Galea v. Federal Commissioner of Taxation

Hill J

Federal Court

Judgment date: Judgment handed down 22 November 1990.

Hill J.

The applicant, Mr Galea, appeals against the decision of the Administrative Appeals Tribunal constituted by a Senior Member, Mr Roach, in relation to his taxable income in respect of the years of income ended 30 June 1977 to 30 June 1981 inclusive.

The assessments of income to which the applicant had made objection, were all amended assessments made, as a result of an investigation by the respondent, the Commissioner of Taxation, on what is commonly referred to as an ``asset betterment basis'' cf.
L'Estrange v. F.C. of T. 78 ATC 4744 at pp. 4764-4766. At the hearing before the Tribunal, the applicant accepted the mathematical calculations made by the Commissioner, but sought to argue that three items had not been taken into account by the Commissioner which had the effect of reducing the taxable income as assessed by the Commissioner.

It was the taxpayer's case that during the calendar year 1975, he had received a cash gift of $200,000 from his father which was wholly on hand at the beginning of the period with which the asset betterment calculation was made, and was not taken into account in the calculations. Second, the taxpayer contended that he had borrowed, prior to the period in question, the sum of $50,000 from his father-in-law, and that in the relevant periods this amount was owed to his father-in-law, thereby reducing the taxable income by this amount. Third, it was submitted that he had received, by way of loan, an amount of $10,000 from his wife, which should have been taken into account as a liability in the period in question, and that his taxable income should be reduced accordingly by this amount.

The Tribunal accepted that the sum of $50,000 had either been given or lent by the applicant's father-in-law, and further accepted that Mrs Galea had lent the applicant $2,500. The Tribunal rejected the applicant's case in respect of the loan from his wife to the extent of $7,500. More significantly, however, the Tribunal did not accept that the applicant's father had made to him a gift of $200,000. In the result, the decision of the Tribunal was that in relation to the years of income in question, the taxable income of the applicant should be reduced by sums of $4,000, $8,000, $10,000, $14,000 and $16,500 respectively, totalling in all $52,500. Additional tax was reduced accordingly. It is from this decision that the applicant appeals.

It should at this point be noted that the assessments in question were made in September 1983. The applicant's objections were lodged with the Commissioner on or about 24 November 1983, within the relevant 60-day period. The Commissioner disallowed the objections by notice to the applicant dated 21 March 1984 and within the 60-day period within which the applicant was entitled so to do, he requested that the objections be referred to a Board of Review for review. Yet it was not until July 1989 that the matter came on for hearing before the Administrative Appeals Tribunal. Of this delay the Tribunal said:

``This case should have been heard and determined by the end of 1984. That it was not so resolved is principally the responsibility of the Commissioner. The Commissioner failed to promptly carry out his statutory duty to refer matters for independent review when those requests came to hand. The consequences for this taxpayer, as they were for many others, were serious. That delay in the circumstances of the present case has contributed to the presentation of incomplete financial records; to deficiencies in and imprecisions of human memory; and to the inability of the applicant to call to the witness box a most important witness - his late father. The death of that witness in 1986 could not be postponed until the Commissioner had allowed this Tribunal the opportunity to discharge its responsibilities.''

An appeal from the Administrative Appeals Tribunal to this Court, is an appeal on, and therefore limited to, a question of law; sec. 44(1) of the Administrative Appeals Tribunal Act 1975.

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Despite a lengthy amended notice of appeal that was filed, only one ground was ultimately argued which was expressed in the following terms:

``The proceedings were conducted unfairly to the applicant in that:

  • 1. The Tribunal found the respondent had failed to promptly carry out his statutory duty to refer matters for review with serious adverse consequences to the applicant in the presentation of his case but failed to take this into account in the assessment of the applicant.''

It was not in dispute that a denial of procedural fairness by the Tribunal could involve it in having erred in law:
The News Corporation Ltd. v. National Companies and Securities Commission (1984) 5 F.C.R. 88 at p. 122 per Beaumont J.;
Faucilles Pty. Ltd. v. F.C. of T. 90 ATC 4003 at pp. 4021-4024.

