P R A Electrical Pty Ltd v Perseverance Exploration Pty Ltd
[2006] VSC 432
•15 November 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
BUILDING CASES LIST
No. 9700 of 2005
BETWEEN
| P.R.A. ELECTRICAL PTY LTD (ACN 062 906 487) | Plaintiff |
| And | |
| PERSEVERANCE EXPLORATION PTY LTD (ACN 010 604 878) | First Defendant |
| And | |
| RICHARD MANLY | Second Defendant |
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JUDGE: | HABERSBERGER, J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 29 MARCH 2006 | |
DATE OF JUDGMENT: | 15 NOVEMBER 2006 | |
CASE MAY BE CITED AS: | P.R.A. ELECTRICAL PTY LTD v PERSEVERANCE EXPLORATION PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 432 | |
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Building Contract – Whether there was contract between the parties – Special condition that contract did not come into effect until formal instrument of agreement executed – Contract awarded to electrical contractor – No formal instrument of agreement executed – Contractor commenced work, provided security, made progress claims including for variations and submitted dispute to arbitration – Waiver – Proceeding stayed pursuant to Commercial Arbitration Act 1984, s.53.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B. Jenner | Russell Kennedy |
| For the First Defendant | Mr G.J. Digby QC and Ms K. Stynes | Clayton Utz |
| For the Second Defendant No Appearance | ||
HIS HONOUR:
The plaintiff, PRA Electrical Pty Ltd (“PRA”), is an electrical contractor. This litigation concerns disputes and differences which have arisen between it and the first defendant, Perseverance Exploration Pty Ltd (“Perseverance”), with respect to electrical work performed by PRA at the Fosterville Gold Mine near Bendigo. The worked ceased on or about 30 December 2004 when Perseverance gave notice to PRA that it, Perseverance, was taking the works out of the hands of PRA so that they might be completed by another electrical contractor. Perseverance also took possession of all materials and plant and equipment on the mining site. It is clear that, in so doing, Perseverance was purporting to invoke the power conferred upon the proprietor by cl. 39.4 of the General Conditions of Contract AS 4000-1997.
On 27 May 2005, PRA gave notice of dispute asserting that Perseverance was not entitled to act in this way and claiming damages estimated at $4,098,480, for breach by Perseverance of a contract entered into by PRA and Perseverance on 16 August 2004. Following some negotiations, the parties agreed on 15 August 2005 upon the appointment of the second defendant, Mr Richard Manly SC, to be arbitrator. The arbitration then moved forward in a fairly conventional way towards a preliminary conference which was appointed for 12 September 2005.
On 25 August 2005 the Superintendent, Cullen Mining Services Pty Ltd (“CMS”), issued a certificate of cost to complete which was expressed to be given pursuant to General Condition 39.6. Under this certificate, after giving PRA credit for work done, the amount payable by PRA to Perseverance was assessed to be $4,865,461.
PRA responded to the Superintendent’s certificate of cost to complete by giving a second notice of dispute dated 9 September 2005. In this notice it again challenged the validity of the acts of Perseverance in taking the work out of its hands, as it had in the first notice of dispute, and in the alternative it disputed the Superintendent’s certificate. However, what is significant for present purposes is that, in this second notice of dispute, PRA put forward as its primary position the contention that there was no contract between it and Perseverance. This contention, if good, would have the consequence that Perseverance and the Superintendent had no power to act as they did. Furthermore, it would remove the contractual basis for the reference to arbitration.
As might be expected, this was brought to the attention of the arbitrator at the preliminary conference on 12 September 2005. At this conference the arbitrator took the position that the only matter before him was that contained in the notice of dispute of May 2005. There was, however, some discussion about the determination of the jurisdictional issue as a preliminary point. But the affidavits of the two solicitors are not in agreement as to what, if anything, was agreed upon in this regard. No minutes of the preliminary conference are in evidence. I make no finding as to this controversy.
