Archive for the ‘Contracts’ Category

More Recognition for Pre-Nups?

Tuesday, January 18th, 2011

By: Emma Peart

The decision in Radmacher has potentially given even more credibility to Pre-nuptual agreements in the UK.

The case concerns a German industrial heiress and her Ex-Husband, a Former Investment Banker, who entered into a Pre-Nuptial agreement with the idea of protecting the interests they would inherit through family business.

The Judgement itself states that the approach of English Law is different to that of Scotland and most of Europe and most other international legal systems. While most other legal systems see a pre-nuptial agreement as a contractual agreement to be honoured, English Law has historically let the Court be the decision-maker in relation to financial settlements. However Radmacher has overviewed this general stance to potentially make English Law concurrent with European and indeed much international law by giving effect to the agreement by the Supreme Court upholding the Pre-Nuptial agreement.

Potentially, if more credibility is given to pre-nuptial agreements in the UK then this could mean that Pre-Nuptial agreements become even more popular as a way of protecting business assets that may be at risk in divorce settlements internationally, as they would be given even more worldwide recognition. It is also interesting to note that the initial pre-nuptial agreement was signed in Germany. Could it be seen that the English Courts perhaps wouldn’t be willing to overturn a document that would perhaps be valid in another country?

While it is an interesting step by England to turning towards the status of other countries, it should perhaps be taken with a pinch of salt. The decision in Radmacher states that “the Court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.” This potentially leaves it open to the Court to determine if the agreement has been entered into freely, or there has been undue influence upon one party to enter into the agreement for example.

The matter is open for review. The Law Commission will publish a Consultation Paper in 2011. There is likely to then be a Report with pressure for a draft bill and Legislation. It could be argued that it is at least a sign that England is following suite with most other legal systems on this matter.

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Australia’s National Consumer Protection Law Comes Into Effect

Monday, January 3rd, 2011

By: Ainsley Brown

Talk about kicking off the New Year with a bang: it is official as of January 1, 2011 Australia now has its first national Consumer Law.

The new law ushers in a comprehensive national consumer protection regime that mandates quick remedies – repair, replace, refund – to customer complaints.  It replaces a patchwork of 20 national, State and Territorial laws and allows for seamless enforcement across Australia’s internal boarders.

With this new law the Australian government is attempting to kill two birds with one stone by simplifying and harmonizing the fair trade laws across the country it hopes to both lower the cost of doing business and create a comprehensive consumer protection regime. The law brings under one umbrella such wide ranging things as product safety, door to door selling, unfair terms in standard from contracts, and the rules governing lay-by agreements.

Happy New Year!

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Art As An Option: An Alternative Form of Investment

Tuesday, June 8th, 2010

By: Ainsley Brown

Art meets Financial Instrument, a new from of investment

The use of art as an investment is not a new concept, whether it is commissioning a piece for your self or buying existing works, art as an investment is centuries old. But what about investing in the right to buy an artist’s future works; that is as yet to be conceptualized future works?

Don’t think it can happen? Well welcome to the future – art as a financial instrument; a derivative or futures contract.

The emerging artist derivative contract, the brainchild of Tom Saunders, a UK conceptual artist, has the potential to change the art world forever. The contract, drafted by Ferguson Solicitors, according to the parties involved is itself a work of art and allows an art investor to spend £2,000 now for the option of buying any piece of Mr. Saunders’ work for £1 in ten years. And just in case Mr. Saunders does not fulfill his end of the bargain there are contact provisions that cover premature death or non-production.

But what exactly are derivatives?

In the most basic of terms a derivative is a financial instrument that ‘derives’ its values from something else. That is to say a derivative is a contact between two or more parties that acquires (derives) its value from the future price fluctuations in one or more underlying assets. In the case of Mr. Saunders the underlying assets are his future works.

While there are many types of derivatives (futures, forwards, options, swaps) they are generally used for one of two purposes, either to hedge against risk or to acquire risk through speculation. The emerging artist derivative contract is an example of the former and not the latter. To be more specific the emerging artist derivative contract is an option.

