Hauff v Miller
[2013] QCA 48
•15 March 2013
SUPREME COURT OF QUEENSLAND
CITATION:
Hauff & Anor v Miller [2013] QCA 48
PARTIES:
TREVOR GEORGE HAUFF
IRENE CHRISTINE HAUFF
(appellants/cross-respondents)
v
ANNE MARIE MILLER
(respondent/cross-appellant)FILE NO/S:
Appeal No 7354 of 2012
DC No 234 of 2010DIVISION:
Court of Appeal
PROCEEDING:
General Civil Appeal
ORIGINATING COURT:
District Court at Cairns
DELIVERED ON:
15 March 2013
DELIVERED AT:
Brisbane
HEARING DATE:
12 February 2013
JUDGES:
Chief Justice and Holmes JA and Dalton J
Separate reasons for judgment of each member of the Court, each concurring as to the orders madeORDERS:
Appeal allowed.1.
Cross-appeal dismissed.2.
The judgment given on 19 July 2012 is to be varied by the addition of the following declaration:3.
“(3) that on 22 September 2010 the appellants duly terminated the said contract under cl 9.1, because of the respondent’s failure to comply with cl 3.1, and that the appellants are consequently entitled, at their election and as applicable, to the remedies specified in cll 9.3, 9.4, 9.5 and 9.6.”
The respondent is to pay the appellants’ costs of and incidental to the appeal and the cross-appeal.The basis on which they should be assessed is reserved, pending written submissions, to be furnished forthwith. 4.
CATCHWORDS:
CONVEYANCING – BREACH OF CONTRACT FOR SALE AND REMEDIES – ENTITLEMENT TO DEPOSIT – FORFEITURE TO VENDOR – the parties entered into a standard contract of sale for an apartment, being the second edition of the REIQ/QLS standard form contract for the sale of residential lots under community titles schemes – the Standard Terms of the contract contained a subject to finance clause, where time was of the essence – the respondent applied to a different financier from the one specified in the contract – having failed to obtain finance approval before the extended due date, the respondent sought to terminate the contract and obtain a refund of the deposit – whether the respondent purchaser had taken all reasonable steps to obtain finance approval in accordance with clause 3.1 of the Standard Terms – whether the seller appellants could rely on contractual remedies under clause 9 of the Standard Terms in addition to common law remedies for breach of contract – whether clause 9.1 of the Standard Terms of the REIQ/QLS Contract of Sale is exclusively for the benefit of the purchaser
Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52, cited
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29, cited
Sutter v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35, cited
Tropical Traders Ltd v Goonan (1964) 111 CLR 41; [1964] HCA 20, cited
Zieme v Gregory [1963] VR 214; [1963] VicRp 34, citedCOUNSEL:
J Baird SC, with L Stephens, for the appellants/cross-respondents
R Murdoch QC for the respondent/cross-appellantSOLICITORS:
Trevor Hauff Lawyers for the appellants/cross-respondents
Robert Palethorpe Solicitor for the respondent/cross-appellant
CHIEF JUSTICE: The respondent entered into a contract to purchase a home unit from the appellants. The contract was subject to finance. The respondent purported to terminate the contract because finance was not forthcoming. It emerged the respondent had not applied to the nominated financier. The appellants subsequently terminated the contract claiming the deposit and asserting a right to pursue damages etc under the provisions of the contract.
The learned Judge allowed the appellants the deposit, but denied them recourse to their other contractual remedies, confining them to common law relief. The appellants appeal on the ground that they should have been allowed recourse to the contractual remedy.
The respondent cross-appeals on the basis the Judge erred in finding that she had not taken reasonable steps to obtain finance: her right to terminate was predicated upon her having taken those steps.
Factual circumstances
By the contract, which is dated 3 September 2010, the appellants agreed to sell unit five in a block at Port Douglas to the respondent for $575,000. The deposit was $10,000. The settlement date was 1 October 2010. The “finance amount” was $400,000, to be obtained from ING Bank by 10 September 2010.
When the approval was not obtained, the appellants, following an approach on behalf of the respondent, agreed to extend time for the obtaining of finance until 5 pm on 17 September 2010, with time to remain of the essence.
