Bergman & Bergman (No 3)
[2023] FedCFamC2F 198
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Bergman & Bergman (No 3) [2023] FedCFamC2F 198
File number(s): BRC 220 of 2020 Judgment of: JUDGE O'SHANNESSY Date of judgment: 24 February 2023 Catchwords: FAMILY LAW – costs application – whether a costs order should be made where a pre-trial settlement offer was more favourable for one party than the final orders – whether a costs order should be made where one party made a late application that caused delay – where a party caused delay but was successful in their late application – where the party seeking costs failed to disclose relevant information until late in the proceedings – costs application dismissed. Legislation: Family Law Act 1975 (Cth) ss 75, 117 Cases cited: Bergman & Bergman [2022] FedCFamC2F 1313
Bergman & Bergman (No 2) [2022] FedCFamC2F 1652
Division: Division 2 Family Law Number of paragraphs: 37 Date of last submission/s: 11 November 2022 (written submissions only) Place: Melbourne Counsel for the Applicant: Mr M. Drysdale of senior counsel Solicitor for the Applicant: O’Reilly Shaw Lawyers Counsel for the Applicant: Mr J. Linklater-Steele of counsel Solicitor for the Respondent: Wilsons The Family Lawyers ORDERS
BRC 220 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MS BERGMAN
Applicant
AND: MR BERGMAN
Respondent
order made by:
JUDGE O'SHANNESSY
DATE OF ORDER:
24 February 2023
THE COURT ORDERS THAT:
1.The Wife’s application for costs be and is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym Bergman & Bergman (No 3) has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE O’SHANNESSY
The question I must decide in this matter is whether there should be an order for costs pursuant to section 117 of the Family Law Act 1975 (Cth) (‘the Act’) arising from the conclusion of the proceedings.
I heard the matter over videolink while sitting in Brisbane on National Relief on 25 and 26 May 2022, where I adjourned the matter part-heard. The matter then resumed over videolink on 29 September 2022, when I had returned to sitting in Melbourne.
I delivered an ex tempore judgment on 26 May 2022 regarding the appointment of an adversarial expert, anonymised as Bergman & Bergman [2022] FedCFamC2F 1313 ‘the May judgment’.
I delivered Orders and oral reasons in a res tempore judgment on 7 October 2022. On 30 November 2022, I provided the parties with settled reasons in writing of that oral judgment, which has been anonymised as Bergman & Bergman (No 2) [2022] FedCFamC2F 1652 (‘the October judgment’). These reasons should be read in conjunction with both the May judgment and the October judgment.
The Wife made an application for costs by written submissions supported by affidavit on 20 October 2022. I am grateful to the Wife's lawyers for the concise manner of their costs application. The Husband resisted that application for costs in written submissions dated 11 November 2022.
The Wife's application for costs was based upon two matters:
a. on 28 June 2021, she made an offer of settlement marked “without prejudice save as to costs” to the Husband pursuant to which the Husband would have received a more favourable outcome than that ultimately Ordered by His Honour Judge O’Shannessy (s117(2A)(f)) of the Family Law Act; and
b. the Husband’s conduct in the proceedings (in particular, by filing an Application in a Case seeking the appointment of an adversarial expert on 18 May 2022, 4 business days prior to the commencement of the final hearing of the matter) resulted in the delayed progression of the matter, and additional costs to the parties (s117(2A)(c) and (g)).
As to the first matter, that is the offer in writing, the Wife contended, and it is not disputed, that the disparity between the written offer of 28 June 2021 and the Orders made on 7 October 2022 was put by the Wife as follows:
8. The material differences between the terms of the offer of settlement of 28 June 2021 and the Orders made by His Honour Judge O’Shannessy on 7 October 2022 are that:
a. His Honour made an Order that the Wife remain responsible for the shortfall loan associated with the sale of the [AK Property] in the first instance, whereas the Wife proposed that the Husband remain responsible for the shortfall loan in the first instance; and
b. the cash payment to the Wife pursuant to the Orders of 7 October 2022 is $162,021, whereas the Wife proposed that the cash payment to her be $101,000.