What then happened was that on 30 September 2005 the solicitors for PRA emailed the solicitors for Perseverance confirming that PRA did not wish the arbitration to proceed. Their instructions, they said, were to proceed with a claim in court for remuneration for the work done at Fosterville on a quantum meruit basis. They proposed that the arbitration be stayed until the outcome of the quantum meruit claim was known. Notwithstanding this, Perseverance pressed on with the arbitration and, at a hearing on 13 October 2005, presented argument in support of its contention that a contract did exist between PRA and it, and, further, that the contract contained General Condition 39.4 (taking work from the hands of the contractor) and General Condition 42 (dispute resolution) from AS 4000-1997. Counsel for PRA attended this hearing as a matter of courtesy. He submitted that the arbitrator lacked jurisdiction, indicated that PRA intended to issue court proceedings in respect of the no contract contention and invited the arbitrator to adjourn the conference to a date to be fixed. Counsel presented no argument on his no contract contention.
On 21 October 2005 the arbitrator issued a document entitled Ruling in which he rejected the no contract contention on the basis that the parties had concluded a binding and enforceable agreement evidenced by a Perseverance letter of 16 August 2004, to which I shall return. He further concluded that the conduct of the parties after that letter “gives rise to a waiver or possibly an estoppel in respect of PRA’s contention for the need of a Formal Instrument of Agreement”.
Against this background PRA has brought this proceeding by an originating motion filed on 2 December 2005 against Perseverance and the arbitrator. In the originating motion and a summons filed on the same day, PRA sought the following relief:
“1.A declaration that at no time did Perseverance and PRA enter into a contract in respect of the Fosterville Gold Project – FCC 306 – Electrical and Instrumentation Installation.
2.A declaration that PRA is entitled to be paid for the goods and services provided by it to Perseverance at the mining site in the period from 16 August 2004 to 30 December 2004.
3.An order directing that the assessment of the amount to be paid by Perseverance to PRA for the goods and services provided by it be heard and determined by a referee who shall provide a report to the Court assessing the quantum of the amount.
4.A declaration that Perseverance converted material and equipment owned by PRA for its own use and benefit.
5.An order directing that the assessment of the amount of damages in respect of the converted material and equipment be heard and determined by a referee who shall provide a report to the Court assessing the quantum of the amount.
6.An order directing Perseverance to forthwith return to PRA the ANZ bank guarantees serial numbers 58850 and 18621.
7.A declaration that Perseverance is liable to make a payment in respect of over-supplied materials owned by Metal Manufacturers Ltd trading as MM Electrical Merchandising of 158-160 Richmond Rd Marleston SA 5033.
8.A declaration that there is no arbitration agreement between the parties.
9.A declaration that the ruling published by the Arbitrator on 21 October 2005 is a nullity and is not enforceable as between the parties.
10. An injunction restraining the Arbitrator from taking any further step in the arbitration.
11.An order directing the Arbitrator to re-imburse to each of the parties for any fees charged and received by the Arbitrator for his attendances on and after 13 October 2005.
12. Costs.”
By a summons filed in this proceeding on 22 December 2005 Perseverance sought a stay of the proceeding pursuant to s.53 of the Commercial Arbitration Act 1984.
On 3 February 2006, in accordance with the parties’ wishes, I directed that paragraphs 1 and 8 of PRA’s summons filed on 2 December 2005 and Perseverance’s summons filed 22 December 2005 be fixed for hearing before me on 24 March 2006. The Order noted in “Other Matters” that PRA’s counsel had accepted that this course was without prejudice to Perseverance’s position under s.53 of the Commercial Arbitration Act.
The hearing was subsequently adjourned by consent to 29 March 2006. On that day, counsel for PRA submitted that there was only one issue for determination:
“Is there a contract between the parties which inter alia incorporates AS 4000-1997 General Conditions of contract?”
If the answer to this question was in the negative, counsel asserted that the declarations in terms of paragraphs 1 and 8 should be made unless estoppel was established. If the answer was in the affirmative, then it was accepted by PRA that General Condition 42 was an arbitration agreement within the meaning of s.53 of the Commercial Arbitration Act. It was implicit in this concession that the proceeding should in that case be stayed.