At 4.22 pm on 17 September, the solicitors for the respondent advised the solicitors for the appellants:
“Our client has not been able to obtain finance approval. Accordingly the contract is now at an end. Please authorise the agent to refund the deposit to our client in full.”
On 20 September, the solicitors for the appellants pointed out to the solicitors for the respondent that they needed to be satisfied that the respondent had taken all reasonable steps to obtain finance, and the appellants’ solicitors sought copies of the relevant documentation.
In response, on 20 September, the solicitors for the respondent furnished communications from The Rock Building Society, on the basis that material confirmed “that finance was not going to be approved by the due date”. The query arises why the respondent applied not to the contractually specified financier, ING Bank, but to The Rock. As recounted by His Honour:
“On entering into the contract the defendant had previously negotiated a loan facility with ING Bank, obtaining pre-approval for $200,000.00. The contracts were signed on a Friday and that evening the defendant contacted her mortgage broker, Ms Fisk to seek that ING Bank ‘reactive the loan’. When Ms Fisk contacted ING Bank on Monday 6 September 2010, she was informed by email from ING that ‘this has been archived in our system due to no action since May 2010, we will require a brand new loan application to be submitted in order for the deal to proceed.’ Ms Fisk was of the view that it would not be possible to obtain a suitable loan from ING Bank by the Finance Date in the building contract. The defendant then decided, on the advice of Ms Fisk, to seek finance from a different financier, the The Rock … There is no evidence that the plaintiffs were advised of this decision.”
Informed that the respondent had made no application to ING Bank referable to the instant contract, the solicitors for the appellants said this to the solicitors for the respondent, on 20 September 2010:
“The [contract] of sale specifically provides that the lender was ING Bank not the Rock Building Society. Additionally even the Rock Building [Society] has not refused to approve the loan simply stating it could not do so in time for the 17th September 2010 although the reason for that is unstated. That time was not a critical date as firstly an extension of time could have been requested, or simply the notice of termination not be given, in which case the contract would have remained on foot until terminated by the Seller (or Buyer if finance could [not] be obtained). If the circumstances had been explained to the Seller it would have extended the time and indeed is still willing to do so. In any event if the termination notice had not been given then the contract would have remained on foot allowing ample time for finance to be obtained. It appears that it was not an issue of whether finance could be obtained but whether it could be obtained by the 17th September 2010 from the Rock Building Society, not the contract nominated party the ING Bank and the circumstances surrounding why it could not be obtained have not been explained.
This documentation does not show that the Buyer acted reasonably and we therefore cannot authorise the release of the deposit.”
It is convenient to observe here that the appellants were not thereby electing to affirm the contract. They were effectively negotiating as to the future of the transaction. In relation to the words, “the seller … is still willing to do so” (that is, extend time if asked), it is relevant to note that no further request for an extension of time was made. In other words, the respondent was standing by her purported termination. As in Tropical Traders Ltd v Goonan (1964) 111 CLR 41, 55, the appellants had effectively held any right of termination which had accrued to them in abeyance.
Then on 21 September 2010, the appellants for their part purported to terminate the contract in reliance upon the respondent’s breach of an obligation under the finance provision. They advised the solicitors for the respondent in these terms:
“Further to my earlier email, it appears from the advice supplied to me by Joanne of Rob Palethorpe solicitor (copy attached) that the Buyer at best may have applied for a loan with the Rock Building Society, but apparently made no attempt whatsoever to get a loan from the nominated Financier ING Bank as required by the finance clause. Therefore the Buyer has not complied with the contract to take all reasonable steps to obtain the loan from the nominated Financier. In fact it appears the Buyer did not even make an application to the nominated Financier.
In these circumstances the Buyer has breached the contract and the Seller may under Clause 9.3 keep the deposit and interest earned, sue the Buyer for damages and resell the property.
In the circumstances, The Seller lays claim to the deposit and if necessary will sue for damages.”
In a letter the following day, the solicitors for the appellants advised that the appellants expressly terminated the contract pursuant to cl 9.1, and asserted the appellants’ entitlement to relief under cl 9.3.
There was subsequent correspondence in relation to compliance with the Property Agents and Motor Dealers Act 2000. Prior to the trial, the respondent disavowed any reliance on that legislation, and it is not necessary to consider it further in these reasons.