9. The offer of 28 June 2021 provided the Husband with a more favourable outcome than that pursuant to the Orders of 7 October 2022.
As to the circumstances in which the Husband filed the application in a case seeking appointment of an adversarial expert, the Husband's retention of the adversarial expert was clumsy and why the expert took so long to prepare the report is not adequately explained. I refer to, repeat and adopt the May judgment in this matter.
The Wife, by her senior counsel, made submissions as to the applicable law that included the following:
14. The default position in relation to costs in s117(1) of the Act is expressed to be subject to, inter alia, subsection (2) of s117.
15. To justify a costs order, there must be circumstances, under s117(2A) which justify, the Court, in its absolute discretion, making a costs order. In exercising that discretion, it is unnecessary for each and every factor set out in s117(2A) of the Act to be met. Fitzgerald v Fish [2005] FamCA 158; (2005) FamLR 123 at [41] where the Court said at [72]:
“Nowhere in subs (2A) or elsewhere in s 117, is there any prescription that more than one factor must be present before an order for costs is made nor of comparative weight of the factors set out in subs (2A). As a consequence, there is nothing to prevent any factor being the sole foundation for an order for costs.”
16. It is not necessary for the Wife to establish extraordinary or exceptional circumstances before a costs order can be justified (Stoian & Fiening (costs) [2014] FamCA 944 at [19]).
…
18. In Robinson & Higginbotham (1991) FLC 92-209 at 78,417, Nygh J described the purpose of s117(2A)(f) in the following terms:
“… when one looks at paragraph (f) it is quite clear that the purpose of that provision is to ensure that offers to settle, if made seriously, are considered seriously, to ensure that the cost of litigation is avoided, the workload of this Court is lightened. “
…
20. As was said by the Full Court in Browne & Green [2002] FamCA 79; (2002) FLC 93-115 at [57], it is important for a court to give proper consideration to offers of settlement, being something to which very significant weight ought normally be given.
I accept that those submissions accurately set out the law.
It is also significant that the costs the Wife seeks are on a party/party basis, not an indemnity basis. I have no reason to find that the costs sought of $51,523 are, as to quantum, other than reasonable.
The Husband submits in regard to the offer in writing that the context of that offer and the date of it was significant. 28 June 2021 was, in fact, the day that the matter was first listed for final hearing; it was not able to proceed on that day. The following day, on 29 June 2021, the Husband's lawyers wrote a letter to the Wife's lawyers pressing for more disclosure and disclosure particularly relating to the Unitholder Profit Entitlement (‘UPE’) relating to the sale of the Wife's share of a business. In that letter the Husband pressed matters that included the following:
Your client has neglected to provide to our office, or the Court, any indication or supporting documents in respect of the Unitholder Profit Entitlement provided for in the Unit & Share Sale Agreement dated 31 March 2021. Noting that same is to be articulated in writing pursuant to Clause 5.8, please urgently provide all such writing exchanged by your client (and/or her agent) and [Mr C] (and/or his agent), and for the avoidance of any doubt including their respective entities.
It is asserted, and I accept, that the Wife did not disclose all the relevant documents concerning the UPE until shortly before the third and part-heard day of the final hearing of 29 September 2022. And then, that was because the Husband had issued a subpoena to the Wife’s former business partner to obtain further documents.
The other circumstances that are relevant include all of the circumstances discussed in the October judgment in this matter. For ease of reference I refer to and repeat some of those significant matters, including the following:
5The matter was heard by videolink over 25 and 26 May 2022 and was adjourned part-heard to accommodate the jointly retained single expert and the adversarial expert, to confer about the value of the horses and for further evidence or agreement about taxation matters. Both parties were represented by solicitors and counsel throughout the Final Hearing.