Options are financial instruments that give the holder the right (the option) but not the obligation to buy or sell the asset or assets that underlay the option contract on or before an expiration date at an agreed price. Because the emerging artist derivative contract is a contact that allows the option holder to buy the underlying asset it is what is known as a call option.

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As companies battle the recession, bartering comes in handy

Wednesday, February 24th, 2010

By: Carsten Lexa

Money helps a lot when it comes to exchanging goods. One buys the goods, pays with cash and takes the goods away. So far, so good. But what if free cash to spend is a rare thing? For example in times like today, when the economy is not doing well and money is scarce?

Today, more and more companies turn to third party networks to contribute and use barter schemes. Of course, bartering is nothing new: It is a medium in which goods or services are directly exchanged for other goods and/or services without a common unit of exchange, e.g. money (according to Wikipedia). Firms routinely arrange exchanges on their own. But cultivating relationships with business partners in such a way, that barter schemes can be discussed and established among each others takes time and presents numerous hurdles. Let´s assume the owner of a restaurant needs printing services with a value of $ 10.000,00. Where can he find a printshop with an owner who is hungry for a $10.000,00 meal?

Formal barter schemes can help. One of the biggest providers for example is Bartercard, the largest exchange network with trades through its network worth more than $ 2 billion and 75.000 members in more than 9 countries. By using such a provider, the restaurant owner in the example above would owe $ 10.000,00 to the exchange network, not the printshop. The provider provides the business partners and makes sure that every member of the network honors the services of the other members. It therefore provides security and accountability, something informal bartering cannot provide in an adequate way.

What are the additional advantages of such barter schemes, other than security and accountability? The biggest advantage is the fact that no money is needed to “pay” for services and goods. Another one is the fact that a member can “buy” services first throught the network and pays later in his own services and goods – sometimes months later, if nobody wants his services or goods earlier. And finally such a scheme can work not only in one country, but – ideally – worldwide, as long as the members accept the scheme.

Even in Germany such barter schemes are tried and – especially among small and midsize compamies – found helpful. But currently, no big exchange networks exist. So, member of traditional business networks try to establish their own barter networks. Reason is that a company owner who knows another company owner through a traditional business network and has done business with him in a traditional way using cash will be more open towards doing barter transactions with this person than with a total stranger.

Is barter the holy grail for companies in recession times? Probably not. But it can be a helpful to do business if cash is scarce. The difficulty is to find the right partner.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

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JP Morgan Case Down-Under Is Set To Shine The Spotlight On Investment Banking Fees…But Not So Fast

Tuesday, February 23rd, 2010

By: Ainsley Brown

The stage was for a very interesting court battle in Australia pitting advisor against former client; at stake the fees that the advisor could charge. While the case remains interesting the deep probing spotlight that it promised on investment banking fees alas may not materialize.

JP Morgan Chase, the investment bank is suing its former client Consolidated Minerals (ConMin), an Australian manganese miner, in Australian court for the balance of its advisory fees. The case is being followed very closely in investment banking circles because its risks exposing the normally highly confidential fee structure of one of the industry’s leaders. The case also comes as investment banks have come under greater scrutiny, namely because of what some claim are excessive fees.

It is not that disputes about the fees investment bank’s charge never happen or infrequent – on the contrary, I am sure they arise from time to time – it’s just that they are never this public. In fact the choice of the courts as the forum for dispute resolution is rare indeed, negotiations over the board room being the normal venue. What this tells me is that there has been a total break down in trust, trust being an essential if not the essential ingredient in an adviser-client relationship. When it breaks down, as is the case here, more than bitter feelings might ensue.

The case centers around JP Morgan seeking A$30.8 million representing the balance of it’s A$50 million fee it charged Consolidated Minerals when ConMin was up for sale in 2006. After a 14 month bidding war Palmary Enterprises, led by Ukrainian billionaire Gennadly Bogolyubov came out on top with a A$1.3 billion share cash offer. In 2008 after the new owners took control of ConMin, to their apparent astonishment, received a bill from JP Morgan in the amount of A$50.8 million for services rendered. At issue here wasn’t the bill itself – it was expected – but what was unexpected was its size especially since ConMin was operating under the notion that JP Morgan had agreed to cap its fees at A$7 million after an alleged phone conversation that took place in 2006. Although this was its understanding ConMin went ahead and paid JP Morgan A$20 million dollars in what it believed was full and final settlement for the latter’s services.

