Federal Court of Australia
Nuix Limited v Berkshire Hathaway Specialty Insurance Company [2025] FCA 1002
File number: | NSD 1463 of 2024 |
Judgment of: | DERRINGTON J |
Date of judgment: | 25 August 2025 |
Catchwords: | INSURANCE – liability insurance – multiple claims arising from common cause – aggregation clause imposing one retention – two claims with retentions of different value – whether the single retention is the higher or lower |
Legislation: | Australian Securities and Investments Commission Act 2001 (Cth) Corporations Act 2001 (Cth) |
Cases cited: | CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 LCA Marrickville Pty Limited v Swiss Re International SE (2022) 290 FCR 435 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Money Max Int Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191 National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 2) (2019) 377 ALR 627 Newey v Westpac Banking Corporation [2014] NSWCA 319 Onley v Catlin Syndicate Ltd (as the Underwriting Member of Lloyd’s Syndicate 2003) (2018) 360 ALR 92 Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance (2020) 282 FCR 561 Star Entertainment Group Limited v Chubb Insurance Australia Ltd (2022) 400 ALR 25 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 XL Insurance Co SE v BNY Trust Company of Australia Limited (2019) 20 ANZ Ins Cas ¶62–211 Derrington DK and RS Ashton, The Law of Liability Insurance (4th ed, 2015, LexisNexis) Enright WIB and RM Merkin, Sutton on Insurance Law (4th ed, 2015, Lawbook Co) |
Division: | General Division |
Registry: | New South Wales |
National Practice Area: | Commercial and Corporations |
Sub-area: | Commercial Contracts, Banking, Finance and Insurance |
Number of paragraphs: | 113 |
Date of hearing: | 20 May 2025 |
Counsel for the Applicant: | Ms A Horvath SC with Mr N Riordan |
Solicitor for the Applicant: | Clayton Utz |
Counsel for the First and Second Respondents: | Mr E Muston SC with Mr M Newton |
Solicitor for the First and Second Respondents: | Clyde & Co |
Counsel for the Third Respondent: | Mr G McArthur KC |
Solicitor for the Third Respondent: | Wotton Kearney |
Counsel for the Fourth to Fifteenth Respondents: | The Fourth to Fifteenth Respondents did not appear |
ORDERS
NSD 1463 of 2024 | ||
| ||
BETWEEN: | NUIX LIMITED Applicant | |
AND: | BERKSHIRE HATHAWAY SPECIALTY INSURANCE COMPANY First Respondent AIG AUSTRALIA LIMITED Second Respondent LIBERTY MUTUAL INSURANCE COMPANY (and others named in the Schedule) Third Respondent |
order made by: | DERRINGTON J |
DATE OF ORDER: | 25 August 2025 |
THE COURT ORDERS THAT:
1. In response to the first separate question:
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”?
the answer is, “$10 million”, (ten million dollars).
2. In response to the second separate question:
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”?
the answer is, “$10million”, (ten million dollars).
3. The applicant is to pay the respondents costs of and incidental to the determination of the separate questions to be taxed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
Introduction
1 These reasons address a question of the construction of two policies of insurance which has arisen as between Nuix Limited (Nuix), and its insurers, which are led by Berkshire Hathaway Specialty Insurance Company (Berkshire Hathaway). The issue, which concerns the retention applicable to certain claims made against Nuix and for which it seeks cover under such policies, is but one part of a wider dispute as to the cover available from a “tower” of insurance policies.
2 Given the nature of the insurance in question, only the first three insurers (Berkshire Hathaway, AIG Australia Limited and Liberty Mutual Insurance Company (Liberty)), appeared at the hearing of the separate questions (excerpted at [47] – [48] infra) on 20 May 2025.
3 It must be stressed that the question before the Court is not intended to do more than determine the appropriate construction of the policies within the context in which the issue has arisen. It is not intended to make findings in relation to other aspects of the matter which remain to be contested. As such, the parties have carefully identified the relevant context by reference to certain agreed facts, and the conclusions reached herein are not intended to make any binding finding beyond that which is necessary to construe the policy terms in the relevant respects.
Not a hypothetical issue
4 There is naturally some concern that the questions advanced have the effect of asking the Court to provide an advisory opinion. All parties denied this was so, and claimed that the disputation of the interpretation of the policies constituted a real dispute, although they specifically asked the Court not to rule upon whether the relevant policies ultimately responded to Nuix’s claims.
5 It is undoubted that the parties are in dispute as to the policies’ operation in the context of those claims. Nuix asserts an entitlement to be paid in respect of certain losses. The insurers deny such liability until a retention of $10m has been exhausted. In response, Nuix claims that the retention is not so extensive. In these circumstances, there exists an extant controversy which the Court has jurisdiction to resolve. As was observed by Allsop CJ in National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 2) (2019) 377 ALR 627 (at 655 [110]):
It is difficult to see what is advisory or hypothetical about declaring the meaning of a contract in circumstances where there is no dispute about the terms of the contract, where the relevance of any surrounding circumstances can be debated and found, where the parties are in precise and clearly articulated disagreement as to the meaning of or part of the contract, and where the proper construction of that part is clearly a part, indeed an important part, of an overall controversy about one party’s asserted and disputed entitlement to be indemnified under the whole of the contract.
6 In relation to the circumstances relevant to the construction of the policy, his Honour observed (at 655 [109]):
It is the declaration that must be tied to found or agreed facts. Those facts must be relevant facts for the subject of the declaration. If a declaration is sought as to the proper construction of a contract the relevant facts are the facts relevant to the construction of the contract: that is, the form and terms of the contract and any relevant surrounding circumstance said by the parties to be relevant. If the contract can be relevantly interpreted on those found or agreed facts, it is irrelevant that what might be myriad other facts relevant to the wider controversy to which the proper construction of the contract is relevant are not attached to the resolution of the dispute as to the proper meaning of the contract.
