Background
The dispute arose from the Mehmet v Carter litigation, a multi-year Supreme Court and Court of Appeal battle over the aborted sale of The Rainforest Resort at Byron Bay, New South Wales. Ausslaw Pty Ltd (trading as Australian Law Group and Heydons Lawyers) acted for the vendors — Murray John Carter as executor of his late wife’s estate, Cathscompany Pty Ltd, and The Wheel Resort Pty Ltd — and ultimately secured damages and a costs order totalling approximately $1.75 million. After deducting its own fees, Ausslaw held $852,195.44 in trust for the vendors. Facing uncertainty about how to apportion those funds — in part because Stuart Garrett Pty Ltd (SGL), which had acted for Mr Carter and related entities between 2011 and 2016, was asserting it was owed roughly $99,918 for unpaid professional fees — Ausslaw paid the balance into court under s 95 of the Trustee Act 1925 (NSW) in February 2024.
SGL’s claim rested on nine invoices issued in 2016 and on an Irrevocable Authority signed by Mr Carter in May 2019, directing Heydon’s Lawyers (later absorbed by Ausslaw) to pay SGL from any future litigation proceeds once all conditions precedent — completion of all litigation, appeals, and payment of Ausslaw’s own costs — were satisfied. In May 2025, SGL issued a Statement of Claim against Mr Carter as executor to recover the invoiced amounts in debt. SGL simultaneously applied in the Trustee proceedings to have up to $180,000 retained in court pending a concurrent costs assessment. Mr Carter moved to strike out SGL’s Statement of Claim; SGL cross-moved for leave to file an Amended Statement of Claim.
Four Notices of Motion across two sets of proceedings were heard together before Bennett J in February 2026: Ausslaw’s application to pay out the fund, SGL’s application to retain part of it, Mr Carter’s strike-out application, and SGL’s amendment application. The central legal question running through all four was whether s 355 of the Legal Profession Act 2004 (NSW) (LPA) — which prohibits a law practice from commencing or maintaining proceedings to recover legal costs in certain circumstances — barred SGL’s claim.
The Court’s Holding
Bennett J held that s 355 of the LPA was operative and that SGL’s proceedings fell squarely within its prohibition. Because SGL had itself initiated a costs assessment (file number 2025/00284466) in July 2025, the conditions triggering s 355 were engaged: a law practice may not commence or maintain proceedings to recover legal costs while an assessment of those same costs is on foot. The court declined to resolve on a summary basis whether SGL’s disclosure documents also failed to comply with s 317 of the LPA, holding that question unsuitable for summary determination. The court further found that both the existing Statement of Claim and the proposed Amended Statement of Claim (which advanced an estoppel case based on the Irrevocable Authority) constituted proceedings to recover legal costs within the meaning of s 355. Accordingly, the Statement of Claim was struck out and leave to amend was refused. While the court accepted that the Irrevocable Authority might in principle operate as an acknowledgment of debt capable of restarting the limitation period under the Limitation Act 1969 (NSW), that conclusion could not rescue SGL’s claim while s 355 remained operative.
On the Trustee Act applications, the court was satisfied with the apportionment analysis set out in the Heydon Report prepared by Ausslaw’s solicitor Brad Heydon. The court accepted that the fund should be paid out to the vendors in the proportions determined through that analysis. Because SGL had no valid claim against Mr Carter capable of surviving the s 355 bar, SGL had no cognisable interest in the fund and could not oppose or delay its distribution. Accordingly, the court ordered the funds to be paid out and dismissed SGL’s retaining application.
The orders made at [218]–[219] required payment out of the money retained in court and dismissed the Stuart Garrett Pty Ltd v Murray John Carter proceedings (Proceeding 2025/00183235).
Key Takeaways
- Section 355 of the Legal Profession Act 2004 (NSW) prohibits a law practice from commencing or maintaining court proceedings to recover legal costs once a costs assessment of those same costs is underway — including proceedings framed in debt or estoppel that are functionally aimed at recovering the same fees.
- A proposed amendment to a pleading will be refused where the amended claim is equally caught by the same statutory bar as the original; relabelling a costs-recovery claim as an estoppel claim does not take it outside s 355.
- An Irrevocable Authority directing payment of outstanding legal fees from future litigation proceeds may constitute an acknowledgment of debt capable of reviving a limitation period, but that is irrelevant if the proceedings are independently barred by the LPA.
- A law practice that pays trust funds into court under s 95 of the Trustee Act acts prudently where there are competing claims and uncertainty about apportionment; the court will order payment out once a detailed accounting report satisfies it as to the proper recipients and proportions.
- A claimant with no viable interest in a fund held in court — because the underlying claim is statute-barred — has no standing to oppose or delay payment out to the proper beneficiaries.
Why It Matters
This decision provides a clear and detailed analysis of the interaction between s 355 of the Legal Profession Act 2004 (NSW) and concurrent costs assessment proceedings. It confirms that a law practice cannot use debt proceedings as a parallel or protective mechanism while a costs assessment is on foot, and that this bar extends to any proceedings whose substance is the recovery of legal costs, regardless of the cause of action pleaded. Practitioners who issue invoices and then seek assessment must elect their avenue; they cannot simultaneously maintain both pathways.
The case is also instructive on the mechanics of Trustee Act payment-out applications in contested multi-party scenarios. The court’s endorsement of a detailed solicitor’s report (the Heydon Report) as a sufficient basis for apportioning a complex fund — involving an estate, corporate trustees, and overlapping damages and costs orders from years of litigation — provides a practical model for practitioners navigating similar disputes over trust moneys held pending distribution.