This brings us to the current situation, where JP Morgan is seeking to recoup the remaining A$30 million owning to it. In an unsurprising move, given the break down of trust, ConMin counter claimed by accusing JP Morgan of failure to deliver, being misleading and deceptive, reneging on the agreement to cap its fees and double and some times even triple charging for the same services.

Now as it turns out ConMin has now dropped its counterclaim after the lawyers for JP Morgan wrapped up its case. What is more, ConMin has now decided not to call any witness or submit any documents to aid its defense – yes you read correct no witnesses and no documents. This is either a case of arrogance or capitulation.

How so, could it not be the case that ComMin’s lawyers are just confident that JP Morgan’s lawyers have not proven their case?

If that were the case, then why not call for the case to be dismissed and move for summary judgment or have it dismissed as being frivolous and vexatious? Now I am not versed on the Civil Procedure Code of New South Wales but I am sure that they have such provisions in their code. Therefore, I will repeat this is either a bout of arrogance or capitulation.

Now all that remains is for both sides to prepare and submit their final submissions to the judge. What an anti-climax to a case that had the promise of so much.

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The US credit card business – Credit CARD Act 2009

Monday, February 22nd, 2010

By: Carsten Lexa

On August 13th, 2009, I wrote an article here on Commercial Law International about the “secrets” of the US credit card business and about how the existing rules make it hard for customers to pay off their credit card debt. On November 3rd, 2009, I wrote in a the second article about a Goverment proposal regarding new legislation for the credit card business.

Now, coming into effect on February 22, 2010, the Credit CARD Act will apply to credit card contracts between banks and consumers. This Act adresses many of the criticisms consumers have had about credit cards and the high amount of credit card fees charged each year. Interestingly, the Act also applies to contracts made in the past. Let´s have a look at the most interesting new rules.

1. The Act requires card companies to give cardholders 45 days notice of any interest rate increases. In the past, interest rates could be changed within 15 days notice in most cases.

2. The Act gives cardholders the right to cancel their card and pay off their existing balance at the existing interest rate and repayment schedule if they get hit with an interest rate hike. Cardholders also have 3 billing cycles after the rate increase to say no to the new terms.

3. Beginning in February, the interest rate on existing balances can only be raised if a cardholder is more than 60 days late on payment. After a rate increase, if cardholders pay on time for six consecutive months, their interests rates must have returned to the rate it was before the rate increase.

4. The Act also adresses the problem of “payments above the minimum”. In the past, cardholders send in a payment for more than the minimum due – let´s say the minimum was $ 200,00 and they send in $ 300,00 and let´s also assume that they had two balances at different interest rates. The extra amount of $ 100,00, that was send in, would go to the card with the lowest interest rate.

The new law puts an end to that. According to the Credit CARD Act, the additional amount paid will go towards the higher-rated balance.

5. A long time ago, cardholders had 30 days from which to make their next payment. Over time, that grace period was reduced to 25 or even fewer days. The Credit CARD Act states that the grace period will be at least 21 days long from the date the credit card bill is delivered.

6. The Credit CARD Act finally improves the information the cardholder receives regarding the repayment of the balance. Let´s be true about that: Most cardholders have problems calculating the time they need to repay their credit card debt, if only the minimum is paid.

The Act gives cardholders mandatory information regarding repayment: It demands that creditors print on their statements if the debtor makes the minimum payment only (with no further increases in debt) how long it would take to retire the debt and how much the debtor would pay in interest combined. It also requires creditors to print on their statements the payment it would take thecardholder to retire the debt in three years, how much the debtor would pay in interest combined and the difference than if the debtor was to pay only the minimum payment.