The appellants sought at trial: first, a declaration that the respondent was in default under the contract and the appellants had terminated the contract under cl 9.1; second, a declaration that the appellants were entitled to the remedy specified under cl 9; third, a declaration that the appellants were entitled to the deposit monies of $10,000; and fourth, a declaration that the appellants were entitled to a deposit of $3,000 which had been paid under a related contract for the purchase of the contents of the unit. (The claim was pleaded in the statement of claim by reference to clauses 3 and 9, not anticipatory breach and repudiation.)
There is no need to say more about that other contract: there is no challenge to the relief granted in that regard by the Judge.
The contractual provisions
The contract was in the form of the second edition of the REIQ/QLS standard form contract for the sale of residential lots under community titles schemes. The finance clause provided:
“3. Finance
3.1This contract is conditional on the Buyer obtaining approval of a loan for the Finance Amount from the Financier by the Finance Date on terms satisfactory to the Buyer. The Buyer must take all reasonable steps to obtain approval.
3.2The Buyer must give notice to the Seller that:
(1)approval has not been obtained by the Finance Date and the contract is terminated; or
(2)the finance condition has been either satisfied or waived by the Buyer.
3.3The Seller may terminate this contract by notice to the Buyer if notice is not given under clause 3.2 by 5pm on the Finance Date. This is the Seller’s only remedy for the Buyer’s failure to give notice.
3.4The Seller’s right under clause 3.3 is subject to the Buyer’s continuing right to terminate this contract under clause 3.2(1) or waive the benefit of this clause 3 by giving written notice to the Seller of the waiver.”
Clause 9, upon which the appellants rely for their claimed relief, provides:
“9. Buyer’s Default
9.1Seller May Affirm or Terminate
If the Buyer fails to comply with any provision of this contract, the Seller may affirm or terminate this contract.
9.2If Seller Affirms
If the Seller affirms this contract under clause 9.1, it may sue the Buyer for:
(1)damages;
(2)specific performance; or
(3)damages and specific performance
9.3If Seller Terminates
If the Seller terminates this contract under clause 9.1, it may do all or any of the following:
(1)resume possession of the Property;
(2)keep the Deposit and interest earned on its investment;
(3)sue the Buyer for damages;
(4)resell the Property.
9.4Resale
(1)The Seller may recover from the Buyer as liquidated damages:
(a) any deficiency in price on a resale; and
(b)its expenses connected with this contract, any repossession, any failed attempt to resell, and the resale;
provided the resale settles within 2 years of termination of this contract.
(2)Any profit on a resale belongs to the Seller.
9.5Seller’s Damages
The Seller may claim damages for any loss it suffers as a result of the Buyer’s default, including its legal costs on a solicitor and own client basis.
9.6Interest on Late Payments
(1)Without affecting the Seller’s other rights, if any money payable by the Buyer under this contract is not paid when due, the Buyer must pay the Seller at settlement interest on that money calculated at the Default Interest Rate from the due date for payment until payment is made.
(2)The Seller may recover that interest from the Buyer as liquidated damages.
(3)Any judgment for money payable under this contract will bear interest from the date of judgment to the date of payment and the provisions of this clause 9.6 apply to calculation of that interest.”
The competing positions, as placed before the learned Judge, were these.
The appellants asserted that the respondent breached an obligation under what I note is part of the condition subsequent cl 3.1 (Sutter v Gundowda Pty Ltd (1950) 81 CLR 418, 443) to “take all reasonable steps to obtain approval” of finance. The respondent had made no formal application to the specified financier. Accordingly, under cl 9.1, the appellants had duly terminated the contract, becoming entitled to the relief specified subsequently in that clause.
The respondent’s position was that applying to ING Bank, the specified financier, given the short timeframe, would have been an exercise in futility; she was entitled to give the notice terminating the contract under cl 3.2(1) and to retain the deposit.
The learned Judge’s approach
His Honour held that the respondent had not satisfied her obligations under cl 3.1. He said:
“It is established law that the defendant bears the onus of establishing that she had taken all reasonable steps to obtain finance from ING Bank in order to invoke the benefit of clause 3.1 of the building contract. The difficulty for the defendant is that no evidence was called from ING Bank as to her prospects of obtaining finance by 5:00 p.m. on Friday, 17 September, 2010, the extended Finance Date. In the circumstances and particularly having regard to the fact that she made no application for finance to this financier as contemplated by clause 3.1 at all, I am not satisfied that the defendant has discharged the onus of proving that she took all reasonable steps to obtain finance approval from the nominated financier, ING Bank.”