…
7Over the adjourned period, between May and September of 2022, the parties reached agreement as to the value of the parties' horses and no further evidence or document from the two valuers about the horses' value was provided. Taxation matters were largely, but not entirely, agreed. I am grateful for the hard work of the solicitors involved in reaching agreement about the value of the horses and the agreement of that fact was of considerable assistance to me in the efficient conduct of the case.
…
25Under cross-examination, the Wife was responsive to the questioning most of the time. On occasion, the Wife's demeanour when cross-examined caused me to conclude that the Wife was guarded in regard to evidence where she perceived that the answer to the question asked may contend against her. On occasion, the question needed to be repeated to ensure that the Wife answered the question asked. When the question was so repeated, the Wife would usually provide a responsive answer. Further, there is a chain of events regarding the disclosure of the Wife's position concerning the further payment from the firm, where she previously held an interest, which causes me, together with her demeanour as a witness, to conclude that the Wife is not more reliable in her evidence in regards to disputed events than the Husband.
…
28There are two aspects to reliability, one is truthfulness and the other is accuracy of recollection. Together they combine to make reliability. In my determination about the comparative reliability of the party's evidence I do not take into account the Wife's move of position in regard to her horses, said by her to be valued at about $34,000 at the time of the May hearing (and based on the opinion of a jointly retained single expert) to the agreed figure that was provided in an exhibit to me of a joint asset statement being W8 and refined to W10 on the last day of the hearing before me in September 2022.
29That is a significant movement of position and a significant movement of position in an asset pool of non-superannuation assets of $1.7 or $1.8million. I do not take that into account in regard to reflecting on the Wife's credit because she was not cross-examined about that matter and the agreed position was arrived at by negotiations, as I understand it, between the parties' solicitors. I do not intend to go behind those negotiations and agreement that the parties' solicitors reached. I will not speculate about the various matters that were contained within that ultimate compromise.
…
59In or about late February or early March 2021, the Husband became aware of an advertisement by the Firm seeking a full-time [finance professional]. On 11 March 2021 he caused his solicitors to write to the Wife's solicitors enquiring whether the advertised role reflected an expansion of the Firm or whether the Wife was reducing her work hours. On 22 March 2021, 11 days later, the Wife's solicitors advised that the Wife had reached an in principle agreement for the sale of her interest in the firm. That advice outlined that the sale price was to be $850,000 and that that sum was to be disbursed by way of about $609,000 to discharge the borrowings obtained to purchase the interest (back in 2016) and about $241,000 was to be paid to the Wife over four years under a vendor finance arrangement at 4% interest. Further, there would be about $58,750 tax payable as a result of the profit on that sale.
60That sale came to pass when the necessary documents were executed on 31 March 2021. The 22 March letter (annexure 6 to the Husband's 24 November 2021 affidavit) described the intended sale, but made no mention of any further payment or entitlement of the Wife from the firm. On 22 April 2021 (annexure 7 to the Husband's 24 November 2021 affidavit) the Wife's solicitors provided a summary of the effect of the sale which was that the Wife would receive $4,791 per month plus interest over the next 48 months, in repayment of the loan of the unpaid purchase price.
61The voluminous, detailed unit and share of sale agreement, deed of loan and security of agreement was provided by the Wife to the Husband. But no mention was made in the letter disclosing the arrangement and enclosing the documents of any further payment or entitlement of the Wife from the firm. At this time, the Wife's solicitors were complaining of the Husband's alleged failure to provide full and frank disclosure.
