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Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd[2024] QSC 313

Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd[2024] QSC 313

SUPREME COURT OF QUEENSLAND

CITATION:

Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd [2024] QSC 313

PARTIES:

SHAMROCK CIVIL ENGINEERING PTY LTD

ABN 68 066 655 856

(plaintiff)

v

HONAN INSURANCE GROUP PTY LTD

ABN 67 005 372 396

(first defendant)

CLEANAWAY SOLID WASTE PTY LTD

ACN 120 175 635

(second defendant)

CLEANAWAY PTY LTD

ACN 000 164 938

(third defendant)

QBE INSURANCE (AUSTRALIA) PTY LIMITED

ACN 003 191 035

(fourth defendant)

CHASE UNDERWRITING PTY LTD

ACN 156 554 808

(first third party)

QBE INSURANCE (AUSTRALIA) PTY LIMITED

ACN 003 191 035

(second third party)

FILE NO:

BS 6807/23

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

13 December 2024

DELIVERED AT:

Brisbane

HEARING DATE:

10 December 2024

JUDGE:

Freeburn J

ORDERS:

  1. The application for summary judgment is dismissed.
  2. I will hear the parties on costs.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the plaintiff, Shamrock, seeks summary judgment on a counterclaim brought by the second and third defendants, Cleanaway – where the parties entered an agreement concerning a dump site owned by Cleanaway for Shamrock to construct a cell where waste can be placed – where following heavy rainfall, a lake formed on the site, which then became putrid – where Cleanaway claims that clause 10 of the relevant contract requires Shamrock to reimburse Cleanaway for remedying the site – whether the claim should be summarily dismissed

Uniform Civil Procedure Rules 1999 (Qld), r 239

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, cited

Re Mining Technologies v EJ Hampson [1996] QSC 254, cited

Ranicar v Frigmobile Pty Ltd [1983] Tas R 113, explained

Switzerland Insurance Australia Ltd v Dundean Distributors Pty Ltd [1998] 4 VR 692, cited

COUNSEL:

DB O'Sullivan KC, with PD Lane, for the plaintiff

DP O'Brien KC, with S McLeod, for the second and third defendants

SOLICITORS:

