Accident Compensation Corporation v Southern Lakes Building Limited
[2022] NZHC 1288
•3 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2024
[2022] NZHC 1288
UNDER The Accident Compensation Act 2001 IN THE MATTER
of an appeal to the High Court from a
decision of the District Court under s 162 of the Act
BETWEEN
ACCIDENT COMPENSATION CORPORATION
Appellant
AND
SOUTHERN LAKES BUILDING LIMITED
Respondent
Continued
Hearing: 3 May 2022 Appearances:
D Laurenson QC and C Hlavac for Appellant
J Cooper QC, T Sullivan and A Isherwood for Respondents
Judgment:
3 June 2022
JUDGMENT OF LANG J
This judgment was delivered by me on 3 June 2022 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Young Hunter, Christchurch D Laurenson QC
ACCIDENT COMPENSATION CORPORATION v SOUTHERN LAKES BUILDING LTD [2022] NZHC 1288 [3 June 2022]
CIV-2021-404-2023
UNDER The Accident Compensation Act 2001 IN THE MATTER of an appeal to the High Court from a
decision of the District Court under s 162 of the Act
BETWEENACCIDENT COMPENSATION CORPORATION
Appellant
AND BUILDING CONNEXION LIMITED
Respondent
CIV-2021-404-2023
UNDER The Accident Compensation Act 2001 IN THE MATTER of an appeal to the High Court from a
decision of the District Court under s 162 of the Act
BETWEENACCIDENT COMPENSATION CORPORATION
Appellant
AND ANDERSON & O’LEARY LIMITED
Respondent
[1] The Accident Compensation Act 2001 (the Act) creates a regime for funding the treatment of, rehabilitation from, and compensation payable for, injuries caused by accident. The regime is administered by the Accident Compensation Corporation (ACC).
[2] Part 6 of the Act provides for ACC to fund the regime using several accounts. One of these is a Work Account through which it funds entitlements paid under the Act for injury suffered by employees, private domestic workers and self-employed persons in workplace accidents.1 This funding comes predominantly from levies imposed on employers, private domestic workers and self-employed persons.
[3] Levies are set by classifying such persons in a classification unit (CU) corresponding to an industry or risk class that most accurately describes their business activity. The amount of the levy imposed depends on this classification. Underlying the classification regime is an assessment of injury risk based on historical records of injuries suffered by persons working in different types of workplace.
[4] The three respondents all operate timber and hardware stores that sell timber and hardware products both to members of the public and those engaged in trade. In 2019 ACC re-classified the respondents so they fell within CU 45310 – Timber Wholesaling. This meant they were required to pay higher employer levies than was previously the case.
[5] The respondents sought review of ACC’s decisions under Part 5 of the Act. The review process resulted in ACC’s decisions being set aside in relation to Southern Lakes Building Ltd (Southern Lakes) and Building Connexion Ltd (Building Connexion). It resulted in modification of the decision relating to Anderson & O’Leary Ltd (Anderson & O’Leary).
[6] ACC appealed to the District Court against the reviewers’ decisions relating to Southern Lakes and Building Connexion. Anderson & O’Leary appealed against the decision relating to it. The issue in each appeal was whether the company in question carried on the activity of timber wholesaling for the purposes of their CU
1 Accident Compensation Act 2001, ss 168, 168A, 168B and 211.
classification. In judgments delivered contemporaneously on 1 March 2021, Judge A A Sinclair held that the appropriate classification for the activity being carried on at each of the companies’ stores was that of CU52330 – Hardware and Building Supplies Retailing.2
[7] ACC appeals against the Judge’s decisions. It maintains the classification of all three respondents’ activity as timber wholesaling was correct in terms of the classification regime provided by the Act.
The legislative regime
[8]Section 170 of the Act provides as follows:
Classification of industries or risks
(1)For the purpose of setting levies payable under sections 168, 168B, and 211, the Corporation must classify an employer and a self- employed person in an industry or risk class that most accurately describes their activity, being an industry or risk class set out in regulations made under this Act.
(2)If an employer is engaged in 2 or more activities, the Corporation must classify all the employer's employees in the classification unit for whichever of those activities attracts the highest levy rate under the regulations.