…
66For the purpose of the Final Hearing, then listed on 28 June 2021, the Wife filed a trial affidavit on 31 May 2021 that, at paragraphs 14 to 22, dealt in apparently careful detail with the consequences of the sale of her interest in the firm. The unit and share sale agreement, including clause 5.8 was annexed to that affidavit. However, no reference whatsoever was made to any sum that was, or may be, due to the Wife as a consequence of her accumulated share of profits, or what is described as the UPE. Further, the Wife being the vendor and[a finance professional], made no reference whatsoever to what she asserted or had calculated such entitlement would be or should be. …
67The Husband did not accept that the Wife had made full and frank disclosure of her interests, arising from the sale in the firm. … the Husband pressed for the details of the Wife’s calculations and communications relating to the UPE at clause 5.8. As described in the Wife's second trial affidavit filed 3 December 2021, at [26] to [38], over the period 28 July 2021 to 17 November 2021, letters from the Wife's solicitors refuted any suggestion of her failing to provide all the relevant documents and also recited that on 1 September 2021 the firm had indicated that, in fact, the Wife (by the [AN] Family Trust) had been overpaid her UPE in the sum of $22,465. Hence rather than there being a sum due to her, the firm was alleging, she said, that she owed them.
68On or about 8 December 2021, for a second time, the matter was listed for Final Hearing. The Wife filed a further affidavit for the purpose of that Trial. No further calculation of the UPE was given. On 24 May 2022, the Wife filed an outline of case and in that document referred to the 1 September 2022 issue or possibility of the $22,465 being due back to the firm.
69The long and the short of it is that when the matter came before me for two days in May, it proceeded on the basis that it was possible that some money may have to go back to the firm. However, the Wife's commercial solicitors had on 18 March 2022 proposed to the firm that she be paid an additional $179,000 for the UPE. I so infer from the terms of the 19 September 2022 letter annexed to the Husband's affidavit of 28 September 2022.
70It is common ground that the letter of 18 March 2022 was not disclosed. It is not contested that the first notice the Husband had of that letter or proposal was on 26 September 2022, days before the resumption of the hearing and after the Husband had made further inquiries to the Wife and sought the issue of the subpoena. The long and the short of it is that it was then disclosed that the firm was proposing that the Wife be paid a further $139,609, and the Wife proposed for the purpose of these proceedings that be treated as an asset and otherwise added or included in the assets of the joint balance sheet. These events, together with the Wife’s demeanour as a witness, cause me to question the reliability of the Wife’s evidence and to not regard the Wife’s evidence as more reliable than the Husband’s.
71The other development between May and September 2022 was that there was a negotiated agreement that the horses would be regarded as $225,000, not the $34,000 as the jointly retained single expert had opined and the Wife had accepted.
[Emphasis added]
As to the law to be applied in regard to the exercise of discretion as to an order for costs, after referring to the provisions of section 117(1) of the Act and subsection (2A), the Husband made submissions that included:
18. The discretion of the Court to order costs is wide, as captured by the Full Court in Michail & Michail [2010] FamCAFC 193 at [32], Green & Harper [2022] FedCFamC2F 89
The discretion to be exercised in making an order for costs is a wide one. I refer to the decision of the High Court in Penfold & Penfold [1981] 44 CLR 311. The Court may depart from the usual that each party pay his or her own costs if it is satisfied there are circumstances that would justify doing so. In considering whether there are any such circumstances, the Court has regard to the factors in section 117 (2A).
…
20. The weight to be given to each factor in section 117(2A) was explored by Bennett J in Krach & Krach (No. 2) [2009] FamCA 886 at [15]:
The weight to be attached to any of the considerations in section 117(2A) is wholly discretionary. Whilst no single factor out-ranks any other, there is nothing to prevent one or other of them from being the sole foundation for a costs order.
21. The weight to be given to a particular consideration under section 117(2A) is a matter for judicial discretion, however they "all must be taken into account and all balanced in order to determine whether the overall circumstances justify the making of an order for costs"
22. In Pencious v Pencious (No 2) [2012] FAMCA 212 Court (considering costs following an application to restrain a solicitor from acting) Justice Cronin stated:
[6] The considerations in s 117(2A) of the Act include the financial position of each of the parties, their conduct of the procedural aspects of the litigation, their rights to legal aid, the question of whether any of them has been wholly unsuccessful and finally any other matter that the court considers relevant.
