mr Karas can succeed in obtaining the suppression orders he seeks. However, the course I will take is that if anyone applies for access to the affidavits I will give Mr Karas an opportunity to make his application for suppression and/or non-publication orders before the access request is determined.

Orders

38    I will make following order in SAD58/2026:

(1)    If the parties are unable to agree on the appropriate costs order, they file and serve and written submissions on costs limited to 2 pages within 7 days.

(2)    The parties bring in short minutes of order giving effect to these reasons within 7 days.

39    In SAD120/2026 I will order that the parties bring a short minute of order giving effect to these reasons within 7 days.

Associate:

Dated:    24 June 2026