This new Credit CARD Act is surely not the answer to everything regarding credit card debt and debt repayment. But it should relieve the US consumers of some of their burdens regarding credit card debt – and every bit helps.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

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LVMH Wins Latest Battle Against Ebay

Tuesday, December 1st, 2009

By: Ainsley Brown

EBay was fined yesterday €1.7 million by the Paris Commercial for violating an injunction prohibiting the sale of LVMH products on the online auction site.

The injunction was imposed on eBay last year after it was taking to court by LVMH for allowing the sale of its products on its site. LVMH, the world’s largest luxury good group, with such brands as Louis Vuitton, Christian Dior, Moet Hennessy, and Givenchy, to name a few, had  exclusive sales and marketing contacts with specialist retailers.  In an effort to protect its brands, including of course its exclusive sales arrangements LVMH – and other luxury band companies such as L’Oreal – has taken aggressive steps against eBay and others.

These legal battles are not just simply about LVMH or L’Oreal wanting to prevent counterfeits of their brand entering the market, though this is part of the story. No! It is also, if not more about brand management – who has the right to develop, market, sell and ultimately who right to profit from such efforts.  All of this, it must not be forgotten, is being done in the context of the era of globalization and the internet.

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Commerzbank sued for millions by former Dresdner Kleinwort traders

Wednesday, September 16th, 2009

By: Rechtsanwalt (Attorney) Carsten Lexa, LL.M.

A group of 72 former Dresdner Kleinwort traders have sued the new owner of Dresdner Bank AG, Commerzbank AG, claiming it reneged around 34 million Euros of guaranteed bonus payments.

The traders argued that their bonusses were guaranteed before Commerzbank Bank´s 5 billion Euros takeover of Dresdner Bank and should not be affected by subsequent losses.

Commerzbank, however, reduced the bonusses by 90%. It claimed the global financial crises allowed the bank to invoke a so-called „Material Adverse Claim“ clause. Such clause would provide the legal right to reduce the bonusses (a material adverse claim might be promising if business circumstances have changed in a dramatically uncomfortable way).

The traders would have a point if they could prove that a contractual guarantee was indeed given by Dresdner Bank and that such guarantee irrevocable. However, in December 2008, the traders received a standardised announcement that mentioned „preliminary bonus payments“. The announcement contained terms like „arbitrary“, „provisional“, „liable to review“ and „to reserve the right to reduce“.

These terms do not sound like an irrevocable guarantee. It will be interesting to see the outcome of this legal battle and to read the grounds for the judgement. However, it is in question whether this dispute will end with a court decision – it is more like that the parties will end with a settlement.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

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“Secrets“ about the US credit card business

Thursday, August 13th, 2009

By: Rechtsanwalt (Attorney) Carsten Lexa, LL.M.

56570000I´m not sure whether the following are really “secrets”. Very likely they are not. But they are definitely not commonly known – even to US-Americans, who use, on average, about 8 credit cards per person. Especially the Germans always wonder about the problems the US-Americans have with credit cards and how it is possible that a lot of them struggle with repaying their credit card depts. Well, a lot of the following was new to me and, especially from a legal perspective, it really surprised me.

1. Credit card banks can raise the interest rate automatically if someone is late on payments – but not only on payments for the credit card, but even if someone is late on payments elsewhere, for example another credit card or on a phone, car, or house payment. This practice is called “universal default” and such a clause is becoming increasingly popular in credit card agreements.

The logic behind the practice of universal default is that the credit card bank is not being unreasonable in raising rates when it has reason to believe that the risk of being repaid by the customer has increased.

2. Almost every US-American has, often unknown to them, a credit score known as FICO score. It is used to determine how much someone can borrow, or how much he has to pay for life insurance, or if someone can rent a home. Most importantly, it can be a factor in determining the interest rate someone pays on a credit card. The FICO score is usually determined by five factors, with the most important being the amount someone currently owes and the payment history on large debts.