(Emphasis in original).
7 In this light, there can be no suggestion that the questions which the Court is asked to consider are hypothetical or that it has no jurisdiction.
The context in which the question of construction arises
8 The central issue concerns the extent of the retention applicable to related claims on the relevant policies. Some claims on the policy attract a retention of $2.5m; others, namely a “Securities Claim”, attract a retention of $10m. Where multiple related claims are made, only one retention applies. Here, where a “Securities Claim” has been made subsequent to other related claims that attract the lower retention, the parties are in dispute as to the applicable retention.
The terms of the Policies
9 Nuix is the policyholder of certain policies of insurance in relation to its business affairs. Relevant to the present issues is a policy providing Public Offering of Securities Insurance (the POSI policy) and an Executive First Directors & Officers Liability Insurance policy (the D&O policy) (together, the Policies), both issued on the letterhead of Berkshire Hathaway, being the primary layer insurer. The former policy relates to a specific Initial Public Offering undertaken by Nuix. It was pursued in 2020, and the policy specifically identifies the public offering as that detailed in a Prospectus dated 18 November 2020. The D&O policy is of a more generic nature, relating to the general liability of directors, officers and employees of Nuix.
10 Generally, their terms are similar, though there are some relevant differences.
The “Insuring Agreements”
11 The relevant 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).
12 The relevant insuring clauses of the POSI 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, 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 Those clauses contain, self-evidently, several constituent parts.
Identification of the relevant parties (the “Insurer”, the “Company” and “Insured Persons”)
14 Under the Policies, Berkshire Hathaway is the “Insurer” and Nuix is the “Company”.
15 The D&O policy defines the expression “Insured Person” as follows:
3.15. 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 Company prospectus or similar offering 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 trustee, administrator, or policy committee member of a Company that is a corporate trustee of a superannuation fund or pension plan established for the benefit of employees in a Company;
e) 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;
f) 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) - (e), above;
g) an individual described in subsections (a) - (f) above while serving at the specific direction or request of the Company in a position functionally equivalent to those described in subsections (a) - (f) above for an Outside Entity; or
h) any employee of the Company:
i. to the extent such employee is acting in the capacity of an individual described in subsections (a) - (f) above;
ii. who is involved in a Claim alleging an Employment Wrongful Act;
iii. who is named in connection with an Insured Person Inquiry or Securities Claim; or
iv. 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) – (f) above;
but only when and to the extent that the natural person is acting in their respective capacity as described in (a) – (h) 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.
16 The definition of an “Insured Person” under the POSI policy is much the same, albeit slightly narrower, in that (a) subparagraph b) reads “a prospective director as identified in a Disclosure Document”; and (b) subparagraphs d) and h)ii) have been omitted.
Meaning of “Loss”
17 The term “Loss” is given an expansive meaning throughout the Policies. For present purposes, it is necessary to refer only to the following:
3.19. 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;
…
Meaning of “Claim” and “Wrongful Act”
18 The expression “Claim” is defined in the D&O policy 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;
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.
19 The definition of “Wrongful Act” in the D&O policy is relevantly as follows:
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;
…
20 The expressions “Claim” and “Wrongful Act” are used in a narrower sense in the POSI policy, being confined to conduct “in connection with” the relevant public offering:
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.
…
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.
21 That latter definition makes reference to the “Disclosure Document” and “Road Show”. Those terms bear the following meanings:
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.
Meaning of “Related Wrongful Acts”
22 The expression “Related Wrongful Acts” is important. It is defined in the Policies to mean:
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.
Meaning of “Securities Claim”
23 The definition of “Securities Claim” in the D&O policy is as follows:
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.
24 The cognate expression in the POSI policy is slightly different, in that it relates to the specific public offering referenced in the schedule. That definition provides:
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.
25 The schedule of the POSI policy relevantly identifies the “Offering” as being:
Offering: Initial Public Offering of shares in Nuix Limited detailed in the Prospectus dated 18th November 2020
Advancement of, inter alia, “Defence Costs”
26 The Policies define the expression “Defence Costs” as follows:
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.
27 Extension 2.1 to the Policies (Advancement of Costs and Expenses) relate to the advancement of Defence Costs. In this respect, the D&O policy relevantly 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, Public Relations Costs, and Security Holder Derivative Demand Investigation 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.
28 Extension 2.1 of the POSI policy is drafted in nigh identical terms, although it eschews any reference to “Security Holder Derivative Demand Investigation Costs”.
The “Related Claims” clause
29 An important clause in the resolution of the issues in this matter is cl 5.5 of the Policies (Related Claims). That clause is drafted in the D&O policy as follows:
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 or any applicable Discovery Period. In no event shall a single lawsuit or proceeding constitute more than one Claim subject to more than one Retention.
30 Clause 5.5 of the POSI policy is drafted in much the same language, though it does not make reference to the phrase “or any applicable Discovery Period” in the latter paragraph.
The “Retention” clause and meaning of “Retention”
31 The expression “Retention” is defined by the Policies as follows:
3.32. Retention means any amount specified as such in the Schedule.
32 In that respect, the Schedules to the Policies relevantly provide:
Insuring Agreements: | Retention | Coverage | Sub-Limit |
1.1 Side A Coverage: Non-Indemnified Loss of Insured Persons | Nil | Included | |
1.2 Side B Coverage: Company Reimbursement | $2,500,000 | Included | |
1.3 Side C Coverage: Company Securities | $10,000,000 | Included |
33 Clause 6.2 of the Policies is the operative retention clause. 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, Security Holder Derivative Demand Investigation Costs, 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.