At this point it is convenient to set out some extracts from the decision appealed against. The applicant's evidence as to the circumstances of the gift were summarised by the Tribunal in the following paragraph of its reasons:

``9. The applicant's evidence was that in late 1975, following discussions from time to time with his father about his future and his desire to establish himself in private practice, after one discussion his father went into the nearby parental bedroom and returned to present the applicant with $200,000: all in $20 notes: all bundled and gathered together neatly into four brown paper bags. Despite his status as a wholly dependent student his evidence was that he was not at all excited by his good fortune and suddenly acquired wealth. He offered the improbable explanation that that was so because he was so accustomed to assisting his father in the counting of very large amounts of cash generated by the family business. He also claims that he was so untroubled by the risk of loss that, instead of leaving the moneys in the seemingly safe custody of his father, he put the money bags into the car and went to collect his wife from the home of her parents who she was then visiting. On rejoining his wife, he told her nothing of their good fortune. Instead, after returning with her to his parental home and re-entering the house with her, while she showered, he recovered the moneys from the car and hid them under their bed. There they remained for a few days until he decided what to do with the moneys. His evidence was that he decided to dig a hole in the grounds and bury the money in it - by then enclosed in a plastic bag. He told no one of the hole - not his father and not his wife. Had he died suddenly and unexpectedly - a risk more likely, one would have thought, to be in the mind of a final year medical student than that of most young people - his moneys would have been lost to the worms or at least, if the plastic bag was not bio-degradable, to the world. The applicant's evidence was that the money was to remain there until such time as he had the need for it. That need was said to be with the acquisition of his first home in February 1977.''

The applicant's mother then gave evidence which the Tribunal summarised as follows:

``The mother of the applicant gave evidence, the claimed effect of which was to confirm that there had been an occasion when her late husband responded to a request from the applicant for financial assistance to buy a home and surgery. She said that her late husband took from the drawers in the wardrobe in the bedroom of the parents four brown paper bags which he delivered to his son indicating that they contained, in each case, $50,000. Her evidence was that there had been no earlier discussions foreshadowing the possibility of any such gift; and that it was never thereafter referred to, to her knowledge, whether in dialogue involving her husband or her son.''

Mrs Galea was then cross-examined on testimony which she had apparently given in other proceedings before the Supreme Court of New South Wales in 1988. This cross-examination was clearly a cross-examination on credit although it concerned the counting of a sum of money said to have been held in cash after her husband's death. The Tribunal commented of this cross-examination that its most striking characteristic was ``that the witness persisted in non-responsive answers''. The Tribunal said:

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``Having considered all of her evidence I am not persuaded that it corroborates the assertions of the applicant.''

It appears that after three days of hearing there was a prolonged adjournment during which time the Commissioner made further investigations of the affairs of the applicant. This investigation was prompted by evidence given by the applicant, that from time to time he had cashed cheques received from patients by giving the cheques to his father in exchange for the face value of the cheque. When the hearing resumed, calculations were produced, directed at showing an understatement of practice income during the years 1977 to 1981 inclusive of $245,401. The investigator had apparently collated records which had been obtained at some earlier time of the bank accounts of the applicant's parents, and made certain assumptions, particularly from the use of the initials ``MB'' after certain cheques. The cheques were thought by the investigator to represent income of the applicant, the initials ``MB'' standing for Medical Benefits Fund. In fact, it seemed more probable than not that the initials ``MB'' stood for ``Marketing Board'', the cheques being drawn on the Rural Bank of New South Wales which was the banker for the Egg Marketing Board which paid moneys to the applicant's father. Of this evidence, the Tribunal said:

``That is not to say that the further investigation was wholly ineffective. Putting aside the transactions whereby the investigator attributed to the applicant moneys which on balance related to others, the examination still provided confirmation that substantial amounts of practice income had found their way to the bank through the account of the parents. That that was so was not disputed by the applicant. What the examination so discovered was consistent with the case of the Commissioner, but it did not controvert the case for the applicant.

By that exercise the Commissioner, at a late stage and mid-way through the hearing, had sought to advance a positive case in support of his allegations of omitted income. That course was one open to the Commissioner, as it always is, but it was not a course which the Commissioner was obliged to follow...

