Chan Guan Li Xia v. Fung Wai Hing and Another
Read the full judgment text of HCMP 2891/1998 on BabelCite. This High Court CFI judgment was delivered on 4 July 2001.
1. This is a vendor and purchaser summons. The suit property is Flat G on 8th Floor of Capilano Court, Pictorial Garden, Sha Tin, as well as car park no. 287 on the lower ground floor of the estate. The plaintiff was the purchaser and the 1st and 2nd defendants the vendors. The sale fell through because the defendants sold or purported to sell the property to two different purchasers. The plaintiff claims declarations that the defendants have failed to show a good title to the suit property and
Cited by 1 case · Cites 4 cases
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HCMP2891/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO.2891 OF 1998 ----------------------
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----------------------- Coram: Deputy High Court Judge Muttrie in Court Date of Hearing: 26 to 27 June 2001 Date of Judgment: 4 July 2001 --------------------------- J U D G M E N T --------------------------- 1.This is a vendor and purchaser summons. The suit property is Flat G on 8th Floor of Capilano Court, Pictorial Garden, Sha Tin, as well as car park no. 287 on the lower ground floor of the estate. The plaintiff was the purchaser and the 1st and 2nd defendants the vendors. The sale fell through because the defendants sold or purported to sell the property to two different purchasers. The plaintiff claims declarations that the defendants have failed to show a good title to the suit property and to answer sufficiently or at all her requisitions on the title, as well as the return of a deposit and various other monetary claims. The defendants counterclaim for damages. History 2.The defendants entered into a provisional sale and purchase agreement (Chu's agreement") with one Chu Whi Kuen ("Chu") on 27 January 1998 to sell the suit property to him for $3,300,000. He paid over a cheque for $300,000 as an initial deposit. The 1st defendant banked this cheque on 31 January, which was the first working day after the Lunar New Year holidays which fell on 28 to 30 January. The cheque was however dishonoured on 3 February 1998. 3.On 3 February 1998 the defendants entered into the provisional sale and purchase agreement with the plaintiff to sell the property to them for $3,380,000. A deposit of $200,000 was paid. The plaintiff's solicitors conducted a search in the land registry on 6 February and found no registration of any third party interest. However on 13 February Chu's agreement was delivered to the Land Registry and thereafter appeared on land searches under the heading of "Deeds Pending Registration." 4.The parties entered into a formal sale and purchase agreement on 18 February and a further deposit of $138,000 was paid. Completion was to take place on 16 March 1998 before 5 p.m. 5.In the meantime, on 20 February 1998 the defendant's solicitors wrote to Chu's solicitors to the effect that they had discovered from the Land Registry that their firm had lodged a copy of Chu's agreement for registration and asking for a copy. This was duly provided to them on 23 February. 6.On 27 February 1998 the defendants issued a writ against Chu in Action No. 3033 of 1998 claiming inter alia a declaration that Chu's agreement had been discharged. 7.On 3 March 1998 Chu issued a writ against the defendants in Action No. A3132 of 1998 claiming specific performance of his agreement. This was registered in the Land Registry on 21 March. 8.On the morning of 16 March 1998 the plaintiff's solicitors carried out a pre-completion search in the Land Registry and discovered Chu's agreement which was shown as a deed pending registration. The following communications ensued, on 16 and 17 March 1998 :
9.On 18 March 1998 the defendants' solicitors purported to extend completion time for a further two days, on the ground that the defendants had shown a good title notifying them that Chu's cheque had been dishonoured. The plaintiff did not accept this and her solicitors replied to this effect, with reasons, on 19 March. 10.The plaintiff, having sold her own flat, entered into a tenancy agreement for another flat with effect from 28 March and she incurred various expenses in this connection, for which she claims. 11.The plaintiff issued her Originating Summons in these proceedings on 24 June 1998. This was delivered to the Land Registry for registration on 21 July 1998. The defendants tried to resell the property for $2,450,000 in October of that year. They suggested that the plaintiff vacate the registrations of the agreement and the summons on consideration of the stakeholding by their solicitors of $500,000 from the purchase price pending the outcome of the proceedings. This was not accepted. However on 13 January 1998 a consent order was made for the vacation of the registrations on payment into court by the defendants of $500,000. 12.In the meantime, on 14 July 1998, the defendants had obtained summary judgment against Chu in Action No. 3033 of 1998 inter alia vacating the registration of Chu's agreement. Chu's Action No. 3132 of 1998 was discontinued. 