34 The correspondent clause in the POSI policy is drafted in nigh identical terms, save for the fact it does not refer to Security Holder Derivative Demand Investigation Costs in subparagraph a).
General background giving rise to the dispute
35 It is appropriate to identify the general background in which the disputed construction of the Policies has arisen. That being so, it is nevertheless necessary to realise that, as part of the effective case management of the proceedings, the issue presently before the Court has been isolated at an early stage and before all background facts have crystallised. Thus, the following recitation of facts are adopted here only for the purpose of providing some measure of context.
The Initial Public Offering
36 Nuix’s business generally involves the development and sale of data processing technology, investigative analytics and intelligence software.
37 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 (the IPO). At or about that time, Nuix applied for admission to the official list of the Australian Securities Exchange (the ASX). Nuix was admitted to that list on 4 December 2020.
38 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
39 On 31 May 2021, Nuix received a statutory notice from the Australian Securities & 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
40 It is alleged that, in or about June and July 2021, Nuix notified Berkshire Hathway of certain “circumstances that may reasonably be expected to give rise to a claim” within the meaning of cl 5.6c) of the Policies. There is no need to determine the force of that submission at present, 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
41 Three class actions were commenced against, inter alia, Nuix in the Supreme Court of Victoria in late 2021 and early 2022. Two of those actions (the Lay and Batchelor proceedings) were subsequently consolidated, and the third (the Bahtiyar proceeding) was permanently stayed.
42 ASIC filed proceedings against Nuix in this Court on 28 September 2022.
43 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 ASIC litigation, and sought permission to incur Defence Costs in respect of such under the Policies.
The position of the Insurer
44 On 15 November 2022, Berkshire Hathaway conveyed its decision on coverage. It indicated, first, 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 cl 5.5. On that basis, it asserted that a retention of $10m applied. Second, and in relation to the D&O policy, it 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 $2.5m), and the other within “Side C Coverage” (attracting a retention of $10m). In these circumstances, it claimed the relevant retention under that latter policy was $10m.
45 These circumstances gave rise to the issue of the operation of the Policies and, more precisely, identification of the appropriate retention that should apply to a single claim.
The separate questions
46 The parties mutually formulated the following separate questions.
47 The first relates to the POSI policy:
1. If under the ‘POSI 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”?
48 The second relates to the D&O policy:
2. If under the ‘D&O 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”?
The appropriate principles of construction
49 There was no dispute as to the principles which should be applied in the construction of policies of insurance. They were neatly set out in the applicant’s written submissions and accepted to be correct by the respondents. They can be summarised as follows:
(1) A policy of insurance is a commercial contract and should be accorded a businesslike interpretation. That directs attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects it is intended to secure: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 589 [22]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, 528 – 529 [15] (Gordian Runoff).
(2) In keeping with the objective theory of contract, the construction of a policy’s terms is determined by what a reasonable person, knowledgeable of the circumstances known to both parties and the objective purpose and object of the agreement, would understand them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40].
(3) The construction of a policy requires that its terms be considered in the context of the agreement as a whole; and a construction which provides a congruent, consistent and or harmonious operation of its various components is to be preferred to one that does not: Gordian Runoff 529 [16]; LCA Marrickville Pty Limited v Swiss Re International SE (2022) 290 FCR 435, 463 [57]. Therefore, if the parties’ agreed intention on a matter is apparent, another provision which could frustrate that intent should be given a more harmonious construction if it is available. That is an important consideration here.
(4) It is axiomatic that an insurance policy is intended to produce a commercial result and should be construed as such: Onley v Catlin Syndicate Ltd (as the Underwriting Member of Lloyd’s Syndicate 2003) (2018) 360 ALR 92, 100 – 101 [33] (Onley).
(5) A construction that avoids commercially capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit: Onley [33].
(6) Attempts to find a businesslike interpretation have their limits: Star Entertainment Group Limited v Chubb Insurance Australia Ltd (2022) 400 ALR 25, 28 – 29 [11]. That which amounts to business commonsense as an apparently objectively ascertained matter, is something upon which reasonable minds may differ and in respect of which a consensus is impossible: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 [43]; XL Insurance Co SE v BNY Trust Company of Australia Limited (2019) 20 ANZ Ins Cas ¶62–211, 77,410 [78] – [79]. As the Full Court in Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance (2020) 282 FCR 561 said (at 574 [56]):
… references to a commercial result are not intended to invite a consideration of the actual financial consequences for each of the parties of a particular construction in the events which have occurred by the time that a dispute arises. Such inquiries would quickly descend into an assessment with hindsight as to what a fair and reasonable contract might provide given the circumstances that have unfolded. It would be contrary to the very certainties that the law of contract seeks to provide as to the allocation of risks, rights and obligations, if the meaning of agreements were to be adjudicated by reference to such an imprecise foundation.
(7) Though it may be difficult to accept where the only construction of an agreement is one which may not accord with a judge’s perception of commercial reality, the court is not entitled to rewrite contractual provisions. The task of the Court is to find the objective meaning of the contractual provisions, and its ability to give them a businesslike or commercially acceptable meaning is constrained by the language which the parties chose to use. If, after applying the appropriate techniques of construction, the language of the contract is unambiguous, effect must be given to it, save, where to do so would be to give it an absurd or capricious operation: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 [27]; Newey v Westpac Banking Corporation [2014] NSWCA 319 [91].