3. In 1996, the U.S. Supreme Court in Smiley vs. Citibank lifted the existing restrictions on late penalty fees. Back then, fees ran to $5 or $10, and usually did not exceed $15. After the Court’s decision, fees soared, reaching upwards of $30. The result of the decision is that there is no limit on the amount a credit card company can charge a cardholder for being even an hour late with a payment. Since that decision, the amount of revenue the credit card companies generate from fees (including late charges, over-the-limit fees, and charges for returned checks) has doubled.

4. Most people, not just US-Americans, do not read the fine print on their credit card agreement. But this is where the interesting clauses can be found. Very often a clause says that the credit card company can change the interest rate (APR) at any time, for any reason, as long as they give 15 days’ or 30 days´ notice.

5. There is no federal limit on the interest rate a credit card company can charge their customers. The Federal Government of the United States once had national laws that set a cap on the amount of interest that could be charged on a loan. But after the Great Depression, it repealed them and some states put no new laws in place. Deleware and South Dakota for example have no caps on interest rates. But can credit card companies chartered in these states charge to customers whatever interest rate they? Yes, they can. This goes back to the 1978 Supreme Court decision Marquette National Bank v. First of Omaha Service Corp. that determined national banks only have to obey the interest-rate caps of the state they are chartered in, not that of the state where a bank’s customer lives. This means that when a bank from a state without limits on interest, like Delaware or South Dakota, issues credit cards to people living in states like Minnesota, which caps credit card interest, the customer can be charged any rate of interest. The result is that cardholders often have interest rates of 20% or more.

6. A lot of US-Americans pay only the required minimum – often as low as 2 percent – of their balance each month. Many of them could pay more than the minimum, and could possibly even pay off in full their balance. But they don’t — even though the interest rate they are paying on their credit card balance is considerably higher than what they pay on other things and compared to what they’re getting in interest income from their savings account.

It should be noted that things have changed a little bit regarding the required minimum monthly payments of 2% mentioned above. Banks are being required to increase minimum monthly payments to cover all fees and interest incurred during the month as well as covering at least 1% of the principal on the loan.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

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Privy Council In Bank Ruling Wraps Jamaican Judiciary On the Knuckles, Part III

Tuesday, May 19th, 2009

By: Ainsley Brown

Injunction, injunction, what´s your function?

Sorry I just could not resist. Despite my lame attempts at a joke, it is a very valid question.

What is the function of an injunction?

It is a power whereby the court may order positive action be taken or an order to refrain from acts being currently done. It may be granted at the interlocutory (that is to say at any stage before the end of a trial) or it could form part of a judge´s final judgment. In either case it is a very powerful tool of the courts and one that is not exercised lightly. Special attention, however, should be paid to the interlocutory injunction as it is a pre-trial determination, it is also a subject on which the Privy Council had a few choice words for both the Jamaican judiciary and Jamaican Bar in National Commercial Bank Jamaica Limited vs. Olint Corporation Limited.

The interlocutory injunction is best thought of as a pause button. It is designed to freeze in place the item that is in dispute by ideally preserving the status quo. However, we do not live in a static world and there are going to be winners and there are going to be losers with such an order – you could go as far as saying such an order creates only losers and worse losers. This is why judges are or ought to be extremely cautious in the exercise of this discretion. It should not be that the making of such an order – one that is done without the full rigors of a trial – be determinative of the (main) issue or issues in dispute. This is why judges look to what is called balance of convenience (American Cyanamid Co v. Ethicon Ltd) or more accurately the balance of inconvenience. As Lord Hoffman explains in the NCB case, ¨the basic principle is that the court should take whichever course seems likely to cause the least prejudice to one party or the other.¨

Having decided that Mr. Justice Jones was correct in the first instance to dismiss the case, holding that there was no triable issue, their Lordships had no need to go any further. However (a favorite word of a lawyer), their Lordships went on to deliver a dicta that wrapped the knuckles of the Jamaican judiciary and Bar – as would a school master a disobedient pupil in days of old. As many a current and former law student come to learn, while the ratio of a case deals with the issues at hand, it is often the dicta though said by the way, that is the most significant aspect of a judgment.  And this I believe is the case here.

Their Lordships wanted to point out, provide some guidance and in a display of judicial politics, gave the Jamaican legal establishment scolding – that was at times not so well veiled.

