Vrsecky v Reaper and Anor (No.2)
[2015] FCCA 2230
•24 August 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| VRSECKY v REAPER & ANOR (No.2) | [2015] FCCA 2230 |
| Catchwords: BANKRUPTCY – Where bankrupt’s home co-owned with partner and purchased partly with protected moneys – evaluation of amount to be paid to the bankrupt pursuant to s.116(4) of the Bankruptcy Act 1966 – bankruptcy and partner’s (“the respondents”) cross claim for alleged storm damage and ancillary matters – respondents’ allegations not established – respondents’ generalised complaints about conduct of trustee not made out – cross-claims dismissed. |
| Legislation: Bankruptcy Act 1966, ss.116, 116(2D), 116(3), 116(4) |
| Vrsecky v Reaper & Anor [2015] FCCA 32 Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd and Others (1989) 21 FCR Re Manivilovski; Ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358 Re Zylvain Stanley Jemielita Ex Parte: Official Trustee in Bankruptcy [1996] FCA 1208 |
| Applicant: | PETR VRSECKY AS TRUSTEE OF THE BANKRUPT ESTATE OF BRETT VINCENT REAPER |
| First Respondent: | BRETT VINCENT REAPER |
| Second Respondent: | SHARON FISHER |
| File Number: | MLG 931 of 2013 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 5 June 2015 |
| Date of Last Submission: | 24 June 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 24 August 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Devany |
| Solicitors for the Applicant: | Madgwicks |
| The First Respondent: | In person |
| The Second Respondent: | In person |
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 931 of 2013
| PETR VRSECKY AS TRUSTEE OF THE BANKRUPT ESTATE OF BRETT VINCENT REAPER |
Applicant
And
| BRETT VINCENT REAPER |
First Respondent
| SHARON FISHER |
Second Respondent
REASONS FOR JUDGMENT
Introductory
These reasons for judgment are an attempt to bring to an end a protracted long running controversy between the parties. The matters in dispute can be defined in broad terms as the applicant trustee’s application for partition and sale of a property owned by the applicant, as trustee of the estate of the first respondent, and the second respondent (“the property”), and various applications contained in an interlocutory application filed by the respondents on 12 November 2014. Although a number of other matters are raised with which it will be necessary to deal, the primary questions are, first, the quantification of the trustee’s interests in the property and the amount that it might be necessary for the second respondent to pay the trustee to purchase that interest out. The second major matter is whether the trustee is liable for damages and other relief in respect of alleged negligence on his part relating to an insurance claim the respondents wish to press in relation to the property.
For the reasons that follow, I have concluded that the trustee’s interest in the property is worth $96,000, this being the sum that the second respondent will have to pay to the trustee to purchase that interest. As to the second issue, I have concluded that the respondents are not entitled to any relief in respect of what I will describe as their insurance claim.
History
This matter commenced as long ago as 27 June 2013. It has been very considerably delayed, not wholly by fault of the parties although arguably substantially so. The primary issue raised initially between the parties was whether the property was bought wholly or substantially wholly with protected money within the meaning of s.116 of the Bankruptcy Act 1966 (“the Bankruptcy Act”). I determined that issue by judgment given on 10 February 2015. For the reasons then given, which should be read in conjunction with these reasons, I found that the property had not been bought wholly or substantially wholly with protected money. I made ancillary orders necessary to enable the exercise contemplated by s.116(4) of the Bankruptcy Act to be effected. I noted at paragraph [3] of those earlier reasons for judgment (“Vrsecky v Reaper & Anor [2015] FCCA 32”) that the trustee expressly conceded that it would be appropriate to seek to quantify the amount that the respondents might need to pay the trustee to purchase out the trustee’s interest in the property rather than proceeding forthwith to sale even if the trustee was successful.
The orders I then made were designed to obtain a valuation of the property as at May 2007 and presently and also to provide an agreed estimate of the mortgage on the property as at those two dates. The significance of the earlier date is that it was at that time that
Mr Brett Reaper’s protected earnings commenced to be applied,
as I found, to the payment of the mortgage on the property.
There were a number of difficulties in giving effect to those orders, mainly caused, as I find, by the intransigent non-cooperation of the respondents, but in the ultimate an uncontested report has been produced which shows relevantly that the improved value of the property as at May 2007 was $510,000 and its value at the date of the valuation, namely 20 April 2015, was $775,000.
It is clear that the value of the mortgage on 18 May 2007 (the relevant date for these purposes) was $317,649 and I accept the treatment of the mortgage’s value in the applicant’s written submissions filed 5 June 2015 that the mortgage should be accepted presently to be worth $275,000.
Although there had been some reference in earlier affidavits and application material produced by the respondents, as I recorded in my earlier judgment at paragraphs [8]-[11], the respondents filed an interlocutory application on 12 November 2014 (the day before the matter was listed for trial) seeking a comprehensive set of further orders. In part it referred to the insurance application but other matters such as an inquiry pursuant to s.179 of the Bankruptcy Act were also raised. I directed that these matters raised by the interlocutory application be heard at a later and different date because the application was filed so late.
The foreshadowed hearing has now occurred and this judgment will therefore, as I indicated earlier, endeavour to resolve all outstanding matters between the parties, including those raised by the respondents’ notice of cross-claim, also filed 12 November 2014.
The Pertinent Findings from the Earlier Judgment
At paragraph [3] I indicated that I did not accept the property was bought wholly or substantially wholly with protected money within the operation of s.116(3) of the Bankruptcy Act and that I would proceed to try and undertake the exercise contemplated by s.116(4) of the Bankruptcy Act.
At paragraph [12] I noted the judgment of Pagone J in the applicant’s application for annulment of his bankruptcy and the history whereby the bankruptcy had come to pass. I noted that his Honour (paragraph [13]) dismissed comprehensively Mr Reaper’s assertion that the credit card that had given rise to the relevant debt was not his but that of a company effectively controlled by him.
I noted at paragraph [15] that Mr Reaper was the subject of significant and severe workplace injury in 2007, following which he has been unable to work. He has been in receipt of accident compensation payments and/or disability pension ever since and has ongoing claims at common law in the County Court of Victoria.