[7] No one factor in that list is prescribed as being more important than any other (Fitzgerald (as child representative for AF (Legal Aid Commission of Tasmania)) v Fish and Anor (2005) 33 Fam LR 123)
… [ellipses in original]
[9] An order for costs is made to compensate a party against expense incurred in a proceeding; it is not intended to be punitive in nature (Latoudis v Casey (1991) 70 CLR 534 at 543).
I accept that those submissions as to the law.
I accept the submissions of the lawyers for the Husband as to the matters to be taken into account. I also accept the submissions of senior counsel for the Wife as to the matters to be taken into account and, in particular, the weight that an offer in writing should be given. There is no disparity or dispute as to the law between the parties, but a matter of different emphasis.
APPLICABLE LAW
Costs in this matter are determined by application of section 117 of the Act, which reads as follows:
117 Costs
(1)Subject to subsection (2), subsections 45A(6) and 70NFB(1) and sections 117AA and 117AC, each party to proceedings under this Act shall bear his or her own costs.
(2)If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A), (5) and (6) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a)the financial circumstances of each of the parties to the proceedings;
(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g)such other matters as the court considers relevant.
[Notations omitted]
Turning to those matters, it is significant and I must give weight to the starting position or default position that each party should bear his or her own costs. I must consider, and I do consider, the matters under section 117(2A) of the Act. The following headings relate to those subsections listed under section 117(2A) of the Act.
The financial circumstances of each of the parties to the proceedings
In this regard I refer to the October judgment, and I refer to and repeat the assets and the liabilities of the parties as contained at paragraph 127 of the October judgment in this matter. In particular, I refer to and repeat paragraph 154 of the October judgment, which reads:
154In a pool of roughly $1,771,762, the end result of applying the orders and the ‘Keep’ provisions will be approximately, but not precisely, that about $903,000 (51%) of the pool will go to the Husband. The Husband's ‘Keep’ is about $1,065,000. Hence, that will require him to make a payment to the Wife of about $162,000 for the purposes of these orders.
Further to that asset position, the Husband has a modest income from his work as a tradesman. The Wife has a modest income from that part of the business or her previous business that she retained. Each party has a substantial obligation to care for and support their children and that impacts on their ability to earn income.
I do not accept the Husband's argument that because he wishes to arrange his affairs to maintain the substantial debt and equity inherent in maintaining the J Street, Town K property, he does not have the capacity to meet an order for costs. I do not accept the Husband's financial-hardship argument.
Legal aid
Neither party is in receipt of Legal Aid.
The conduct of the parties to the proceedings
I refer to the parts of the reasons in the October judgment referred to above. The bottom line is that when the matter came on for trial before me in May 2022, the thrust of the Wife's case as to the UPE was that she may have to pay some amount back to Mr C or his entities. The Wife did not disclose, nor make any reference to, the careful calculation and proposal that she had made by her different solicitors on 18 March 2022. She should have. The 18 March 2022 letter should have been disclosed. Not only was it not disclosed, the Wife's position was to the opposite effect. Ultimately, shortly prior to the third day of hearing, 29 September 2022, and only because the Husband had issued subpoenas, the 18 March 2022 letter was obtained, and the Wife conceded an additional approximate $136,000 in the pool. That was in a pool of about $1,700,000 plus about $300,000 of superannuation. In the October judgment I did not move to find that the Wife's failure to disclose the 18 March 2022 letter and her sworn evidence to the opposite effect when before me in May was a matter that impacted on the Wife's contribution position over the length of the long marriage. Nor was I satisfied that I should make an adjustment pursuant to section 75(2)(o) in all the circumstances. However, the manner in which the Wife dealt with the UPE is a very significant matter when I consider her conduct of the proceedings on this application.
The Husband's conduct of the proceedings is marked by the very late application to adduce evidence relating to the horses and, in particular, the Wife's valuable horses that she sought to retain. Compared to the Husband, the Wife has a superior knowledge and expertise of the nature, form and characteristics in regard to the particular type of horse that she wished to retain, including as to their value. I do not intend to go behind the negotiations that led to the agreement between the parties as to the value of the horses, which made the adduction of evidence from any expert unnecessary.