But the fact of the exercise being attempted and the circumstance that it substantially failed its purpose does not alter the nature of this issue to be resolved. The question is whether the assessments are excessive, and if so, to what extent. That requires that the applicant shall bear the burden of proving - but only on the balance of probabilities - facts which persuade the Tribunal that the assessments are so excessive. That is not a heavy burden.''

The Tribunal indicated that it was a burden ``which might well have been discharged if the only question were whether the alleged omitted income was income derived in the course of carrying on the medical practice''. The Tribunal then continued, referring to a possible finding that it might not have been impossible for the applicant to have earned the amounts suggested by the Commissioner which would have required him to have had an additional 16,360 consultations in the period from February 1977 to 30 June 1981:

``But such a finding if it were made would not resolve the problem as presented before me. It is not for the Commissioner to establish when or how the alleged omitted income was derived. It is for the applicant to persuade me that his income did not exceed that returned or that, if it did, it did not exceed the income returned by so much as the Commissioner contends.''

The Tribunal then turned to the question of the gift alleged to have been made by the applicant's father to him. The Tribunal said:

``I am not persuaded that any such sum was given to the applicant at any time or in such a way as to lack the character of assessable income. I do not believe that the applicant buried the $200,000 in a plastic bag, rather than bank it or invest it. I did not believe that the applicant was so rash as to bury such a very large sum (as it then was) without anybody knowing of its location. I do not believe that $50,000 borrowed from his father-in-law was added to that buried sum. I do not believe that the buried parcel was dug up to be partly used when the first home and surgery was acquired. I do not accept that the home was financed with the aid of substantial moneys borrowed at interest, when a sum of $200,000 advanced for that specific purpose was lying in the ground - falling in value constantly due to inflation, and at all times and over a

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prolonged period unproductive of income. During his evidence, I paid particularly close attention to the testimony of the applicant. Some remarkable stories are true. But in this instance I am not persuaded that it was so.''

It was the applicant's submission that the Tribunal had failed to take into account the delay which it had found to be the Commissioner's responsibility in determining that the applicant had failed to satisfy the burden of proof of showing that the assessment was excessive to the extent of the amount of $200,000.

The starting point of the applicant's submissions was that for a tax to be valid it must be contestable:
MacCormick v. F.C. of T. 84 ATC 4230 at p. 4237; (1983-1984) 158 C.L.R. 622 at pp. 640-641. So much may be accepted. It was said to flow out of this that the Commissioner should not be permitted, by a failure to comply with his obligations, to refer an objection when so requested to the Board of Review or the Administrative Appeals Tribunal, to bring about the result that the liability of a taxpayer is made difficult to contest. Reference was made to the judgment of Lord Templeman in
R. v. IRC; Ex parte Preston (1985) 1 A.C. 835 at p. 864, the decisions of Burchett J. in
Edelsten v. Wilcox & Anor (1988) 83 A.L.R. 99 at pp. 112-113, and of Needham J. in Re Norper Investments Pty. Ltd. and the Companies Act (1977) 15 A.L.R. 603 at p. 608, and the decision of Wilcox J. in
Barina Corp. Ltd. v. D.F.C. of T. 85 ATC 4186 at p. 4189; (1985) 6 F.C.R. 368 at p. 372. In each of these cases, reference is made, in the context within which the cases were decided, to the duty of the Commissioner to comply with the obligations imposed upon him to act fairly to the taxpayer and to act in such a way that an expeditious hearing of an appeal can proceed. I shall comment later on this matter.