(3)Despite subsection (2), the Corporation may classify the employer's employees in separate classification units for different activities if the employer meets the threshold (if any) specified in regulations and if—
(a)the employer so requests; and
(b)the employer is engaged in 2 or more distinct and independent activities; and
(c)each of those activities provides services or products to external customers in such a way that each activity could, without adaptation, continue on its own without the other activities; and
(d)accounting records are maintained by the employer to the satisfaction of the Corporation that—
(i)demonstrate the separate management and operation of each activity; and
2 Accident Compensation Corporation v Business Connexion Ltd [2021] NZACC 41; Accident Compensation Corporation v Southern Lakes Business Ltd [2021] NZACC 42; Anderson & O’Leary Ltd v Accident Compensation Corporation [2021] NZACC 43.
(ii)allocate to each activity the earnings of employees engaged solely in that activity.
(4)Regulations made under this Act must prescribe a Work Account levy for each industry or risk class defined under subsection (1).
…
(5)The Corporation must decide which industry or risk class is appropriate in relation to any employer or self-employed person by whom a levy is payable, and section 239 applies if the classes defined by the regulations do not specifically cover a particular activity.
(6)The Corporation must separately account for the amounts—
(a)collected from each industry or risk class under sections 168, 168B, and 211; and
(b)expended for the purposes of section 167(3) in respect of each industry or risk class.
…
[9]Section 6(1) of the Act defines “activity” as:
activity, for the purposes of Part 6,—
(a) means a business, industry, profession, trade, undertaking of an employer, a self-employed person, or a private domestic worker; and
(b) includes ancillary or subservient functions relating to the activity, such as administration, management, marketing and distribution, technical support, maintenance, and product development; and
(c) in the case of a self-employed person, refers to the nature of his or her work rather than the context or business in which he or she is working
[10] The relevant regulations for the purposes of s 170(4) are the Accident Compensation (Work Account Levies) Regulations 2017. The schedule to the regulations contains a list of 499 different CUs. Each of these provides a general description of a particular business activity, a CU number and the applicable levy rate for that CU. The levy is set at a specified sum per $100 of income earned by employees.
[11] Levy rates are set by grouping CUs into smaller numbers of Levy Risk Groups (LRGs). This is designed to ensure that CUs carrying a similar level of risk are grouped together to create a pool of risks that also have a reasonably large earnings
base. Levies are set using actuarial calculations based on the claims experience of each CU.
[12] As will be evident from the wording used in s 170(1), ACC is obliged to classify employers and self-employed persons in an industry or risk class that most accurately describes the activity in which they are engaged. Importantly, however, the section also recognises that an employer may be engaged in more than one activity. Where that occurs, s 170(2) requires ACC to classify the employer in the CU for whichever of those activities attracts the highest levy under the regulations.
[13] Section 170(3) provides a limited exception to the default position prescribed by s 170(2). Section 170(3) provides that, where an employer is engaged in two or more distinct and independent activities, ACC may, on request by the employer, allocate multiple CUs for those different activities. However, this can only occur where the employer is engaged in an activity that can, without adaptation, be carried on independently of the employer’s other activities. Separate accounting records for each activity must also be maintained. None of the respondents contends that s 170(3) applies to them.
[14] Furthermore, the definition of “activity” makes it clear that if a particular business function (such as administration, management, marketing and distribution) is ancillary or subservient to another activity, then it must be considered to be part of that activity and not as a separate activity in its own right.
ANZSIC
[15] The CUs listed in the schedule to the regulations are derived from a document known as the Australia and New Zealand Standard Industrial Classifications 2006, commonly referred to as ANZSIC. This is produced as a joint initiative between Statistics New Zealand and the Australian Bureau of Statistics. Classification of industries under ANZSIC is used for economic and statistical purposes. It provides a basis for the standardised collection, analysis and dissemination of economic data on an industry specific basis for both Australia and New Zealand. ANZSIC is designed to achieve improved comparability of industry statistics produced by the two
countries. Before it was developed in 1993 both countries used separate national industrial classifications.
