Federal Court of Australia

Nuix Limited v Berkshire Hathaway Specialty Insurance Company [2026] FCAFC 87

ORDERS

THE COURT ORDERS THAT:

1.    The applicant have leave to appeal from the judgment of the primary judge.

2.    The applicant’s draft notice of appeal stand as the notice of appeal.

3.    The appeal be dismissed.

4.    The applicant pay the first and second respondents’ and the third respondent’s costs of the application for leave to appeal and the appeal, as agreed or assessed.

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

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    This judgment deals with an issue of construction in relation to two policies of liability insurance which are relevantly in similar terms. Each policy provides for a retention of $2.5 million for “Side B Coverage” under the policy and for a retention of $10 million for “Side C Coverage”. Each policy also provides (in summary) that if there are related claims on the insured, the claims are to be considered a single claim and only one retention will be applicable. The issue to be considered is: in circumstances where there is a claim on the insured which engages Side B Coverage and then a related claim on the insured which engages Side C Coverage, is the applicable retention $2.5 million or $10 million? The primary judge concluded that the applicable retention in such a case is $10 million: Nuix Limited v Berkshire Hathaway Specialty Insurance Company [2025] FCA 1002 (the Reasons). In our opinion, his Honour was correct to so hold.

2    The policies in issue are:

(a)    a policy titled “Public Offering of Securities Insurance” between Nuix Ltd (Nuix) as insured and insurers led by Berkshire Hathaway Specialty Insurance (Berkshire Hathaway) for the period 18 November 2020 to 18 November 2027 (the POSI policy); and

(b)    a policy titled “Executive First Directors & Officers Liability Insurance” between Nuix as insured and insurers led by Berkshire Hathaway for the period 3 December 2020 to 3 December 2021 (the D&O policy)

(together, the Policies).

3    The issue of construction is part of a wider dispute as to the cover available from a “tower” of insurance policies. The primary judge ordered that two questions (which raise the issue of construction summarised above) be heard separately from and in advance of other issues. The separate questions were in the following terms:

Question One

If under the [Public Offering of Securities Insurance Policy] as defined in [6] of the Concise Statement:

(a)    there is a Claim against an Insured Person, or there are Claims against Insured Persons, for which indemnity is sought under clause 1.2 (‘Side B Coverage’); and

(b)    subsequent to the Claim(s) referred to in 1(a), there is a Securities Claim, or there are Securities Claims, against the Company for which indemnity is sought under clause 1.3 (‘Side C Coverage’); and

(c)    by reason of clause 5.5 of the policy, the Claims in (a) and (b) constitute a single Claim,

what is the “applicable Retention”?

Question Two

If under the [Directors and Officers Policy] as defined in [8] of the Concise Statement:

(a)    there is a Claim against an Insured Person, or there are Claims against Insured Persons, for which indemnity is sought under clause 1.2 (‘Side B Coverage’); and

(b)    subsequent to the Claim(s) referred to in 2(a) there is a Securities Claim, or there are Securities Claims, against the Company for which indemnity is sought under clause 1.3 (‘Side C Coverage’); and

(c)    by reason of clause 5.5 of the policy, the Claims in (a) and (b) constitute a single Claim,

what is the “applicable Retention”?

4    At the hearing of the separate questions before the primary judge, only the first three insurers (Berkshire Hathaway, AIG Australia Limited and Liberty Mutual Insurance Company (Liberty)) appeared.

5    The primary judge answered each question: $10 million.

6    Nuix applies for leave to appeal from the judgment of the primary judge. Annexed to an affidavit of David Neil Gerber dated 4 September 2025 is a copy of Nuix’s draft notice of appeal.

7    The application for leave to appeal was heard together with the appeal (if leave to appeal is granted). As with the hearing before the primary judge, only the first three insurers appeared. It will be convenient to refer to them as the Insurers.

8    In our opinion, it is appropriate to grant Nuix leave to appeal. The proposed appeal raises an important issue of construction of the Policies. While technically interlocutory in character, the primary judge’s answers to the separate questions are final in relation to the issues raised for determination. We will therefore make an order granting leave to appeal. We will also make an order that the draft notice of appeal stand as the notice of appeal.

9    For the reasons that follow, we conclude that the appeal should be dismissed. We consider that the primary judge’s construction of the Policies was correct.

The Policies

10    As the primary judge noted at [9] of the Reasons, both Policies are issued on the letterhead of Berkshire Hathaway, being the primary layer insurer. The POSI policy relates to a specific initial public offering, namely the initial public offering detailed in a prospectus dated 18 November 2020 undertaken by Nuix (the IPO). The D&O policy is of a more generic nature, relating to the general liability of directors, officers and employees of Nuix.

11    Generally, the terms of the Policies are similar. We will outline the relevant clauses, referring first to the clauses of the POSI policy and then to the corresponding clauses of the D&O policy.

The “Insuring Agreements” and the Schedules

12    The insuring clauses of the POSI policy relevantly provide:

1.    INSURING AGREEMENTS

1.1.    Side A Coverage: Non-indemnified Loss of Insured Persons

The Insurer shall pay to or on behalf of each Insured Person all Loss as a result of a Claim first made against an Insured Person during the Policy Period, but only to the extent such Loss is not paid or indemnified by the Company.

1.2.    Side B Coverage: Company Reimbursement

The Insurer shall pay to or on behalf of the Company all Loss for which the Company indemnifies an Insured Person, as a result of a Claim first made against the Insured Person during the Policy Period.

1.3.    Side C Coverage: Company Securities

The Insurer shall pay to or on behalf of the Company all Loss as a result of a Securities Claim first made against the Company during the Policy Period.