Counsel for Perseverance accepted that this was the only issue. They abandoned their contention that the conduct of PRA since the giving of the first notice of dispute had the effect of an agreement establishing an ad hoc arbitration.
The arbitrator, as is customary, took no part in the proceeding.
The question, then, for my determination was as to the contract between the parties. It was accepted by both contending parties that I was to determine this question on the affidavit material which was before me. There are no pleadings. No witness was cross-examined. No party took the position that the arbitrator’s ruling of 21 October 2005 was an interim award which might not be challenged otherwise than by appeal under s 38 of the Commercial Arbitration Act.
The position of PRA was that any agreement achieved by 17 August 2004 was expressly agreed to be subject to the execution of a formal contract and that this was never done. Accordingly no contract was entered into. As I have mentioned, Perseverence contended that the execution by PRA of the 16 August 2004 letter brought into existence a binding contract and that it included AS 4000-1997. Alternatively, it contended that PRA was prevented by the doctrines of waiver or estoppel from denying the existence of this contract.
The relevant facts leading to 17 August 2004 were not in controversy. They were contained in the correspondence passing between the contending parties.
On 2 July 2004 CMS, acting as agent for Perseverance, sent to PRA an invitation to tender for the electrical and instrumentation work at the Fosterville Gold Mine. The tender documents indicated to the tenderers that the contract would be based on General Conditions AS 4000-1997 but that these were subject to certain amendments and additions which were set out in the Special Conditions. The Special Conditions did not modify General Conditions 39.4 or 42 but they relevantly provided as follows:
“SC.4 EVIDENCE OF CONTRACT [6]
General Conditions of Contract, condition 6, is deleted in its entirety and replaced with the following:.
The Contract shall not come into effect until the formal instrument of agreement (Conformed Contract Document) is executed by the parties.
The Principal will prepare the Conformed Contract Document, to include all amendments to the Tender Document resulting from the issue of Addenda (if any), any amendments made and agreed between the Principal and the Tenderer prior to award of Contract, as well as, where agreed, submissions made by the Tenderer. Pre-award correspondence, minutes of meetings, and the Tender itself, shall not be physically included in the Conformed Contract Document. The Information to Tenderers and the Conditions of Tendering, will not form part of the Conformed Contract Document.”[1]
The deleted General Condition provided that until a formal instrument of agreement was executed by the parties “documents evidencing the parties’ consensus shall constitute the contract”. It went on to lay down a time-table for the preparation, execution and exchange of the formal instrument of agreement, if required. Counsel for PRA pointed out that the change brought about by Special Condition 4 could hardly have been greater.
[1]The italicised words are defined in the contract.
On 20 July 2004 PRA submitted its tender offering to carry out the works for $2,895,800. In its covering letter PRA stated, amongst other things:
“Contract conditions and programmes to be to our agreement, generally based AS 4000, including payment for unfixed materials, maximum 5% retention and 30 days credit terms.”
However, in its tender PRA offered to perform the work in accordance with the tender documents including the general conditions in the form of the Australian General Conditions of Contract AS 4000-1997.
On 30 July 2004 CMS sought clarification of certain items in the PRA tender including a response to the following question:
“Can you please confirm your acceptance of the terms and conditions of the contract – General Conditions AS 4000-1997 and Special Conditions as provided in the Special Conditions.”
In its email of 2 August 2004 PRA confirmed its acceptance of these General Conditions and Special Conditions as being the contract terms.
There followed some further negotiations between the parties. Then, by letter dated 16 August 2004 addressed to PRA, Perseverance confirmed the award of the contract to PRA in accordance with 18 listed documents, including the tender documents sent on 2 July 2004. Needless to say, these included the General Conditions and Special Conditions to which I have referred. The contract price was to be a fixed lump sum of $3,293,431 excluding GST. The letter contained certain administrative provisions and concluded as follows:
“Please confirm your acceptance of the award of this contract by signing below and returning an original signed copy of this letter to the Principal, with a copy faxed to Cullen Mining Services on (03) 9532 0993. A formal contract document will be issued to you for signing in due course.
