In the matter of ACN 168 479 614 Pty Ltd (rec & mgrs apptd) (admins apptd)
[2020] VSC 614
•23 September 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 01029
| SIMON MAURICE PITARD | Plaintiff |
| v | |
| KEITH CRAWFORD, MATTHEW CADDY AND JASON PRESTON AS RECEIVERS AND MANAGERS OF ACN 168 479 614 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 168 479 614) | First Respondent |
| KEITH CRAWFORD, MATTHEW CADDY AND JASON PRESTON AS RECEIVERS AND MANAGERS OF DEVELOPMENT STELLER PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 629 168 289) | Second Respondent |
| KEITH CRAWFORD, MATTHEW CADDY AND JASON PRESTON AS RECEIVERS AND MANAGERS OF STELLER ESTATE ROSEBUD PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)(ACN 616 045 679) | Third Respondent |
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JUDICIAL REGISTRAR: | Irving JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 August 2020 |
DATE OF JUDGMENT: | 23 September 2020 |
CASE MAY BE CITED AS: | In the matter of ACN 168 479 614 Pty Ltd (rec & mgrs apptd) (admins apptd) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 614 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Summonses for public examination issued under ss 596A and 596B – Application to set aside summonses – Whether application for summonses made for private purpose – Whether proper disclosure made by receivers at time of application for summonses.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr D McAloon | Strongman & Crouch |
| For the Respondents | Mr R Craig SC with Ms V Bell | Allens |
JUDICIAL REGISTRAR:
Simon Pitard seeks to set aside a summons (‘Summons’) addressed to him that was issued pursuant to s 596A of the Corporations Act 2001 (Cth) (‘Act’) pursuant to an order made on 17 March 2020.[1]
[1]Ms Pitard abandoned her application to set aside the summons addressed to her and her public examination took place on 31 August 2020.
The plaintiffs (‘Receivers’) commenced this proceeding and obtained the Summons in their capacity as the receivers and managers of:
(a) ACN 168 479 614 Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 168 479 614) (‘Steller Developments’);
(b) Development Steller Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 629 168 289) (‘Development Steller’); and
(c) Steller Estate Rosebud Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 616 045 679) (‘Steller Estate Rosebud’),
(together, the ‘Named Companies’).
The Named Companies form part of a group of related companies that operated as the Steller Group. The Steller Group was established by Mr Pitard and a colleague.
The Receivers were appointed to the Named Companies by One Managed Investment Funds Limited (‘OMIFL’), the security trustee appointed pursuant to a Loan Note Subscription Agreement between companies in the Steller Group and their financiers.
Four companies within the Steller Group, not including any of the Named Companies, (‘Atlas Plaintiffs’) commenced litigation against Atlas Advisors Australia Pty Ltd (‘Atlas’) in the Supreme Court of Victoria (‘Atlas Proceeding’). Each of the Atlas Plaintiffs is a wholly owned subsidiary of a Steller Group company to which the Receivers have been appointed.
Mr Pitard seeks to set aside the Summons on the basis that it is an abuse of process because:
(a) it was issued for a private purpose, namely to assist the Receivers’ appointor (OMIFL) in the conduct of the Atlas Proceeding, via the Atlas Plaintiffs, against the interests of Atlas, another creditor of companies within the Steller Group; and
(b) the Receivers have breached their obligations to fully and frankly disclose all relevant facts and materials to the Court at the time they applied for the Summons to be issued.
For the reasons below I have decided that Mr Pitard’s application to set the Summons aside should be dismissed.
The material before the Court on the application for the Summons
In order to consider Mr Pitard’s application, it is useful to set out the relevant parts of the affidavit supporting the Receivers’ application for the Summons (‘Supporting Affidavit’)[2] and the categories of documents sought by the Summons.
[2]Affidavit of Matthew Wayne Caddy dated 21 February 2020.