McCullough Robertson for the plaintiff

Gadens for the second and third defendants

  1. Introduction
  1. [1]
    The second and third defendants, Cleanaway, own and operate a waste dump at New Chum, a suburb of Ipswich.  By a Master Agreement, Cleanaway engaged Shamrock to undertake earthworks and other related works at the New Chum site.[1]  Shamrock was required to construct a cell, that is an open area where waste can be placed.[2]
  2. [2]
    In late February 2022 there was very heavy rainfall at the New Chum site. This resulted in major flooding.  The flooding caused the site to resemble a lake.  That lake became putrid as material stored at the dump leached out into the water. The lake started to stink. An environmental order was issued against Cleanaway. 
  3. [3]
    Cleanaway alleges that it has incurred $30,962,566 to drain the swamp and address the noxious odours, including treating the contaminated water comprising landfill leachate.[3]
  4. [4]
    A cross-claim made by Cleanaway against Shamrock is that, pursuant to an indemnity clause in the Master Agreement, Shamrock is obliged to reimburse Cleanaway for the nearly $31 million spent on draining the swamp and addressing the environmental problems.
  5. [5]
    Shamrock applies for summary judgment pursuant to rule 293 of the Uniform Civil Procedure Rules 1999 (Qld). Shamrock contends that Cleanaway has no real prospects of succeeding on its indemnity claim and that the cross-claim by Cleanaway should be dismissed.
  6. [6]
    Before entering summary judgment the court must be satisfied of the two matters described in rule 293, namely:
    1. Cleanaway has no real prospect of succeeding on this claim; and
    2. there is no need for a trial of this claim.
  1. Clause 10(a)
  1. [7]
    Clause 10 of the Master Agreement is as follows:
  1. 10.
    Contractor’s Indemnity
  1. The Contractor shall be liable for and shall indemnify the Principal against:
  1. (a)
    any liability, loss claim or proceeding whatsoever in respect of loss, destruction or damage to any property, real or personal, arising out of or in the course of or by reason of the execution of the Works; and
  1. (b)
    any liability, loss, claim or proceeding whatsoever arising at common law or under statute in respect of personal injury to or the death of any person whomsoever arising out of or in the course of or by reason of the execution of the Works,
  1. but the Contractor’s liability under this Clause shall be reduced proportionately to the extent that an act or omission of the Principal, or its employees or agents contributed to the loss, damage, death or injury.  For the purposes of this Clause the Project Manager, any quantity surveyor or other consultant shall be an agent of the Principal but tenants, their visitors, invitees, and contractors shall not be agents of the Principal.
  1. This clause shall not apply to:
  1. (c)
    the extent that the liability of the Contractor is limited by another provision of this Deed;
  1. (d)
    claims in respect of the right of the Principal to construct the Works on the Site; and
  1. (e)
    damage which is the unavoidable result of the construction of the Works in accordance with this Deed. [emphasis added]
  1. [8]
    Cleanaway pleads that the rainfall caused flood damage, that is:
    1. ponding of water;
    2. damage to a wall;
    3. seepage and run-off of water;
    4. The production of leachate caused by the interaction of the water ponded and landfill waste.
  2. [9]
    The expenses of nearly $31 million comprise:
    1. dewatering, dosing, leachate management, and removal of debris;
    2. repairing damage to the wall;
    3. professional fees to the address environmental issues associated with the presence of leachate and ponded water;
    4. fleet, fuel and equipment costs.
  1. The Interpretation Exercise
  1. [10]
    There is a preliminary issue. Shamrock makes these submissions:

Essentially, Cleanaway says that because of the circumstances that Shamrock had a contract to do earthmoving and related works when heavy rain fell and flooded the New Chum site, Shamrock is obliged to indemnify Cleanaway for its clean-up costs.

Whilst it is in theory possible that parties might agree to an arrangement of this kind, whereby a contractor indemnifies his or her principal against the risks of a natural disaster, a bargain in those terms would be difficult to fathom.  The contractor is paid to do construction work. Payment is not, ordinarily, intended to provide compensation for taking on the risk of a natural disaster.  Under a contract of insurance, of course, the insurer is paid to take on precisely this kind of risk.

For these reasons, it is submitted that very clear words would be required before a Court would conclude that the presumed intention of the parties was that by clause 10 of the Master Agreement, Shamrock agreed to provide an indemnity to Cleanaway, unlimited in scope, against the risk of the principal suffering loss from flooding, earthquake, fire or other natural disaster.[4] [emphasis added]

  1. [11]
    In oral submissions, the argument was put in more forceful terms. It was contended that the parties have considered inclement weather in their contract and there is no hint that the indemnification obligation in clause 10(a) was intended to “outflank” all other clauses on which the parties have agreed. And it was argued that it was improbable that the parties intended to give Cleanaway a right to an indemnity, even if the work was done brilliantly by Shamrock. It was said that a reasonable businessperson would recoil at such an interpretation.[5]
  2. [12]
    I do not accept that approach. The process of contract interpretation does not start with an assessment of what the parties can be presumed to have intended. There are obvious dangers in beginning the interpretation exercise with an idea of what might be expected in a particular bargain, and in requiring clear words in order for the court’s interpretation to depart from what was expected. Different people will have different expectations. Shamrock’s approach introduces a subjective element at the outset.
  3. [13]
    The leading modern statement on interpretation of commercial contracts is to be found in the reasons of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[6]

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the  meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms of mean.  That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone.  Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary …”[7]

  1. [14]
    As Herzfeld and Price say in their text Interpretation:

“… the only relevant meaning is that which the text conveys.  This follows from the need to ascertain the intention expressed in the document.  Although … context and purpose are relevant, ultimately the court must attribute meaning to the words actually used.[8]