50 Here, it appeared to be agreed that there were no circumstances from which the Court should apply the contra proferentum rule, and that it should be ignored. As these reasons disclose, that gives rise to no issue in this case as the occasion for considering the rule does not arise.
Salient elements of the Policies
51 It is useful first to identify some of the salient elements of the Policies’ operations, namely:
(1) The operation of the Insuring clauses
(2) The liability of the Insurer is limited to what is in excess of the retention
(3) The operation of the Retention clause vis-à-vis a Side A, B or C Claim
(4) The operation of the Related Claims clause and the nature of the required relationship
(5) The timing of the making of Claims
52 During the hearing, the parties tended to equate the terms of the Policies. To an extent, that was not inappropriate; however, there are important differences. Naturally, the POSI is more targeted towards the IPO, although not exclusively. The D&O policy is broader and, it should be remembered, covers conduct that might result in a Securities Claim against the Company in addition to the general cover of the type usually provided to company directors and officers.
The operation of the insuring clauses
53 The insuring clauses of the Policies are excerpted above (see supra [11] – [12]). In short, they define the obligation of the Insurer to pay to or on behalf of (a) an Insured Person, for all Loss incurred as a result of a Claim that is not paid or indemnified by Nuix (“Side A Cover” under cl 1.1); and (b) Nuix, for all Loss incurred as a result of indemnifying an Insured Person (“Side B Cover” under cl 1.2) or a Securities Claim (“Side C Cover” under cl 1.3). For brevity, these reasons will refer to a Claim that is made against an Insured as a (a) “Side A Claim” if it gives rise to a claim under Side A Cover; (b) “Side B Claim” if it gives rise to a claim under Side B Cover; and (c) “Side C Claim” if it gives rise to a claim under Side C Cover.
54 The provision of Side A Cover and Side B Cover are interrelated. Side A Cover is provided directly to Insured Persons, which include directors, officers and employees of Nuix. In short, the Insurer will pay in respect of Loss suffered by the Insured Person(s), but only to the extent that such Loss is not paid or indemnified by Nuix. By cl 6.2c), if Nuix does not indemnify the relevant Insured Person(s) with respect to a Loss within 60 days of a request to do so, the Insurer shall provide cover in the amount of the Loss without applying the applicable retention. The Insurer is then entitled to recover that amount from Nuix, up to the amount of the applicable retention. In this manner, the Loss of an Insured Person will always be fully covered by Nuix or the Insurer without, as far as they are concerned, any retention in relation to their Loss.
55 In respect of Loss suffered by the Company in the indemnification of Insured Persons, Side B Cover responds in favour of the Company to the extent of Loss suffered in excess of the $2.5m retention.
56 Clause 1.3 of the Policies provides Side C Cover to the Company in respect of all Loss that is suffered as a result of a Securities Claim first made against Nuix in the insured period. In such a case, the amount of the retention is defined to be $10m.
The liability of the Insurer is limited to what is in excess of the retention
57 The Policies require the Insurer to respond to “Loss” suffered by an Insured, being the amount that the Insured is legally obligated to pay in respect of the several specified causes in relation to Claims first made during the Policy Period or any extension thereof. That Loss may be incurred on a single occasion, for example, as the result of a lump sum judgment, or over time, such as by the payment of Defence Costs.
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, 2015, 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.
The operation of the Retention clause vis-à-vis a Side A, B or C Claim
59 Clause 6.2, which is headed “Retention”, is central to the Policies’ operation (see supra [33]).
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 averted 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 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.
64 Similar to the use of deductibles, the Policies’ structure in this respect is, on its face, consistent with the commercial object of creating an incentive to the insureds to act prudently and take appropriate steps to avoid the occurrence of Loss: CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999 [491(2)] (CIMIC Group), citing Enright WIB and RM Merkin, Sutton on Insurance Law (4th ed, 2015, Lawbook Co at 209 [16.860]; see also The Law of Liability Insurance at 1411 [8-424]. That incentive is particularly potent in relation to conduct that may result in a Securities Claim in respect of which Side C Cover would be sought. Necessarily, the amount of the retainer is adjusted to reflect the magnitudes of any anticipated claims and, it can be assumed, that the retainer of $10m was set in contemplation of the possibility of very large claims. In this sense, its purpose is, on any objective view, quite clear.
The Related Claims clause
65 Clause 5.5 is concerned with related claims and is pivotal in this matter (see supra [29] – [30]).
66 Such a clause is common in policies of the kind under consideration. In the usual course, they operate by linking “related” claims made on the insureds, being those that arise out of a set of common or connected facts, treating them as a single claim, and applying a single retention to that combined claim. For instance, where there are several Side B Claims that fall within the operation of cl 5.5 of the Policies, they are treated as one Claim and, in turn, a single retention of $2.5m applies. This mollifies the force of cl 6.2, which would otherwise apply a retention to each Loss arising from the Claim or Claims. In a similar vein, where there are multiple Side C Claims arising from related facts and circumstances, only one $10m retention will apply.
The nature of the required relationship between “related” claims
67 Some context, relevant to the construction issue in this case, can be found in the nature of the connection required between Claims in order that they may constitute a single Claim. In each policy, the several Claims must:
(a) involve the same Wrongful Act of one or more Insureds;
(b) involve Related Wrongful Acts of one or more Insureds; or
(c) with respect to an extradition proceedings or Insured Person Inquiry, arise “from the same or related facts or circumstances or series of causally or logically related facts or circumstances”.
68 Subparagraphs (a) and (b) use “the same Wrongful Act” or “a Related Wrongful Act of one or more Insureds” as that which effectuates the joinder of several claims into a single Claim. In a similar sense, the latter part of subparagraph (c) articulates the required circumstances for the joinder of an extradition proceeding or Insured Person Inquiry with other claims. Those words of correlate with the definition of Related Wrongful Act, which includes 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”.