I noted the affidavit evidence of Mr Reaper at paragraphs [21] and following. This included an assertion that the mortgage in respect of the property was $335,000 originally and that between 29 October 2004 and 18 May 2007 he had paid his share of the mortgage payments from his ordinary wages. This had reduced the mortgage from $335,000 to $317,649 (paragraph [25]).
I noted that Ms Sharon Fisher’s affidavit material deposed that between 18 May 2007 and 9 April 2014 $188,462 was paid in respect of the mortgage using only Mr Reaper’s compensation (paragraph [29]).
I noted that the evidence given at Court suggested that Mr Reaper paid no mortgage payments until 2007 (paragraph [35]). Also I further noted that Mr Reaper’s evidence was that his compensation had paid the mortgage from May 2007 until payments were cancelled approximately 12 months previously (i.e. to the hearing November 2014) (paragraph [42]). I found that all payments made in respect of the mortgage since 2007 were made from protected funds accruing to Mr Reaper and that half of any accrual in the overall value of the property in that time must devolve to Ms Fisher (paragraph [62]).
I noted that the value of the property in net terms had increased since purchase by two means. The first were payments on the mortgage and the second was the actual increase in the value of the property itself as a result of increased property prices (paragraph [71]).
I said at paragraphs [72]-[74]:
“72. The methodology that it seems to me is eminently fair in the particular circumstances of this case is to ascertain the value of the property and the extent of the mortgage in 2007 thus isolating the then net equity. That net equity is plainly not referrable to any protected payments to Mr Reaper. It may however be the case that the actual increase in value is very small. That might then resuscitate the s.116(3) case upon which the respondents advance. It is eminently in their interests that these figures be ascertained.
73. The next step in the methodology is to ascertain the value of the property now and the value of the mortgage. Half of the increase from 2007 until 2014 (already 2015 as I suspect will be the case) is plainly directly attributable to Mr Reaper’s protected payments. The other half, adopting the reasoning of Emmet J in Stankovic v Van Der Velde is clearly attributable to Ms Fisher.
74. Once these figures are ascertained it will be possible to determine whether the respondents are able to purchase out the trustee’s interest in the property.”
I noted that the position in relation to costs was still undecided (paragraph [77]).
The Materials Filed Since my Earlier Reasons for Judgment
On 18 March 2015 the applicant filed an affidavit of Alexandra Leah Osborn. She is a solicitor employed by the solicitors for the applicant and made the affidavit because Ms Ballantyne, who usually had the care and conduct of the matter, was ill. The affidavit was essentially facultative and put into evidence certain correspondence between the parties. The material shows the difficulties that obtained in effecting the valuations I had previously ordered.
On 18 March 2015 I made orders to resolve that controversy and to effect the valuation.
On 28 May 2015, Ms Catherine Anne Ballantyne filed a further affidavit. Once again this was facultative and put on the valuation of the property both as at 2007 and presently. I have set out the relevant values above.
The Materials upon Which the Parties Rely in Respect of this Aspect of the Dispute
The affidavit of Mr Reaper filed on 12 November 2014 traverses a number of matters in terms that are not altogether easy to construe. The first parts of the affidavit are essentially responsive to the applicant’s application and affidavit material in support. Much of the material is argumentative and/or otherwise inappropriate. The affidavit goes on to traverse the issue as to who the creditors of this bankrupt estate might properly be said to be, a matter of little moment given the trustee has not moved thus far to evaluate proofs of debt.
Finally, and more relevantly, the affidavit refers to what is described as trustee conduct and makes a number of criticisms of the trustee’s behaviour. These criticisms are, however, in the context of the proceeding as a whole misconceived and irrelevant.
The Notice of cross-claim likewise filed on 12 November 2014 seeks payment of $71,424.89 for building reinstatement, $370 for repairs to central heating unit, $370 “to again repair central heating unit”, and relevantly for these purposes a claim pursuant to s.178(1) of the Bankruptcy Act that “the Cross-respondent compensate the Cross-claimants for injury, harm, loss and damage suffered by the Cross-claimants as a consequence of circumstances relating to the orders sought herein.”
Mr Reaper filed a second affidavit with multiple annexures in support of the cross-claim. It sets out the history of the communication between the parties in relation to the insurance claim. It will be necessary to return to these matters in due course.
On 27 November 2014 the second respondent filed a further cross-claim which repeated the terms of the cross-claim earlier lodged by the first respondent.
Ms Fisher’s affidavit in support essentially replicates the affidavit of Mr Reaper.
On 5 December 2014, Ms Ballantyne filed a further affidavit. Once again this sets out an extensive record with numerous annexures showing the communication between the parties in relation to the insurance claim.
Ms Fisher filed a responding affidavit on 24 December 2014. She took issue with a number of the matters asserted by Ms Ballantyne.
Mr Reaper filed a further affidavit 3 February 2015 in support of
Ms Fisher’s cross-claim but its terms, once again, rehearsed matters already set out and in part consist of inadmissible comment.
The Evidence Given at Court
The following is taken from my notes. It does not purport to be
a transcript, but, I trust, will sufficiently describe what was said.
Interlocutory Application and Cross-Claim
Mr Reaper went first. He adopted his affidavits.
Cross-examination commenced with a discussion of some of
Mr Reaper’s previous court experiences. For reasons to which I shall come, I do not regard this material to be of any significance.
Mr Reaper maintained that the property was in good condition in 2013 and the roof did not leak. He said there were no issues with it and he had insurance which was due in March 2013. He said there were no birds living in the roof and the roof was not leaking. No mould had set in.
Mr Reaper was taken to annexure CAB-1 to Ms Ballantyne’s affidavit filed 5 December 2014. That was a letter sent to “the landlord”,
Mr Vrsecky, on 23 May 2013. When taxed with the assertion in that letter that there “are over a hundred bird’s nests in the main roof”
Mr Reaper said this was exaggerated and that he had got a bit excited. Mr Reaper said he had made several complaints to AFSA of which some concerned insurance but these had been dismissed because it was before the court.
Mr Reaper was taken to annexures CAB-10 and CAB-11. Annexure CAB-10 is a letter from Ms Ballantyne to Mr Reaper 20 March 2014 seeking details of storm damage.
Annexure CAB-11 is an email dated 21 March 2014 from Mr Reaper to Ms Ballantyne in which he confirmed he denied access to a real estate agent who had attended the property. It provides assertions as to the damage to the property caused by a storm.
