What A Deed Of Priority Really Protects When A Development Collapses

A lender spent $32.3 million to step in and complete a property development after the developer went into liquidation. The deed of priority the lender had signed with another lender failed to protect that spending, and it ranked behind the other lender’s debt. That is the outcome in the case of JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 (‘JSY Securities Pty Ltd v Dakabin Homes Pty Ltd’).

The case is a useful read for any private lender who relies on a deed of priority. It shows how easily the drafting of a deed of priority can fail to address the one scenario that matters most: what happens when the developer collapses, and someone has to fund completion out of their own pocket.

The Facts

Harburg Nominees Pty Ltd as trustee for the TW Superannuation Fund (“Harburg”) advanced $14 million and JSY Securities Pty Ltd (“JSY”) advanced $1.44 million to a developer to finance a residential townhouse development at 140 Alma Road, Dakabin QLD 4503 (“the Property”). Harburg and JSY’s debts were secured by a mortgage each over the Property. They executed a deed of priority, which gives Harburg’s mortgage priority over JSY’s mortgage but only up to a defined “Harburg Priority Amount.”

The developer failed to complete the project before going into liquidation in 2021. Harburg took possession of the Property and decided to fund and complete the project itself. Harburg and later Dakabin Homes Pty Ltd (“Dakabin”), who took on Harburg’s debt, spent a further $32.3 million to complete the project.

When the project was completed and the townhouses were sold, a dispute arose as to whether Harburg and Dakabin can recover their $32.3 million before JSY can recover the money owing under its mortgage.

The Deed of Priority

To determine whether Harburg and Dakabin could recover their $32.3 million in further development costs before JSY can recover the money owing under its mortgage, the Court construed the definition of the Harburg Priority Amount under the deed of priority.

The deed of priority defined the Harburg Priority Amount as follows:

‘Harburg Priority Amount’ means $11,794,444.92 … being the amount agreed to be lent and advanced by Harburg to the Mortgagor … together with all interest on those amounts whether such interest shall be capitalised or not, fees, costs, consultancy expenses and any other monies necessary or required to preserve or protect the value of the Property.’¹

The central issue was whether the cost of completing the development amounted to “monies necessary or required to preserve or protect the value of the Property”. That turned on two questions:

• The meaning of “value” – a reasonable businessperson would understand the value of the Property as its present value, reflecting its development potential at the relevant time, not its future value once the development was actually completed;² and;
• The meaning of “preserve or protect” — words which, on their ordinary meaning, limit the definition to costs incurred in maintaining an existing value.³

The Court held that continuing the construction of the development did more than preserve or protect the value of the Property. It increased that value, development potential included, which took the further development costs outside the definition altogether.

Equitable Relief

The construction of the deed of priority aside, Harburg and Dakabin argued that remedy was available to them under the laws of equity. Equity is a body of legal principles developed by the courts to provide relief where the application of legal and contractual rights would be unfair or unconscionable.

The Court identified three equitable principles governing whether the cost of the improvements made to the Property can be charged to and be recoverable from the developer:

1. ‘A mortgagee in possession should be able to recover in priority to a subsequent mortgagee, costs that it pays, not to alter the nature of the mortgaged property, but reasonably for the purpose of improving the actual state of the property for the purpose of realising it by sale, and which in fact increase its saleable value.’⁴
2. ‘If the subsequent mortgagee seeks to obtain the surplus proceeds of sale, then costs incurred by the mortgagee in possession which increased the saleable value of the mortgaged property should not go to that party unless it pays the sum of money which caused the increase.’⁵
3. ‘Where the subsequent mortgagee is given notice that the mortgagee in possession is incurring costs in making improvements to the mortgaged property and acts in a way that indicates its tacit consent or acquiescence to that course, it is unnecessary for the mortgagee in possession to demonstrate that the costs were incurred for a reasonable purpose.’⁶

The Court found that Harburg and Dakabin satisfied all three limbs. The further development costs did not alter the nature of the Property and had caused the saleable value of the Property to increase. JSY did not object to Harburg and Dakabin completing the project and incurring further development costs to improve the Property.