  1. [15]
    And so, the starting point is not whether or not a bargain in the terms alleged would be difficult to fathom, or whether a particular interpretation would be a surprising construction of a commercial contract,[9] and there is no requirement for clear words if the bargain appears to deviate from expectations. The starting point is the words actually used. That approach is consistent with the objective theory of contract,[10] and the modern approach of objective interpretation.[11]
  2. [16]
    Incidentally, there are two further and related problems with Shamrock’s approach. First, as explained, what may be expected in a particular bargain can be in the eye of the beholder. Experienced principals and experienced contractors might have very different expectations of a building contract. For example, even standard form construction contracts prepared by peak bodies contain substantively different provisions, sometimes influenced by the interests of their membership.
  3. [17]
    Second, there may well be good commercial reasons for a provision that Shamrock, the contractor, shall be liable for and shall indemnify the principal against liabilities and losses in respect of loss, destruction or damage to any property, real or personal, arising out of or in the course of or by reason of the execution of the works. Shamrock explicitly accepted all risks in connection with the construction of the works.[12] But the contract also envisaged that Shamrock would take out various insurances, including contract works insurance.[13] Thus, Shamrock would be the entity to take on the risk as between the two contracting parties, but Shamrock could cover its risks by insurance. That insurance may cover for risks even where the damage is attributable to the conduct or one or other of the parties or where the risk is the result of neutral causes (such as weather).[14]
  4. [18]
    In this case, starting with the words, the words of the indemnity clause have two relevant requirements:
    1. the costs claimed are “in respect of loss, destruction or damage to any property, real or personal; and
    2. the damage can be described as “arising out of or in the course of or by reason of the execution of the Works”.
  5. [19]
    Each can be considered in turn.
  1. loss, destruction or damage to any property, real or personal
  1. [20]
    Counsel for Shamrock contends that:

The words damage to propertyappearing in clause 10 have a well-established meaning. They mean a “physical alteration or change” to the property damaged. A mere change in the usefulness or value of property, by reason of physical events not involving a physical alteration or change to the property, does not constitute damage to property.[15]

  1. [21]
    First, there is a subtle difference between the phrase analysed by counsel for Shamrock (“damage to property”) and the actual phrase used (“damage to any property”).[16] There are also differences in the contractual context. And, as will be explained, I am not confident that the phrase has a ‘well-established’ meaning. Given that the ultimate question for the court is the meaning of the particular document in issue, dependent on construing it as a whole, and with reference to any admissible extrinsic evidence peculiar to that document, it is very difficult to see how a decision on the meaning of one document could ever be strictly binding in relation to another.[17]   
  2. [22]
    Second, even accepting that the cases relied on by Shamrock can be regarded as persuasive, they appear to have limited utility.
  3. [23]
    Ranicar v Frigmobile Pty Ltd[18] is described by counsel for Shamrock as the leading case. The facts were that on 11 September 1980, the plaintiffs entered into a written agreement to supply frozen scallops to a Canadian company. A week later, on 18 September 1980, Frigmobile took possession of those frozen scallops and delivered them to a wharf in Melbourne with a view of them being loaded on a vessel bound for Canada. Whilst at that wharf the scallops were examined by an officer of the Commonwealth Department of Primary Industry. They were found to be at a temperature between -6°C and -12°C. The Exports (Fish) Regulations required that the temperature of the scallops was not to rise above -18°C. Accordingly the scallops were rejected for export and the plaintiffs were unable to fulfil their agreement to sell to the Canadian company. They were able to sell the scallops on the domestic Australian market, but for less than they would have received had they completed the sale to the Canadian company.
  4. [24]
    Green CJ said:

… the meaning which I should prima facie give to the phrase “damage to” when used in relation to goods, is a physical alteration or change, not necessarily permanent or irrepairable, which impairs the value or usefulness of the thing said to have been damaged.[19]    