Mr Reaper confirmed under cross-examination that he would not allow a valuer onto the property and that he had not completed the insurance form sent to him, although he said he had sent all the details
(a reference to annexure CAB-11). He said there had been a storm and that the form was not sent to him until eight months later. He said it became a flood damage issue because the matter was left so long. He confirmed that a poem sent by him to Ms Ballantyne was sent in jest and that the contents of it were not necessarily true. He said the broker to whom he had been referred was not contactable for eight months. When taken to annexure CAB-13 which in part is constituted by an email from Ms Ballantyne, 8 June 2014, again enclosing a claim form for him to complete and which asked that he liaise directly with the client’s insurance broker, Mr Reaper confirmed that he had not filled in the form but had filed his application in court instead. He confirmed that he had also filed a proceeding in VCAT. He said he was capable of filling out an insurance form but that he said “I don’t telephone insurers.” He said that Blue Broking had never contacted him. Also he said after 12 months he had had enough and had started in court. He denied the damage in respect of which he wished to claim had pre-existed his bankruptcy.
Ms Fisher was called. She confirmed in cross-examination that she could not recall lightening striking the roof of the property, like
Mr Reaper. She confirmed that she has no insurance on the property but did have such insurance until March 2013.
Ms Ballantyne was called to be cross-examined. She confirmed that she was not the trustee nor the policy holder of the insurance policy. She confirmed that she reports to the trustee and dealt with insurance matters on the trustee’s instructions.
She said the trustee had asked her to be a contact point for the insurance claim and the initial steps were to ask an agent to attend the property to assess the damage. She said that numerous requests were refused. After this she then later sent the insurance form to Mr Reaper as her client had not been able to assess the property. She said that she had told Mr Reaper that an agent would be sent but initially a valuer was sent. Every person who sought to attend was refused.
Mr Vrsecky was called and cross-examined. He confirmed that his responsibilities are derived from the Bankruptcy Act. On the bankruptcy occurring, his task was to take possession and insure the property. He confirmed that he has insurance for all properties under his control. Claims required details of the property, the value of the property and any policy. He said he had not failed to claim damage, but he had not lodged any insurance claim. He did not know the extent of Ms Ballantyne’s experience in property management, he had engaged her as a solicitor. It was her task to deal with correspondence and like matters but not to manage the property. He has claimed on insurance in the past and would lodge a claim as soon as he became aware of it. He was continuously in contact with Ms Ballantyne. Normally he proceeds by way of a claim form and then if necessary would seek further details. It is not difficult to fill out an insurance form. He was not aware whether he had completed any claim forms for this property.
Mr Vrsecky confirmed that sometimes an insurer required assessment. He said AFSA had reviewed his files and there was no complaint. He had paid an invoice from Blue Broking. He confirmed receipt of annexures BR38 and BR39 but these did not prompt him to lodge an insurance form. He had ongoing dialogue with Ms Ballantyne including about insurance issues.
Counsel for the applicant was essentially content to rely upon the written submissions upon which he enlarged to an extent. Mr Reaper likewise relied upon the materials already lodged but also relied upon a table which I marked for identification as MFI-1 showing the amount that he asserted should be attributed to his protected earnings. He also claimed damages of $78,000.
The Written Submissions of the Parties
The applicant’s written submissions filed during the hearing on 5 June 2015 are thorough and comprehensive. They speak for themselves. Aspects of them will be dealt with in my consideration of the matter but it is not necessary to say more about them for these purposes.
The respondents sought time to respond to these submissions, which
I granted.
Mr Reaper’s written submissions filed on 19 June 2015 are in part not simple to characterise or even understand. They are clearly, in part, irrelevant. Nonetheless, to the extent that they touch upon the issues before the Court I have had regard to them and will deal with the matters they raise in what follows.
The submissions in reply of the applicant filed 24 June 2015 amount to a critique of the submissions of Mr Reaper. Although they are largely correct it is not necessary to comment further.
Findings on the Evidence
The Valuation Issues
It is clear from the valuer’s report that the property was worth $510,000 in May 2007. The mortgage at that time was uncontroversially assessed by the Court in the earlier judgment at $317,649 as at 18 May 2007. It is clear therefore that the net equity in the property at that time was $192,000.
On 20 April 2015 the value of the property was $775,000 and as the applicant’s written submissions concede as at 5 June 2014 the mortgage was $275,000. That is a net equity of $500,000.
All of the payments on the mortgage in the interim between 2007 and February 2013 were made from protected moneys. What happened thereafter has been clouded by the affidavit material filed by the respondents’ children, with which I dealt with in my first judgment. Furthermore, no affidavit material has been filed so far as I can see showing quite how payments have been made in respect of the mortgage of more recent times. Nonetheless, the written submissions of the applicant trustee appear to me to proceed on the footing that for all effects and purposes the entirety of the decrease in the mortgage between 2007 and now should be approached on the footing that they were made out of protected money. Given the overall lack of clarity in the materials, the likely very small amounts involved in 2013 to 2015 in any event, and the cost that would be engendered in resolving the matter, I think this is a sensible practicable way to proceed.
The mortgage has therefore decreased in lump sum terms by about $43,000.
The overall increase in the value of the property’s equity during the relevant period is some $308,000 of which half would prima facie be attributed to Mr Reaper, being $154,000.
The trustee’s half share in the equity of the property is worth some $250,000 less such an amount as I may find established by
Mr Reaper’s protected money contributions. Self-evidently if it is the whole of the $154,000 the trustee is entitled to $96,000. If it is $43,000 decrease in the total moneys repayable under the mortgage the trustee’s share would be $207,000.
I will return to which of these competing figures is appropriate in due course.
The Insurance Claim
It should be noted that Mr Reaper and Ms Fisher are the applicants in their cross-claim. It is for them to satisfy the Court that it is more probable than otherwise that the events upon which they rely took place. Ms Fisher did not give direct evidence about the state of the property, or the time at which it became damaged, in her oral evidence given before the Court. She maintained only that she could not recall the property being hit by lightning.
Mr Reaper was a very poor witness. He openly conceded that
a number of the things he had earlier asserted to the trustee were not true. As I find, there were no bird’s nests in the roof of the house in May 2013 that had not been there prior to March 2013 when he became bankrupt. The thesis that birds would have invaded his property, let alone in large numbers, by coincidence, so to speak, between his being made bankrupt in March 2013 and raising his claim in May 2013 is improbable and farfetched in any event. The transcript will not fully illustrate the evasive and obviously dishonest way in which Mr Reaper gave this evidence.