We look forward to a successful and mutually beneficial relationship throughout the contract.”[2]
[2]The italicised words are defined in the contract.
On the following day, 17 August 2004, PRA executed and returned by facsimile a copy of this letter confirming its acceptance of the award of the contract.
At the first site meeting held on 19 August 2004 representatives of Perseverance handed to the PRA representatives a CD-Rom which was described in the minutes as “a CD of the Contract Document”. In fact, the CD-Rom was entitled “FCC 306-DRAFT Contract.pdf”. This was a more correct description of its contents, for they included an uncompleted Formal Instrument of Agreement in the form it was sent to tenderers in July. As in the invitation to tender, it contained the Special Condition 4. Both parties agreed, although for different reasons, that the document found on the CD-Rom was not one intended to be executed by the parties as the conformed contract document.
The preparation and execution of the formal contract appears to have gone no further. No conformed contract document was ever prepared by Perseverance, or submitted to PRA for execution and no formal instrument of agreement was ever executed by the parties.
Notwithstanding this, the parties conducted themselves as if an agreement had been executed. PRA put the work in hand and commenced work on site in early September 2004; it provided the required 10 per cent performance security; it corresponded with the Superintendent specifically referring to identified clauses in the General Conditions of AS4000 – 1997; it issued a show cause notice expressly relying upon the contractual terms and its rights thereunder; and it submitted four monthly progress claims seeking $2,645,941 for contract works and $1,414,516 for variations. Against these claims, the Superintendent certified $1,614,913.65 and $387,264 respectively, and Perseverance paid to PRA the sum of $1,502,913.65. In short, the failure of the parties to execute a formal agreement was ignored by them, even after the disputes between them had been referred to arbitration. Indeed, for what it is worth, Mr Peter Atkinson, a director of PRA, candidly admitted that on and from 17 August 2004 he presumed that PRA was contractually bound by AS 4000-1997.[3] It seems that representatives of the Superintendent, CMS, were of like view. It was not until 9 September 2005 and the giving of the second notice of dispute that the point was taken. Perhaps, it was only first appreciated shortly before that.
[3]Although Mr Atkinson referred to 16 August 2004 in paragraph 20 of his affidavit sworn on 30 November 2005, I consider that he clearly intended 17 August 2004.
In a subsequent affidavit sworn on 22 March 2006 Mr Atkinson contradicted his earlier statement when he deposed that in respect of the letter of 16 August 2004 he did not:
“consider that in signing and returning the letter I was binding my company to any agreement with [Perseverance].”
Mr Atkinson also stated in this affidavit that he considered the letter of award:
“to be confirmation that [PRA] was the selected tendered and could proceed with ordering materials and commencing the work in the expectation that a formal contract would be provided for execution in due course. The letter said as much.”
Counsel for PRA submitted that all Mr Atkinson had conceded was that he presumed PRA was contractually bound by AS 4000-1997, not by the terms of the conformed contract document including all of the Special Conditions and the other modifications. I cannot accept that these statements in the two affidavits can be reconciled, nevertheless this point need not be pursued for the reasons set out below.
I return to 17 August 2004 when Perseverance said the contract was in fact entered into. The question must be determined, not by searching the minds of the negotiators for their subjective intentions; it is to be determined upon an objective assessment of the dealings between the parties.[4]
[4]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40].
In Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd[5] Mahoney JA said that in considering the question of whether there was a binding contract between the parties
“it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?”[6]
[5](1985) 2 NSWLR 309.
[6](1985) 2 NSWLR 309 at 326.
Gillard J referred to this threefold inquiry in Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd[7]. His Honour said that in deciding whether a concluded and binding contract in law has come with existence:
“The court considers all the circumstances leading up to and subsequent to the date of the alleged contract. This involves considering the background facts, the setting in which negotiations took place, the negotiations, the facts objectively known to the parties, what they said, wrote and did or did not do, and any other matters which bear on the question whether they intended to and did reach a concluded binding agreement in law.”[8]
[7][2004] VSC 1.