13    The Schedule to the POSI policy includes:

14    The insuring clauses of the D&O policy provide:

1.    INSURING AGREEMENTS

1.1.    Side A Coverage: Non-indemnified Loss of Insured Persons

The Insurer shall pay to or on behalf of each Insured Person all Loss as a result of a Claim first made against an Insured Person during the Policy Period (or Discovery Period, if applicable), but only to the extent such Loss is not paid or indemnified by the Company.

1.2.    Side B Coverage: Company Reimbursement

The Insurer shall pay to or on behalf of the Company all Loss for which the Company indemnifies an Insured Person, as a result of a Claim first made against the Insured Person during the Policy Period (or Discovery Period, if applicable).

1.3.    Side C Coverage: Company Securities

The Insurer shall pay to or on behalf of the Company all Loss as a result of a Securities Claim first made against the Company during the Policy Period (or Discovery Period, if applicable).

15    The Schedule to the D&O policy includes:

16    It is important to distinguish between (a) a Claim (as defined) that is made by a third party against the Insured (as defined) and (b) a Claim by the Insured for coverage under the Policies. Consistently with the approach taken by the primary judge (at [53] of the Reasons) and by the parties in their submissions, for brevity, we will use the expression “Side A Claim” to refer to a Claim that is made by a third party against the Insured which gives rise to a claim for Side A Coverage; “Side B Claim” to refer to a Claim that is made by a third party against the Insured which gives rise to a claim for Side B Coverage; and “Side C Claim” to refer to a Claim that is made by a third party against the Insured which gives rise to a claim for Side C Coverage. The expressions Side A Claim, Side B Claim and Side C Claim do not appear in the Policies.

Identification of the relevant parties

17    Under the Policies, Berkshire Hathaway is the “Insurer” and Nuix is the “Company”.

18    The POSI policy defines the expression “Insured Person” as follows:

3.14.    Insured Person means any natural person who was, is or shall be:

a)    a duly elected or appointed director (as defined in the Corporations Act 2001 (Cth) or equivalent legislation in any jurisdiction in which a Company is incorporated), shadow director or a de facto director of a Company;

b)    a prospective director as identified in a Disclosure Document;

c)    an officer, senior manager, in-house general counsel, company secretary, risk manager, controller, chancellor or governor of a Company, or any other natural person who:

i.    makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the Company; or

ii.    has the capacity to affect significantly the Company’s financial standing;

d)    a member of any committee duly elected or appointed by resolution of the board of directors of a Company to perform specific directorial acts on behalf of the Company;

e)    an official of a Company, including if organised or operated in a Foreign Jurisdiction, while serving in a functionally equivalent position to those described in subsections (a) - (d), above;

f)    an individual described in subsections (a) - (e) above while serving at the specific direction or request of the Company in a position functionally equivalent to those described in subsections (a) - (e) above for an Outside Entity; or

g)    any employee of the Company:

i.    to the extent such employee is acting in the capacity of an individual described in subsections (a) - (e) above;

ii.    who is named in connection with an Insured Person Inquiry or Securities Claim; or

iii.    with respect to any other Claim while such other Claim is brought and maintained against both such employee and an individual described in subsections (a) – (e) above;

but only when and to the extent that the natural person is acting in their respective capacity as described in (a) – (e) above.

Insured Person does not include any natural person that is, was or shall be externally appointed, contracted or employed to administer or manage the affairs or assets of a Company under any form of external administration, including liquidation, voluntary administration and receivership.

19    The expression “Insured” is defined in the POSI policy as meaning (relevantly) any Insured Person or Company.

20    The definition of “Insured Person” in the D&O policy is slightly broader in that paragraph (b) refers to “a prospective director as identified in a Company prospectus or similar offering document” and two additional paragraphs or sub-paragraphs are included.

21    The expression “Insured” is defined in the D&O policy as meaning any Insured Person or Company.

Meaning of “Loss”

22    The term “Loss” is given an expansive meaning throughout the Policies. For present purposes, it is necessary to refer only to the following (in the POSI policy):

3.18.    Loss means any amount the Insured is legally obligated to pay, including, but not limited to:

a)    compensatory, punitive, aggravated, exemplary and multiple damages;

b)    settlements and judgments, including costs and fees awarded pursuant to a covered judgment and pre-judgment and post-judgment interest on that portion of a covered judgment;

c)    Defence Costs;

d)    solely with respect to an Insured Person Inquiry, Inquiry Costs;

…

23    The definition is relevantly the same in the D&O policy.

Meanings of “Claim”, “Wrongful Act”, etc

24    The expression “Claim” is defined in the POSI policy in a way that effectively requires the claim to have a connection with the IPO (defined as the “Offering”). The definition of “Claim” is as follows:

3.2.    Claim means:

a)    any written demand;

b)    any civil, statutory, administrative or regulatory proceeding (including arbitration, mediation, conciliation, or other alternative dispute resolution process), suit or counterclaim; or

c)    a criminal proceeding;

in connection with the Offering and for a specified Wrongful Act; or

d)    an Insured Person Inquiry, once an Insured Person is first requested or required to attend or produce documents to such Insured Person Inquiry, at which point such Insured Person Inquiry shall be deemed first made; or

e)    an official request for the extradition of an Insured Person in connection with the Offering, or the execution of a warrant for the arrest of an Insured Person in connection with the Offering, where such execution is an element of extradition, deemed first made upon receipt of the request or warrant; or

f)    a Securities Claim.

25    The expression “Wrongful Act” is defined in the POSI policy as:

3.42.    Wrongful Act means:

a)    any actual or alleged act, omission, error, misstatement, misleading statement, neglect, breach of duty, breach of trust, breach of contract, or breach of warranty of authority by any Insured Person in their capacity as such;

b)    for the purposes of Insuring Agreement 1.3, 1.4 and 1.5, any actual or alleged act, omission, error, misstatement, misleading statement, neglect or breach of duty by the Company; or

c)    any matter claimed against an Insured Person solely by reason of them serving in such capacity;

in connection with the Disclosure Document or Road Show.