  1. [25]
    And then, applying that meaning to the facts, His Honour reached this conclusion:

In my view, the changes caused by enzymic activity and chemical oxidation of the fats in the scallops did not constitute damage to the scallops. Although clearly physical changes, they were not such as to significantly effect the marketability, edibility or other material qualities of the scallops. Further, the plaintiffs' loss did not arise out of those changes. Their loss arose out of their inability to export the scallops, which caused solely by the fact that they were stored at a temperature above -18°c. Even had the scallops undergone no change of any kind, the mere fact that they were stored at a temperature above -18° would have been sufficient to prevent the plaintiffs from being able to export them. The question which remains is whether in the circumstances of this case that change in temperature amounted to damage in the scallops. In my view, it plainly did. An alteration in temperature undeniably involves a physical change to a substance and in this case that change had the effect of removing one of the primary qualities which the scallops had - their exportability. As a result, it is plain that their usefulness was impaired and their value reduced. That is not to say, of course, that in every case a change in temperature would amount to damage. It would depend upon the circumstances and the nature of the goods.[20] [emphasis added]

  1. [26]
    The assistance provided by that case is limited. That was a case where the issue was whether under an exclusion clause and a policy of insurance there was damage to the scallops. Here, the question is whether the damage to a batter wall,[21] and flooding leading to a putrid lake on part of the land,[22] qualifies as “damage to any property, real or personal”. In so far as Ranicar v Frigmobile Pty Ltd is a guide, it is at least strongly arguable that the putrid lake on the land constitutes a physical alteration or change to the land, not necessarily permanent or irreparable, and that the putrid lake impairs the value or usefulness of the land. There is, it seems to me, a good argument that the putrid lake on cell 3B East/North comprised damage to real property.
  2. [27]
    In Switzerland Insurance Australia Ltd v Dundean Distributors Pty Ltd[23] Phillips JA referred to a number of cases, including Ranicar, and said:

In my view these cases plainly establish, at least for the purposes of the present appeal, the proposition for which counsel was contending, namely, that “damage”, within the meaning of section 5 of the policy, occurs if the subject matter (which, I have said, included the software) is interfered with in such a way as to render it less useful or valuable and in consequence time and money are required to restore that use or value: see especially Ranicar at Tas. R. 116-17.[24] [emphasis added]

  1. [28]
    Here, it seems plain that cell 3B East/North was rendered less useful or valuable, and time and money was required to restore its usefulness and value.
  2. [29]
    The other cases relied on, many of which involve the interpretation of insurance policies, do not support the idea that the words “damage to property” appearing in clause 10(a) has a well-established meaning, or that the meaning is restricted to those situations where there is a “physical alteration or change” to the property. Instead, the cases illustrate that the concept of ‘damage’ can have a broad meaning, depending on the context.
  3. [30]
    In Re Mining Technologies v EJ Hampson[25] White J considered the situation where certain equipment was temporarily entombed, but not physically damaged, in an underground mine. The issue was whether the temporary entombment, and the costs associated with extraction, qualified as “loss or damage to...machinery/equipment” under an insurance policy. Her Honour found that she was unable to construe the entombment of the equipment, where no physical damage or change was sustained to it, as constituting “damage” within the meaning of the policy. However, the decision is hardly surprising given the absence of any physical alteration or change to the equipment and the purpose of the policy – to indemnify the insured for the loss or damage to its equipment rather than the loss of use of the equipment.
  4. [31]
    That case is in contradistinction to this case where the land is physically affected by presence of a swamp filled with contaminated water.
  5. [32]
    Consequently, in my view, there is a real prospect that Cleanaway will establish at trial that the $31 million in costs claimed are “in respect of loss, destruction or damage to any property, real or personal”.
  1. arising out of or in the course of… the execution of the Works
  1. [33]
    Can the damage claimed be described as arising out of or in the course of or by reason of the execution of the Works? Shamrock contends that:

