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Partition and Sale - The Partition Act and the Partition Act

August 11, 2021

Ontario

,

Canada

Issue

When will a request for partition and sale be denied on the basis of oppression?

Conclusion

The Partition Act gives tenants in common a prima facie right to compel partition or sale. A request for partition and sale will only be denied in the limited circumstances of malice, oppression and vexatious intent. "Oppression" properly includes hardship, and a judge can refuse partition and sale because hardship to the co-tenant resisting the application would be of such a nature as to amount to oppression. (Greenbanktree Power Corp. v. Coinamatic Canada Inc.)

The onus is on the party resisting partition or sale to demonstrate sufficient reasons for refusal. The court has a very limited discretion to refuse an application for partition or sale. Only in exceptional circumstances will a joint tenant or tenant in common be denied his or her request that the property be partitioned or sold. (Shemish v. Benarzi)

The concept of reasonable expectations as developed in corporate law oppression cases is useful in determining whether there has been the type of oppressive conduct that would warrant denying a remedy under the Partition Act. The existing case law under the Partition Act considers similar principles without actually labelling them as an "expectation interest". (Garfella Apartments Inc. v. Chouduri)

Actual unlawfulness is not required to invoke the oppression remedy; it applies "where the impugned conduct is wrongful, even if it is not actually unlawful". The remedy is focused on concepts of fairness and equity rather than on legal rights. In determining whether there is a reasonable expectation or interest to be considered, the court looks beyond legality to what is fair, given all of the interests at play. Even if reasonable, not every unmet expectation gives rise to an oppression claim. The section requires that the conduct complained of amount to "oppression", "unfair prejudice" or "unfair disregard" of relevant interests. "Oppression" carries the sense of conduct that is coercive and abusive, and suggests bad faith. "Unfair prejudice" may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, "unfair disregard" of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders' reasonable expectations. Nevertheless, as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression. The concepts of oppression, unfair prejudice and unfairly disregarding relevant interests are adjectival. They indicate the type of wrong or conduct that the oppression remedy is aimed at. However, they do not represent watertight compartments, and often overlap and intermingle. (Glass v. 618717 Ontario Inc.)

In Settecase v. Settecase, three members of a family each owned a one-third share in a 25-unit residential apartment building complex. The grandmother in the group had concerns about the way her son was managing the property, in particular that he refused to give an accounting of the rental income and related building expenses, and applied for a sale of the property. The Court held that her son could not oppose her right to ask that the property be sold as he could not establish grounds for oppression, as the hardship had been that the grandmother had never received a proper accounting of her interest in the income from the property. The Court therefore ordered the sale.

In Kim v. Kim, separated spouses were the sole, equal shareholders of a corporation as well as its sole officers and directors. The corporation owned a commercial property in which one of the tenants, a printing business, paid less than market rate for its rent. The printing business was owned by their son and his spouse. The husband wished to evict the tenant to fascilitate the sale of the building. The wife refused to agree on legal grounds. The husband then brought a motion to have control of the sale given to him exclusively, on the grounds that his wife's conduct was oppressive to his interests. The Court held that the husband could not show oppression as there was no serious issue to be tried, and dismissed the motion.

In Sokoli v. Sokoli, the applicant and respondent lived separately and apart in the matrimonial home. There had been no attempts to reconcile for more than four years. The applicant sought the partition and sale of the matrimonial home in order to realize her equity in the home, their only major asset. All attempts made by the applicant were not answered by the respondent. The Court held that the respondent had not provided evidence of grounds to resist the sale, and ordered the house be listed immediately.

Law

In Greenbanktree Power Corp. v. Coinamatic Canada Inc., 2004 CanLII 48652 (ON CA), the Court of Appeal held that the appellants had not met the bar of proving that the respondents had acted vexatiously, oppressively or with malice. The Court also found no evidence of potential hardship on the part of the appellants, and that they went into the transaction with their eyes wide open. The grounds for oppression had therefore not been met, and the appeal was dismissed:

[1] BY THE COURT: -- The appellants have clearly raised the scope of the discretion under the Partition Act, R.S.O. 1990, c. P.4. They submit that courts since Davis v. Davis, 1953 CanLII 148 (ON CA), [1954] O.R. 23, [1954] 1 D.L.R. 827 (C.A.) have improperly narrowed the scope of the discretion to circumstances of malice, oppression and vexatious intent. This test has been repeatedly followed in this court, most recently in 2002 in Latcham v. Latcham, [2002] O.J. No. 2003, by the Divisional Court and by judges at first instance. In our view, that test is the appropriate one, particularly in a commercial [page479] context. The Act gives tenants in common a prima facie right to compel partition or sale. A narrow interpretation of the discretion makes commercial sense by enhancing predictability.