26    The expressions “Disclosure Document”, “Road Show” and “Securities Claim” are defined in the POSI policy as:

3.9.    Disclosure Document means the disclosure document, prospectus, or similar document in any jurisdiction, issued in connection with the Offering, and any draft of that disclosure document or prospectus.

…

3.32.    Road Show means any formal presentation by the Insured to potential investors in the Offering.

…

3.36.    Securities Claim means a written demand, civil or criminal proceeding, or formal administrative or regulatory proceeding:

a)    brought or made by any person or entity, and based upon, arising out of or related to, in part or in whole, the purchase or sale, or the offer or solicitation of an offer to purchase or sell, any securities of a Company; or

b)    brought by a security holder of the Company in their capacity as such, whether directly, by class action, or derivatively on behalf of the Company;

in connection with the Offering and for a specified Wrongful Act.

27    The expression “Claim” in the D&O policy is broader than in the POSI policy. The definition of “Claim” in the D&O policy is:

3.2.    Claim means:

a)    any written demand;

b)    any civil, statutory, administrative or regulatory proceeding (including arbitration, mediation, conciliation, or other alternative dispute resolution process), suit or counterclaim; or

c)    a criminal proceeding;

for a specified Wrongful Act; or

d)    an Insured Person Inquiry, once an Insured Person is first requested or required to attend or produce documents to such Insured Person Inquiry, at which point such Insured Person Inquiry shall be deemed first made;

e)    an official request for the extradition of an Insured Person, or the execution of a warrant for the arrest of an Insured Person where such execution is an element of extradition, deemed first made upon receipt of the request or warrant; or

f)    a Securities Claim.

28    The expression “Wrongful Act” is defined in the D&O policy as:

3.39.    Wrongful Act means:

a)    any actual or alleged act, omission, error, misstatement, misleading statement, neglect, breach of duty, breach of trust, breach of contract, or breach of warranty of authority by any Insured Person in their capacity as such;

b)    solely for the purposes of Insuring Agreement 1.3, any actual or alleged act, omission, error, misstatement, misleading statement, neglect or breach of duty by the Company;

c)    any Employment Wrongful Act; or

d)    any matter claimed against an Insured Person solely by reason of them serving in such capacity.

29    The expression “Securities Claim” is defined in the D&O policy as:

3.33.    Securities Claim means a written demand, civil or criminal proceeding, or formal administrative or regulatory proceeding:

a)    brought or made by any person or entity, and based upon, arising out of or related to, in part or in whole, the purchase or sale, or the offer or solicitation of an offer to purchase or sell, any securities of a Company; or

b)    brought by a security holder of the Company in their capacity as such, whether directly, by class action, or derivatively on behalf of the Company;

for a specified Wrongful Act.

Securities Claim also means a Security Holder Derivative Demand.

Advancement of (among other things) “Defence Costs”

30    Extension 2.1 in the POSI policy provides:

2.1.    Advancement of Costs and Expenses

The Insurer shall advance Defence Costs, Inquiry Costs, Crisis Management Costs, Bail Bond and Civil Bond Premium, Deprivation of Assets Expenses, Prosecution Costs, and Public Relations Costs on a current basis but no later than thirty (30) days after the Insurer receives itemised invoices for the same, and until such time that it is finally established that the Insured is not entitled to coverage for such Loss under the terms and conditions of this Policy; provided that to the extent it is finally established that any such amounts are not covered under this Policy, the Insureds, severally and according to their respective interests, shall repay any previously advanced amounts to the Insurer.

31    The Schedule to the POSI policy provides that extension 2.1 is included.

32    The POSI policy defines “Defence Costs” as:

3.7.    Defence Costs means the reasonable fees, costs and expenses incurred in the defence, investigation, settlement or appeal of any Claim. Defence Costs does not include any salaries, wages, overhead, benefits or benefit expenses associated with any Insured.

33    The extension in clause 2.1 of the D&O policy is broader than in the POSI policy, in that it also refers to “Security Holder Derivative Demand Investigation Costs”. Otherwise, it is in the same terms.

34    The Schedule to the D&O policy provides that extension 2.1 is included.

35    The expression “Defence Costs” is defined in the D&O policy in the same way as in the POSI policy.

The “Related Claims” clause (clause 5.5)

36    An important clause for present purposes is clause 5.5. In the POSI policy, this clause provides:

5.5.    Related Claims

More than one Claim involving the same Wrongful Act or Related Wrongful Acts of one or more Insureds, or with respect to an extradition proceeding or Insured Person Inquiry, arising from the same or related facts or circumstances or series of causally or logically related facts or circumstances, shall be considered a single Claim, and only one Retention shall be applicable to such single Claim.

All such Claims constituting a single Claim shall be deemed to have been first made on the earlier of the following dates: (i) the date on which a Claim forming part of any such single Claim was first made; or (ii) the date on which any such Wrongful Act, Related Wrongful Act or, with respect to an extradition proceeding or Insured Person Inquiry, such fact or circumstance, was notified under this Policy or any other policy providing similar coverage, regardless of whether such date is before or during the Policy Period. In no event shall a single lawsuit or proceeding constitute more than one Claim subject to more than one Retention.

(Underlining emphasis added.)

37    The expression “Related Wrongful Acts” is defined in the POSI policy as:

3.30.    Related Wrongful Acts means all Wrongful Acts that are logically or causally connected by any fact, circumstance, situation, event, transaction, cause or series of related facts, circumstances, situations, events, transactions or causes.

38    The expression “Retention” is defined as meaning “any amount specified as such in the Schedule”. The Schedule to the POSI policy includes the retentions set out at [13] above.