[16] The classification regime in ANZSIC is significantly different from that contained in the schedule to the regulations because it comprises four levels, the first of which comprises 19 divisions. These are broken down into sub-divisions, groups and classes. This process is designed to provide increasingly detailed dissections of these categories to enable the compilation of more specific and detailed statistics.3
[17] At each level of ANZSIC a business activity can only be assigned to one classification. At the first level the activity must be assigned to one of the 19 divisions. Thereafter classification must remain within those prescribed within each level for activities specified in that division.
[18] The ANZSIC regime requires classification to be made in accordance with the predominant activity in which an enterprise or business unit is engaged. Where an enterprise or business unit engages in more than one activity, ANZSIC seeks to ascertain the predominant activity using one of two methods. Both methods involve an assessment of the level of income derived from each activity.
[19] The final level of classification in ANZSIC, that relating to class, contains the categories that have been adopted and replicated in the CUs listed in the schedule to the regulations. Under each class there is a general description of the class, a list of primary activities that fall within the class and a list of exclusions or references.
[20] In his written submissions counsel for ACC provided me with the following example of the ANZSIC classification system using Timber Wholesaling:
Division F Wholesale Trading Subdivision
33
Basic Material Wholesaling
Group
333
Timber and Hardware Goods Wholesaling
Class
3331
Timber Wholesaling
3 Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006, Australian Bureau of Statistics/Statistics New Zealand, at 1.21.
[21] Divisions F and G in ANZSIC set out the criteria for classification of persons in trade. The description of each begins as follows:
Division F: Wholesale Trade
The Wholesale Trade Division includes units mainly engaged in the purchase and onselling, the commission-based buying, and the commission-based selling of goods, without significant transformation, to businesses. Units are classified to the Wholesale Trade Division in the first instance if they buy goods and then onsell them (including on a commission basis) to businesses.
Units are classified to the Wholesale Trade Division in the first instance if they buy goods and then onsell them (including on a commission basis) to businesses.
…
Division G: Retail Trade
The Retail Trade Division includes units mainly engaged in the purchase and onselling, the commission-based buying, and the commission-based selling of goods, without significant transformation, to the general public. The Retail Trade Division also includes units that purchase and onsell goods to the general public using non-traditional means, including the internet. Units are classified to the Retail Trade Division in the first instance if they buy goods and then onsell them (including on a commission basis) to the general public.
…
The Judge’s decisions
[22] The format used by the Judge in each decision is broadly the same. After describing the statutory scheme and the manner in which each respondent operates its stores the Judge accepted it was appropriate to adopt the definitions of “wholesale” and “retail” contained in the preambles to Divisions F and G in ANZSIC.4
[23] The Judge did not, however, accept ACC’s submission that these constituted the complete definitions of “wholesale trade” and “retail trade”. Nor did she accept ACC’s argument that the expanded preambles in ANZSIC were irrelevant. These are as follows:
Division F: Wholesale Trade
The Wholesale Trade Division includes units mainly engaged in the purchase and onselling … of goods, without significant transformation, to businesses.
4 Set out above at [21].
Units are classified to the Wholesale Trade Division in the first instance if they buy goods and then onsell them (including on a commission basis) to businesses.
Wholesalers’ premises are usually a warehouse or office with little or no display of their goods, large storage facilities, and are not generally located or designed to attract a high proportion of walk-in customers. Wholesaling is often characterised by high value and/or bulk volume transactions, and customers are generally reached through trade-specific contacts.
…
A unit which sells to both businesses and the general public will be classified to the Wholesale Trade Division if it operates from premises such as warehouses or offices with little or no display of goods, has large storage facilities, and is not generally located or designed to attract a high proportion of walk-in customers.
Division G: Retail Trade
The Retail Trade Division includes units mainly engaged in the purchase and onselling … of goods, without significant transformation, to the general public. Units are classified to the Retail Trade Division in the first instance if they buy goods and then onsell them (including on a commission basis) to the general public.
Retail units generally operate from premises located and designed to attract a high volume of walk-in customers, have an extensive display of goods, and/or use mass media advertising designed to attract customers. The display and advertising of goods may be physical or electronic.
Physical display and advertising includes shops, printed catalogues, billboards and print advertisements. Electronic display and advertising includes catalogues, internet websites, television and radio advertisements and infomercials. While non-store retailers, by definition, do not possess the physical characteristics of traditional retail units with a physical shop-front location, these units share the requisite function of the purchasing and onselling of goods to the general public, and are therefore included in this Division.