[8][2004] VSC 1 at [95].
The point put on behalf of PRA is that the dealings between the parties, including the addition of the express term SC 4, were what were insisted upon by Perseverance and accepted by PRA. This, it was said, put the contractual situation into the third of the categories specified in Masters v Cameron, namely “one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract”.[9]
[9](1954) 91 CLR 353 at 360 per Dixon CJ, McTiernan and Kitto JJ.
In a sense, this case is the converse of Howard Smith & Co Ltd v Varawa[10] to which I was referred. There, the High Court of Australia had regard to subsequent documents to reach a conclusion that what appeared to be an effective offer and acceptance did not in truth bring a contract into existence.[11] But it is not a true converse, because this is not a case where the exchange of correspondence contains a want of consensus. The terms of the Perseverance letter of 16 August 2004 and the acceptance of PRA dated 17 August 2004 and the fact of the acceptance show that the offer and the acceptance coincided and that the parties had a contracting mind.[12]
[10](1907) 5 CLR 68.
[11](1907) 5 CLR 68 at 78 per Griffith CJ and at 83 per O’Connor J.
[12]See Lewis v Brass (1877) LR 3 QBD 667 at 671-2, per Brett LJ, quoted by Hope JA with approval in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 314. See also at 336 per McHugh JA.
The question, then, becomes one of the construction of Special Condition 4 which is a term of the accepted offer. If it were not for the emphatic terms of the first sentence in that Special Condition, I would have little difficulty in concluding that the effect of the Special Condition is to create a contract of the first category mentioned in Masters v Cameron, namely,
“one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.”[13]
[13](1954) 91 CLR 353 at 360 per Dixon CJ, McTiernan and Kitto JJ.
It is clear that neither party was at liberty to insert in the conformed contract document a term which had not been agreed prior to the award of the contract on 16 August 2004. Within seven days of acceptance of tender PRA was entitled to possession of the site in accordance with General Condition 24.1[14] and was, within 14 days, obliged to submit its construction program in accordance with Special Condition 14. It had 28 days after the date of acceptance of tender to provide security for performance in accordance with General Condition 5.[15] It is hard to think, in these circumstances, that the supposed bystander would fail to infer an agreement with the consequence that PRA or Perseverance could simply walk away from these obligations without committing a breach of contract at any time prior to the execution of the conformed contract. In this context, counsel for Perseverance pointed out that, unlike these other provisions, Special Condition 4 does not provide a time for the preparation and execution of the conformed contract document. The argument of PRA would then leave the parties indefinitely in a state of contractual uncertainty. I have no difficulty in concluding upon an assessment of the dealings between the parties as at 17 August 2004 that they intended to make a concluded bargain on that date[16] and that that bargain included the 18 documents listed in the letter of 16 August 2004 which, in turn, included AS 4000-1997 and Special Condition 4.
[14]Part A Item 22.
[15]Part A Item 13(d).
[16]ABC v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 at 548, per Gleeson CJ, with whom Hope and Mahoney JJA agreed.
The first sentence of Special Condition 4, however, provides that the contract “shall not come into effect” until the execution of a form of instrument of contract. It is not legally possible to put this proviso to one side on the basis that one or both of the contracting parties did not have it in mind or had not read it.[17]
[17]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [29].
It is necessary now to construe this sentence in order to extract its meaning. It is obvious enough that it must be construed in its contractual context, bearing in mind that it ranks high in the order of precedence of documents which comprise the contract.[18] The sentence in question is found beside a provision which obliges Perseverance to prepare a formal instrument of contract. Perhaps its obligation is to do this within a reasonable time. It does not oblige the parties to execute the instrument although that, too, may be implied. If Perseverance were to fail to prepare such an instrument within a reasonable time it may be supposed that PRA could then seek relief for breach of contract. And so long as Perseverance remained in breach and the contract remained on foot PRA could rely upon the first sentence to resist an allegation of breach for not commencing its performance of its obligations under the contract. In this sense the significance of the first sentence can be characterised as suspensory, as was the case in MR Hornibrook (Pty) Ltd v Eric Newham (Wallerawang) Pty Ltd[19]. This is more consistent with the dealings between the parties than to characterise the sentence as amounting to a condition precedent.