The untruthfulness of this evidence and parts of his poem lead me to conclude that the other complaints that he made in May 2013 were also untruthful. While it is conceivable that heavy weather could give rise to storm damage, it is altogether too pat that such wholesale damage should happen to have occurred in the window of opportunity available between March 2013 and May 2013. Mr Reaper’s demeanour in giving his evidence leads me simply not to believe him. Even if my admittedly severe criticism of Mr Reaper’s evidence were not the case, the claim would in my opinion fail.
The correspondence annexed to both Mr Reaper, Ms Fisher and
Ms Ballantyne’s material shows a very unhappy series of events in which the combative and difficult behaviour of the respondents effectively defeated any timely assessment of any such damage as may have in fact, contrary to my findings above, occurred.
On 23 May 2013, Mr Reaper wrote to Peter Vrsecky (annexure CAB-1 to Ms Ballantyne’s affidavit filed 5 December 2014). The letter commences "Dear landlord" and continues:
“I am dissatisfied with the conditions of the property which you allege I am renting (letter dated 18 April 2013). The following repairs are URGENT.”
The letter then goes on to assert a number of inadequacies in the property's maintenance, including the over 100 hundred birds nests alleged which I have dealt with previously. The letter also alleges a number of non-urgent repairs. The letter ends:
“I also require receipts for rental payments being from;
· 7 March 2013 to 4 April 2013 for the amount $0.00
· 4 April 2013 to 2 May 2013 for the amount $0.00.”
The next correspondence annexed by Ms Ballantyne's effort is the letter of 21 August 2013 (annexure CAB-2). This commences:
“Dear alleged landlord,
A fellow knocked on our door at 8:00PM, we're not sure if he was related to you as he didn't identify himself?”
The letter goes on to assert that the pilot light on the central heating had blown out, and gave details of persons who would be able to fix it. The letter continued:
“Obviously I have the same regard for you as I do a Nigerian scam artist and as such, ask that you make a payment arrangement with one of the above company’s as soon as possible.”
The letter required a reply from Ms Ballantyne by close of business on 22 August 2013.
Ms Ballantyne replied on 22 August 2013 (annexure CAB-03). Relevantly, the text of her email response read:
“Our client, Mr Petr Vrsecky, is not your landlord. He is your Trustee in Bankruptcy. There has been no tenancy agreement entered into and our client is not receiving any rent for the 50% interest in the Property which vests with him. You are residing there without our client's permission or consent. Ms Fisher and you, as the current occupiers of the Property, are responsible for the upkeep and maintenance of the Property and we reserve our client's rights in this regard. You have refused access to the Property to our client and to our client's agent (the valuer). In the circumstances, it is your responsibility to attend to any repairs to the Property.”
Having dealt with other matters, the letter went on to make a number of requests including that:
“We ask that you urgently:
...
2. Attend our client's office to discuss the issues and attempt to resolve the matter.”
Annexure CAB-4 is a letter from Ms Ballantyne to Mr Reaper dated
24 June 2013. Relevantly, it reads:
“You have previously written to our client with regards to the condition of the Property. On notice to you, our client organised for a valuer to attend the Property and make a report to our client. You did not allow access to our client's valuer. We ask that you make an appointment with our client at a time convenient to you for our valuer to attend the Property to assess its condition and report to our client in this regard, and provide a valuation.”
Annexure CAB-5 is a letter sent to Mr Reaper by Ms Ballantyne, dated 14 February 2014. Relevantly, it reads:
“We refer to our previous correspondence and our client's attempt to access the property to assess its condition and obtain a valuation. We confirm that you did not allow our client's representative access to the Property. We have previously invited you to make a time with our client to allow a representative to attend the Property. You have not provided any times to our client when you would allow our client's agent to inspect the Property. We have been instructed that you have now lodged a complaint with AFSA essentially complaining that our client has not sent an insurance assessor to the Property.
We again invite you to contact us (or our client directly) with respect to a time you will allow agents engaged by our client access to the Property.
We also confirm that our client has made invitations to both you and Ms Fisher to attend a meeting with our client. We confirm that you have both declined to do this and we again invite you to contact our client either directly or through us to organise a time to meet. We have also provided a copy of this letter to
Ms Fisher and also extend the invitation to meet with our client.”
Mr Reaper responded on 17 February 2014 (annexure CAB-6). The email relevantly reads:
“Your client's attempt to assess my Property was via a real estate agent and prior to notifying me. The real estate agent attended my Property prior to your client being informed of the storm damage. The real estate agent's purpose was not related to insurance. The real estate agent's attempt to enter my Property is NOT RELEVANT to the AFSA complaint or the insurance claim.
Neither Madgwicks nor its client previously “invited” me to allow an insurance assessor to assess the property as alleged in your letter. When I contacted your client regarding the insurance claim, your client referred me to you. Madgwicks then ignored my correspondence which resulted in the AFSA complaint.
Please arrange an “insurance assessor” to contact me without further delay. The “insurance assessor's” competence and credentials will be verified with Lumley Insurance on arrival.
Do not attempt to send any other “agent” to assess the Property. You are only authorised to send an “insurance assessor” relevant to the insurance claim and AFSA complaint.”
At this point, I would interpolate for a moment. According to this letter, the real estate agent's visit was "prior to your client being informed of the storm damage". The notification, which is annexure CAB-1, was on 23 May 2013. Accordingly, if this was so, the agent would have attended before that date. But one sees from annexure CAB-2 that it was on 21 August 2013 that Mr Reaper asserted:
“A fellow knocked on our door at 8:00PM, we're not sure if he was related to you as he didn't identify himself?”
While this is possible that the 21 August 2013 email refers back to a period before 23 May 2013, there is an element of contemporaneity in annexure CAB-2 that suggests that the visit of the agent was more recent.
On 26 February 2014 (annexure CAB-7), Mr Reaper emailed
Ms Ballantyne inquiring why an insurance assessor had not yet been arranged. On 28 February 2014 (annexure CAB-8), Ms Ballantyne replied. The reply relevantly reads:
“From your previous correspondence it appears that the damage of which you complain occurred prior to our client's appointment. You have not provided our client with a copy of any insurance policy which was or is currently held in relation to the Property, or any details of any insurance claim made by you or Ms Fisher in relation to the Property.