A unit which sells to both businesses and the general public will be classified to the Retail Trade Division if it operates from shop-front premises, arranges and displays stock to attract a high proportion of walk-in customers and utilizes mass media advertising to attract customers.
[24] ACC had argued that the expanded preambles were irrelevant for present purposes because they assist only in determining the predominant activity undertaken by a business unit. The ANZSIC regime only permits a business unit to have a single classification but the Act recognises such an entity may be engaged in two or more activities. In such situations the Act is not concerned with which activity is predominant. Rather, s 170(2) requires ACC to classify it according to the category
attracting the highest employer’s levy. The Judge did not consider this argument had merit.
[25] The Judge also rejected ACC’s alternative submission that, if they have any relevance at all, the factors referred to in the expanded preambles provide assistance only to an assessment of whether the activities undertaken by a business are each separately identifiable business activities as opposed to activities that are ancillary or subservient to the main business activity.
[26] When the Judge measured the factors referred to in the expanded preambles against the manner in which the respondents operated their stores, she was satisfied that the respondents were properly categorised as being within Division G (Retail Trade) in ANZSIC. As a result, the risk class that most accurately described the activity being carried on at each of the stores was CU 52330 – Hardware and Business Supplies Retailing.
[27] The Judge then went on to consider whether s 170(2) required ACC to classify each of the respondents as a timber wholesaler because it was carrying on more than one activity for the purposes of the Act. Her reasoning on this issue is encapsulated in the following passage of her judgment in the appeal relating to Business Connexion Ltd:5
ISSUE 2: TWO OR MORE ACTIVITIES FOR PURPOSE OF S 170(2)?
[58] The Corporation says that as well as being engaged in timber wholesaling, BCL is also engaged in the wholesale selling of hardware and other building products and the retail selling of hardware and building supplies to the general public. The Corporation submits that whether the retail selling of hardware and building supplies to the general public is found to be ancillary or subservient to BCL’s main business activity or a separately identifiable business activity, BCL is engaged in at least two or more of the following activities:
·CU52330 hardware and building supplies retailing.
·CU45390 hardware goods wholesaling.
·CU45310 timber wholesaling.
5 Accident Compensation Corporation v Building Connexion Ltd, above n 2.
Accordingly, applying s 170(2), the Corporation contends it is required to assign to BCL the classification CU43510 – Timber Wholesaling, being the classification unit that attracts the highest levy under the Regulations.
[59] I agree with BCL’s submissions that there is no factual foundation to support a finding of separate activities. Each store operates as an integrated business. All product lines are available to all customers; all parts of the premises at each store are open to all customers, and the points of sale service all customers.
[60] For the reasons discussed above, I am satisfied on the evidence before the Court, that the correct classification for BCL in respect of its four stores at […] is CU 52330 Hardware and Building Supplies Retail.
Decision
The relevance of sales figures
[28] I propose to deal at the outset with a subsidiary issue relating to the relevance of sales figures for present purposes. This relates to whether data held by the respondents regarding their timber sales is relevant to classification under the Act. It was the subject of debate in the District Court in the appeals involving Anderson & O’Leary and Building Connexion. The Judge held that such information was not relevant to the issues she was required to decide.6
[29] The issue arises because ACC contends that the sale of timber to trade customers constitutes an activity in its own right for the purposes of s 170. It points out that each of the respondents derives a significant portion of its turnover from the sale of timber products and that a considerable proportion of this relates to sales to customers who are engaged in trade. It therefore says that the sources from which the respondents derive their income is important, and this underpins the relevance of the sales information they hold.
[30] As noted above,7 in situations where a business unit engages in more than one activity ANZSIC relies on two methods based on the level of income derived in order to determine which is the predominant activity. In such cases sales figures may well be relevant in determining the appropriate classification. However, the position is
6 Anderson & O’Leary Ltd v Accident Compensation Corporation, above n 2, at [58]-[60]; Accident Compensation Corporation v Building Connexion Ltd, above n 2, at [47]-[50].
7 At [18].
different when making an assessment under s 170. That enquiry focusses on whether a business unit is carrying on one or more activities. If it is carrying on more than one activity ACC is required to apply s 170(2). There is no need to determine which activity is predominant.