[18]See Formal Instrument of Agreement cl 1.
[19](1971) 45 ALJR 523.
In Hornibrook, a sub-contractor had sued for the balance claimed to be due to it for work done in carrying out certain works in connection with the construction of the Perseverance Creek Dam for the Toowoomba City Council. The point at issue was whether the sub-contractor was entitled to rectification of the sub-contract to allow it recover the rise and fall adjustments made to payments by the council to the defendant under the head contract in respect of work done by the sub-contractor. It was only in the calculation of the final balance after the completion of the works and the issue of the final certificate that the defendant had claimed that no rise and fall provision operated. The High Court agreed with the trial judge that, as the defendant had made progress payments to the sub-contractor as though the sub-contract contained the clause necessary to give effect to the agreement of the parties, the appropriate clause was omitted from the sub-contract by mutual mistake. The only reservation that the members of the Court had to rectifying the sub-contract was the existence of a clause in the sub-contract that it was “subject to the approval in writing” of the council. That raised the question whether the sub-contract could be rectified and enforced without further approval from the council. The members of the Court held as follows:
"The position is that the contract has been fully executed by the plaintiff and even if contrary to all reason the council were to withhold its approval to the rectified contract that would not mean that the plaintiff could not enforce its claim for payment of an amount calculated in accordance with the terms upon which the parties agreed, for the work done by it and accepted by the defendant. We think that the preferred basis upon which such a claim should be sustained is that in the circumstances the suspensory condition may be regarded as having ceased to have significance. Although that condition was not fully satisfied, the parties may be found, by reason of their conduct in performing and accepting their services upon the terms of the rectified contract, to have waived the condition and to have treated themselves as bound unconditionally by the terms of that contract."[20]
[20](1971) 45 ALJR 523 at 524 per Menzies, Windeyer and Walsh JJ.
PRA, therefore, as a beneficiary of the obligation created by the second sentence of Special Condition 4, is entitled, but not obliged, to suspend performance so long as the conformed contract is not produced and executed. This it did not do. On 19 August 2004, a few days after the contract was made, Perseverance produced what is described as a draft contract. There may be some debate as to whether this was in fact a draft conformed contract agreement, but one thing is clear. PRA did not undertake the task of satisfying itself that its content was a document in a form which PRA was prepared to execute. Indeed Mr Atkinson said he did not carefully read this document because it was described as a draft. He did not, therefore, give Perseverance the benefit of his views of the draft nor did he request any other document. He was content to press on with the work. I do not criticise him for this. It is not uncommon, even in major projects, for the work to be well under way before a formal contract is executed. Mr Atkinson’s conduct reflected his confidence in Perseverance and his familiarity with the documents listed in the letter of 16 August 2004, including the well-known General Conditions AS 4000-1997. It reflected also his proper concern to proceed with the project expeditiously. But, having taken this course, he cannot months later be heard to assert the suspensory effect of Special Condition 4. As a matter of legal analysis, the High Court in Hornibrook characterised such a situation as one of waiver. I am of opinion that the present case should be analysed in the same way. This means it is unnecessary to consider the further submissions advanced on behalf of the parties.
I conclude, therefore, that the solitary issue identified by counsel for PRA should be determined in favour of Perseverance. A contract was entered into between the parties on 17 August 2004 and this contract incorporated the General Conditions AS 4000-1997, subject to the modifications set out in the Special Conditions. The contract entered into was subject to the suspensory provisions of Special Condition 4, but these were waived by PRA’s conduct in commencing to perform the contract. Accordingly, I refuse to make the declarations sought in paragraphs 1 and 8 of the originating motion.
I will hear counsel further as to the orders that should now be made in respect of this proceeding and as to costs.
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