Next, it was submitted that where there has been an abuse of process by reason of delay, the Court has an inherent power to intervene in such a way as to correct the unfairness to a party prejudiced. Reference was made to the decision of the House of Lords in
Hunter v. Chief Constable of the West Midlands Police & Ors (1982) A.C. 529 at p. 536,
Bell v. Director of Public Prosecutions (1985) 1 A.C. 937 at p. 950, and the decisions of the High Court in
Jago v. District Court of New South Wales & Ors (1989) 168 C.L.R. 23 at pp. 46-48 per Brennan J., and
Grassby v. R. (1989) 168 C.L.R. 1 at pp. 16-17 per Dawson J. Each of these cases arose in the context of the criminal law, the last mentioned arising in the context of a committal proceeding. It is sufficient to say that these cases indicate clearly enough that a court has power to prevent an abuse of its process, which will result in a trial which is unfair. Thus, in the passage cited in Jago, Brennan J. said (at pp. 46-47):

``It is a power to mould the procedures of the trial to avoid or minimize prejudice to either party... When an obstacle to a fair trial is encountered, the responsibility cast on a trial judge to avoid unfairness to either party but particularly to the accused is burdensome, but the responsibility is not discharged by refusing to exercise the jurisdiction to hear and determine the issues. The responsibility is discharged by controlling the procedures of the trial by adjournments or other interlocutory orders, by rulings on evidence and, especially, by directions to the jury designed to counteract any prejudice which the accused might otherwise suffer.''

It may be accepted for present purposes that the principle stated by Brennan J. in Jago, which in essence distils the relevant principles so far as discussed in the other cases, may have application to a civil as well as a criminal proceeding and as Jago indicates, may apply to administrative hearings as well as curial proceedings. The steps that may be taken to minimise prejudice caused by delay by a party in civil litigation, must of necessity depend on the circumstances of the case, the degree of prejudice, and the issue which is before the court or tribunal hearing the case.

The applicant accepted that the decision of the High Court in
F.C. of T. v. Dalco 90 ATC 4088; (1989-1990) 168 C.L.R. 614, on the nature of the issue that arises when a taxpayer challenges a ``default assessment'' made pursuant to sec. 167 of the Income Tax Assessment Act 1936 (``the Act'') (and the present was such an assessment), and on the onus of proof relevant in showing that assessment to be excessive, was applicable as much to proceedings in the Administrative Appeals Tribunal as it was in proceedings in

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this Court. It will be recalled that the Full Court of this Court (see 88 ATC 4649) had been of the view that the taxpayer had shown that the Commissioner, in forming a judgment as to the amount upon which tax ought to be levied for the purposes of sec. 167, had proceeded in error, and that accordingly, the taxpayer should succeed notwithstanding that the taxpayer had not shown that the amount assessed as his taxable income in the assessment in fact exceeded his taxable income. The High Court allowed the Commissioner's appeal, and held that in an appeal against a default assessment, the ultimate question was whether the amount of that assessment was excessive and that as Wilcox J. had said in this Court below (supra at p. 4674), in a passage approved by Brennan J. at 90 ATC p. 4092; C.L.R. p. 623 with whose reasons Mason C.J., Deane, Dawson, Gaudron and McHugh JJ. agreed:

``Therefore the task for the taxpayer, upon an appeal or a review under Pt V of the Act, is to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer.''

The applicant, however, pointed particularly to a later passage in the judgment of Brennan J. in support of the case here being advanced. His Honour said at ATC p. 4093; C.L.R. p. 624:

``The manner in which a taxpayer can discharge that burden varies with the circumstances.''

Thus it was said by the applicant that in a case where there is an assessment made under sec. 167 as here, and where there has been delay attributable to the Commissioner (said to have been found as a fact by the Tribunal); where there has been prejudice to the applicant, particularly in his inability to call his father who had died in the period during which the delay had occurred; where the Commissioner had sought to present a positive case establishing the source of the applicant's income but had failed in the presentation of that case and where, as in the present case, evidence of a witness called to corroborate the applicant had not been accepted, not because the Tribunal had positively found that evidence to be wrong, but because the Tribunal had found reason to doubt other evidence, the Tribunal was under an obligation to take into account in deciding whether the onus of proof was satisfied, the fact of delay and the consequences of delay.

I invited counsel for the applicant to say in what way the delay should be taken into account in the circumstances of the present case. Counsel at first suggested that the Tribunal should say, in the circumstances of the present case, that the applicant had discharged the onus of proof, but resiled from this to a position where it was a matter for the Tribunal itself to determine how the delay might be compensated for.