Our client has previously invited you to contact him to discuss this matter and to provide a time in which he may send out agents (whether it be a real estate agent, valuer or insurance assessor) to inspect the Property. You have declined to do this. Please urgently contact our client in this regard.”
On 6 March 2014, Steven Zlatanovski wrote to Mr Reaper (annexure CAB-9). Mr Zlatanovski noted:
“As you have not provided any insurance information regarding the property, we have renewed our insurance policy effective for 7th March 2014.”
On 20 March 2014, Ms Ballantyne emailed Mr Reaper (annexure CAB-10). The email included an insurance claim form. It consists of an email chain, the first of which is Mr Reaper's email to
Ms Ballantyne (notwithstanding that it is addressed to "Dear sir
or madam"). Mr Reaper's letter makes a number of criticisms of
Ms Ballantyne's earlier letter, dated 28 February 2014 (annexure CAB-8), and includes, inter alia, an assertion that the storm damage occurred in the week of 6 May 2013.
The letter continues:
“Further damage has been sustained over the past NINE MONTHS due to the trustee's inaction. The trustee has failed to take appropriate steps to protect the Property that has vested in him.
It’s my assertion the trustee's refusal for an insurance assessment is an attempt to re-value the Property in its damaged state so as to gain a further evaluation that diminishes the co-owner’s majority holding. The trustee's excuse that a ‘valuer’ prevented him and / or an insurance assessor from assessing the storm damage for the past 9 months is a farce.
Please ensure the trustee and/ or an insurance assessor evaluates the storm damage, and further damage that has occurred over the past 9 months as a result of the trustee's inaction, without further delay.”
Ms Ballantyne's reply, which is also part of annexure CAB-10, sought details of the storm which caused the damage, photographs of the damage taken at the time, any quotes for the repair of the damage, and any receipts which might be available. On 21 March 2014, Mr Reaper emailed Ms Ballantyne (annexure CAB-11). The email commences:
“I denied access to a real estate agent who did not call ahead. Your client has not contacted me to request that he personally access the Property nor has your client requested that I allow an insurance assessor to access and assess the Property.
If you continue with this charade regarding access by a ‘valuer’ I will serve on you a court notice or two.”
Mr Reaper then responded (to an extent) to the questions asked of him by Ms Ballantyne. The “Date of the happening” was put as "May 2013". Under the heading (which Ms Ballantyne had not herself inserted), “How did loss or damage or accident occur”, he answered, "Storm / rain / infestation / ignorance and neglect of the policyholder". Part of the same annexure (CAB-11) is a further email sent on
21 March 2013 by Mr Reaper to Ms Ballantyne. Under the heading “Details of the storm which caused the damage - the day and time”,
Mr Reaper wrote:
“Wind rustled crunching leaves that on the sidewalk lay. There was a big storm on that windy day in May. Thunder rumbled overhead and shook me thru and thru, a jagged bolt of lightning cracked my roof in two! Rain washed down the tiles and it pooled in my roof. It hissed, and gushed, and muttered throughout the whole goddamned night!”
Under the heading “Photos of the damage taken at the time of the storm”, Mr Reaper wrote:
“I am not aware of the policy holder having documented the event at that exact time. Bird and insect infestations are also an issue, would you like a photo of some birds and bugs accessing the roof?”
The reply also asserted relevantly:
“I presumed the policy holder would arrange an insurance assessment within a couple of days, and I continued to believe that for 10 months.”
On 4 June 2014, Ms Ballantyne emailed Mr Reaper (annexure CAB-12). Relevantly, the email read:
“As previously advised, this matter has been referred to our client's insurer. We again enclose the claim form for you to complete.
We ask that you liaise directly with our client's insurance broker with regards to this matter, the details of which are as follows.
(And details of the broker and contact person were inserted). A further copy of the insurance claim form was enclosed.
On 8 June 2014, Mr Reaper replied (annexure CAB-13). The email relevantly asserted:
“I am not going to have the argument with the insurer as to why the trustee failed to contact them 12 months ago.
I am not going to have the argument with the insurer regarding the further deterioration caused by the trustee's failure to contact them 12 months ago.
I am not going to have the argument with the insurer about the extent or limitations of the insurance cover because the trustee failed to adequately insure the Property.
The trustee was appointed to manage my affairs, that instatement, amongst other things, includes protecting the Property that has vested in him and managing any insurable event.
I am not the policy holder. The Court deemed me incapable of managing my own affairs. The trustee was appointed to manage my affairs. I expect the trustee will perform in accordance with his appointment.”
This, however, is not the totality of the correspondence between the parties. Annexure BR33 (part of an affidavit filed on 12 November 2014 and being document 48 on the Court's file) is a letter from
Mr Vrsecky to Mr Reaper, dated 14 June 2013. Relevantly, it asserts:
“I refer to your letter dated 23rd May 2013 and received on the 27th May 2013 (copy attached).
As you are aware Catherine Ballantyne of Madgwicks Lawyers is dealing with all issues concerning the property located at
12 The Esplanade Narre Warren South, 3805 ("The Property"). Accordingly, I have provided Ms Ballantyne with a copy of your correspondence and I request that you direct your queries in relation to the property to Ms Ballantyne.”
The letter went on to give her contact details.
On 12 March 2014, Mr Reaper wrote to Blue Broking at an email address (annexure BR36). The letter set out details of the alleged policy, and an invoice number, and a Blue Broking reference: REAPERB. The text of the letter read:
“On 23 May 2013, I alerted the policyholder of storm damage to my home. Over the past 9 months the storm damage has caused further electrical, structural and cosmetic damage.
I now also endure a bug and bird infestation.
I have kept in continual contact with the policy holder but am unsure if he has contacted you yet?
Can you please let me know what's happening?”
On 20 March 2014, Ms Ballantyne wrote to Mr Reaper (annexure BR37), relevantly stating:
“Please see attached insurance claim form. In the past you have not allowed access to our client or their agent to assess the property. As such, our client is unable to fully complete the insurance form. Can you please complete section 3 of the form so that our client can submit it to the insurer.”
It was that email that led to Mr Reaper's response, 21 March 2014.