The Supporting Affidavit set out five reasons for seeking the Summons. Only the first of those reasons was disclosed to Mr Pitard. The first reason was the following:
The purpose in seeking the summonses for examination about the examinable affairs of the Companies is, inter alia, to obtain information about…..the validity of claims made by third parties asserting an entitlement to, or interest in, properties owned by Stellar Group entities which are the subject of the plaintiffs’ appointment as receivers and managers (see paragraphs 22 to 27 below).
Without divulging the content of the remaining four reasons for the Summons, three of the four reasons were directly referable to the actions of one or more of the Named Companies and not directly relevant to the Atlas Proceeding.
Paragraphs 22 to 27 of the Supporting Affidavit set out financial arrangements between Steller Developments and Atlas. Steller Developments entered into a deed with Atlas on 2 February 2017 called the ‘Steller Commercial Loan Note Master Facility Deed’ (‘Atlas Facility’). Under the Atlas Facility, Atlas advanced approximately $100m to Steller Developments but did not take security from Steller Developments. Steller Developments did not seek or obtain the prior written consent of its financiers before entering into the Atlas Facility.
The Supporting Affidavit set out some important features of the Atlas Facility:
(a)its purpose is to assist Steller Developments (or its associated entities) ‘in the acquisition and/or development of Australian real property (zoned for use other than residential real estate), consistent with the requirements of section 10(3)(d) of the Migration Instrument’ where ‘Migration Instrument’ means the Migration (IMMI 15/100: Complying Investments) Instrument 2015 (clause 2.5);
(b)Steller Developments must ensure that moneys drawn under the Facility ‘are used solely for the purposes described in clause 2.5’ (clause 4); and
(c)the initial Notes issued by Steller Developments to Atlas are ‘linked to the commercial property assets identified in Schedule 1’ and owned by Steller Developments or its associated entities (clause 21.8.2).
The Supporting Affidavit went on to explain that Atlas claims that, contrary to the terms of the Atlas Facility, funds it advanced to Steller Developments under the Atlas Facility were used in the acquisition of a number of residential properties owned by Steller Group entities including, relevantly, Steller Estate Rosebud. Each of the registered proprietors of the properties listed in the Supporting Affidavit is an entity to which the Receivers have been appointed receivers and managers or a wholly owned subsidiary of such an entity.
Between 22 May 2019 and 12 July 2019 Atlas lodged caveats over the titles to the properties listed in the Supporting Affidavit claiming an interest on the basis of an implied, resulting or constructive trust.
The Supporting Affidavit then referred to the Atlas Proceedings as follows:
On 18 November 2019, Steller 207 Pty Ltd (ACN 619 530 193), Steller Estate Hastings Pty Ltd (ACN 616 051 293) and Steller Care Hastings Pty Ltd (ACN 618 871 640)[3] commenced proceedings in the Supreme Court of Victoria seeking, among other remedies, declarations that they are entitled to the proceeds of sale of certain properties which were subject to caveats lodged by Atlas alleging an interest in those properties on the basis outlined in the correspondence referred to in paragraph 25 of this affidavit.
[3]A further plaintiff, Steller 204 Pty Ltd was added to the proceeding on 28 January 2020.
The Supporting Affidavit exhibited copies of correspondence from Atlas’ lawyers outlining its claims together with copies of the sealed originating motion and supporting affidavit in the Atlas Proceeding.
As is usual, the Summons set out categories of documents required to be produced. In Mr Pitard’s Summons, nine categories of documents are sought. The first four categories were in the following terms:
(a)The agreement between Atlas Advisors Pty Ltd (ABN 24 164 576 569, AFSL 443264) (Atlas) and Steller Developments titled ‘Steller Commercial Loan Note Facility Deed’ dated 2 February 2017 (Atlas Facility);
(b)All documents dated 2 February 2017 or later recording the use of funds advanced pursuant to the Atlas Facility (Atlas Funds), regardless of whether the funds were advanced to the [Named] Companies directly or at the [Named] Companies’ direction;
(c)Any correspondence between, or involving, representatives of Atlas and the [Named] Companies regarding the Atlas Facility or the Atlas Funds; and
(d)All documents recording any actual or contemplated transfers of Atlas Funds to Paul Maurice Pitard Pty Ltd (ACN 609 471 829), and the purpose of such transfers.