39    Clause 5.5 of the D&O policy is very similar to the related claims clause in the POSI policy, but it also refers, in the penultimate sentence of the second paragraph, to “or any applicable Discovery Period”.

40    The definition of “Related Wrongful Acts” in the D&O policy is the same as in the POSI policy.

41    The expression “Retention” is defined in the D&O policy as meaning “any amount specified as such in the Schedule”. The Schedule to the D&O policy includes the retentions set out at [15] above.

The “Retention” clause (clause 6.2)

42    Clause 6.2 of the POSI policy is important for present purposes. It provides:

6.2.    Retention

a)    The Retention shall apply to Loss resulting from each and every Claim, except that no Retention shall apply to Loss under Insuring Agreement 1.1 or Crisis Management Costs.

b)    The Insurer’s liability with respect to Loss covered by this Policy resulting from each and every Claim shall be excess of the applicable Retention. The applicable Retention shall be borne by the Company uninsured under this Policy, and unless otherwise stated shall apply to all covered Loss.

c)    If a Company refuses or fails within sixty (60) days after an Insured Person’s request to indemnify or advance covered Loss or if a Company is unable to indemnify or advance covered Loss due to its insolvency (other than voluntary administration), the Insurer shall pay such covered Loss without applying the applicable Retention. If the Insurer pays under this Policy any Loss incurred by an Insured Person for which the Company is legally permitted or required and is financially able to advance or indemnify, then the Company shall reimburse the Insurer for such amounts up to the applicable Retention, and such amounts shall become due and payable as a direct obligation of the Company to the Insurer.

(Underlining emphasis added.)

43    The comparable clause in the D&O also refers to “Security Holder Derivative Demand Investigation Costs” in clause 6.2(a). Otherwise, the retention clause is in the same terms as in the POSI policy.

44    It is convenient to note at this point that the word “retention” is generally used in the following way in insurance law: under a “retention”, the insurer’s liability is not triggered until the retention amount is exceeded. In contrast, in respect of a “deductible”, the insurer is liable to provide indemnity from the commencement of a covered claim, but is entitled to reduce it by the amount of the deductible: see Derrington, DK and Ashton, RS, The Law of Liability Insurance (LexisNexis, 4th ed, 2025) at [8-422], [8-424]. The Policies use the word “retention” and not “deductible”.

Background facts

45    The following statement of the background facts is based on the Reasons at [35]-[45] and subject to the caveat at [35] of the Reasons that the issue before the Court (both at first instance and on appeal) has been isolated at an early stage and before all of the background facts have crystallised.

The IPO

46    Nuix’s business generally involves the development and sale of data processing technology, investigative analytics and intelligence software.

47    In November 2020, Nuix and its related company, Nuix SaleCo Limited, issued a prospectus for the purposes of Chapter 6D of the Corporations Act 2001 (Cth). The offer contained in the prospectus involved an initial public offering to acquire fully paid ordinary shares in the capital of Nuix. At or about that time, Nuix applied for admission to the official list of the Australian Securities Exchange. Nuix was admitted to that list on 4 December 2020.

48    On 26 February 2021, Nuix announced its results for the first half of the 2021 financial year. It also published an interim financial report, together with a presentation of its results.

The ASIC investigation

49    On 31 May 2021, Nuix received a statutory notice from the Australian Securities and Investments Commission (ASIC). That notice required the assistance of Nuix in relation to an investigation that ASIC was conducting vis-à-vis a third party. A month later, on or about 25 June 2021, Nuix was served with an affidavit that disclosed, inter alia, the fact that ASIC had commenced an investigation into it under the Australian Securities and Investments Commission Act 2001 (Cth). It seems that further notices may have been issued to Nuix, although the timing of their sending is unclear and, ultimately, irrelevant to the resolution of the separate questions.

Notification of the claims in respect of the ASIC investigation

50    It is alleged that, in or about June and July 2021, Nuix notified Berkshire Hathaway of certain “circumstances that may reasonably be expected to give rise to a claim” within the meaning of clause 5.6(c) of the Policies. The primary judge stated that there was no need to determine the force of that submission, save for noting that, thereafter, Nuix sought confirmation from Berkshire Hathaway that the Policies would cover the costs of attending to ASIC’s investigations and notices.

The class actions and ASIC proceedings

51    Three class actions were commenced against Nuix (and others) in the Supreme Court of Victoria in late 2021 and early 2022. Two of those actions (referred to as the Lay and Batchelor proceedings) were subsequently consolidated, and the third (the Bahtiyar proceeding) was permanently stayed.

52    On 28 September 2022, ASIC filed proceedings against Nuix in this Court.

53    Throughout 2021 and 2022, it is said that Nuix sought confirmation from Berkshire Hathaway that coverage would be provided in respect of the several class actions and the ASIC litigation, and sought permission to incur Defence Costs under the Policies.

The position of the Insurer

54    On 15 November 2022, Berkshire Hathaway conveyed its decision on coverage. It indicated that under the POSI policy:

(a)    the ASIC investigations engaged “Side B Coverage”;

(b)    the class actions engaged “Side C Coverage”; and

(c)    together, these constituted a single Claim by reason of clause 5.5.

55    On that basis, Berkshire Hathaway asserted that a Retention of $10 million applied.

56    In relation to the D&O policy, Berkshire Hathaway advanced the view that there were two groups of claims, each of which groups should be treated as a single Claim, one within Side B Coverage (attracting a Retention of $2.5 million), and the other within Side C Coverage (attracting a Retention of $10 million). In these circumstances, Berkshire Hathaway contended that the applicable Retention was $10 million.

The Reasons of the primary judge

57    The primary judge set out the relevant principles of construction at [49] of the Reasons. There is no issue on appeal as to his Honour’s statement of the applicable principles. His Honour referred to: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 (McCann); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 (Toll v Alphapharm); Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 (Wilkie); and other cases.