His Honour then addressed the question whether the clause 9 rights consequently accrued to the appellants. He answered that question in the negative, essentially for these reasons. He held that the provision that the respondent should take all reasonable steps to obtain finance was part of a provision (the subject to finance provision) which was “entirely for (the respondent’s) benefit”. Especially in light of cl 3.3, it was not intended that if she did not comply with that stipulation, her failure would activate the clause 9 regime. Rather, in giving notice of termination without the backing of compliance with its underlying requirement (to take all reasonable steps), she repudiated the contract. Having accepted that repudiation, the appellants were entitled to relief, not under cl 9, but at common law.
That is my attempted summary of what His Honour said, which was as follows:
“The relief sought pursuant to clause 9 of the building contract is couched in terms of the defendant ‘failing to comply with any provision of this contract.’ It could be argued that in not taking all reasonable steps to obtain approval of a loan from the nominated financier by the extended finance date the defendant failed to comply with a provision of the building contract, however this provision was entirely for her benefit and clause 3.3 makes it clear that it is not intended that non-compliance in this regard is within the contemplation of clause 9. Clause 3 was for the benefit of the defendant alone and she was not in breach of the building contract in failing to obtain finance pursuant to clause 3. In repudiating the building contract by purporting to rely on clause 3 when she was not entitled to, her conduct falls outside of what is contemplated in clause 9.1. In the circumstances, the plaintiffs clearly have remedies at common law, but the remedies specified in clause 9 of the building contract are not open to them.”
In the result, the Judge declined to make the first two declarations sought. He made these declarations:
“(1)the plaintiffs are entitled to the deposit of $10,000.00 held by the Agent pursuant to Clause 2.4(1)(c) and 2.4(2) of the Terms of Contract in the Contract of Sale of Real Property made the 3rd September 2010 between the plaintiffs as Seller and the defendant as Buyer of the property described as Unit 5, at 14A-16 Andrews Close Port Douglas and being Lot 5 on SP168547; and
(2)the defendant is in default of the Contract of Sale of Chattels and the plaintiffs are entitled to and have properly terminated the Contract for the sale of Chattels and are entitled to the deposit of $3000.00 pursuant to Clause 3 of the Contract for the Sale of Chattels.
He ordered that the deposit monies, which had been paid into court, be paid out, with interest, to the appellants. He ordered the respondent to pay the appellants’ costs to be assessed on the indemnity basis.
It remains to set out the deposit provision:
“2.4 Entitlement to Deposit and Interest
(1)The party entitled to receive the Deposit is:
(a) if this contract settles, the Seller;
(b)if this contract is terminated without default by the Buyer, the Buyer; and
(c)if this contract is terminated owing to the Buyer’s default, the Seller.
(2)The interest on the Deposit must be paid to the person who is entitled to the Deposit.
(3)If this contract is terminated, the Buyer has no further claim once it receives the Deposit and interest (if any), unless the termination is due to the Seller’s default, misrepresentation or breach of warranty.
(4)The Deposit is invested at the risk of the party who is ultimately entitled to it.”
Analysis
Steps taken by respondent to obtain finance
A mortgage broker, Ms Fisk, dealt with the issue of obtaining finance on behalf of the respondent. She had regard to what she believed to be “turn around time” for various financial providers, and reached the view that an approach to The Rock would more likely be successful within time. There is however evidence to suggest that she was also influenced by The Rock’s “competitive interest rate”.
The evidence before the Judge did not establish that an application to ING Bank would have been futile. That lender had a file of background information on the respondent’s financial position. Presumably updating it would not have taken an inordinate time, and it may have been that if apprised of the need for a swift determination, ING Bank could and would have obliged. One simply does not know, because no evidence from ING Bank was presented.
The Judge was right to emphasise that the respondent made no application for finance to ING Bank (as distinct from what could be regarded as a preliminary inquiry on 6 September 2010). The respondent did not instigate the process required of her. The Judge’s conclusion that the respondent did not establish that she had taken all reasonable steps to obtain finance approval was amply justified.