13.Ultimately, after the incumbrances had been removed from the Land Register, the defendants sold the property on 15 April 1999 for $2,698,000. The Plaintiff's Case 14.The plaintiff's pleaded case is that Chu's agreement had been entered into before the parties' agreement, and had been registered in the Land Registry as an instrument affecting an interest in land. The plaintiff's solicitors only came to know of Chu's agreement on 16 March 1998. They demanded cancellation or rescission of Chu's agreement before completion could take place. In the course of correspondence they further asked for documentary evidence of such rescission or cancellation but the defendant's solicitors only asserted that it had been rescinded on the ground that Chu had given a dishonoured cheque. In fact Chu had issued a writ, and caused the same to be registered in the Land Registry on 21 March 1998. In the premises the defendants had failed to prove good title and to answer sufficiently and satisfactorily the requisitions raised. The defendants had repudiated their sale and purchase agreement; the plaintiff was entitled to and did rescind. The Defendant's Case 15.The defendants' pleaded case is in the first place that the plaintiff, in the course of negotiation for the sale and purchase, acknowledged the existence of Chu's agreement; and that there was a collateral agreement between the parties, or alternatively it was an implied term of their agreement, that the sale and purchase would go ahead on the basis that Chu's agreement had been discharged. The formal sale and purchase agreement of 18 February 1998 was subject to the collateral agreement or contained the implied term. 16.In the second place the defendants plead that the plaintiff was required by the formal sale and purchase agreement to raise requisitions within seven days of receipt of the title deeds, but did not. 17.In the third place they plead that Chu's agreement had never been stamped, and though it was delivered to the Land Registry on 13 February 1998 it was never registered. There was in any event no valid claim by Chu, but if there was, the sale and purchase agreement of 18 February which was registered would have priority over it as an unregistered document. 18.The defendants also say that their solicitors had confirmed the rescission of Chu's agreement, and say that the plaintiff was not entitled to raise requisition or objection to the title by reason of Chu's agreement or Chu's claim. The plaintiff was given extension of time until 19 March 1998 to complete the purchase but did not and therefore the defendants are entitled to forfeit the deposit and claim damages. The issue of fact 19.The defendants plead that the plaintiff, in the course of negotiation for the sale and purchase, acknowledged the existence of Chu's agreement, and that there was a collateral agreement between the parties, or alternatively it was an implied term of their agreement, that the sale and purchase would go ahead on the basis that Chu's agreement had been discharged. 20.The plaintiff, Madam Chan, gave evidence that when she went to view the suit property on 3 February 1998, she was never told of any previous sale which had fallen through, nor was any written sale and purchase agreement shown to her. If she had known that the vendor had accepted $3,300,000 a few days before, she would not have been willing to pay $3,380,000. She was asked for a deposit of $200,000; it was not true that she had been told of the earlier deposit of $300,000. The estate agent, one Daisy Yuen Suk Kan, took her to the property and told her that the owner needed to sell urgently, having bought another property. It was the agent who suggested the deposit figure. There was some negotiation, and the agent told her repeatedly that the price was good. Madam Fung came late and after introductions, the agent separated the plaintiff and her husband and Madam Fung and her husband, so that the plaintiff had no conversation with Madam Fung. 21.Madam Fung, the 1st defendant, gave evidence that she first heard that Chu's cheque had been dishonoured by telephone from her bank on 3 February. She spoke to the estate agent Daisy Yuen of Centaline, who told her that since the cheque had been dishonoured Chu's agreement was discharged, and she could sell to another. Daisy Yuen brought the plaintiff to the property on the evening of 3 February. The plaintiff had asked general questions about the flat. In the course of negotiations Madam Fung herself told the plaintiff about Chu's agreement, and said that it had fallen through. She said that Chu had paid a deposit of $300,000 and she wanted the plaintiff to pay that deposit also. The only objection the plaintiff raised was that she could not pay so much. A deposit of $200,000 was therefore agreed. 