[2] Co-tenants should only be deprived of this statutory right in the limited circumstances described above, with this caveat. In our view, "oppression" properly includes hardship, and a judge can refuse partition and sale because hardship to the co-tenant resisting the application would be of such a nature as to amount to oppression.

[3] The appellants have not shown the respondent acted vexatiously, oppressively or with malice. They are sophisticated commercial parties who went into these transactions with their eyes wide open knowing the respondent's position and knowing that it might invoke the provisions of the Act.

[4] The motion judge considered the hardship alleged by the appellants and was not satisfied he should exercise his discretion in their favour. The exercise of this discretion was not unreasonable.

[5] The appellants submit that Pitt J. made a palpable and overriding error in stating that there was no evidence of a "generous" offer. We agree with the respondent that this statement is supported by the record, there being no admissible evidence of the value of the respondent's interest. In any event, we should not be taken as holding that the mere existence of a "generous" offer is sufficient grounds to defeat an application for partition and sale. The existence of an offer is merely a factor to be considered along with all the other circumstances of the case in deciding whether there has been oppression.

In Shemish v. Benarzi, 2006 CanLII 30602 (ON SC), Perell J. dealt with an application under the partition act for the sale of a property. Perell J. held:

[11] In an academic article for the Advocates’ Quarterly, I recently reviewed the law about a co-owner’s rights under the Partition Act. See: P.M. Perell, “A Partition Act Primer” (2005), 30 Adv. Q. 251. In that article, I stated at pp. 252-3:

Section 2 of the Act states that a joint tenant or tenant in common may be compelled to make or suffer partition or sale. The general principles to determine when partition should be granted were laid down in Davis v. Davis, 1953 CanLII 148 (ON CA), [1954] O.R. 23 (C.A.), where the Ontario Court of Appeal stated:

There continues to be a prima facie right of a joint tenant to partition of sale of lands. There is a corresponding obligation on a joint tenant to permit partition or sale, and finally the Court should compel such partition or sale if no sufficient reason appears why such an order should not be made.

The onus is on the party resisting the sale to demonstrate why the sale should be refused. The resisting party has a heavy burden to meet as a sale will be refused only in exceptional cases:

The onus is on the party resisting partition or sale to demonstrate sufficient reasons for refusal: Davis v. Davis, supra; Silva v. Bettencourt, [2002] O.J. No. 1878 (S.C.J.). In cases after Davis, the Act has been interpreted to mean that the court has a very limited discretion to refuse an application for partition or sale: Silva v. Silva, supra; Hay v. Gooderham (1979), 1979 CanLII 1690 (ON SC), 24 O.R. (2d) 701 (Div. Ct.) Only in exceptional circumstances will a joint tenant or tenant in common be denied his or her request that the property be partitioned or sold. The court’s discretion to refuse partition and sale is narrow, and there must be malicious, vexatious or oppressive conduct to justify the refusal to grant partition and sale: Silva v. Silva, supra; Osborne v. Myette, [2004] O.J. No. 3383 (S.C.J.); Latcham v. Latcham, [2002] O.J. No. 2126 (C.A.), affg. [2001] O.J. No. 5291 (Div. Ct.); Fellows v. Lunkenheimer (1998), 21 R.P.R. (3d) 142 (Ont. Gen. Div.); Kalita v. Freskiw Estate, [1998] O.J. No. 5180 (Gen. Div.); Jakubiszyn v. Tekielak, [1991] O.J. No. 2362 (Gen. Div.).

In Garfella Apartments Inc. v. Chouduri, 2010 ONSC 3413 (CanLII), the property in question was a residential complex that had been divided into 147 separate interest units. A purchaser of one of these percentage interests would be a tenant in common with everyone else and would share, according to their interest, in the costs and operations of the building. As well, each would have the right to occupy or rent out a specific apartment in the building. The appellant Garfella Apartments Inc. owned 124 of the interest units and wished to purchase the rest. Many owners were simply unwilling to sell. The applicant applied for partition or sale. The respondents opposed the application on the grounds of oppression. The application judge found that partition was unavailable, as it would indirectly create a condominium which was not permitted under the applicable legislation. Therefore, the application judge held that Garfella Apartments had a prima facie right to a sale, and that they were free to sell their shares on the open market. Their application was denied. On appeal, the Court found that the minority shareholders had established grounds for oppression, and dismissed the appeal:

