Clear “absolute priority” wording can prevent a first-registered mortgagee from relying on equitable or statutory rights (such as s 118(2) Property Law Act 2023 (Qld) in or s 109 of the Transfer of Land Act 1893 (WA)) to elevate later advances by the first-registered mortgagee over the amount due to a subsequent mortgagee.
A Mortgagee in possession which intends to fund completion of a project should ensure that intercreditor and priority arrangements clearly deal with the ranking of those costs.
In JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106, the Supreme Court of Queensland considered the operation of a deed of priority between two lenders financing a townhouse development at “Dakabin Crossing”.
Harburg Nominees Pty Ltd (Harburg) funded approximately $5.4 million under a first registered mortgage. JSY Securities Pty Ltd (JSY) later advanced about $1.44 million, secured by a second mortgage.
Harburg subsequently agreed to advance a further $4 million, conditional upon a deed of priority granting priority to Harburg’s mortgage over JSY’s mortgage for an amount called the “Harburg Priority Amount”.
The mortgagor went into liquidation in March 2021. By then:
Harburg went into legal possession of the mortgaged property, elected to continue the staged development, and later assigned its debt and mortgage to Dakabin Homes Pty Ltd (Dakabin). Thereafter, recovery of Dakabin’s debt and construction of the remaining development was managed by a director of Harburg.
Dakabin and Harburg (collectively, the Harburg Parties) spent approximately $32.3 million (excluding GST) on further construction and, by trial, had received about $35.1 million from sales of completed townhouses, with a further $17.6 million expected from further sales.
In that context, JSY contended that, on the proper construction of the deed, the ‘Harburg Priority Amount’ had already been repaid, and JSY’s debt should now be paid from the sale proceeds.
The Harburg parties argued that they were entitled to recoup their development costs under the deed of priority, in equity and under s 118 of the PLA.
The “Harburg Priority Amount” was defined by reference to specified loan amounts “together with all interest on those amounts … fees, costs, consultancy expenses and any other monies necessary or required to preserve or protect the value of the Property.”
The Harburg Parties argued that continuing the development was necessary to “preserve or protect” the property’s value, so their development costs fell within the Harburg Priority Amount.
The court accepted that “value” includes present value reflecting the property’s development potential, but it distinguished between preserving existing value and increasing value by further construction.
Continuing the development after liquidation did more than preserve or protect the value of the property; it increased value.
The court therefore held that the Harburg Priority Amount did not include the costs the Harburg Parties incurred in continuing the development after the mortgagor’s liquidation.
The Harburg Parties relied on equitable principles and s 118(2) of the PLA, arguing that as mortgagee in possession they were entitled to include reasonable improvement expenditure to their secured debt in priority to JSY.
The court accepted that, absent the deed, equity and s 118(2) could allow a first ranking mortgagee to recoup improvement costs from sale proceeds ahead of a subsequent mortgagee where the expenditure improved the property.
In Western Australia, the functional equivalent of s 118(2) PLA is s 109 of the Transfer of Land Act 1893 (WA). Both govern the application of sale proceeds by a mortgagee exercising the power of sale and the obligation to account to subsequent interests.
The issue was that the deed of priority set an order of priority described as “absolute”: first, Harburg up to the “Harburg Priority Amount”, then JSY. The deed stated that this order applied “despite anything which would or may affect the order of priority”.
The court held that these were sufficiently clear words to exclude reliance on equitable and statutory rights (including s 118(2) PLA) that would otherwise have permitted Harburg to advance the priority of its further development costs ahead of JSY.
As a result, the Harburg Parties had no entitlement in equity or under s 118(2) PLA to prioritise their development costs before paying JSY.
The Harburg parties also argued that JSY was estopped by acquiescence from asserting its contractual priority and that JSY’s silence amounted to misleading or deceptive conduct under s 18 of the Australian Consumer Law.
They argued that:
The court accepted that Harburg acted under a mistaken belief and spent money on that basis, and that JSY had believed Harburg had priority.
The estoppel argument turned on whether JSY actually knew of Harburg’s mistaken belief. There was no direct evidence of such knowledge, and the court declined to infer it from the surrounding circumstances. The evidence of JSY’s representative denying that knowledge was accepted.
Without proof of actual knowledge of Harburg’s mistaken belief, the Harburg parties could not establish estoppel by acquiescence. For the same reason, JSY’s silence was not objectively misleading or deceptive and did not contravene s 18 ACL.
The court held that:
JSY was entitled to declaratory relief and judgment for the amount owing under its mortgage. Relief did not have to await completion and sale of all townhouses.
This article was written by Emma Cohen, Associate, Disputes.