22.It appeared from the pleadings, the witness statement and affirmations made by Madam Fung that the dishonour and her knowledge of it had both come into being on 1 February. She was cross-examined at some length on this discrepancy. She said that she had received Chu's cheque on the last working day before the Lunar New Year holidays, too late to bank it, so she had banked it on 1 February, which was the first working day after the holidays. Ultimately she said that she had not understood the affirmation to mean that, when she signed it. 23.Madam Fung said that she did come to the flat late, because she had been to see the other agent who had been handling Chu's agreement. Chu himself was out of town. That agent had told her that Chu's agreement was invalid because the cheque had been dishonoured, and she was therefore free to sell to another. However Daisy Yuen had also told her this, on that day, some time after the bank had telephoned her. She had not simply been trying to get a higher price, and she had disclosed her "bottom line" to the purchaser. She had told her solicitor about all of this, when she had instructed him; and that was before she had signed the formal sale and purchase agreement on 18 February. 24.The defendants called as a witness Mr Eric Lai, the solicitor who had acted for the plaintiff in the conveyance. Mr Lai said that it was his firm's practice to do two land searches, one on receiving instructions and one on the date of completion. The first he knew of Chu's agreement was when his firm had done the latter search on the morning of 16 March 1998. He telephoned the plaintiff for instructions and he interviewed her that day because he needed instructions in the light of what he had discovered. She had never told him anything about any prior purchase and sale agreement and her knowledge of the matter from him, rather than the other way about. 25.Having seen and heard the witnesses I cannot say that I can place any great reliance on the demeanour of either of them; neither gave the impression of being either particularly believable or particularly unbelievable. In any event demeanour is never the best indicator of who is telling the truth. One has to look at the surrounding facts and circumstances, and the inherent probabilities which may be derived from them, as a better indicator of where the truth lies. 26.It is of course inherently unlikely that a seller will disclose a price which he has previously accepted on a failed sale as his "bottom line". Madam Fung says that she disclosed everything but she has given no particularly good explanation for this. Further, if a buyer knows that a seller was willing to take $80,000 less a few days before, it is unlikely that he will simply agree to pay the higher price. Ultimately he might but there is bound to be a lot of haggling. It is all very well to say that this is a small percentage of the price, but to any ordinary person it is a not inconsiderable figure. Yet there is simply no suggestion from Madam Fung that this happened; on her account the plaintiff was quite happy just to pay the extra. 27.It is clear that there was simply no reference by the defendant's solicitors, in correspondence with the plaintiff's solicitors, about any contractual agreement or implied term arising out of the negotiations between the parties. That story first came out in the 1st defendant's affirmation made in October 1998. The defendant's solicitors knew about Chu's agreement by 20 February, but it seems that that came about because they searched the register rather than because Madam Fung told them about it. 28.Curiously enough when first confronted with the plaintiff's objection as to title, based on Chu's agreement, the solicitors' reaction was to refer to Clause 7 of Chu's agreement, suggesting that, at least at that point, they thought there was a valid agreement that the defendants would have to buy out of by paying damages under that clause. This also suggests that they did not have full instructions from the defendants at the time they wrote that letter. 29.Mr Lai, who is no longer with his firm, which still acts for the plaintiff, was quite clear that she told him nothing about Chu's agreement but rather that he told her on 18 March. It seems unlikely that a purchaser who knew of a previous failed sale because of a dishonoured cheque would not mention it when instructing a solicitor to deal with the conveyance. 30.In view of all these facts I find that I prefer the evidence of the plaintiff as to what happened between the parties on 3 February. I have no doubt that Madam Fung knew that Chu's cheque had been dishonoured and thought, on the basis of advice received, that her agreement with him was invalid; but I also have no doubt that she decided simply to keep quiet about that, and did not tell the plaintiff anything about it. I am satisfied that neither the plaintiff nor her solicitors knew anything of the existence of Chu's agreement before the morning of 18 March 1998. 31.This being so there is no question in fact of any collateral agreement or implied term in the parties' provisional sale and purchase agreement. There is no need to consider whether such an agreement would be enforceable or evidence of it admissible. The status of Chu's agreement 32.It seems to me that the most important consideration in this case is the status of Chu's agreement. Either it was still alive when the parties entered into their provisional sale and purchase agreement, and giving rise to a valid claim by Chu, or it was not. As between the two situations the consequences would be different. 