Mr Reaper's annexures also include proposed bills which would,
it seems to me, prove that repairs in the sums he has sought in his cross-claim are, apparently, appropriate.
Findings about the Insurance Claim Issues
Put shortly, I think that Mr Reaper and Ms Fisher are the authors of their own misfortunes. The bankruptcy of Mr Reaper in March 2013 meant that his share of the property vested in the trustee. Ms Fisher's remained vested in her. There is no obvious explanation as to quite why it was that the prior insurance arranged by Mr Reaper or
Ms Fisher (the point has never been very clear) should have lapsed upon his bankruptcy.
In any event, I am satisfied from the evidence of Mr Vrsecky that he arranged for appropriate insurance cover through the general way in which he insures all properties that come into his care as a trustee in bankruptcy. It is noteworthy, however, that Ms Fisher did not elect to obtain insurance herself. Given that, at all times, it was Mr Reaper and Ms Fisher's position that the entirety of the property should vest in her owing to the purchase with protected funds, it is a noteworthy omission on their part that they failed to take any steps to protect their interest.
Leaving aside the findings I have already made, (namely that the storm damage did not take place as alleged by Mr Reaper and Ms Fisher), the conduct of Mr Reaper throughout the long (over 12 months as he says) history of the insurance claim was designed to cause delay and confusion. It is clear that the initial tranche of correspondence went off on a tangent because of Mr Reaper's insistence that he was a tenant when he was well aware, as I find, that he was not. (His own emails confidently and rather ludicrously assert a demand for invoices for rent of $0.00).
The conduct of the trustee and his agent, Ms Ballantyne, seems to me to have been unexceptionable. They sent someone to inspect the property and Mr Reaper refused to allow that person to do so. Whether they turned up unannounced or not, there is no obvious reason why a person seeking to look at the property should have been denied the opportunity to do so. It was eminently in Mr Reaper's interests that this occur had there been damage of the sort he asserted. The insulting reference to Ms Ballantyne as a "Nigerian scam artist" was wholly unnecessary, and only likely to divert her attention.
This state of mind on the part of Mr Reaper is apparent in almost all his communications with the third parties with whom he had to deal in relation to this aspect of the matter. The conduct of the cross-claimants as a whole has, in my view, as the applicant's written submissions assert, prevented the applicant from obtaining sufficient information to ensure that the claim was not fraudulent. Ms Fisher has refused to provide any confirmation or denial that she had any insurance herself. (I have found that there was not).
In my view, looked at fairly, while the prosecution of the matter by the trustee and his agent was, from time to time, somewhat dilatory, there is no evidence that the behavior of the trustee and/or his agents was, in any way, sufficiently lacking as to give rise to proper criticism. Furthermore, and to the extent to which storm damage may have occurred, the property is still insured, and there is nothing to prevent the respondents from pursuing a claim properly formulated. The insurer would, doubtless, pay or not pay according to the findings that it made.
The Law in Relation to Protected Earnings
It is the applicant's submission that the net effect of s.116(4) of the Bankruptcy Act is that Mr Reaper should be given credit, in effect, only for the diminution of the capital sum owing on the mortgage between 2007 and 2015. It is Mr Reaper's position that he should receive full credit for all of the sums applied to the mortgage. At this stage, it is appropriate to turn to the terms of s.116 itself. Section 116(2D) - Definitions - relevantly provides:
“exempt loan money, in relation to a particular time, means so much of the principal sum of a loan to the bankrupt, or to the bankrupt and another person or other persons, as was repaid, before that time, out of exempt money.
exempt money means money of any of the following kinds:
(a) an amount to which subsection (1) does not extend because of subparagraph (2)(d)(ii) or (iv);
(b) damages or compensation of a kind referred to in paragraph (2)(g);
(c) amounts covered by paragraph (2)(k), (l), (m), (ma) or (mb).
outlay, in relation to property, in relation to a particular time, means all of the following:
(a) the money paid for the purchase, or used in the acquisition, of the property;
(b) the money paid before that time in respect of the extensions, alterations and improvements, if any, of the property constructed or made since that purchase or acquisition.
protected money, in relation to a particular time, means:
(a) exempt money; or
(b) exempt loan money in relation to that time.”
Subsection 116(4) reads:
“Where, as at the time when the trustee realises particular property to which paragraph (2)(n) does not apply, the outlay in relation to the property is in part protected money and in part other money, the trustee shall pay to the bankrupt so much of the proceeds of realising the property as can fairly be attributed to that protected money.”
The applicant submits that "protected money" has a specific definition which requires protected money to be either exempt loan money or exempt money for the relevant time between 2007 and 2015. The written submissions note, and the Court has determined, that
Mr Reaper's exempt payments have been used to pay a mortgage, but that protected money was not used in the property's original acquisition. The applicant submits that the exempt money used to pay the loan between 2007 and 2015 was exempt loan money for the purposes of s.116(4) of the Bankruptcy Act (see paragraphs 11 to 13 of the written submissions filed 6 June 2015).
The nub of the submission is at paragraph 14:
“Exempt loan money means so much of the principal sum as was repaid. The use of the term ‘principal sum’ is to specifically exclude the payment of mortgage interest accruing on the outstanding balance from time to time. Accordingly, the Act does not envisage a bankrupt receiving equity for paying interest on a loan via the mechanism of section 116(4).”
The submission goes on to refer to authority to which I shall return.
Mr Reaper's responding submissions (filed 19 June 2015) assert, at paragraph 26:
“The Applicant's submissions pertaining to “exempt loan money” should be struck out as they are an abuse of process and misconceived in that there is no loan relevant to the land.”
These submissions do not otherwise generally assist the Court. I note that at paragraph 24 of his submissions, Mr Reaper asserts that he had invested a further $90,000 in the house during the protected money period using payments of compensation and superannuation. This assertion, made in submissions in reply following the closure of both sides' cases and not supported by affidavit, cannot be taken further.
At this point, it is appropriate to turn to the authorities that touch upon this matter. In Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd and Others (1989) 21 FCR 363 (“Re Iskenderian”), Neaves J considered the operation of s.116 of the Bankruptcy Act. At [370], his Honour, having traversed amendments to the Act, asserted:
“That history indicates an intention on the part of the legislature progressively to limit, in the event of supervening bankruptcy, the property available for distribution amongst the bankrupt's creditors with a consequential expansion of the property which a bankrupt may retain for his own benefit. The relevant provisions, therefore, are to be construed, within the limits which the language used will allow, so as to give effect to that evident intention.”