…even assuming the costs claimed were caused by damage to property…, that the flooding happened to occur during the currency of the contract is insufficient to engage the indemnity. Clause 10 contemplates damage to property, or injury to a person, that has a causal nexus with the execution of the Works. Indemnity is provided for property damage or personal injury arising out of or in the course of or by reason of the execution of the Works”. That is not this case…[26] [emphasis added]

  1. [34]
    The expression “arising out of or in the course of or by reason of the execution of the Works” has three components. The damage can arise:
    1. out of the execution of the work; or
    2. in the course of the execution of the work; or
    3. by reason of the execution of the work.
  2. [35]
    Component (c) certainly involves what could be described as a causal nexus between the damage and the execution of the work. Component (a) requires that the damage arise from the actual execution of the work. Component (b) is the least stringent of the alternatives. It merely requires that the damage arise during the course of the work. Understandably, the argument focussed on component (b).
  3. [36]
    The ordinary and literal meaning of component (b) does not require a causal nexus with the execution of the works. All it requires is that the damage arise in the course of the work. As counsel for Cleanaway described it, the requirement is for some proximity to the work in time and place.
  4. [37]
    Comparing components (a) and (b) is instructive. Component (a) does require some connection with the work. Presumably the draftsperson’s intention with component (b) was not to duplicate component (a). But that may well be the effect of Shamrock’s contention:

It is submitted that these words require that the property damage or personal injury for which indemnity is granted, has some nexus with the actual performance of the Work. It is not enough that the damage occurs, or the injury is suffered, during the term of the Master Agreement.[27]  

  1. [38]
    Shamrock submits that components (a) and (c) both involve a causative link between the damage and the execution of the works and, because component (b) sits between those two components, those two components give content to or colour the words in the middle.
  2. [39]
    It is necessary to give effect to the contract interpretation authorities discussed above. Applying the principle that the relevant meaning is that which the text conveys, I would think there is more than a reasonable prospect that the court will ultimately prefer the literal view of component (b). Indeed, there are three problems with Shamrock’s argument. First, and perhaps this is a minor problem, the position of component (b), sitting between components (a) and (c) may not necessarily be the result of any deliberate choice by the draftsperson. The respective positions could easily be the result of syntax choices. Second, it is difficult to see how the mere location of component (b) ‘colours’ its meaning. And, third, what precise meaning should be given to component (b)? What is the nexus with the work that component (b) requires if one does not apply the literal meaning of the words? There is no clear answer to that. Shamrock says that some causal link or nexus must be shown but the formulation of that causal link or nexus is not obvious, particularly when components (a) and (c) already require that the damage arise out of the execution of the work or by reason of the execution of the work.
  3. [40]
    Of course, care needs to be taken not to re-write the parties’ bargain.  
  4. [41]
    Shamrock points out that there are two carve-outs from the operation of clause 10. One is to the effect that Shamrock’s liability to indemnify under clause 10 was to be reduced proportionately to the extent that an act or omission of Cleanaway “contributed to” the loss or damage. The second carve out was that the indemnity clause does not apply to damage which was the “unavoidable result” of the construction of the works. However, those two carve outs apply in specific circumstances. They do not make clause 10 nonsensical or inoperable. Clause 10 and the carve-outs can be given effect.
  5. [42]
    Shamrock contends that it would be commercially absurd to construe clause 10(b) as giving an indemnity for injury or death to any person who happened to be injured or killed on the site during the currency of Shamrock’s contract and:
    1. irrespective of whether Shamrock was on site at the time;
    2. irrespective of whether Shamrock was carrying out work at the time; and
    3. irrespective of whether Shamrock had any connection at all to the incident;
  6. [43]
    I am unable to see the commercial absurdity in circumstances where the contract contemplates that Shamrock will have control of the site during construction and where the contract expressly contemplates that Shamrock will take out four different types of insurance policies, including in the name of Cleanaway as well as the subcontractors and consultants. It is likely that the parties contemplated that any liability Shamrock is concerned would fall within those policies.
  7. [44]
    Shamrock submits that the Contracts Works insurance is capped at $3.7 million, the contract sum. However, there is no cap. The contract specifies various minimum limits which are required by the policies.
  8. [45]
    In my view, none of those matters require the court to ignore what are the plain words of component (b). Cleanaway’s argument that the damage occurred in the course of the execution of the work is, in my view, an argument with good prospects.
  1. Conclusion
  1. [46]
    For those reasons I am not satisfied of the two matters described in rule 293, namely:
    1. that Cleanaway has no real prospect of succeeding on this claim; and
    2. that there is no need for a trial of this claim.
  2. [47]
    The application for summary judgment will be dismissed.