69 Naturally, this required commonality in the origin of multiple claims for the purposes of cl 5.5 may lead to the circumstance where a Wrongful Act, or some common substratum of fact, gives rise to a single Claim comprising several different claims that fall within different covers under the Policies. For example, a Wrongful Act by an Insured Person in relation to the IPO (for the POSI policy) or, more generally, in relation to the Company’s securities (for the D&O policy), might give rise to a Side A Claim against that Insured Person (which can come within Side B Cover against the Insurer if the Company pays for the Insured Person’s Loss), as well as a Securities Claim against the Company. Alternatively, Wrongful Acts by the Company and the individual Insured Person may not comprise the same Wrongful Act, but might nonetheless be logically or causally connected and, as such, give rise to Side A, Side B and Side C Claims.
70 There is no need to reach any concluded view as to the precise operation of cl 5.5 in this respect. It was not the subject of submissions and this observation is merely preliminary, but sufficient for present purposes. Nevertheless, it is appropriate to note that the occasion for the deeming of multiple Claims or Insured Person Inquiries to be a single Claim (referred to forthwith as a “cl 5.5 single Claim”) is either the identity of the Wrongful Acts or, in the case of the Related Wrongful Act or Insured Persons Inquiries, a correlation between the underlying acts that give rise to the Claims or inquiries. In the latter case, the required connection between the Claims and the Insured Person Inquiry is broad, in that, to the benefit of the Insureds, it is generally sufficient that the Claims arise out of the same or related facts and circumstances.
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.
The timing of the making of Claims
72 The Policies are “claims made” policies, covering Claims or Security Claims first made during the policy period or any applicable Discovery Period. There are, however, some variations. First, cl 3.2d) provides for the inclusion of Claims in relation to Insured Persons Inquiries, and deems that the Claim is made on that occasion when an Insured Person is first requested or required to attend or produce documents at such an inquiry (see supra [18] and [20]). Secondly, cl 5.6c) deems Claims to have been first made during the policy period when the Insured gives notice of circumstances that may reasonably be expected to give rise to a Claim. Any subsequent Claim made, which arises directly or indirectly from or relates to the notified circumstances, is deemed to have been made when the notice was given.
73 It is also relevant that the second paragraph of cl 5.5 provides that Claims involving the same Wrongful Act or Related Wrongful Act of one or more Insureds, or arising from the “same or related facts or circumstances or series of causally or logically related facts or circumstances”, are a single Claim, and are deemed to have been made on one of the two dates specified.
The related claims in the present case
74 The present dispute derives from a particular substratum of fact. Both a Side B Claim, to which a $2.5m retention applies, and a Side C Claim, to which a $10m retention applies, have been made. Per the framing of the Separate Questions, it is accepted that (a) those claims fall within the ambit of the aggregation that is effected by cl 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.
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.
76 There exists a possibility that some alternative construction might have had the consequence that the applicable retention could be derived from the nature of the claims to which the policy responds. It might have been said that the single retention was the product of calculation stemming from the nature of the Claims made, their number, and their respective retentions. However palatable any such outcome produced may be, it is not sustainable for the reasons which are given below and the absence of any mechanism in the policy to that effect.
Consideration (1): The language of the parties’ agreement
77 The Policies are clear: the retention applicable to a Securities Claim is $10 million. Though substantial, there are good reasons for such, including that it encourages the insureds to avoid engaging in conduct that might give rise to such a claim. It is notorious that Securities Claims (which are pursued as class actions) often involve very substantial demands from numerous persons who acquired the relevant securities, the total of which can amount to many millions of dollars. Relatedly, it is sufficiently notorious that security class actions are now well entrenched in the class-action industry in Australia in which the cost of litigation is noticeably higher than in standard litigation involving similar issues: see generally Money Max Int Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191, 226 [180]. Therefore, the insuring of such potential claims involves significant risk for an insurer and, prudently, it will require a substantial retention. In addition, a substantial retention or deductible, reduces the premiums charged and, consequently, renders the cover more affordable for the insured.
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 Security 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.
79 Although cl 5.5 of the Policies deems multiple related claims to be a single Claim, it does not purport to alter the character of the Claims made against the Insured(s) nor their applicable retention. They are treated as a single Claim for the purposes only of the timing of their making and the imposition of the single retention; there is nothing which suggests that, by the deemed aggregation of Claims, a Side C Claim loses its characteristic as a substantial claim from which there may be substantial Loss and, in respect of which, a substantial retention applies. Though an essential part of Nuix’s submissions was that the characteristics of the Side C Claim were altered when part of a cl 5.5 single claim, it did not identify any words in cl 5.5 or elsewhere, that provided the transformative force for altering the Claim’s characteristics or for uncoupling it from the $10m retention. All that was referred to was that the Side C Claim and antecedent Side B Claim were considered a “single claim”, and that one retention would apply. This was said to imply a metamorphosing effect upon the nature of the Side C Claim.
80 Such submission cannot be sustained. The inherent character of a Side C Claim is not altered merely because it is made after a Side B Claim. As has been noted, the substantial retention applicable to such a Claim is a significant feature of policies of this nature and, in particular, a POSI policy. In the absence of clear expression to the contrary, there is no cogent reason that such a significant, intended safeguard should be negated. That is particularly so when no such implication is required in order for the Policies to be understood in a sensible manner.
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 as 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.