33.The defendants' duty as vendors under Clause 6(a) of the formal sale and purchase agreement was to "show good title to the property and at [their] own expenses prove [their] title pursuant to section 13 of the Conveyancing and Property Ordinance (Cap 13). It is not the plaintiff's case that they did not have, or could not give a good title. 34.It is not in dispute that Chu's cheque was dishonoured and that thereafter the defendants treated it as invalid. The court seems to have treated it as such in giving judgment in favour of the defendants against Chu. 35.Myton v. Schwab-Morris [1974] 1 All ER 326 was a similar case where the lessee's cheque for a deposit for an underlease was dishonoured. The lessor purported to rescind; the lessee registered a caution. The question arose whether the contract was enforceable. It was held that the provision in the contract for payment of a deposit was a condition precedent to the contract taking effect as one of lease or sale, and that the cheque having been returned unpaid the lessor was not bound by the document. In the alternative, it was held that the payment of a deposit was a term of so radical a nature that the lessee's failure to comply with it would entitle the lessor to renounce further performance. 36.In Millichamp v. Jones [1983] 1 All ER 266, a case of inadvertent failure to pay a deposit for an option to purchase land it was held that the payment of deposit was a fundamental term of the contract, rather than a condition precedent, but that where the failure was a mere oversight it was incumbent on the vendor to tell the purchaser, and give him a further opportunity to pay, before he could treat the failure as repudiation. 37.In Damon Compania Naviera S.A v. Hapag-Lloyd International S.A. [1984] 1 WLR 435 Fox LJ preferred the view taken in Millichamp and the alternative view taken in Myton that the payment of a deposit was a fundamental term rather than a condition precedent of the contract. 38.It seems to me that Chu's agreement was breached when his cheque was dishonoured; whether by reason of failure of condition precedent, or a fundamental term does not matter. There is no suggestion before me that the failure was inadvertent, and since the reason for the dishonour was that the cheque was drawn on a closed account, it seems unlikely that it was. The drawing of a cheque on a closed account obviously gives rise immediately to a suspicion, if no more, of deception; a cheque is equivalent to cash and what the payer is handing over is worthless. To my mind the defendants were entitled, as soon as they found that the cheque was dishonoured and the reason therefor, to rescind Chu's agreement or treat it as cancelled. Chu therefore had no valid claim. 39.The effect of this is that the defendants always had and could have given the plaintiff a good title. The plaintiff's claim is, of course, not that good title could not be given but that it was not proved. There is no real argument from the defendant that Chu had a valid claim but rather it seems to be that, whether valid or not, Chu's claim still amounted to an incumbrance on the title. It was a latent defect in the title and as such the defendants were under a duty to disclose it. I will deal with this later. More particularly however the defendants claim that Chu's agreement had been registered and therefore had priority. Registration 40.As I understand the argument of Mr Chong for the plaintiff, Chu's agreement was validly registered when it was delivered to the Land Registry on 13 February. 41.Section 23 of the Lands Registration Ordinance, Cap. 128 provides :
42.Regulation 5 (1) of the Lands Registration Regulations provides :
43.There appears to be no statutory provision for entries in the Registry for "deeds pending registration". Mr Chong says that the Registrar is obliged to register all registrable documents duly delivered to him, as this one was and has no power not to register such a document. Effectively, by Regulation 5 (1) registration is effected by delivery. While on the face of Chu's agreement stamp duty has not been paid on it, non-payment is not a good reason for refusal to register. Therefore, it must be taken that Chu's agreement was registered. 44.Mr Maurellet for the defendants says that Chu's agreement was not listed in the Register under "Incumbrances" and therefore was not registered. Section 3 of the Ordinance provides for priority according to date of registration and section 4 provides that no notice of an unregistered instrument shall affect the priority of a registered instrument. Therefore Chu's agreement cannot have priority. It is illogical that any document delivered to the Registrar must be taken as registered; this would allow vexatious parties to clog the system by delivering ineffective documents of title. 45.There is no direct authority on this point. In Heung Siu Kei v. Benefit Charter Ltd [1999] 3 HKC 543 a document referred to as a "Letter of Compliance by Building Department" appeared in the Register under "Deeds Pending Registration". Yuen J referred to this document as having "failed to be registered" but the issue there was not whether or not it had been registered. 