[31] In the present case all three respondents concede they sell timber products to persons engaged in trade. For its part ACC concedes the respondents also sell timber products to the general public. Given that background the sales figures held by the respondents cannot advance matters beyond what is already common ground.
Do the respondents carry on more than one activity for the purposes of s 170(2)?
[32] As it did in the District Court, ACC maintains that, because the respondents sell timber on a wholesale basis to trade customers, they are engaged in that activity for the purposes of s 170 even if they also engage in other activities. As a result, s 170(2) requires ACC to classify the respondents as timber wholesalers and to impose levies under the Act on that basis. ACC points out that, if the respondents wish to avoid this outcome, they can re-configure the timber wholesaling sections of their businesses so they can take advantage of the alternative regime offered by s 170(3).
[33] I consider the argument for ACC would have merit if the term “activity” was construed as meaning to engage in an act or continuing series of acts. Using this interpretation the respondents would obviously be engaged in the activity of timber wholesalers. However, the Act does not define the term in that way. Rather, s 6(1) defines “activity” as meaning “a business, industry, profession, trade, undertaking of an employer”. The issue is therefore whether the sale of timber to persons engaged in trade is sufficient to constitute a business for the purposes of s 170.
[34] The most obvious point to be made about ACC’s argument is that, if the sale of timber to persons engaged in trade constitutes a business for the purposes of s 170, the respondents must also be engaged in a multitude of other businesses. By way of example, they would also be operating not only a retail timber business but also retail and wholesale plumbing, hardware and building supply businesses. This cannot be correct.
[35] Nor do I accept ACC’s argument that s 170(2) expressly envisages that the activities will be integrated, in contrast to s 170(3) which requires that the activities are distinct and independent. Section 170(3) enables the Corporation to assign separate classification units for different activities at the request of the employer provided various conditions are met. It does not necessarily follow that s 170(2) only applies where the activities are integrated. Rather, I consider s 170(2) will be engaged where an enterprise operates two separately identifiable businesses. Each needs to be a separate and distinct activity.8 By way of example, a business entity may operate both an accommodation facility and a separate mountain guiding service. Each of these would constitute a distinct business for the purposes of s 170(2) and ACC would be required to classify the business entity in accordance with which activity attracts the highest levy rate under the regulations.
[36] This is not the position in the present case. The respondents sell a wide range of different products within and around the same premises. Customers have the same ability to view and purchase all products regardless of whether they are members of the public or engaged in trade. The only difference in the way the two are treated lies in the level of discount each receives at the point of sale. I therefore consider the Judge was correct to conclude the respondents operate a single integrated business at each store. I do not consider the sale of timber to persons engaged in trade constitutes a business or undertaking in its own right. Section 170(2) is therefore not engaged.
What is the correct classification of the respondents’ activity for the purposes of s 170?
[37] Section 170(1) requires the respondents to be classified in the industry or risk class that “most accurately describes their activity”. As I have already observed, the respondents sell a wide variety of different products to both the general public and persons engaged in trade.
[38] ACC relies in large part on the fact that a significant proportion of the respondents’ sales are made to persons who have opened trade accounts with individual stores. However, this does not mean that all such persons are engaged in
8 Accident Compensation Corporation v Peninsula Distribution Ltd [2012] NZACC 257 (DC) at [23].
trade. By way of example, persons who are building or renovating their own homes may operate a trade account. Furthermore, many of the persons who buy products are builders. They purchase timber products according to their current needs. This is not done for the purpose of “onselling” the products to others. Rather, the products are bought for immediate use in current building projects. This diminishes the weight that can be placed on the fact that many of the respondents’ sales are to customers who hold trade accounts.
[39] The issue of whether the Court can have regard to the criteria contained in ANZSIC in this context arose in On the Go (New Zealand) Ltd v Accident Compensation Corporation. 9 In that case Simon France J pointed out that there is nothing in the regulations that prohibits ACC or the Court from having regard to the classifications contained in ANZSIC when assessing the most accurate description of an activity for the purposes of s 170. He described these as “an obvious interpretation aid”.10 I consider this to be the case even though the purpose for which ANZSIC was created is different to the purpose for which activities are classified under the Act. The value of the ANZSIC classifications lies in the fact that they are the product of the dissection of business activities to a level of significant specificity.