There can be no doubt that the Commissioner is charged with the obligation, once requested so to do, to ensure that a taxpayer's appeal (whether it is to the Administrative Appeals Tribunal or to this Court is immaterial) is remitted promptly to the appropriate tribunal. The obligation is not absolute, for there may be circumstances in which the Commissioner may require additional information and in some circumstances at least, the Commissioner would be entitled to delay referring an objection decision to the Administrative Appeals Tribunal or the Court. Nevertheless, it must be evident that in a case where the Commissioner merely sits by and does nothing, that a taxpayer could obtain an order for a writ of mandamus to compel the Commissioner to refer the matter to the relevant tribunal: cf.
Trautwein v. F.C. of T. (1936) 56 C.L.R. 63 at pp. 85-86, where an order nisi for a writ of mandamus was made returnable but was ultimately not proceeded with.

I cannot but agree with Wilcox J. in Barina Corporation (supra), that it is intolerable that the Commissioner, when requested by a taxpayer to refer an objection decision to the Court or a tribunal, does not do so and years pass during which time it is clear that witnesses may die, memories may fade, records may be lost and in a particular case, considerable prejudice may be suffered by a taxpayer by virtue of the delay. I should, however, say that while the Tribunal commented on the delay in the present case, and attributed it to the Commissioner, there seems to have been no evidence one way or the other as to the cause of the delay. While it may well be the case that the delay was attributable to inaction on the part of the Commissioner, it does seem to be the case that the Tribunal's finding in the present case was made without affording the

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Commissioner the opportunity to explain, if he could, the reasons why the delay occurred. For the purposes however, of deciding this appeal, I am content to accept, as counsel for the Commissioner appeared content to accept, that the delay in the present case was in fact the responsibility of the Commissioner for which there was no reasonable explanation.

In my opinion the applicant's case fails in limine. There is just no reason to assume that the Tribunal, in coming to its conclusion, failed properly to take into account the delay that had occurred and, if it be relevant, the Commissioner's part in it. It is not necessary, albeit it may in some cases be desirable, for the Tribunal to say in so many words that a particular matter has been taken by it into account, although this was the submission of the applicant. The Tribunal at the very outset of its reasons stated both the fact of the delay and the prejudicial consequences to the applicant of it. It cannot be assumed that thereafter the Tribunal ignored these matters. Thus, as Toohey J. observed in
Turner v. Minister for Immigration & Ethnic Affairs (1981) 35 A.L.R. 388 at p. 392:

``In many cases it will be clear whether or not the decision maker has taken a relevant consideration into account. That is not to say that the mere assertion by the decision maker that he has done so will conclude the matter. It may be possible to demonstrate from a consideration of all the reasons leading to the decision, or indeed from the decision itself, that a consideration has not been taken into account in any real sense. Conversely the omission of an express reference to some consideration will not lead inevitably to a conclusion that it was not taken into account. An examination of the reasons for decision and of the decision itself may justify the inference that it was.''

To like effect is the comment of Burchett J. in
Australian Conservation Foundation v. Forestry Commission & Ors (1988) 19 F.C.R. 127 at p. 132:

``There is no doubt that the omission to mention a matter expressly in a report or in reasons for a decision can lead a court, upon an examination of the whole of the context, to conclude that the matter was not considered. But it need not do so. It is a question of the proper inference. Not every matter taken into account must be set out expressly.''

That the Tribunal must have taken into account the effects of delay is evident in that part of its reasons where it assessed the so called ``positive'' case of the Commissioner. It referred to the fact that original records were no longer available and its reasons were so expressed as to indicate that at least in this respect the Tribunal took note of the delay.

So far as the case dealing with the purported $200,000 gift is concerned, the Tribunal's reasons demonstrate that it proceeded about its task of assessing the evidence before it as it was obliged to do. It had the advantage of hearing the applicant and observing him in the witness box. However, it simply did not believe him. It weighed the improbability of the applicant's story with the assessment it made of the applicant himself.