Consequences
Taking a literal approach, the respondent therefore failed to comply with a provision of the contract, being the second part of cl 3.1, justifying termination under cl 9.1 and activation of the appellants’ rights under cll 9.3, 9.4 ,9.5, and 9.6. The question arises however, whether breach of the obligation resting upon the respondent to take all reasonable steps to obtain finance approval amounted to a breach of contract within the contemplation of cl 9.1.
The learned Judge considered it was not, because the provision in cl 3.1 was “entirely” for the benefit of the respondent. I respectfully disagree with that characterisation. Regarding the obligation to take reasonable steps only as a condition regulating the purchaser’s right to terminate were finance not obtained, would ignore the interest of both purchaser and vendor in the completion of the contract. See, in similar vein, Meehan v Jones (1982) 149 CLR 571, 588, 592 per Mason J and Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 565 per Brennan J (as their Honours “were” in 1982). A vendor has an interest in ensuring the purchaser makes every reasonable effort to secure necessary finance to ensure completion of the contract.
The question remains whether the second sentence at cl 3.1, which is couched in the language of covenant or promise, should however not be regarded as a “provision” of the contract within the meaning of cl 9.1.
The way the obligation to take all reasonable steps is couched and presented suggests it may have a dual operation, both as a contractual promise on the part of the purchaser (separately expressed in its own self-contained sentence), and as the pre-condition for the exercise of the right to terminate should finance approval not be granted (that sentence immediately following the “subject to finance” clause).
The parties have not said that the right to terminate only arises if the purchaser has taken all reasonable steps and approval is not given, and that it is entirely up to the purchaser whether or not the purchaser takes those steps.
Under this form of cl 3.1, the purchaser is apparently subject to an unequivocal contractual obligation to take “all reasonable steps to obtain approval”.
The Judge’s other reason for his contrary conclusion was that “clause 3.3 makes it clear that it is not intended that non-compliance (with clause 3.1) is within the contemplation of clause 9”.
Clause 3.3 accords the vendor a right to terminate, and no more, where the purchaser has given no notice under cl 3.2, whether of termination, waiver of the condition, or satisfaction of the condition. The vendor may then terminate “for the buyer’s failure to give notice” (cl 3.3). That was not this factual situation, of course, where notice was in fact given, although lacking the necessary foundation.
This reason advanced by the Judge does not address the question whether the second part of cl 3.1 should be regarded as, in effect, a stand-alone promise on the part of the respondent – in addition to its role as the foundation of the respondent’s right to terminate if finance should not be approved.
Clause 3.3 “codifies” the vendor’s right to terminate in the event the purchaser gives no notice at all under cl 3.2, that is, whether finance is or is not approved, or if not approved, where the purchaser has waived the right to terminate. In any of those cases, if the vendor chooses to terminate, that is the vendor’s only right. The vendor may of course not terminate, but hold the purchaser to the obligation to complete. If the purchaser breaches that obligation, the vendor will have a range of rights.
Take the case where the purchaser has failed to take reasonable steps to secure finance, does not gain the approval, and fails to give notice of termination (or otherwise) under cl 3.2. The vendor could then terminate for the purchaser’s failure to give notice (cl 3.3). That would then be the vendor’s only remedy for the purchaser’s “failure to give notice” (cl 3.3).
But as in that case where the purchaser’s failure to discharge its contractual obligation to give notice under cl 3.2 has been preceded by another separate contractual breach, that is breach of the obligation under cl 3.1, to take all reasonable steps to obtain finance approval, there is no reason why the vendor could not terminate, not for the failure to give notice, but for breach of the separate obligation to take reasonable steps, giving rise to the application of cl 9. That is what happened in this case on 21 September 2010.
A purchaser’s failure to give notice under cl 3.2 is a non-compliance with a provision of the contract, to use the terms of cl 9.1, but it is cl 3.3 which makes particular provision specifically regulating and limiting the vendor’s rights upon termination for that particular breach.
Other instances of non-compliance, such as non-compliance with the obligation to take reasonable steps to obtain finance approval, not being the subject of special provision in the conditions (by contrast with cl 3.3), therefore fall within the general ambit of cl 9.