The test for oppression

[26] The party alleging oppression bears the onus of proving it on the balance of probabilities. [See Note 11 below] [page631]

[27] In Greenbanktree the Court of Appeal held [at para. 1] that the scope of the discretion to refuse a remedy has been narrowed to circumstances of "malice, oppression and vexatious intent", citing the 1954 family law decision of the Court of Appeal in Davis v. Davis [See Note 12 below] as the root of this trend. The underlying facts in Davis are not fully apparent from the reported decision. It involved a matrimonial dispute in which the wife applied for dissolution of the marriage, custody of the two children, support for herself and the children, and an order for partition or sale of the property that had been the family home. The trial judge refused to dissolve the marriage, awarded custody of the children to the husband and refused to order sale of the property. The trial judge held that the husband had limited financial resources and would have great difficulty supporting the children if a sale of the property were forced in order to pay his wife her interest. The trial judge also found that the wife had a legal and moral duty to support her children and that deferring her rights to partition or sale of that property was appropriate as an exercise of the court's discretion to ensure that she carried out that duty.

[28] The Court of Appeal held that there was no basis in law for finding any duty on the mother to financially support her children, reasoning that since the father had sought and obtained custody, the cost of supporting the children was entirely his responsibility. Further, the court held [at para. 10] that refusing to permit the wife to enforce her property rights because it would be "a great detriment to the well-being and proper maintenance of her young children" was an improper exercise of discretion and was oppressive, unfair and unjust to the wife. With respect, the result reached by the Court of Appeal in Davis seems anomalous by today's standards. Obviously, those legal norms have changed over the years and modem courts would have no hesitation in requiring a mother to support her children. However, it is not the result reached in Davis that is important; it is the legal test that was defined for refusing relief under the Partition Act.
[...]

[44] The definitive analysis of the oppression remedy in the corporate law context is the Supreme Court of Canada's 2008 [page637] decision in BCE Inc. v. 1976 Debentureholders. [See Note 25 below] The Supreme Court recognized two prongs underlying the oppression remedy: (1) conduct that undermines the "reasonable expectations" of the parties; and (2) conduct that is coercive, abusive or unfairly disregards the interests of the minority. Both must be present before an oppression remedy is appropriate.

[45] The first element is what the court referred to as "a reasonable expectation that [the claimant] would be treated in a certain way". [See Note 26 below] The concept of reasonable expectations is both "objective and contextual". What is reasonable will depend upon "the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations". [See Note 27 below] The court held that "Fair treatment -- the central theme running through the oppression jurisprudence -- is most fundamentally what stakeholders are entitled to 'reasonably expect'." [See Note 28 below]

[46] In considering the concept of reasonable expectations, the Supreme Court held, at para. 71:
The remedy is focused on concepts of fairness and equity rather than on legal rights. In determining whether there is a reasonable expectation or interest to be considered, the court looks beyond legality to what is fair, given all of the interests at play: Re Keho Holdings Ltd. and Noble.

[47] At the second stage, the court must determine whether there is conduct that is oppressive, unfairly prejudicial or that unfairly disregards the interests of the minority. The court recognized in BCE that these concepts of oppressive behaviour are not watertight compartments and often merge or are tied up with conduct that defeats the reasonable expectation of the parties. Oppressive conduct is described as being "coercive, abusive and suggests bad faith". Included in this type of behaviour would be conduct that is "burdensome, harsh and wrongful", and an "abuse of power" or a "visible departure from standards of fair dealing". Unfair prejudice and unfair disregard are considered to be less culpable states of mind, but nevertheless have unfair consequences that ignore the other parties' legitimate expectations. The court provides examples of unfair disregard for minority [page638] interests including squeezing out a minority shareholder and changing corporate structure to drastically alter debt ratios. [See Note 29 below]

[48] In my view, the concept of reasonable expectations as developed in corporate law oppression cases is useful in determining whether there has been the type of oppressive conduct that would warrant denying a remedy under the Partition Act. The existing case law under the Partition Act considers similar principles without actually labelling them as an "expectation interest". For example: in Shabinsky v. Cohen and in 997897 Ontario Inc. v. 926260 Ontario Ltd., a remedy was denied because to do otherwise would thwart the intention of the parties as expressed in their partnership or co-ownership agreements; in Yale v. MacMaster, the court considered "how, when and why" the property had been acquired to be a significant factor; in many of the family law cases, a remedy was denied so that disadvantaged parties could continue to live in homes they expected to occupy into the future. All of these involve the protection of an expectation interest. Even in Gre enbanktree, which permitted the minority interest holder to force the sale of the property, expectations of the parties played a role. One of the factors the court considered in exercising its jurisdiction in favour of the applicant was the fact that the respondent developer knew what it could expect when it bought the interests of the other parties over the objections of Greenbanktree.