58    His Honour discussed the salient elements of the Policies at [51]-[73] of the Reasons. This section of the Reasons is arranged under the following headings:

(a)    The operation of the insuring clauses;

(b)    The liability of the Insurer is limited to what is in excess of the retention;

(c)    The operation of the Retention clause vis-à-vis a Side A, B or C Claim;

(d)    The Related Claims clause; and

(e)    The timing of the making of Claims.

59    In the part headed “The liability of the Insurer is limited to what is in excess of the retention”, the primary judge stated at [58]:

It is apt to keep in mind that the cover is not triggered unless and until the Insured sustains Loss in excess of the applicable retention: Derrington DK and RS Ashton, The Law of Liability Insurance (4th ed, [2025], LexisNexis) (The Law of Liability Insurance). So, though an Insured will usually give notice of a Claim’s having been made upon it, the Insurer’s obligation is not enlivened until a Loss is sustained within the scope of the indemnity clause; being that which exceeds the relevant retention. There are some exceptions to this, including the Extension granted by cl 2.1, by which a promise is made to “advance”, inter alia, Defence Costs and Inquiry Costs in accordance with that clause; but, in turn, the Insurer is entitled, in specified circumstances, to recover any amounts so advanced in the circumstances provided.

(Emphasis added.)

60    In the part headed “The operation of the Retention clause vis-à-vis a Side A, B or C Claim”, the primary judge provided the following explanation of the way in which clause 6.2 operates:

60    In general terms, cl 6.2a) provides that the “Retention”, as is provided for in the Schedule, shall “apply to Loss resulting from each and every Claim”, albeit subject to the exception that no retention applies to Loss under, inter alia, cl 1.1.

61    The first sentence of cl 6.2b) specifically articulates that the Insurer’s liability with respect to the Insured’s Loss extends to only that which is in excess of the applicable retention. That is reinforced by the second sentence of the subclause, which provides that the applicable retention is to be borne by the Company “uninsured under this Policy”.

62    The effect of cl 6.2c), which has been [adverted] to previously, is important. It provides cover to an Insured Person in respect of who the Company has failed to indemnify in respect of Loss and accords the Insurer the right of recourse against the Company in respect of the amount of the relevant retention. In this way, the Insurer is to be put into the same position that it would have been [in] if the Company had paid in respect of the Insured Person’s Loss, and then made a Side B Claim on the Insurer.

63    Taken together with the insuring clauses, the operation of the Retention clause is, prima facie, unexceptional. If a Side B Claim is made on the Insured, the Insurer’s liability arises once the Company suffers Loss in excess of $2.5m; in relation to a Side C Claim, that liability arises once the Company suffers Loss in excess of $10m. However, when the Insurer is called upon to respond to a Side A Claim by reason of the Company’s omission to meet the Insured Person’s Loss, the liability arises in respect of the first dollar of Loss suffered by an Insured Person but, by cl 6.2c), the Insurer can recover an amount equal to the retention from the Company.

61    The primary judge then discussed clause 5.5. This discussion included the following observations at [71]:

It is convenient to observe that, if read literally, cl 5.5 would not be wholly congruent with the retention provisions, which provide that retentions “apply to Loss”. That is, it appears, prima facie, to suggest that the retention applies to the Claim made on the Insureds rather than to the Loss incurred through actual liability. That inconsistency can legitimately be overcome by reading the provision to mean that only one retention shall be applicable to Loss resulting from the single Claim that is “considered” to have been made by force of cl 5.5 of the Policies.

62    The primary judge’s core reasoning is at [74]-[111] of the Reasons, under the heading “The related claims in the present case”.

63    The primary judge stated at [74] that the present dispute derives from a particular substratum of fact: both a Side B Claim, to which a $2.5 million Retention applies, and a Side C Claim, to which a $10 million Retention applies, have been made on the Insured. His Honour stated that (as indicated by the wording of the separate questions) it was accepted that: (a) those claims fall within the ambit of the aggregation that is effected by clause 5.5 of the Policies; and (b) the Side B Claim was first in time and the Securities Claims, being the Side C Claims, followed thereafter. His Honour framed the issue in the following way at [75]:

Accordingly, the central issue for resolution is whether the Policies operate such that the $2.5m retention, applicable to the first-in-time Side B Claim, prevails if a related Side C Claim (with a $10m retention) is made thereafter. On the material before the Court, two outcomes are open. First, as argued by the Insured, the $2.5m retention remains applicable because it arose first. Or second, as argued by the Insurer, the $10m retention applies because it applies vis-à-vis the Side C Claim which, in turn, is the larger of the aggregated Claims.

64    His Honour discussed nine considerations relevant to the issue of construction. We refer to those considerations in the following paragraphs.

65    The first consideration discussed by his Honour was the language of the parties’ agreement (at [77]-[83]). His Honour considered this to favour the Insurers’ construction. In particular, his Honour stated at [78] and [81]:

78    Regardless of the justification for the substantial retention in relation to Side C Claims, it is, fundamentally, part of the bargain which the parties struck in relation to [Securities] Claims and it is a salient policy feature. Importantly, there is no explicit indication in the Policies to suggest that it will not apply merely because an insured has previously sought Side B Cover for a related claim. On the contrary, cl 6.2a) emphasises that the applicable retention “shall apply to Loss resulting from each and every Claim”. That drafting could be seriously negated if, due to the existence of a prior related Side B Claim, a retention of only $2.5m applied in relation to cover sought for a Side C Claim. Necessarily, the effect of cl 5.5 is that only one retention will apply to related Claims, and, in the circumstances, it will be $2.5m or $10m. In the present context, it is conceptually more acceptable for the $10m retention to subsume the $2.5m retention in the context of an aggregated claim. Were it not so, the Insured would have the benefit of cover in relation to a Side C Claim for Loss exceeding $2.5m, in circumstances where it had been agreed that the uninsured portion of that Loss would be $10m. Such a result would be far from business-like and unlikely, on any objective view, to have been one intended by the parties.