82 Regardless of whether a Side C Claim is made on the Policies alone or with a Side B Claim, and whether before or after that Claim, the Insurer’s risk in relation to it remains, and it is that risk in respect of which the parties have agreed that the applicable retention is $10m. There is no language in the Policies to support the conclusion that the Side C Claim retention applies only if it is not part of a cl 5.5 single Claim which has an earlier Side B Claim joined with it.
83 Accordingly, the primary premise of Nuix’s submission on this point should not be accepted. There is no need to read the relevant policy terms as creating an anomaly when a Side B Claim and Side C Claim comprise a cl 5.5 single claim.
Consideration (2): The object of the Policies
84 A construction of the Policies to the effect that when a Side C Claim is made, the applicable retention is $10m (regardless of what other claims are made or when they are made), does not contradict their object nor the object of cl 5.5. When considering that object, it is necessary to address the object of the agreement as a whole, including the object of the clauses being interpreted. Both are relevant. Here, the Policies are intended to provide cover in respect of Loss arising from the Claims identified, though only to the extent that it exceeds the identified retentions. The differing levels of retention necessarily reflect the differential risk evaluation in relation to the types of claims that might be made and, importantly, are essential to the extent of the liability which the Insurer assumes. In this way, the construction proposed by the Insurers promote the identified object sought to be achieved by the Policies.
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.
86 In this context, cl 5.5 ameliorates the consequences to the Insured which would otherwise flow from cl 6.2, were multiple Claims to arise from the same or related underlying circumstances, but it does not follow that it should be construed so as to undermine the clear purpose of the retention provision. The aggregation effected by cl 5.5 is not made for the purposes of reducing the insurer’s position other than in respect of the number of required retentions. Therefore, a construction of cl 5.5 that leaves the Side C Claim retention in place in relation to the Insurer’s liability for a Securities Claim promotes the purpose of the clause. Conversely, a construction which increases the Insurer’s liability in relation to Security Claims to any Loss above $2.5m, does not.
Consideration (3): The likelihood of cl 5.5 single claims
87 As a matter of practical reality, when a Securities Claim is made against the Insured, one may reasonably expect that it would be accompanied by other claims to which a lower retention applies. The conduct associated with a Securities Claim is serious, and, in the Australian corporate sector, it is almost inevitable that regulatory action will follow, at the very least, by way of an ASIC investigation involving demands for interviews and information. It is, therefore, likely that the parties to the Policies could reasonably have expected that a Securities Claim will have followed Claims by Insured Persons attracting the lower retention. Nuix’s proposed construction would have the unusual consequence that the parties’ agreement upon a higher retention for Securities Claims would rarely apply. That is not a reasonable inference.
88 Here, the object of the substantial retention in dissuading conduct that might lead to a Securities Claim is relevant. It will usually be the conduct of the directors or officers of the company that will give rise to a Side B Claim in respect of actions against them and the Side C Claim against the company. It is the commonality of that conduct in giving rise to both claims under the Policies that render them related claims for the purpose of cl 5.5. Thus, the deterrent objective of the $10m retention would be undermined if conduct which gives rise to both a Side C Claim and a related Side B Claim has the effect of diminishing the applicable retention.
Consideration (4): Certainty at the time of contracting
89 The first-in-time construction advanced by Nuix, does not provide greater certainty for the parties. In this context, the relevant measure as to whether the terms of the policy are certain refers to the time when the contract is entered into. The claimant of certainty does not turn on various possibilities of variable circumstances, but rather upon the method provided by the Policies to meet them. In this respect, the respondent’s position is fully adequate.
90 On the Insurer’s preferred construction, the parties know, from the moment that the Policies take force, that if Side C Cover is sought following the making of a Securities Claim against the Company, the $10m retention will apply to that risk, regardless of whether the Side C Claim is made by itself or before or after the making of a related Side B Claim. Conversely, on the “first-in-time approach”, neither party would know what the relevant retention would be in relation to a Side C Claim until the circumstances in which it is made are known.
91 Of course, it is true that, on the Insurers’ construction, an Insured, who has made a Side B Claim, will not know the quantum of the overall applicable retention if there exists the possibility of the making of a related Side C Claim. However, that potential for an increased retention is referrable to the cl 5.5 single Claim and arises due to the making of the second Claim. In this sense, any perceived uncertainty is not in the operation of the Policies, but rather in the nature of the claims made on the Insured.
92 In this context, much was sought to be made by Nuix of the occasions in the Policies where a state of affairs was “deemed” to exist as between the parties. These appear in the Policies on several occasions and, it was submitted, they endeavour to provide certainty inter partes. This was relied upon as giving support to Nuix’s preferred construction which, it claimed, provided the Insured with a greater measure of certainty. That submission is, perhaps, not so potent in circumstances where Nuix’s construction has not been found to be the more certain.
93 The Court’s attention was directed to the second paragraph of cl 5.5, that all related claims are “deemed” to have been made on the date the first-in-time claim was made (or the date of the notification of relevant facts or circumstances from which the claims arose). This appears to operate in the Insured’s favour, by ensuring that all claims, arising from the one set of facts or circumstances, are taken to have been made at the same time and, one expects, during the currency of the relevant policy period. If, therefore, a relevant notification was made under the Policies during its currency period, all claims subsequently arising, even if following the expiration of that policy period, will be included in the one cover. No doubt this has prudential and reserve allocation benefits for the Insurer, but the advantages to the Insured are undoubted.
94 However, it is simply unsupportable that the nature of the single aggregated Claim consisting of Claims of different natures should be determined by the nature of the temporally-first Claim made. Neither the aggregation itself, nor the deemed time of the making of the aggregated claim, has anything to do, in practical terms, with the wholly different issue as to the amount of retention associated with the group of diverse retentions. Nor was any satisfactory reason given as to why they should. The measure of the amount of the retention must surely be formed by reference to the reason for the diversity in the respective amounts of the retentions, that is the nature and extent of the covered risks.