At [372], his Honour turned to the particular matters requiring attention in that case and said, relevantly:
“Notwithstanding the difficulties to which the language of the provision gives rise, I am of opinion that s 116(2)(g) and (n) and s 116(3) sufficiently reflect a legislative intention that a bankrupt, notwithstanding his bankruptcy, is to continue to have the benefit not only of any damages or compensation of the kind referred to in s 116(2)(g) recovered by him, but also of any property which can, as at the time when he becomes a bankrupt, 87 ALR 294 at 304 properly be described as representing such damages or compensation. Those provisions are, therefore, to be construed accordingly. In the light of that evident legislative intention, I can see no basis for concluding that the protection is to extend only to the damages or compensation and to property initially purchased or acquired with the money recovered by way of damages or compensation: see Leach v Official Assignee [1975] 1 NZLR 83 at 87–8. In my opinion, ss 116(3) requires that the totality of the circumstances be considered and the question asked whether the property, in truth, represents such damages or compensation. In the circumstances of a particular case, where properties have been bought and sold, it may well be difficult for a bankrupt to establish that property of which he is the beneficial owner as at the time when he becomes a bankrupt does, in truth, represent damages or compensation of the kind referred to in s 116(2)(g) which he recovered at some earlier time. That circumstance, however, provides no reason for reading the provisions in the limited way contended for by the applicants and as protecting only the money received by way of damages or compensation and the property first purchased therewith. The question is ultimately one of fact.”
In Re Manivilovski; Ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358, the head note (and this is of course the authorised report) reads:
“Held:
(i) Exempt money used to pay off a mortgage or charge on the property was to be treated as money outlaid in the acquisition of the property, at least in the circumstance that the mortgage or charge secured moneys borrowed to finance the acquisition of the property.
Re Iskenderian;; Ex parte Iskenderian Bros Pty Ltd (1989) 21 FCR 363 ; 87 ALR 294, applied
(ii) Section 116(3) had no application as the whole or substantially the whole of the money paid for the purchase or used in the acquisition of the property was not protected money. Accordingly the matter fell for consideration under s 116(4).
(iii) To ascertain what sum could fairly be attributed to an outlay of protected money, a fair assessment must be made of the part which the payment of protected money played in the achievement of the final receipt. In this task it might be necessary, in a particular case, to apportion or dissect expenditure or to make allowances or adjustments so as to achieve a sum which fairly reflected the significance of the protected expenditure in relation to the overall expenditure in the purchase or acquisition or improvement of the property.”
The part of the judgment itself that is relevant for these purposes is at p.363. It should be noted that that was a case turning on specific facts that were somewhat different from those here but Davies J said, at p.363:
“It is this process which is recognised by the specific provisions of s 116 as to “exempt loan money” and “outlay”. The term “used in the acquisition” is wide enough, when associated with the words "paid for the purchase", to encompass moneys used to pay off a capital sum borrowed to enable a property to be acquired and secured by mortgage or charge on that property.”
His Honour went on to quote with approval part of the passage from
Re Iskenderianthat I have set out above. His Honour then said:
“His Honour's remarks apply equally to the interpretation of s 116(4). That interpretation also accords with the explanatory memorandum to the Bankruptcy Amendment Act 1987 by which the present form of the subsections was introduced.”
His Honour went on, on p.363, to quote with approval the passage from Re Iskenderian where Neaves J had asserted that the totality of the circumstances should be considered when considering section 116(3).
In Re Zylvain Stanley Jemielita Ex Parte: Official Trustee in Bankruptcy [1996] FCA 1208, Nicholson J was likewise concerned with arguments about protected money. At [14]-[16] his Honour said:
“14. However, it is contended for the applicant that the word "property" should be given a wide canvass so that it is not limited to any particular form of property. There is support for such an approach to be found in Re Manivilovski: Ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358 where it was held that the term "used in the acquisition" as it appears in s116(3) is wide enough, when associated with the words "paid for the purchase", to encompass moneys used to pay off a capital sum borrowed to enable a property to be acquired and secured by mortgage or charge on that property. Section 116(3) reads:
“Where, at any time, the whole, or substantially whole, of the money paid for the purchase, or used in the acquisition, of particular property protected money, paragraph (2)(n) applies to the property.”
15. The position taken by the Court in Re Manivilovski (supra) was reached in reliance upon the approach taken by Neaves J in Re Iskenderian: Ex parte Iskenderian Bros Pty Ltd (1989) 21 FCR 363 at 372 where his Honour said:
“Notwithstanding the difficulties to which the language of the provision gives rise, I am of the opinion that s116(2)(g) and (n) and subs(3) sufficiently reflect a legislative intention that a bankrupt, notwithstanding his bankruptcy, is to continue to have the benefit not only of any damages or compensation of the kind referred to in s116(2)(g) recovered by him, but also of any property which can, as at the time when he becomes a bankrupt, properly be described as representing such damages or compensation. Those provisions are, therefore, to be construed accordingly.”
16. Section 116(4) must be construed in its context. That context includes reference to ss116(2D) and 116(3). It also requires reference to s116(2). It is apparent that certain property including after acquired property does not become property divisible amongst creditors of a bankrupt in accordance with s116(1) where it falls within one of the paragraphs of s116(2). In this case it is conceded for the respondent for the purposes of this application and the determination of this point that moneys were paid into the bank account which may be characterised as moneys within s116(2)(d)(iv), that is that they were a payment to the bankrupt from a superannuation fund ("the superannuation moneys"). If, however, the moneys in the bank account had that character their protected status would not derive from an application of s116(4) on the making of the deposit but rather by the application of s116(2). Furthermore, it is apparent that s116(4) is directed to an “outlay”. The outlay must be in relation to property. The definition of "outlay" requires there to be evidence that in relation to property, and at a particular time, money was paid for a purchase or used in acquisition of the property or in respect of extensions, alterations and improvements of the property constructed or made since the purchase or acquisition. On any reading of that definition in conjunction with s116(4) it is apparent that a withdrawal of money from the bank account for the purpose of transferring the control of them to the Trustee is not a relevant outlay. Furthermore, reference to the definition of "outlay" is confirmatory that the word "property", as it appears in s116(4) is a reference to property which has been acquired or purchased or otherwise dealt with as provided in the definition, none of which are the case in relation to a withdrawal of money from the bank account for the purpose of transferring that money to the Trustee. In my opinion s116(4) when considered in relation to s116(2D) and s116(3) is patently confined to a case where the outlay is utilised in the limited circumstances there referred to and does not apply to a withdrawal of money from a bank account. Examination of s116(4) in its context therefore provides confirmation of the prima facie view of the subsection apparent from a plain reading of it.”