[40] ACC argues that it is not permissible to go beyond the first paragraphs of the ANZSIC classification criteria for wholesale and retail traders set out above at [23]. In other words, the sole question to be determined for the purposes of the Act is whether the business unit in question sells goods to persons in business or trade rather than to the general public. If that question is answered in the affirmative, the unit must be classified as a wholesaler and not a retailer.
[41] The Judge did not accept this argument and I agree with her conclusion. Both ANZSIC classifications contain an unbroken narrative that commences with one11 or two12opening paragraphs and then continue with what the Judge described as an expanded preamble. This describes the manner in wholesalers and retailers are likely
9 On the Go (New Zealand) Ltd v Accident Compensation Corporation HC Wellington CIV-2011- 485-736, 16 September 2011 at [21].
10 At [21].
11 In the case of Division G: Retail Trade Division
12 In the case of Division F: Wholesale Trade Division.
to operate their respective businesses. I consider these paragraphs build on the material contained in the first paragraph(s).
[42] Importantly, both opening paragraphs state that the classification based on sale to persons in trade or to the general public is made “in the first instance”. This suggests they provide a provisional classification based on whether the business unit in question sells its product to the general public or to persons engaged in trade. It is then necessary to refer to the features identified in the following paragraphs to determine whether the provisional classification is appropriate for the business in question. I consider the specificity of the factors identified in those paragraphs means they provide useful guidance when considering whether the respondents in the present case are most accurately described as retailers or wholesalers for the purposes of the Act.
[43] For convenience I set out again the features identified in the latter paragraphs of the ANZSIC classification for Division F [Wholesale Trade]:
…
Wholesalers’ premises are usually a warehouse or office with little or no display of their goods, large storage facilities, and are not generally located or designed to attract a high proportion of walk-in customers. Wholesaling is often characterised by high value and/or bulk volume transactions, and customers are generally reached through trade-specific contacts.
…
A unit which sells to both businesses and the general public will be classified to the Wholesale Trade Division if it operates from premises such as warehouses or offices with little or no display of goods, has large storage facilities, and is not generally located or designed to attract a high proportion of walk-in customers.
[44] The respondents’ stores are located on main roads and are clearly designed to attract walk-in customers. From the exterior they present as retail premises rather than warehouses or offices. The stores have large volumes of product on display but do not have large storage facilities. Customers are reached through displays and various forms of advertising rather than trade-specific contacts. Furthermore, the average value of individual transactions is not particularly high. The respondents’ stores therefore have none of the characteristics referred to in the passage set out above.
[45] The position is very different when the factors indicative of classification in Division G [Retail Trade] are considered. Again I set these out for convenience:
Retail units generally operate from premises located and designed to attract a high volume of walk-in customers, have an extensive display of goods, and/or use mass media advertising designed to attract customers. The display and advertising of goods may be physical or electronic.
Physical display and advertising includes shops, printed catalogues, billboards and print advertisements. Electronic display and advertising includes catalogues, internet websites, television and radio advertisements and infomercials. While non-store retailers, by definition, do not possess the physical characters of traditional retail units with a physical shop-front location, these units share the requisite function of the purchasing and onselling of goods to the general public, and are therefore included in this Division.
A unit which sells to both businesses and the general public will be classified to the Retail Trade Division if it operates from shop-front premises, arranges and displays stock to attract a high proportion of walk-in customers and utilises mass media advertising to attract customers.
[46] These factors point unequivocally to the respondents being classified as retailers rather than wholesalers. Mr Laurenson QC for ACC realistically accepted that this is so. His argument was addressed to the proposition that the latter paragraphs of the ANZSIC definitions have little or no relevance in the present context.
[47] Having derived guidance from the ANZSIC definitions as a whole I consider the Judge was correct to determine that the activity carried on by the three respondents falls within the category of CU 52330 - Hardware and Building Supplies Retail. This most accurately describes the activity in which they are engaged.
Result
[48]The appeals are dismissed.
Costs
[49] The respondents have been the successful parties in each appeal and are entitled to costs on a category 2B basis together with disbursements as fixed by the Registrar.
Lang J
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