Footnotes

[1]  In fact, Cleanaway and Shamrock entered into an agreement on about 5 December 2019 for construction works. The contract comprised a New Chum Statement of Works dated 5 December 2019, the Master Agreement dated 30 November 2015 and various documents listed in the annexures to the Master Agreement. The New Chum contract was varied in October and November 2021 to include additional works.

[2]  These facts are explained in Shamrock’s submissions.

[3]  Again, these facts are taken from the description in Shamrock’s submissions.

[4]  Shamrock submissions, [15]-[17].

[5]  Counsel for Shamrock also contrasted the contract price of $3.7m (later $7m) with the claim here of $31m.

[6]  (2015) 256 CLR 104.

[7]  Ibid [46]-[49].

[8]  Herzfeld and Prince, Interpretation (Thomson Reuters, 3rd ed, 2024) [19.60] (‘Herzfield and Prince’). This passage, in the previous edition, was quoted with approval by Stevenson J in Heavy Plant Leasing Pty Ltd (In Liq) v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) (2022) 163 ACSR 562, [19]. These authorities are all discussed in Rusbridge v Lake Fox Limited [2024] QSC 279, [21]-[23].

[9]  This was an approach put in oral submissions.

[10] See Taylor v Johnson (1983) 151 CLR 422, 428-429. See also the discussion by Professor Carter, Contract Law in Australia, (J W Carter Publishing, 8th ed, 2023), [1-10].

[11] Herzfeld and Prince (supra), [19.60].

[12]  Clause 2.3.

[13]  Clause 11.2.

[14]  Of course, much depends on the terms of the policies which Shamrock takes out pursuant to clause 11.

[15]  Shamrock submissions, [26].

[16]  Note that in Ranicar v Frigmobile Pty Ltd [1983] Tas R 113 at 117 Green CJ commented that the addition of the words “any” and “whatsoever” gave the clause a wider ambit than it otherwise would have had.

[17] Herzfeld and Prince (supra), [19-100].

[18]  [1983] Tas R 113.

[19]  Ibid 116.

[20]  Ibid 117.

[21]  This aspect is conceded to be ‘damage’.

[22]  The part of the land/site in question is cell 3B East/North.

[23]  [1998] 4 VR 692.

[24]  Ibid 714.

[25]  [1996] QSC 254.

[26]  Shamrock submissions, [20].

[27]  Shamrock submissions, [32].

Close

Editorial Notes

  • Published Case Name:

    Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd

  • Shortened Case Name:

    Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd

  • MNC:

    [2024] QSC 313

  • Court:

    QSC

  • Judge(s):

    Freeburn J

  • Date:

    13 Dec 2024

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2024] QSC 31313 Dec 2024-
Notice of Appeal FiledFile Number: CA 97/2509 Jan 2025-

Appeal Status

Appeal Pending

Cases Cited

Case NameFull CitationFrequency
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37
1 citation
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
2 citations
Ranicar v Frigmobile Pty Ltd [1983] Tas R 113
3 citations
Re Mining Technologies Australia Pty Ltd [1996] QSC 254
2 citations
Rusbridge v Lake Fox Ltd [2024] QSC 279
1 citation
Taylor v Johnson (1983) 151 CLR 422
1 citation

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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