I see no sufficient reason to depart in this regard from the literal thrust of cll 3 and 9. (The issue appears not to have been canvassed previously at appellate level.) That the respondent was obliged to take all reasonable steps to obtain approval for the requisite finance was a “provision of the contract” (cl 9.1), in fact one of considerable potential importance to both vendor and purchaser, and there is no indication that it should not be regarded as falling within the purview of cl 9. Had the contrary position been intended by the parties, they could easily have made that clear by express provision to that effect.
Conclusion
I would make the following orders:
1. that the appeal be allowed;
2. that the cross-appeal be dismissed;
3. that the judgment given on 19 July 2012 be varied by the addition of the following declaration:
(3)that on 22 September 2010 the appellants duly terminated the said contract under cl 9.1, because of the respondent’s failure to comply with cl 3.1, and that the appellants are consequently entitled, at their election and as applicable, to the remedies specified in cll 9.3, 9.4, 9.5 and 9.6.
4. that the respondent pay the appellants’ costs of and incidental to the appeal and the cross-appeal. The basis on which they should be assessed is reserved, pending written submissions, to be furnished forthwith.
HOLMES JA: I have had the advantage of reading the reasons of the Chief Justice and of Dalton J, and agree with them. The orders should be those proposed by the Chief Justice.
DALTON J: I agree with the orders proposed by the Chief Justice.
The relevant clauses of the contract – cll 3 and 9 – are set out in the Chief Justice’s judgment.
The contract allowed only seven days for the purchaser to attempt to obtain finance from the financier, defined as ING Bank. The purchaser had previously negotiated a loan facility with ING Bank for an investment which did not go ahead. It appears that she and her finance broker, Ms Fisk, therefore anticipated that only a short time would be needed for ING Bank to reactivate that previously approved loan.
The contract was made on 3 September 2010, a Friday. The purchaser contacted her finance broker that day and on Monday 6 September 2010 the broker made an email enquiry of ING Bank as to how she should go about reactivating the previously approved finance. The broker was told that, because of the time which had passed since the previous application, the bank would require a new loan application to be submitted. No attempt was made to deal further with ING Bank. The broker apparently thought that an alternative financier would be more likely to grant finance within the limited time available. Unfortunately that decision seems to have been taken in ignorance of the fact that the contract required the purchaser to take all reasonable steps to obtain approval from ING Bank by 10 September 2010.
The primary judge was clearly right in holding that all reasonable steps were not taken to obtain finance approval from ING Bank. Nothing but a preliminary enquiry was made. No formal application was submitted and there was no attempt by the vendor to persuade ING Bank to reconsider reactivating the previous loan or grant a speedy approval to a new loan on the basis of their previous dealings.
In my view, the last sentence of cl 3.1 of the contract operated to impose an independent contractual obligation on the purchaser. It would be better if that sentence were contained in an independent clause of the contract.[1] Nonetheless, that sentence is in my view, a “provision of [the] contract” within the meaning of cl 9.1 of the contract. It was breached. That entitled the vendor to terminate the contract and rely upon his rights under cl 9.1 of the contract.
[1]I note that cll 2.6(1), 2.6(13), 4.2, 5.6(2) and 7.8 of the contract all contain more than one provision.
The first sentence of cl 3.1 is for the benefit of the purchaser – Zieme v Gregory[2] – and cll 3.2, 3.3 and 3.4 regulate the purchaser’s rights to waive it. The second sentence in cl 3.1 is not wholly for the benefit of the purchaser, but also substantially for the benefit of the vendor – Zieme v Gregory, p 223. The provisions at cll 3.2, 3.3 and 3.4 do not regulate the purchaser’s obligation to take reasonable steps to obtain finance approval contained in the second sentence of cl 3.1. Further, if the purchaser does not take reasonable steps to obtain finance approval, and is thus in breach of the second sentence in cl 3.1 (as this purchaser was), the purchaser will have no right to give a notice pursuant to cl 3.2(1) of the contract – Zieme v Gregory, p 223. The primary judge was wrong to think that cll 3.2, 3.3 and 3.4 limited the vendor’s rights under cl 9.1 in circumstances where the purchaser was in breach of her obligation to take all reasonable steps to obtain finance approval.
[2][1963] VR 214, 222.
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