That still left the question of whether Harburg and Dakabin were entitled to pay the further development costs out of the sale proceeds before JSY can recover the amount owing under its own mortgage.

The Court considered the case of Matzner v Clyde Securities Ltd⁷ in relation to whether the cost of improvements to a property can be added to the first mortgage as against a subsequent mortgage, given the rule against tacking. That rule normally stops a later advance given by a first mortgagee from having the same priority as the first mortgage, once the first mortgagee is aware of a subsequent mortgage over the property. The result in Matzner v Clyde Securities Ltd was that, provided the three equitable principles mentioned above applied, the mortgagee in possession was entitled to add the expenditure on improvements to its mortgage in priority to the subsequent mortgagee.

On this basis, Harburg and Dakabin could have tacked their $32.3 million in development costs to the Harburg Priority Amount and their own mortgage, ranking ahead of JSY’s debt.

However, the Court then turned to whether the deed of priority itself excluded entitlement to that equitable relief. Clause 3.3 provides, ‘The order of priority set out in Clauses 3.1 and 3.2 is absolute and applies despite anything which would or may affect the order of priority …’ By describing the order of priority as “absolute,” and agreeing that it would apply “despite anything” which might affect it, the parties had used language clear enough to exclude reliance on the equitable remedies Harburg and Dakabin sought to invoke.

It remains to be seen whether the decision will be appealed.

Estoppel by Acquiescence

Harburg and Dakabin had also argued that JSY was entitled to equitable relief but on the grounds of estoppel by acquiescence. This doctrine would prevent JSY from asserting its right under the deed of priority to be paid its secured debt ahead of Harburg and Dakabin recovering their further development costs.

The Court never decided whether clause 3.3 of the deed of priority would also exclude reliance on estoppel by acquiescence. Instead, the Court found that JSY was not estopped from asserting its rights under the deed of priority.

To establish an estoppel by acquiescence, Harburg and Dakabin needed to prove the following five elements:

1. Harburg and Dakabin were mistaken as to their legal rights under the deed of priority;
2. Harburg and Dakabin expended money, or did some act, on the faith of that mistaken belief;
3. JSY knew of its own rights under the deed of priority;
4. JSY knew of Harburg and Dakabin’s mistaken belief; and
5. JSY encouraged Harburg and Dakabin in that expenditure, either directly or by abstaining from asserting its legal right.

The Court found that the first three elements were satisfied. Harburg and Dakabin mistakenly believed that they were entitled to recover further development costs before JSY’s debt was paid under the deed of priority. JSY knew of its own rights under the deed of priority.

In relation to the fourth element, Harburg and Dakabin needed to show that JSY had actual knowledge of their mistaken belief. There was no direct evidence of this. The Court declined to infer from JSY’s experience in lending to developers and the risks involved in continuing the development.

Accordingly, the Court held that JSY was not estopped from asserting its right under the deed of priority.

Conclusion

Ultimately, the recovery of the further development costs by Harburg and Dakabin ahead of JSY comes down to the wording of the deed of priority. The deed of priority was clear that the further development costs did not amount to monies necessary or required to preserve or protect the present value of the Property. The deed of priority also expressly excluded the equitable relief that would otherwise have been available to Harburg and Dakabin.

Draft to Your Objectives

As the case of JSY Securities Pty Ltd v Dakabin Homes Pty Ltd shows, the outcome for Harburg and Dakabin turned on the precise wording of the deed of priority. A deed drafted around your specific commercial objectives can be the difference between being repaid in full and holding an unsecured claim in a liquidation.

Footnotes 

1 JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 [25].

2 JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 [34].

3 JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 [38].

4 JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 [47].

5 JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 [48].

6 JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106 [49].

7 Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 (‘Matzner v Clyde Securities Pty Ltd’).