…

81    As was submitted by Mr McArthur SC for the third respondent, Liberty, Nuix’s position did not rely upon a process of construction, per se, but on an assertion of the existence of an alleged hiatus in the Policies and the implication of a term which was claimed to enable them to work coherently. There is force in that submission. There is nothing in the language of cl 5.5 to suggest that the agreed retention in relation to the Side C Coverage would become inapplicable upon aggregation. It might … just as easily have been said that the requirement of one retention implied that the larger of those applicable would prevail. In fact, where there are multiple related claims to which several retentions are applicable, it is more a natural conclusion that the larger will absorb the smaller. That does least violence to the parties’ clear agreement as to the different levels of retention.

(Emphasis added.)

66    The second consideration discussed by the primary judge was the object of the Policies (at [84]-[86]). His Honour stated at [85]:

It should also be accepted, as the respondents submitted, that one of the major benefits of retentions in insurance policies is that they have the effect of reducing the relevant premiums. It is axiomatic that the higher the retention, the lower is the insurer’s risk and the lower will be the premium charged. Thus, a construction that maintains the efficacy of the retention agreed upon and which is reflected in the premium, is one that more properly accords with the parties’ intentions.

67    The third consideration was the likelihood of clause 5.5 single claims (at [87]-[88]). His Honour considered that Nuix’s construction would have the unusual consequence that the parties’ agreement upon a higher Retention for Securities Claims would rarely apply (at [87]). This would undermine the deterrent object of the $10 million Retention (at [88]).

68    The fourth consideration was certainty at the time of contracting (at [89]-[96]). His Honour did not consider this factor to favour Nuix’s case (at [96]).

69    The fifth consideration was the timing of the making of the Claims (at [97]-[102]). Having previously indicated that Nuix’s construction involved the proposition that the $2.5 million retention would apply if the Side B Claim was first in time, his Honour stated at [97]:

It was a feature of Nuix’s submissions that the retention amount applicable to the cl 5.5 single claim is dependent upon the happenstance of whether the Insured Person Inquiry Claim (Side B Claim) or the Securities Claim (Side C Claim) is made first. The anomaly which might arise from this is that substantially different retentions might apply to what are, essentially, precisely the same cl 5.5 single Claims, which differ only by reason of the order in which they were made. This is, self-evidently, unsatisfactory, and has no commercial logic to it.

70    The sixth consideration was that “[t]here is no unfairness in this result” (at [103]).

71    The seventh consideration was the operation of clause 6.2(c) of the Policies (at [104]-[106]). His Honour considered that this clause did not assist Nuix’s case (at [105]).

72    His Honour also discussed, as the eighth consideration, CIMIC Group Ltd v AIG Group Ltd [2022] NSWSC 999, which involved a similar issue (albeit in relation to a different policy).

73    The ninth consideration related to a circumstance in which the Side C Claim fails (at [110]-[111]).

74    His Honour concluded at [112]:

From the foregoing, the appropriate construction of the Policies is that when Side C Claims are made, thereby calling upon the Side C Coverage under cl 1.3 of the insuring clauses, a single retention of $10m is applicable. That is so regardless of whether any other related claims are also made, whether before or after the making of the Side C Claim. Any other non-related claim will, necessarily, have their own applicable retention.

The appeal

75    The notice of appeal contains a single ground, namely that the primary judge erred in his construction of clauses 6.2 and 5.5 of the Policies, referring to the Reasons at [62], [71], [78]-[83], [97]-[102] and [110]-[111]. In summary, Nuix contends that:

(a)    The primary judge erred by approaching the task of policy construction on the basis that a purpose of the Policies was “creating an incentive to the insureds to act prudently and take appropriate steps to avoid the occurrence of Loss” (Reasons, [64]) and on the basis that “the amount of the retainer is adjusted to reflect the magnitudes of any anticipated claims” (Reasons, [64]), in circumstances where there was no evidence to support that approach and it was not something in respect of which judicial notice could be taken under s 144 of the Evidence Act 1995 (Cth).

(b)    The primary judge erred by re-framing the question as being “whether the Policies operate such that the $2.5m retention, applicable to the first-in-time Side B Claim, prevails if a related Side C Claim (with a $10m retention) is made thereafter” (Reasons, [75], emphasis added).

(c)    The primary judge erred by concluding that each Claim which falls to be aggregated under clause 5.5 retains its “inherent character” for the purposes of identifying the applicable Retention (Reasons, [80]).

76    Nuix contends that the primary judge ought to have concluded that:

(a)    when a Claim is first made on an Insured, a Retention is applicable to that Claim;

(b)    for each successive Claim which meets the requirements of clause 5.5, the clause operates to deem the existing Claim(s) and the successive related Claim to be a single Claim;

(c)    the Policies do not (expressly or implicitly) provide for a change to the applicable Retention upon the making of subsequent related Claims;

(d)    the Policies do not (expressly or implicitly) provide that, in the event of subsequent related Claims, the highest Retention applies; and

(e)    the applicable Retention, in the scenario postulated in the separate questions, is $2.5 million.

Consideration

77    There is no issue as to the applicable principles of contractual construction. It is sufficient for present purposes to refer to the following.

78    “It is well established that a commercial contract should be construed by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract”: Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; 267 CLR 514 at [44] per Kiefel CJ, Gageler, Nettle and Gordon JJ. See also Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35] per French CJ, Hayne, Crennan and Kiefel JJ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 at [46]-[47] per French CJ, Nettle and Gordon JJ.

79    In Toll v Alphapharm, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ stated at [40]:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean.

See also Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [17] per French CJ, [59] per Gummow and Hayne JJ, [98] per Heydon and Crennan JJ.