Impermissible forensic advantage – relevant legal principles
The legal principles relevant to whether the issuing of a summons amounts to an abuse of process are well known. Relevantly, Justice Lander in Re New Tel Ltd (in liq); Evans v Wainter (Evans) set out the following often cited principles:
7.The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant’s purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose.
8.It will be an offensive purpose if the application cannot be characterised as being for the benefit of the corporation, its contributories or creditors.
9.A creditor may, if first authorised by ASIC, apply to the court for an order to summon for examination a person for the purpose of obtaining information in relation to a debt owed to the creditor if such an examination would be in the interests of the corporation or its creditors as a whole.
10.A creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration.[4]
[4]Re New Tel Ltd (in liq); Evans v Wainter (2005) 145 FCR 176, 217 [252].
In Evans, Justice Lander commented on the limits on the purposes for which a creditor might use the examination procedure:
If a party seeking the examination summons is doing so for any number of purposes, which do not include the purpose of benefitting the corporation, then that would amount to an abuse. On the other hand, if the party seeking the examination summons has as one purpose the achievement of a benefit to that party but has also a further purpose which is for the benefit of the corporation then the use of the Pt 5.9 procedure will not be an abuse of purpose.[5]
…
To interpret ss 596A and 596B as allowing the examination procedure to be used for the purpose of obtaining a forensic advantage, and for that purpose only, would not fulfil the statutory objectives.[6]
[5]Ibid 200 [144].
[6]Ibid 214 [237].
In Hong Kong Bank of Australia & ors v Murphy & ors, Chief Justice Gleeson commented on the circumstances where a forensic advantage flowing to the examiner as a result of the examination will constitute an improper purpose:
There is no strict dichotomy between an advantage to be gained by an applicant for an examination order, such as a liquidator, in the capacity of a litigant, and a benefit that might flow to creditors, or contributories, or members of the public, from the conduct of an examination. Whilst the court will not permit a liquidator, or other eligible person, to abuse its process by using an examination solely for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, such as discovery or inspection, on the other hand, the possibility that a forensic advantage will be gained does not mean that the making of an order will not advance a purpose intended to be secured by the legislation.
In Kimberley Diamonds Ltd v Arnautic, the principle was expressed thus:
If an eligible applicant obtained an examination summons for the purpose of securing a benefit for itself in other litigation, not involving the company, that purpose would be “offensive”, such that the summons could be stayed as an abuse: Evans v Wainter at [140], [143] and [252] (proposition 8). Such a summons could not be of any benefit to the company, its members or creditors.[7]
[7]Kimberley Diamonds Ltd v Arnautic (2017) 252 FCR 244, 263 [101].
More recently, in Arrium Ltd, the NSW Court of Appeal stated:
…even if the examination was brought by an eligible applicant for its own purpose, that will not be foreign to the purpose for which the power was conferred if it can be shown that fulfilment of the purpose could confer a demonstrable benefit on the company or its creditors (and possibly on all of its contributories).[8]
[8]ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) v Walton [2020] NSWCA 157, [140].
On the issue of what constitutes a benefit to the company, the Full Court of the Federal Court has stated:
…there could be no objection to the use of the examination procedure on application by a creditor whose purpose was to ensure that his or her debt was paid. After all, if the creditor was unsecured the interests of that creditor are no different from the interests of all other creditors who share rateably in the distributable assets of the company. Even in a case where the creditor was a secured creditor, the fact that the purpose of the examination was to aid the ultimate recovery of the secured debt by, for example, the ascertaining of the existence of assets would operate to the benefit of the company by ensuring that it paid out the secured creditors and that there was then revealed what other assets (if any) were available for distribution to the unsecured creditors.[9]
[9]Re Excel Finance Corporation Ltd (Receivers and Managers Appointed); Worthy v England (1994) 52 FCR 69, 93.
