Background
After entering judgment for LK Law Pty Ltd against Jason Demetrios Karas, the Federal Court considered Karas’s application for Justice O’Sullivan to recuse himself from deciding whether enforcement should be stayed. Karas relied in part on adverse credit findings made against him in the primary judgment and LK Law’s initial requirement that he attend the stay hearing for cross-examination. Shortly before the recusal hearing, LK Law confirmed that it would not cross-examine Karas or challenge his credit in the stay application. The Court refused recusal.
The Court subsequently stayed enforcement against Karas and Mischon de Reya LLP, subject to conditions. Karas sought leave to appeal the stay orders, while Karas and Mischon de Reya had already appealed the primary judgment. Following further appellate stay orders, the parties asked the Court to determine on the papers who should bear the costs of the recusal and stay applications.
The Court’s Holding
Justice O’Sullivan split the costs of the recusal application. LK Law was ordered to pay Karas’s costs through 15 March 2026, because its withdrawal of the proposed cross-examination and its assurance that it would not attack Karas’s credit were important considerations in refusing recusal. Karas was ordered to pay LK Law’s costs from 16 March 2026, including the hearing. The Court reiterated, however, that those assurances were not determinative: there was no logical connection between the earlier adverse credit findings and the discretion to stay enforcement, so a fair-minded lay observer would not reasonably apprehend bias.
On the stay application, Karas was ordered to pay LK Law’s costs. Although some stay was always likely because of the consequences of immediate enforcement, Karas supplied incomplete information and advanced positions that were partly unsubstantiated; the real dispute concerned the stay’s terms, on which LK Law was substantially successful. By contrast, LK Law was ordered to pay Mischon de Reya’s costs because the firm prevailed on the only remaining disputed issue—whether its bank guarantee should include post-judgment interest. Assessment and enforcement of all these costs orders were stayed pending the appeal.
Key Takeaways
- Success in obtaining a stay does not necessarily carry costs where the opposing party substantially prevails on the disputed conditions attached to that stay.
- A party’s change of position can justify dividing costs by date even when that party ultimately succeeds on the application.
- Prior adverse credibility findings do not establish apprehended bias without a logical connection to the later issue the judge must decide.
Why It Matters
The decision shows that Australian courts may assess costs by reference to the parties’ practical success on particular issues, rather than simply the formal outcome of an interlocutory application. It also illustrates how litigation conduct—including incomplete evidence, abandoned positions, and concessions made immediately before a hearing—can materially affect costs.
The ruling further confirms that recusal requires more than pointing to adverse findings in an earlier phase of the same proceeding. The asserted source of bias must be logically connected to a feared departure from deciding the later application on its legal and factual merits.