However, when the matter was listed for trial in December 2021 and before me during the final hearing, the Wife asserted and swore that the value of the horses was about $34,000. The Husband obtained the adversarial expert report from Mr AE, albeit late, and was successful in the application to adduce that evidence in the contested proceedings before me (and I refer to the May reasons). Only then was there a subsequent agreement able to be negotiated that led to an increase in the agreed value of the horses that the Wife was to retain. That increase was from about $34,000 to about $220,000; a further sum of roughly $180,000. Again, this is a very significant amount in the context of an asset pool of about $1,700,000. There is no evidence before me to the effect that the Wife was mistaken or misinformed about the value of her horses that she wished to retain at the time of adopting the then expert’s $34,000.
Whether the proceedings were necessitated by the failure to comply with an order of the court
This is not applicable.
Whether any party to the proceedings has been wholly unsuccessful in the proceedings
Neither party was wholly unsuccessful in the proceedings. The Husband was successful in prying from the Wife the further information about the UPE. The Husband was successful in having an adversarial expert about the value of the Wife’s horses appointed and successful in his case to establish that the horses were worth much more than $34,000.
Whether any party has made an offer in writing to settle the proceedings
This is a most significant and important aspect. Whilst all parties to litigation have the right to pursue the matter to conclusion and have a judge determine each and any relevant dispute, the obligation is on the parties and the lawyers to conduct proceedings within sensible bounds. As a general rule, where a party has continued to conduct litigation rather than accept a reasonable and sensible offer from the other side and the end result is that the Court determines that that party should receive less than proposed in the offer, then in many (if not most) cases an order for costs, or a partial order for costs from the date of the offer, would be likely made or at least seriously considered.
In this case I place very significant weight on the undisputed fact that the Husband, after expending legal fees and the Wife expending legal fees ended up with a bit less than what was contained in the Wife's offer.
Other matters relevant
I also consider it very significant that the Wife was, herself, a finance professional and the Husband is far less sophisticated in matters of financial analysis and record keeping. In this case the Wife was on top of the detail and consequences of the complex financial agreement relating to the sale and the underlying information that when collated and calculated would relate in the UPE.
To understand and deal with that concept the Husband had to pay for expensive legal advice to come to grips with it. This was a matter entirely within the Wife's ballpark. The Wife had not merely failed to disclose the 18 March 2022 letter, but had in detailed, time consuming, articulate and powerful submissions and evidence advanced that the more likely result was to the opposite. This was a matter within the Wife's ballpark or sphere of influence and understanding, where she had a significant advantage over the Husband's understanding of such matters.
The Husband was successful in his late application to have an adversarial witness. The lateness of that application means that I give serious consideration to whether an order for costs should be made relating to the increase in costs of that aspect. However, I must also consider that this too, like the UPE, was a matter where the Wife had a greater knowledge and understanding of the value of the horses she wished to retain; this, too, was a matter within her ballpark.
Not only was the Husband successful in obtaining an order for the adduction of adversarial evidence as to the value of the horses, but, as demonstrated by the ultimate agreement, the horses were worth roughly five times more (500% more) than the Wife had originally sworn.
Full, frank and timely disclosure of material financial information and documents is a non-negotiable obligation on parties and particularly the party with greater expertise or knowledge about financial matters.
Balancing all of the above matters that contend for and against an order for costs in the Wife's favour, I conclude that it is not appropriate to make an order for costs in the Wife's favour. This is because I place significant weight on the Wife’s conduct of the proceeding relating to the UPE and the ultimate value of the horses, but particularly her conduct of the UPE aspect of her case. In this case those matters outweigh the heavy weight of the offer in writing that contends in favour of an order for costs.
Those are my reasons.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of Judge O'Shannessy. Associate:
Dated: 24 February 2023
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