Impermissible forensic purpose – the parties’ submissions
Mr Pitard contends that:
(a) x the legitimacy of the purpose of the Summons must be assessed by reference to the interests of the Named Companies and the creditors of the Named Companies. The necessary benefit must be for the Named Companies and their contributories or creditors and not the Atlas Plaintiffs or other entities within the Steller Group;
(b) the affidavit supporting the Receivers’ application for the Summons identified a purpose for seeking the Summons that was not confined to the examinable affairs of the Named Companies nor clearly referable to the Named Companies at all. That purpose was, “to obtain information…about the validity of claims made by third parties asserting an entitlement to, or interest in, properties owned by the Steller Group entities which are the subject of the plaintiffs’ appointment as receivers and managers”;
(c) a review of the categories of documents sought in the Summons demonstrates that the Receivers’ predominant purpose was to obtain a forensic benefit in the Atlas Proceeding; and
(d) the Named Companies did not commence the Atlas Proceeding and do not stand to benefit from it. The outcome of the Atlas Proceeding will determine whether the Receivers’ appointor, OMIFL, via its control of the Atlas Plaintiffs, or Atlas is entitled to the proceeds generated from the sale of properties previously owned by the Atlas Plaintiffs.
The Receivers acknowledge that the examination of Mr Pitard in relation to the Atlas Proceeding is a purpose, but not the sole or dominant purpose, for which the Summons was sought. The Receivers contend that the principal purpose of Mr Pitard’s examination is not related to the Atlas Proceeding. Even if the Court does not accept that contention, the Receivers say that the outcome of the Atlas Proceeding will impact on the receiverships of each of the Named Companies in this proceeding and, accordingly, is for the benefit of the receiverships.
The Receivers argue that:
(a) the circumstances in which Atlas advanced $100m to Steller Developments under the Atlas Facility and what happened to the money directly concern the examinable affairs of Steller Developments (a Named Company);
(b) the categories of documents sought in the Summons evidence the Receivers’ intention to examine Mr Pitard in relation to any:
(i) investor agreements between investors in the ‘Fund’ as defined in the Atlas Facility and the Named Companies; and
(ii) mortgages or other forms of security granted by the Named Companies or other Steller Group entities in favour of Steller Investment Notes Pty Ltd (in liq);
(c) each of the Named Companies will benefit from examinations directed to identifying or clarifying the extent of the secured property;
(d) while the Atlas Proceeding relates to the rights to the proceeds of sale of particular properties which were the subject of caveats lodged by Atlas, Atlas also lodged caveats, relying on the same bases, over additional properties including a property owned by Steller Estate Rosebud (a Named Company). Accordingly, Steller Estate Rosebud will directly benefit if the Atlas Plaintiffs are successful in the Atlas Proceeding; and
(e) Steller 204 (one of the Atlas Plaintiffs) is a wholly owned subsidiary of Development Steller and so it follows that the outcome of the Atlas Proceeding will have a direct financial impact on Development Steller (a Named Company).
Impermissible forensic purpose - analysis
There is no requirement that the purpose for issuing an examination summons be confined to the applicant for the summons. Where a purpose is to benefit the applicant company in other litigation, in order not to constitute an impermissible forensic purpose, there must also be some demonstrable benefit to the applicant company or its creditors. So much is clear from the authorities cited above.
While the Receivers concede their appointor will obtain a forensic advantage in the Atlas Proceeding from Mr Pitard’s examination, the evidence does not support a finding that the forensic advantage is either the predominant purpose in seeking the Summons or that the Summons will not otherwise deliver a benefit to the Named Companies.
The Summons is sought for multiple cogent purposes involving the Named Companies, some not referable to the Atlas Proceeding.
An examination of the issue of what happened to the $100m advanced by Atlas to Steller Developments is clearly within the examinable affairs of Steller Developments and to the benefit of all Steller Developments’ creditors. The examination may shed light on possible causes of action available to Steller Developments against its former officers. Again, this would be to the benefit of all Steller Developments’ creditors.