80    In McCann, Gleeson CJ stated at [22]:

A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.

(Footnotes omitted.)

The above passage was approved by Gleeson CJ, McHugh, Gummow and Kirby JJ in Wilkie at [15] and by Gummow, Kirby, Heydon, Crennan and Kiefel JJ in CGU Insurance Ltd v Porthouse [2008] HCA 30; 235 CLR 103 at [43].

81    Of relevance to the constructional issue that arises in the present case, in Wilkie, Gleeson CJ, McHugh, Gummow and Kirby JJ said at [16]:

The immediate questions of construction of the Policy turn upon the relationship between Extension 9 and Exclusion 7. In construing the Policy, as with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole [See Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381-382 [69]-[71].].

See also LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCAFC 17; 290 FCR 435 at [57] per Derrington and Colvin JJ (Moshinsky J agreeing at [1]).

82    The issue to be determined is whether, in the circumstances described in the separate questions, the Retention is $2.5 million (as contended by Nuix) or $10 million (as contended by the Insurers). The circumstances described in the separate questions are, in summary and in respect of each Policy:

(a)    there is a Claim against an Insured Person (referred to in these reasons as a Side B Claim) for which indemnity is sought under clause 1.2 (Side B Coverage);

(b)    subsequently, there is a Securities Claim against the Company (referred to in these reasons as a Side C Claim) for which indemnity is sought under clause 1.3 (Side C Coverage); and

(c)    by reason of clause 5.5 of each Policy, the claims in (a) and (b) constitute a single Claim.

83    This is an issue of construction for which there is only one correct legal answer. Accordingly, were this Court to form the view that the correct construction is that contended for by Nuix, the appeal would be allowed, as there would necessarily be error in the judgment of the primary judge. It is appropriate, therefore, to start with our own consideration of the issue of construction (rather than starting with the alleged errors raised in the notice of appeal).

84    There is no language in the Policies that expressly resolves the issue of construction. For example, while clause 5.5 states that, in the circumstances of related Claims, “only one Retention shall be applicable”, the clause does not state which Retention is to apply or set out a method of working out which Retention is to apply. As senior counsel for Liberty frankly conceded in the course of argument, there is a “gap in the policy” as to which retention applies (T63). He continued:

There’s no text that says the one retention shall be the retention applicable to the claim that came first in time. There is no provision that says the one retention shall be the highest of the two retentions. … [N]either is to be found there. … It’s a problem for both sides of the argument.

85    The issue of construction involves, at its heart, the relationship between clause 5.5 and clause 6.2 of each Policy.

86    In a simple case – where there are related claims which are all Side B Claims or all Side C Claims – there is no difficulty of the kind under present consideration. For example, in a case where there are two related Side B Claims (and no Side C Claims), prima facie a Retention of $2.5 million would apply to Loss resulting from each Claim (clause 6.2(a)), but because the Claims are related the Claims would be treated as a single Claim and only one Retention of $2.5 million would be applicable to that Loss (clause 5.5). (As noted by the primary judge at [71] of the Reasons, if read literally, clause 5.5 (which suggests that Retentions apply to Claims) would not be wholly congruent with the retention provisions, which provide that Retentions “apply to Loss”. However, this possible incongruity can be overcome by reading clause 5.5 to mean that only one Retention shall be applicable to Loss resulting from the single Claim that is referred to in clause 5.5.)

87    However, difficulty arises where there are related Claims, one or more of which is a Side B Claim and one or more of which is a Side C Claim. Clause 6.2 states that the Retention (i.e. the retention specified in the Schedule) shall apply to Loss resulting from each Claim; thus, prima facie, the Retention for each Side B Claim is $2.5 million and the Retention for each Side C Claim is $10 million. Clause 5.5 provides that all the related Claims shall be considered a single Claim and only one Retention shall be applicable.

88    Nuix’s construction is that the applicable Retention in such a case is that of the first Claim in time. On Nuix’s construction, if the Side B Claim is made first, the Retention would be $2.5 million. Nuix submits that there is nothing in the Policy that changes that Retention. Accordingly, once the subsequent, related Side C Claim is made and the related Claims are considered a single Claim under clause 5.5, the single Retention is $2.5 million. Consistently with that construction, Nuix accepts that, if the Side C Claim is made first, the Retention would be $10 million, and there is nothing in the Policy that changes that Retention. Accordingly, once the subsequent, related Side B Claim is made and the related Claims are considered a single Claim under clause 5.5, the single Retention is $10 million.

89    The Insurers rely on the language of clause 6.2 as identifying the Retention applicable to Loss resulting from each Claim. Thus, prima facie, the Retention applicable to Loss arising from each Side B Claim is $2.5 million and the Retention applicable to Loss arising from each Side C Claim is $10 million. On the Insurers’ construction, the effect of clause 5.5 is (relevantly) to treat related Claims as a single Claim for the purpose of stipulating that a single Retention applies (rather than more than one Retention applying). However, on the Insurers’ construction, that is the limit of what clause 5.5 (relevantly) does; it does not take away the $10 million Retention that is applicable under clause 6.2 to Loss resulting from the Side C Claim.

90    In our opinion, the Insurers’ construction is to be preferred.

91    First, a fundamental difficulty with Nuix’s construction is that it does not cope with a situation where a Side B Claim and a related Side C Claim are made at the same time. The construction simply does not answer the question: what is the applicable Retention? It is quite plausible that a Side B Claim and a related Side C Claim may be made at the same time. For example, claims against the Company and its directors may well be made in the same letter of demand.