46.While there appears to be no statutory provision for entries in the Registry for "deeds pending registration", the Registrar is under a duty to satisfy himself that the "deed, conveyance or other instrument in writing, or judgment, may be, or is under any other Ordinance required to be, registered under this Ordinance". The procedures are set out in the Regulations. 47.Regulation 10 provides for the procedure to be carried out when an instrument and memorial are delivered in accordance with Regulation 5, including the immediate issue of a memorial number. Regulation 12 requires entries to be made "as soon as practicable" in a Memorial Day Book. Regulation 13 requires the Registrar to scrutinise every instrument and memorial and ensure that the particulars required by Regulation 6 are accurately contained in the memorial. Regulation 14 provides for the procedure to be carried out where the memorial complies with the regulations; and Regulation 16 provides that registration of an instrument when completed shall take effect from the date recorded on the memorial thereof or from the date recorded on the gum label affixed to the memorial thereof, as the case may be, under Regulation 10(c). 48.These procedures all take time. There must be a period when registration is pending, however short or long that may be, while these procedures are being carried out. It would in my view be illogical to say that a deed pending registration is equivalent to a registered deed for the purposes of the Ordinance. 49.I take the view that Chu's agreement, not being registered, could not have taken priority as a registered incumbrance over the formal sale and purchase agreement, even if it had still been alive and giving rise to a valid claim. 50.Chu's writ was not registered until 21 March 1998. As at 17 March, when the plaintiff's solicitors discovered it, it could not have posed any threat to the title, because even if it had been rushed to the Registry on that date, registration could not have taken effect until the following day, under section 5A of the Ordinance. Other arguments 51.The plaintiff says that in effect any claim is an incumbrance. Further the effect of entering into a sale and purchase agreement is that the beneficial interest in land passes immediately to the purchaser, who becomes the beneficial owner and the vendor a trustee. Therefore the purchaser ceases to have any interest in land capable of forming the subject matter of a further sale. I am not sure that this is right. I would have thought that two agreements would give rise to two competing equitable claims. The plaintiff also refers to the "recklessness" of a second sale as it affects the measure of damages. 52.The plaintiff further says that it was the duty of the defendants to disclose any latent defect in the title. Counsel says that Chu's agreement and the two writs were latent defects. The plaintiff could not raise requisitions in respect of them, because they were not apparent from the title deeds and no notice of them was given. Obviously there is such a duty of disclosure if there is a latent defect in the title. 53.I do not see how these considerations can apply here. On my finding there were not two agreements; by the time the parties' agreement came into being, Chu's agreement was dead. Chu had no valid claim which could compete against that of the plaintiff, nor was there any real defect in the title because such defect could only have arisen out of a valid claim. 54.The defendants say that the plaintiff failed to raise requisitions within seven days of the delivery of title deeds and is therefore precluded from raising the requisitions in respect of Chu's agreement and Chu's writ. It is argued that the solicitors should have carried out a land search before the formal sale and purchase agreement was signed on 18 February. Hong Kong Conveyancing Practice, by Sihombing & Wilkinson sets out at para. XIV 44-46 the steps to be taken as good conveyancing practice by a purchaser's solicitor and these steps include searching the Land Registry as the first step, and again before completion in case of the registration in the meantime of any charging order or lis pendens. The learned authors do not specifically advise the making of a search before the execution of a formal sale and purchase agreement. Mr Lai said that it was not his practice, and he is an established and experienced solicitor. I hesitate to say that this should be a required step in good conveyancing practice. In any event in the light of my findings that there was no valid agreement or claim and no registration I do not think this point need be considered further. 55.Counsel for the plaintiff adopts a "fall-back position" and says that if there was no valid registration of Chu's agreement, the plaintiff still knew about it and by 17 March she knew about Chu's writ. She could not pay the defendants the balance of the purchase price, because she might be the subject of a tracing action in the event of Chu succeeding in his claim. He refers to Lam Sau Wah v. Tam Chi Hung & Anor, [2001] 2 HKLRD 104, CA. 56.In that case a third party brought proceedings against a vendor claiming that the property was held on a resulting trust. The claim was dismissed, and the vendor contracted to sell the property. The third party appealed, and registered his appeal as a lis pendens after the agreement for sale and purchase but before completion. The purchaser raised requisitions contending that the vendor should prove the third party's consent to completion or take steps to expunge the registration of the notice of appeal. 