Given the relevance of what happened to the $100m advanced to Steller Developments to the examinable affairs of that company, the categories of documents sought are not only relevant to the Atlas Proceeding. To the extent that these document shed light on the examinable affairs of Steller Developments their production will benefit the creditors of Steller Developments.
While the Atlas Proceeding was not commenced by any of the Named Companies, it is reasonable to expect the resolution of the issues raised in the proceeding to provide clarity on the extent and ownership of the assets of the receivership, including the assets of Steller Developments and Steller Estate Rosebud.
Failure to disclose material facts – relevant legal principles
There is a heavy obligation on the applicant for an examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person, including all material that might lead the court to refuse the application.[10]
[10]Re Southern Equities Corporation Ltd (in liq); Bond v England (1997) 25 ACSR 394, 422-423.
In Walter Rau Neusser Oel Und Fett AG, Justice Allsop (as his Honour then was), set out what is required of an applicant for a summons:
In an ex parte hearing, it is the obligation of the party seeking orders, through its representatives, to take the place of the absent party to the extent of bringing forward all the material facts which that party would have brought forward in defence of the application: Thomas A Edison Ltd v Bullock (1912) 15 CLR 678 at 681-82 per Isaacs J. That does not mean stating matters obliquely, including documents in voluminous exhibits, and merely not mis-stating the position. It means squarely putting the other side’s case, if there is one, by coherently expressing the known facts in a way such that the Court can understand, in the urgent context in which the application is brought forward, what might be said against the making of the orders. It is not for the Court to search out, organise and bring together what can be said on the respondents’ behalf. That is the responsibility of the applicant, through its representatives.[11]
[11]Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955, [38].
Whether any non-disclosure is material is not tested by asking whether the disclosure of the information would have made a difference to the decision to issue the Summons.[12]
[12]In the matter of Affinity Capital Pty Ltd; Indrasith v Ku [2011] NSWSC 1158, [79].
In Owston Nominees No 2 Pty Ltd (in liq), Justice Black determined that a liquidator’s supporting affidavit had insufficiently disclosed a Family Court of Australia proceeding. His Honour’s criticism is illustrative of the type of information required of applicants for summonses:
“… the Liquidator’s affidavit also did not disclose why documents relating to the Atom Trust were sought in paragraphs 40-45 of the orders for production; the nature of the allegations made by Mr Anderson in the Family Court proceedings in relation to the Atom Trust; or the overlap between the claims made by Mr Anderson in the Family Court proceedings regarding the Atom Trust and the documents sought by the order for production, or the issue as to whether Mr Anderson might gain a forensic advantage in the Family Court proceedings by reason of the examination summonses and orders for production.
The consequences of a failure to disclose material facts was addressed in Re Southern Equities Corporation Ltd (in liq); Bond & anor v England:
It cannot be said that an order obtained in circumstances where there has been a failure to disclose material facts must necessarily be set aside. Whether or not the order ought to be set aside for failing to disclose material facts will depend upon the facts not disclosed and the circumstances in which the non disclosure came about. An error of judgment in failing to disclose a fact which later becomes material may not necessarily lead to the setting aside of the order previously obtained. So an innocent non-disclosure may not necessarily require the setting aside of the order for the examination.
On every occasion where there has been a non-disclosure and an order obtained it will be a matter of inquiry as to whether or not that non disclosure should lead to the setting aside of the order.[13]
[13]Re Southern Equities Corporation Ltd (in liq); Bond v England (1997) 25 ACSR 394, 424.
Failure to disclose material facts – the parties submissions
Mr Pitard contends that the Receivers’ disclosure was ‘manifestly deficient’ in that the Receivers failed to adequately disclose:
(a) the Atlas Proceeding; and
(b) Mr Pitard’s responses to the Receivers’ previous requests for the books and records of the Named Companies.