95 In any event, though the Policies do include a number of deeming provisions, it is not self-evident that the purpose behind them is to provide certainty, as opposed to creating a static state of affairs in relation to their respective subject matter. For instance, the deeming effect of the second paragraph of cl 5.5 merely ensures that, as between the parties, Claims arising from related or connected facts are aggregated within the one specified policy period regardless of when they are made. No doubt this can have benefits for the Insured and Insurer, but its effect is merely to establish a state of affairs in respect of the relevant policy terms.
96 With great respect to the careful and thoughtful submissions advanced on this point, it is not possible to use the deeming provisions to flavour the construction of the first paragraph of cl 5.5, with the notion that the construction that has the most operational certainty is that which is to be preferred. Even if it did, it does not advance Nuix’s case.
Consideration (5): The timing of the making of the Claims
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.
98 The proposition was, however, said to be supported by the potential incongruity of the circumstances which could arise were the Policies not to operate in that manner. The following scenario was postulated: if a Side B Claim was made and, after some time, the $2.5m retention was exhausted and indemnity had, in turn, been accorded, that indemnity would no longer be available if a related Securities Claim were made and the $10m retention applied. It was submitted that, as the second paragraph of cl 5.5 deems all Claims constituting a cl 5.5 single Claim to have been first made on the date on which the first-in-time Claim was made, in the above scenario, no indemnity should have been provided under the relevant policy even after the $2.5m retention was exhausted. It was then submitted that those circumstances have the consequence that any indemnity which had been provided should not have been provided and, yet, there was no provision for the repayment by the Insured. That was said to stand in contrast to the operation of the Defence Costs clause, which made express provision for the repayment of an amount equal to the defence costs advanced, if it is determined that they were not actually payable by the Insurer.
99 With respect, that submission should be rejected. The reason for the absence of any provision requiring the repayment of any cover advanced in the identified circumstances is that it is not intended to be recoverable by the Insurer. In the scenario proposed, once the retention for the Side B Claim is exhausted, the Insurer’s liability is enlivened and any payment by it is the performance of its obligations which, pro tanto, extinguishes the Insured’s claims upon it. There is nothing in the Policies which suggests that such payments by the Insurer are conditional upon there being no future related Side C Claims. Rather, the absence of any “claw-back” provision indicates that the parties intend that any payment made in relation to Loss exceeding the retention is nothing more than the fulfilment of an obligation, which the parties do not expect to be undone by subsequent events.
100 It may be that the obligations of the Insurer under the Policies change once the second-in-time Side C claim is made. Then, the Insurer’s obligation is in relation to a cl 5.5 single Claim and not merely the first-in-time claim. From then, the applicable retention becomes $10m which relieves the Insurer from liability until Loss to that extent has been sustained by the Company.
101 Ultimately, there is no logical or practical reason why the retention should be different merely because of the temporal order in which the Claims were made. Indeed, if it were dependent on the timing of the making of the respective Claims, there may be difficulty in identifying which was first, given the deeming provisions of the second paragraph of cl 5.5. If both are deemed to arise simultaneously from the same notification of facts and circumstances, the first would be impossible to determine. This difficulty is not catered for by the first-in-time approach.
102 The first-in-time approach also sits uncomfortably with Nuix’s submission that the characteristics of a Side C Claim are altered on being merged with the Side B Claim. If that were so, it ought not matter which Claim was first made on the Insured. No reason for this alteration in character has been given and, as the alleged mechanism of how the Side C Claim lost its inherent characteristics was not explained, it is not possible to consider this point further.
Consideration (6): There is no unfairness in this result
103 It was also submitted that some unfairness would arise where (a) an Insured meets the costs of a Side B Claim and incurs substantial expense, say $2m, which erodes the then existing $2.5m retention; and then (b) a Side C Claim is made, and the applicable retention becomes $10m. So, the submission went, the Insured, who would have obtained cover in relation to the Side B Claim after incurring Loss of a further $500,000, is delayed in obtaining any cover until it has incurred Loss in excess of $10m. That, however, is an erroneous comparison. Prior to the making of the Side C Claim, the applicable retention is $2.5m in relation to any Loss that is the subject of the Side B Claim. Following the making of the second Claim, the applicable retention of $10m is in relation to the Loss which is the subject of the combined Side B Claim and the Side C Claim. In part, this enures to the Insured’s benefit because, when the Side C Claim is made, the existing Loss sustained is taken into account in relation to the retention applicable to the cl 5.5 single Claim. That is, the benefit of there being but one retention enures for the Insured’s benefit.
Consideration (7): The operation of cl 6.2c) of the Policies
104 An attempt was made by Nuix to call in aid of its construction the operation of cl 6.2c), where the Company, Nuix, did not indemnify an Insured Person in relation to a Side A Claim in circumstances where a related Side C Claim was made. It was said that the Insured would be required to meet the higher retention applicable to a cl 5.5 single Claim, being $10m.
105 With respect, that submission does not assist it. Clause 6.2c) has, in fact, the opposite effect. It protects each Insured Person by expressly providing that, if the Company does not indemnify them in relation to a Side A Claim, the Insurer will do so, irrespective of the amount of the applicable retention. If it is assumed that (a) a cl 5.5 single Claim consists of a Side A Claim which has been made against the directors and a Side C Claim which has been made against the Company, and (b) the Company fails to indemnify the Insured Persons in respect of the Claims against them, the Insurer is obliged to pay in respect of any Loss suffered by them, regardless of any retention. The Insured Person is completely covered, and will not encounter personal loss merely by reason of the refusal or inability of the Company to indemnify them against such loss.