Against that background, it seems to me that in the particular circumstances of this case, the moneys paid towards the repayment of the mortgage between 2007 and 2015 were plainly exempt money, as they represented damages or compensation of a kind referred to in s.116(2)(g) of the Bankruptcy Act. The question is, however, whether those moneys were "outlay" within the meaning of the definition in s.116(2D). In my view, the moneys paid towards the mortgage were moneys used in the acquisition of the property. They might also be said to be moneys paid for the purchase of it.
The definition of "outlay" is limited to "in relation to property, in relation to a particular time". There is no more precise temporal definition than that. The particular time with which the Court is here concerned seems to me to be the period between 2007 and 2015. All parties have proceeded on this footing. In my view, given the expanded appreciation of the phrase "used in the acquisition" given by Nicholson J in Jemeilita, a beneficent reading of the wording of the relevant sections leads to the conclusion that the mortgage repayments should be taken to be included in the relevant definition of "outlay". While the net gain to the value of the realised figure is, of course, only that it reduced half of the total reduction in the principal sum of the mortgage, the significance of the matter lies, however, in the significantly increased value of the property, which accrued simply because it continued to be the subject of the mortgage payments.
If I am wrong as to this, there is an alternative aspect to s.114 that leads, in my view, to the same conclusion.
The trustee is required to:
“...pay to the bankrupt so much of the proceeds of realising the property as can fairly be attributed to that protected money.” (s.116(4)).
Even if the protected money involved is only, as the trustee said, approximately some $43,000, the fact is that the sum that can be fairly attributed to that reduction is, in fact, the overall increase in the property derived from its continued occupation. In the particular circumstances of this case, looking as Neaves J, Davies J and Nicholson J suggest, at the totality of the relevant circumstances, it is immediately apparent, that albeit that the mortgage itself decreased by only a relatively small amount, the fact that the mortgage was paid has enabled the property to accrue very significantly in value.
Thus, in my view, the submission by the trustee that the only relevant circumstance is the actual reduction in the principal owing on the loan is too narrow a construction of a provision that should, as the authorities to which I have referred make clear, be interpreted beneficently. It, therefore, follows that consistent with the figures I have set out earlier in this judgment, the amount attributable to
Mr Reaper's contributions should be assessed at $308,000. Of this, consistently with what I said in my earlier reasons for judgment, half should be assumed to be for the benefit of Ms Fisher (see my earlier judgment at [59]-[60]).
This means that the amount attributable to Mr Reaper is the sum of $154,000. The trustee's share of the half share of the net equity is $250,000. Subtracting $154,000 from that figure will reduce it to $96,000. That is the figure which, in all the circumstances, seems to me to be the just and equitable figure that Ms Fisher will need to find to pay out the trustee's interest.
The Other Matters in the Interlocutory Application and Cross-Claim
A number of the matters set out in the Interlocutory Application, which are said to be sought as Interlocutory Orders, are plainly inappropriate. They are so misconceived that it is not appropriate to dignify them with any detailed consideration. By way of illustration only, order (8) seeks “a declaration that the First Respondent does not owe a debt to the Australian Taxation Office on the integrated client account of Urban Habitat Landscaping and Paving Pty Ltd”. This matter is not properly before this Court at all.
The orders sought also seem to me, on their face, to seek to re-litigate matters previously disposed of in the various court proceedings to which Mr Reaper has been a party. Insofar as the Interlocutory Application seeks an inquiry, pursuant to s.179 of the Bankruptcy Act, not only are the matters asserted not made out, but I am quite satisfied on the materials as a whole that the conduct of the trustee does not make it appropriate to contemplate an inquiry pursuant to s.179. Insofar as the Interlocutory Application seeks, at paragraph 13(h), an inquiry pursuant to s.179 because "the applicant engaged in litigation on a substantially misconceived basis, and in a manner which was unnecessary", I would only observe that the trustee's conduct seems to me to have been, at all times, entirely proper.
Regrettably, it is Mr Reaper and Ms Fisher who have engaged in unnecessarily prolix and often irrelevant initiatives, and have protracted and expanded these proceedings. Insofar as the Interlocutory Application seeks compensation pursuant to s.178 of the Act (paragraph 14) for "injury harm loss and damage suffered by the respondents as a consequence of circumstances relating to the orders sought herein", that matter is not in any sense particularised. In any event, as I would find, there is nothing to suggest that the trustee's actions have been such as to give rise to any compensable claim, whether under s.178 or otherwise.
The details of the cross-claim are, in part, claims for building reinstatement and repairs to the central heating unit. These are, of course, part of the insurance claim that I have already dismissed. Insofar as the cross-claim seeks a declaration prohibiting the cross‑respondent from seeking to recover costs in relation to the insurance claim, that is a matter I will deal with when I consider the question of costs. It should be noted that Mr Reaper and Ms Fisher have been wholly unsuccessful in their claim.
The next matter sought is a repeat of the interim order pursuant to s.178 of the Bankruptcy Act with which I have just dealt above. It is not necessary to repeat the findings.
Conclusion and Costs
As observed above, it was always the intention of all concerned that Ms Fisher be given an opportunity to purchase out the trustee's interest in the property. I am minded to give Ms Fisher 90 days in which to find the relevant funds to do so. Failing such a payment, the default regime should be that proposed by the applicant trustee.
The cross-claim will be dismissed with costs. The question arises, however, as to who should pay those costs. I will give the parties an opportunity to consider these reasons for judgment, and accept written submissions to avoid the necessity of court attendance on the part of Mr Reaper and/or Ms Fisher. I am aware that attendance at court is difficult for them for various logistical reasons.
I certify that the preceding one hundred and eight (108) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Associate:
Date: 24 August 2015
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