In relation to the inadequacy of the Receivers’ disclosure of the Atlas Proceeding, Mr Pitard refers to the affidavit supporting the Receivers’ application for the Summons and says it failed to disclose:
(a) a complete set of the Court documents filed in the Atlas Proceeding or that an additional company, Steller 204 Pty Ltd (ACN 619 507 470) had been added as a fourth plaintiff to the Atlas Proceeding;
(b) that almost all of the categories of documents sought comprised documents that were directly relevant to the Atlas Proceeding, or identify the overlap of factual matters relevant to the Atlas Proceeding and Mr Pitard’s examination;
(c) that, as part of its counterclaim, Atlas has alleged that Mr Pitard (along with another director of Steller Developments) made “knowingly false misrepresentations” and that Mr Pitard is likely to be a witness in the Atlas Proceeding, meaning his examination would serve as a ‘dress rehearsal’ for his cross-examination in the Atlas Proceeding; and
(d) that the solicitors and barristers acting for the Receivers in this proceeding were also acting for the Atlas Plaintiffs.
The Receivers submit that they made full and frank disclosure of matters which may impact upon the decision to issue the Summons. In particular the Receivers argue:
(a) the Atlas Proceeding amended originating motion and defence and counterclaim do not disclose material matters which might have impacted the Court’s decision to issue the Summons;
(b) only four of the nine categories of documents sought in the Summons are relevant to the Atlas Proceeding and that relevance is obvious from the descriptions of the categories;
(c) the allegation in the Atlas Proceeding that Mr Pitard made a knowingly false misrepresentation merely supports the alleged existence of a ‘Black v Freedman’ trust as against Steller Developments as a step in alleging a constructive trust against the Atlas Plaintiffs. There is no claim pleaded against Mr Pitard in the Atlas Proceeding. The allegation was not a matter which might have impacted the Court’s decision to issue the Summons; and
(d) the identity of the solicitors and counsel acting in for the Atlas Plaintiffs in the Atlas Proceeding was identifiable in two exhibits to the supporting affidavit.
Failure to disclose material facts – analysis
It was necessary that, in their application for the Summons, the Receivers make clear the existence of the Atlas Proceeding, including the nature of the claims made in that proceeding and the overlap between the documents sought under the Summons and the Atlas Proceeding. The Supporting Affidavit explicitly set out the nature of the financial relationship between Steller Developments and Atlas and why the categories of documents were sought. It referred to the existence of the Atlas Proceeding, exhibiting some, but not all, of the pleadings. The Supporting Affidavit also outlined the nature of the contest between the parties to the Atlas Proceeding.
In my view the Receivers have made adequate disclosure of why the documents were sought, the nature of the allegations made in the Atlas Proceeding and the fact that the Receivers were interested to examine Mr Pitard about the Atlas arrangements, a fact that on its face would provide a forensic benefit to the Receivers in the Atlas Proceeding.
The categories of documents identified by Mr Pitard all specifically reference Atlas or the Atlas Facility or the money advanced to Steller Developments by Atlas. On their face, each of these categories is relevant to the examinable affairs of Steller Developments and the Atlas Proceeding. In my view the overlap is obvious because of the way the categories are worded.
Mr Pitard is likely to be a witness in the Atlas Proceeding. There are, however, no claims against Mr Pitard in that proceeding. I agree with the Receivers’ submission that the allegations made by Atlas that Mr Pitard made knowingly false misrepresentations are a necessary element of Atlas’ allegation of a constructive trust.
The fact that the Receivers’ legal representatives were also acting for Atlas Plaintiffs was clear on the face of the Supporting Affidavit and its exhibits.
Finally, I am not satisfied that any failure to disclose correspondence between the Receivers and Mr Pitard about the informal production of documents was material in this case. There is a proper basis for the Receivers to investigate. The Receivers were not obliged to accept Mr Pitard’s offer to cooperate in the production of documents. Mr Pitard no longer presses an argument that production of the documents sought would be oppressive.
Conclusion
Mr Pitard’s application to set aside the Summons is dismissed. I will hear the parties on the question of costs.
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