57.It was held that the purchaser had priority, but it was possible for a purchaser having priority to be accountable for the balance of a purchase payable at completion to a party registering a lis pendens where the underlying claim was an unregistrable equitable interest and where the purchaser had notice of the claim prior to completion. If the third party had succeeded on his appeal it was arguable that he would have had a tracing claim based on Ho King Yim v. Lau King Mo [1980] HKLR 42. If the purchasers had completed and paid the completion moneys they would have rendered themselves vulnerable to a potential claim. As the vendor failed to remove this difficulty he failed to show a good title. 58.All this comes back to the question of the validity of Chu's claim. Whether Chu's claim was registrable or an unregistrable claim to which the common law rules of priority would apply, on my finding it was an invalid claim. Whether or not a tracing claim could have ensued, it could only have been based the establishment of a valid claim by Chu and this on my finding could not happen. 59.Another argument advanced for the plaintiff was that even if the defendants showed good title, and answered the requisitions, they did not do so in time. Completion was to take place before 5 p.m. on 16 March. The letter from the defendants' solicitors, giving details of the dishonour of Chu's cheque and a copy of the bank notice, did not arrive until the morning of 17 March. I think the answer to that must be that the purchaser's solicitors had already written to the effect that the plaintiff would take legal action unless the defendants' solicitors confirmed that Chu's agreement had been rescinded or cancelled and produced documentary evidence to prove the same within the next two days. I do not see how this can be read other than as an extension of time for completion. Conclusion 60.By the morning of 16 March 1998 the plaintiff (through her solicitors) knew at least that Chu had made a claim because his agreement was shown in the land search as pending registration. By the morning of 17 March she had the explanation and a copy of the cheque and bank advice. All that was lacking, if anything, was a copy of a formal letter from the vendors to Chu giving notice of rescission. 61.In Mexon Holdings Ltd v. Silver Bay International Ltd [2000] 2 HKC 1, Litton PJ held at page 8G-H :
62.Here no doubt there were blemishes on the title in that there was in existence an unregistered invalid claim, and an as yet unregistered writ based on that invalid claim. The vendors answered the requisitions of the plaintiff in such a way as to show that the claim must be invalid. In effect they revealed all relevant facts so that the purchaser could decide what the legal position was. That was enough. See Guang Zhou Real Estate Development (HK) Co Ltd & Anor v. Summit Elegance Ltd[2000] 2 HKLRD 855. There was no good reason for the plaintiff, with the proper legal advice, to refuse to complete. 63.It follows that the plaintiff's claim must fail and the defendants' counterclaim must succeed. Damages 64.Clause 21 of the formal sale and purchase agreement provides for resale on rescission and for the making good of any deficiency in the resale price "without prejudice to the vendors' right to recover the actual loss. 65.The defendants' counterclaim for damages is set out in the Amended Defence and Counterclaim. The total claim is for $1,138,040.60. This includes the deficiency in the resale price of 682,000. The plaintiff pleads that the other items claimed, e.g. management fees, rates, interest and so on for the period until the resale are too remote. With the exception of one item namely the commission of $26,980 paid on resale, which would have had to be paid anyway if the parties had completed, all the items claimed are items of actual loss and are not too remote. However, the defendants have forfeited deposits of $338,000 and this figure must be taken into account against the deficiency on the resale. The final figure to which the defendants are entitled will therefore be $773,060.60. 66.The plaintiff's claim is dismissed and there will be judgment for the defendants for $773,060.60 with interest thereon at the Hong Kong Association of Bankers' best lending rate plus 1% from the date of the writ to the date of judgment and thereafter at the judgment rate, and the costs of the action to be taxed if not agreed.
Representation: Mr Chong Kai Man, instructed by Messrs Eric Lai, Jason Cheung & Co., for the Plaintiff Mr Jose Antonio Maurellet, instructed by Messrs Yuen & Partners, for the 1st and 2nd Defendants Please refer to CACV1671/2001 for the relevant appeal(s) to the Court of Appeal. |
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