92    To the extent that Nuix relied on the order of payments clause (clause 6.5) in answer to this difficulty with its construction (T30-31, T65-66), we do not consider that response to be persuasive. Clause 6.5 of each Policy provides:

6.5.    Order of Payments

a)    The Insurer shall be entitled to pay Loss as it becomes due and payable under this Policy without consideration of other future payment obligations.

b)    In the event Loss under Insuring Agreement 1.1 and any other Loss become due and payable concurrently, the Insurer shall pay, subject to the Limit of Liability, Loss covered under Insuring Agreement 1.1 first before paying any other Loss.

c)    The bankruptcy or insolvency of any Insured shall not relieve the Insurer of any of its obligations to prioritise payment of covered Loss under this Policy as set forth above.

93    This clause is not directed at determining the applicable Retention, and it is unlikely that the parties intended this clause to provide the mechanism to determine the applicable Retention where a Side B Claim and a related Side C Claim are made at the same time.

94    Secondly, a difficulty with Nuix’s construction is that it operates in an arbitrary way, which is unlikely to have been intended. On Nuix’s construction, in a case of related Claims (including at least one Side B Claim and one Side C Claim), whether the Retention is $2.5 million or $10 million depends entirely on which Claim is made first. This is happenstance. There is no commercial logic to why the Retention should be $2.5 million if the Side B Claim is made first and $10 million if the Side C Claim is made first.

95    Thirdly, the Insurers’ construction is the more natural construction having regard to the nature of a retention and the agreed-upon Retentions under the Policies. Clause 6.2 provides that the Retention applicable to Loss resulting from each Side B Claim is $2.5 million and the Retention applicable to Loss resulting from each Side C Claim is $10 million. As stated above, as a matter of general usage, under a “retention”, the insurer’s liability is not triggered until the retention amount is exceeded. The Policies adopt this usage of the term “retention”: clause 6.2 provides that “[t]he Insurer’s liability with respect to Loss covered by this Policy resulting from each and every Claim shall be excess of the applicable Retention” and that “[t]he applicable Retention shall be borne by the Company uninsured under this Policy”. Thus, the effect of clause 6.2 (considered in isolation) is that the Company bears the first $2.5 million of Loss resulting from each Side B Claim and the Company bears the first $10 million of Loss resulting from each Side C Claim. In this context, and in circumstances where clause 5.5 does not expressly resolve the issue, it is more natural for the larger Retention to apply in the event of related Claims which engage both Side B Coverage and Side C Coverage. In bearing the first $10 million of Loss, the Company can be said to be bearing both the first $2.5 million of Loss resulting from the Side B Claim and the first $10 million of Loss resulting from the Side C Claim. Conversely, if the Company bears the first $2.5 million of Loss, the Company would not be bearing the first $10 million of Loss resulting from the Side C Claim.

96    Nuix submitted that, if the Insurers’ construction was correct, one would expect to see a ‘clawback’ mechanism in the Policies to deal with a situation where moneys have been paid out by the Insurer on the basis of a $2.5 million Retention and there is then a related Claim with a $10 million Retention. For example, a Side B Claim is made to which Side B Coverage responds; the Company pays out the first $2.5 million of Loss; the Insurer then pays out $6 million; there is then a related Side C Claim. Nuix submits that, if the Insurers’ construction were correct, one would expect to see a repayment mechanism to deal with such a situation, but the Policies do not include such a mechanism, suggesting that the Insurers’ construction is incorrect. The Insurers’ response to that submission is that, in the scenario described, the Insurer does not have an entitlement to clawback the money it has paid. Accordingly, the Insurers submit, the Policies do not contain a clawback provision. In our opinion, on balance, the absence of a clawback mechanism to deal with the scenario described above is not determinative. In the absence of a clawback mechanism, the Insurer is not entitled to clawback any moneys that it has paid in the scenario described above. We do not consider this to be enough to prefer Nuix’s construction in light of the other matters we have discussed above.

97    In light of the matters discussed above, we consider that the Insurers’ construction is correct. Accordingly, the primary judge’s answers to the separate questions were correct.

98    It is unnecessary to examine the specific errors alleged by Nuix in its notice of appeal. However, we note the following for completeness. Insofar as Nuix contends that the primary judge erred in relying on the commercial object of a retention as being to create an incentive to the Insureds to act prudently and take appropriate steps to avoid the occurrence of Loss (see [64] of the Reasons), we are not satisfied that his Honour erred. That this is one of the functions of a deductible or a retention is stated in texts on insurance law (see, eg, Enright, WIB, Merkin, RM and Hawke, F, Sutton on Insurance Law (Thomson Reuters, 5th ed, 2025, [14.880]) (Sutton)) and arises as a matter of inference from the clauses of the Policies. In Sutton, the authors state at [14.880]:

The excess has two main functions. First, by excluding the most common forms of loss, small losses, the premium can be kept down. Secondly, by requiring the insured to retain a part of the risk, the insurers can impose some incentive on the insured to act prudently and to take steps to avoid suffering loss.

99    The primary judge referred to the first function at [85] of the Reasons and the second function at [64] of the Reasons. For the reasons already given, we see no error in his Honour’s reliance on those functions.

100    Insofar as Nuix submits that the primary judge erred in “re-framing” the question to be determined, Nuix’s submission appears to be based on his Honour’s use of the word “prevails” in the first sentence of [75] of the Reasons. We do not consider there to be any substance in this point. The use of the word “prevails” was merely a shorthand way of describing the issue and did not affect the substance of his Honour’s reasoning.

101    Insofar as Nuix submits that the primary judge erred in saying that each Claim retains its “inherent character” for the purpose of identifying the applicable Retention (see the Reasons at [80]), we do not see any error in his Honour’s approach. It is consistent with our reasoning above as to the correct construction.

Conclusion

102    For these reasons, while it is appropriate to grant Nuix leave to appeal, the appeal is to be dismissed. There is no apparent reason why costs should not follow the event. We will therefore make a costs order to that effect.

Associate:

Dated:    6 July 2026

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