There were two features of this case that troubled the Privy Council. The first was that, ¨there appears to have been no reason why the application for an injunction should have been made ex parte, or at any rate, without some notice to the bank.¨ An injunction applied for and given without presence or notice to the other party ought to be a very rare thing, ¨although the matter is in the end one for the discretion of the judge, audi alterem partem is a salutary and important principle.¨ Audi alterem partem – sorry for the Latin but it had to be done –  is a fundamental tenet and a cornerstone of justice and cannot be trotted on lightly. It is the right for the other side in a dispute to be heard – like I said a cornerstone of our justice system.

Given the facts of the case, especially the nature of what was in dispute, there should have been no reason why the application for the injunction should not have been inter partes but at a minimum with there should have been some notice to the bank. As their Lordships pointed out, ¨any notice is better than none.¨ The guidance provided to judges considering such applications was made by Lord Hoffmann in no uncertain terms.  He lays down the law (literally), ¨that a judge should not entertain an application of which no notice has been given unless either giving notice would enable the defendant to take steps to defeat the purpose of the injunction…or there has been literally no time to give notice before the injunction is required to prevent the threatened wrongful act.¨ The italics are Lord Hoffmann´s.  Lord Hoffmann further went on to point out these two conditions are enshrined in the Section 17.4 (4) of the Jamaican Civil Procedure Rules 2002.

What characterizes both these alternatives is a sense of urgency. Olint it would seem feared that the immediate closure of its accounts would prejudice it in its main action against the bank. However such fears are not substantiated by the facts of the case. Not only was Olint given ample notice, they were given an extension. Moreover, the closure of a bank account, with or without extensive notice, is not sufficient grounds on which to say that there was no time to give notice. Their Lordships wondered why, ¨no explanation has been given for why it was not possible for the bank to be given notice of the application.¨

However, it was later explained to their Lordships that such last minute ex parte applications had become common practice in Jamaica. The recent cases of World Wise Partners Ltd v RBTT (2008) and Smith v NCB (2008) were cited as examples.

The Privy Council, expectedly, took exception to such blatant disregard for the law and the Civil Procedure Rules by both the judiciary for granting such injunctions and the Bar for applying for them.   They went on to say, ¨these cases appear to show a disregard of rule 17.4 (4) for which no justification is offered. If the rule is not generally enforced, plaintiffs will be encouraged to make a tactical use of the legal process which should not be allowed.¨

Like I said a wrap on the knuckles – actually in legal terms a wrap is highly understating things.

The second feature that troubled the Privy Council was the way in which both Smith J and the Court of Appeal applied the balance of convenience test in the refusal, in the case of the former, and the granting, in the case of the latter of the interlocutory injunction. The basic principle that both had to be mindful of, ¨is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.¨ Moreover, ¨what is required in each case is to examine what on the particular facts of the case the consequences of granting or withholding of the injunction is likely to be¨

It appears that what the Jamaican courts did was first to characterize the injunction as either mandatory (requiring positive action) or prohibitory while applying the balance of convenience test. Each requires different factors to be taken into account. A mandatory interlocutory injunction would require a ¨high degree of assurance¨ that the applicant would be prejudiced by its refusal, while a prohibitory interlocutory injunction required a ¨serious issue to be tried.¨ At first instance Mr. Justice Jones characterized it has mandatory and refused to grant it while the Court of Appeal characterized it as prohibitory and granted it.

As it turns out the judge at fist instance was correct in result but not in his reasoning. Because what matters is what the practical consequences of the injunction are, ¨arguments over whether the injunction should be classified as prohibitive or mandatory are barren (Films Rover International Ltd v Cannon Films Sales Ltd). Their Lordships made it clear that they ¨consider that this type of box-ticking approach does not do justice to the complexity of a decision as to whether or not to grant an interlocutory injunction.¨

Yet another wrap on the knuckles….Ouch.

It will be very interesting to see what that reaction of the judiciary and Bar will be in Jamaica. This may be a bitter pill to swallow; however, to my mind their Lordships are wholly correct in fact and in law.

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