106 It follows that Nuix’s submissions on this point must fail also.
Consideration (8): CIMIC Group
107 Reference was made by all parties to the judgment of Peden J in CIMIC Group. There is no need to detail the factual background of that dispute, as its relevance rests in the manner in which her Honour construed the policy then before her (which was substantially the same as that presently under consideration). That is not to say that they are identical, and, in any event, extreme caution should always be exercised in attempting to transpose the reasoning in relation to one policy to another. Nevertheless, there is no doubt that the terms of the Policies and that the subject of Peden J’s reasons have closely similar substantive characteristics and, it follows, the overall reasoning of her Honour should be addressed and, of course, respected.
108 There, the retention for any Securities Claim against the insured companies was $1m whilst that applicable to other claims was $100,000. The question before her Honour was, as here, the amount of the applicable retention when two related claims were made (one a Securities Claim and the other not), and the policy provided that only a single retention would apply to all loss arising from the claims. Her Honour concluded (at [491]) that the retention applicable to the Securities Claim applied for the following reasons:
(1) Merely because the Securities Claim has been mixed with non-Securities Claims, does not change the nature of the Claim or the applicable retention available for Securities Claims.
(2) It is more consistent with the commercial objective of a retention clause, including to “impose some incentive on the insured to act prudently and to take steps to avoid suffering loss”: WIB Enright and RM Merkin, Sutton on Insurance Law (4th ed, Lawbook Co, 2015) at 209 [16.860].
(3) Objectively, the parties appear to have anticipated that a higher sum of Loss would follow from Securities Claims based on the $1,000,000 retention sum chosen. It is also clear from the definition of Securities Claim that the insurer is exposed to a wide risk, as it extends to claims against any “Company” which is defined as Leighton Holdings and its subsidiaries (cl 4.26; Item 1 of the Schedule). The presence of a Securities Claim in an aggregated claim suggests an overall larger amount of Loss, which would tell against the lower retention sum having been intended.
(4) On CIMIC’s construction, an insured would almost invariably have the benefit of the lower $100,000 retention figure. This is because, under cl 5.9, the Insurer pays Loss in the order in which it is presented for payment. Thus, if they occurred at the same time, an insured could present “any other Claim” rather than a “Securities Claim” first and obtain the benefit of only the $100,000 retention, even if a “Securities Claim” was aggregated to it thereafter. It is not likely that commercial parties would have agreed to the retention sum being determined according to when the Insured presented a Loss for payment, or the random order of the aggregated Claims arising from the same facts.
(5) Finally, it is difficult to imagine many scenarios in which the underlying factual circumstances giving rise to a Securities Claim are not accompanied by “any other Claim”, particularly when regard is had to the breadth of the definition of “Investigation” in cl 4.18. This again would mean, on CIMIC’s construction, the $1,000,000 retention would be a rarity.
109 In the policy context before her Honour, these reasons were both accurate and compelling and, as has been identified earlier in these reasons, similar reasoning applies in the present case. In particular, the agreement of the parties that a substantial retention is to apply to a Securities Claim is a patently important characteristic of the Policies and it would be passing strange were it able to be negated by the not unforeseeable circumstance that a related claim, which attracted the lower retention, were also made.
Consideration (9): Where the Side C Claim fails
110 There is said to be residual difficulty in relation to both offered constructions in circumstances where a Side B claim and a Side C Claim are made, and the Side C Claim fails and is dismissed. It was submitted, on behalf of Nuix, that, on the Insurer’s proposed construction, the effect of cl 5.5 is that the $10m retention would remain and limit the Insurer’s liability on the Side B Claim. That, with respect, cannot be correct. Rather, it is likely that, where, in the scenario advanced, the Side C Claim is dismissed, there would no longer be an extant Side C Claim, such that the retention applicable to a Loss in respect of a Side B Claim would apply.
111 In any event, such circumstances would cause the same difficulty if Nuix’s preferred construction were adopted. If the Side C Claim were brought first and the Side B Claim second, the $10m retention would apply and it would remain, even after it had been dismissed.
Conclusion
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.
113 It follows that each of the separate questions should be answered, “$10 million”.
I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. |
Associate:
Dated: 25 August 2025
SCHEDULE OF PARTIES
NSD 1463 of 2024 | |
Respondents | |
Fourth Respondent: | CHUBB INSURANCE AUSTRALIA LIMITED |
Fifth Respondent: | ALLIED WORLD ASSURANCE COMPANY LIMITED |
Sixth Respondent: | XL INSURANCE COMPANY SE |
Seventh Respondent: | BEAZLEY FURLONGE LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 2623 |
Eighth Respondent: | BEAZLEY FURLONGE LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 623 |
Ninth Respondent: | HDI GLOBAL SPECIALTY SE |
Tenth Respondent: | NAVIGATORS UNDERWRITING AGENCY LIMITED FOR AND ON BEHALF OF LLLOYD'S SYNDICATE 1221 |
Eleventh Respondent: | ARCH MANAGING AGENCY LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 1955 |
Twelfth Respondent: | ANTARES MANAGING AGENCY LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 1274 |
Thirteenth Respondent: | TALBOT UNDERWRITING LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 1183 |
Fourteenth Respondent: | LIBERTY MANAGING AGENCY LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 4472 |
Fifteenth Respondent: | BEAZLEY FURLONGE LIMITED FOR AND ON BEHALF OF LLOYD'S SYNDICATE 3623 |