The Tribunal then proceeded to consider the evidence of the applicant's mother. It did not believe her either. To say, as the applicant does, that Mrs Galea was not specifically disbelieved as to the $200,000 is to misunderstand the Tribunal's findings. The Commissioner's attack on her credit succeeded and carried with it a disbelief of the balance of her evidence. When the Tribunal concluded after a consideration of her evidence that it was not persuaded that this evidence corroborated the assertions of the applicant, such a conclusion involved a finding that it did not believe her on that part of her evidence as dealt with the $200,000. I have difficulty in understanding the applicant's submission to the effect that because Mrs Galea was not specifically disbelieved on that part of her evidence which dealt with the purported gift, the Tribunal should thereafter have taken into account the ``likelihood'' of the father corroborating his son's evidence if the father had been still alive. First, as I have already indicated, it seems to me the Tribunal did specifically disbelieve Mrs Galea in respect of the $200,000 gift. Second, the most that could be said is that there was a possibility that the father's evidence might have corroborated his son had he been alive, but not a likelihood of that so happening.

Once the Tribunal had disbelieved both the applicant and his mother, it is difficult to see what course it could have taken other than to

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find that the applicant had not satisfied the onus of proof. No doubt, no inference could be drawn from the failure of the father to give evidence, and the mere possibility that the father's evidence might have assisted the applicant, cannot operate to satisfy the applicant's onus of proof once both the applicant and his mother were disbelieved.

It is unnecessary for present purposes to consider whether, had there been a failure to take into account the question of delay, that failure would properly be characterised as a denial of procedural fairness as the applicant contended, or as a failure to take into account a relevant consideration as the respondent submitted was the proper analysis.

If the matter be one of procedural fairness, the rules applicable must vary having regard to all the circumstances of the case and in particular, the nature of the relevant inquiry and the subject-matter of that enquiry:
R. v. Commonwealth Conciliation and Arbitration Commission & Ors, Ex parte Angliss Group (1969) 122 C.L.R. 546 at p. 552. The normal case of denial of procedural fairness will be a case where a finding is made without giving to a person affected by it the opportunity of being heard:
Kioa & Ors v. West & Anor (1985) 159 C.L.R. 550. It does not necessarily follow that the concepts of natural justice or procedural fairness are limited to the failure to give a person the opportunity to be heard. But if it did so follow, it is clear enough in the present case that the applicant had full opportunity to be heard. It is not insignificant that, as was conceded by counsel for the applicant, no submission was made at all by the applicant that in considering the question of onus of proof, the Tribunal should take into account the delay. Indeed, the matter appears not to have been raised at all in the course of the hearing before the Tribunal.

If the proper analysis be, in the present case, as the Commissioner submits, that at best the matter is to be seen not as a matter of procedural fairness but as a failure to take into account a relevant matter, again the resolution of the question must be seen against the way in which the applicant conducted the proceedings before the Tribunal. In general, the applicant must be bound by the way in which he conducted the case below, although there may be cases where, subject to matters of discretion and costs, an error of law will appear, notwithstanding that the parties in the Tribunal did not give the Tribunal any relevant assistance and did not raise the matters which contributed to the error in law; cf.
Minister for Health v. Charvid Pty. Ltd. (1986) 10 ALD 124 at pp. 131-132,
Trimboli v. Secretary, Department of Social Security (1989) 86 A.L.R. 64 at p. 66.

To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance. As is clear from Dalco (supra) and as the Tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant's assessable income was at least a particular figure. The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by sec. 190(b) of the Act to show, that the assessment is excessive. The Commissioner's failure to establish a positive case, if that is what he sought to do, leaves the Tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case.

The present is a case where the applicant sought to discharge the onus of showing that the assessment was excessive to the extent of $200,000 by advancing a case (incidentally not originally advanced in the objection but leave was given to amend the objection to permit the point to be taken) that his father had made a gift to him. The applicant failed in so doing on the whole of the evidence that was before the Tribunal. Once the Tribunal had rejected the evidence, both of the applicant and his mother, it is difficult to see how the one real consequence of delay, the absence of the applicant's father to give evidence, could have produced the result that the applicant had satisfied the burden of proof.

In my opinion the appeal must fail and the applicant must bear the costs of it.


1. The appeal be dismissed.

2. The applicant pay the respondent's costs of the appeal.

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