In Glass v. 618717 Ontario Inc., 2012 ONSC 535 (CanLII), the breakdown in relationship between two brothers led to a protracted battle concerning the division of their jointly held property. In examining the correct way of disentangling the complex holdings, the Court gave a summary of the principles of the oppression remedy. No actual oppression was found on anyone's part:

[296] In BCE Inc. v. 1976 Debentureholders the Supreme Court identified the two inquiries which a court must make in considering an oppression claim: (i) Does the evidence support the reasonable expectation asserted by the claimant? and (ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest?

[297] The reasonable expectations of specified stakeholders is the cornerstone of the oppression remedy. Fair treatment -- the central theme running through the oppression jurisprudence -- is most fundamentally what stakeholders are entitled to "reasonably expect".

[298] The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive - the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.

[299] The onus lies on the claimant to identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held. Factors which a court may consider in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.

[132] In BCE Inc. v. 1976 Debentureholders[29]the Supreme Court of Canada made the following observations about the oppression remedy:
(i) Actual unlawfulness is not required to invoke the oppression remedy; it applies "where the impugned conduct is wrongful, even if it is not actually unlawful". The remedy is focused on concepts of fairness and equity rather than on legal rights. In determining whether there is a reasonable expectation or interest to be considered, the court looks beyond legality to what is fair, given all of the interests at play;[30]
(ii) Even if reasonable, not every unmet expectation gives rise to an oppression claim. The section requires that the conduct complained of amount to "oppression", "unfair prejudice" or "unfair disregard" of relevant interests. "Oppression" carries the sense of conduct that is coercive and abusive, and suggests bad faith. "Unfair prejudice" may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, "unfair disregard" of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders' reasonable expectations;
[31]
(iii) Nevertheless, as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression;
[32]and,
(iv) The concepts of oppression, unfair prejudice and unfairly disregarding relevant interests are adjectival. They indicate the type of wrong or conduct that the oppression remedy is aimed at. However, they do not represent watertight compartments, and often overlap and intermingle.
[33][...]

[298] As their primary position the plaintiffs submitted that all Jointly Owned Properties should be partitioned and sold, relying on the principle that joint owners of property enjoy a prima facie right under the Partition Act[74] to partition and sale, with the Court limited to refusing such relief only in narrow circumstances where it is demonstrated that the applicant has acted maliciously, oppressively or with vexatious intent toward the respondent.[75]

[299] Let me simply say that the plaintiffs’ submission entirely ignores the context of the proceeding they have commenced. The plaintiffs seek equitable relief under the OBCA section 248(3) oppression remedy, specifically the purchase of their shares in Holdco. Holdco uses three of the Jointly Owned Properties for its operations, yet as their primary relief the plaintiffs seek an order that those properties be sold. Such a claim is inconsistent with their invoking of this Court’s equitable jurisdiction under the oppression remedy and is nothing more than an attempt by Dale to give Brian a poke in the eye. Pursuant to section 248(3) of the OBCA I have ordered that Brian and/or Brianco purchase Daleco’s shares in Holdco and I have ordered that upon such purchase Daleco’s intercompany indebtedness to the ProNorth Group will be extinguished. As part of that package of equitable remedies under section 248(3) I will permit Brianco to retain the Birches, Sudbury and Lucknow properties upon payment to Daleco of their fair value which I will determine below.

[300] As I will explain shortly, I find that the Vaughan Mills property is a Jointly Owned Property. I will order the partition and sale of the three Jointly Owned Properties not used by ProNorth – the Birchgrove Farm, Pinewood and Vaughan Mills (with a caveat) – but I will allow either brother to bid on those properties.

In Settecase v. Settecase, 2013 ONSC 6580 (CanLII), three members of a family each owned a one-third share in a 25-unit residential apartment building complex. The grandmother in the group had concerns about the way her son was managing the property, in particular that he refused to give an accounting of the rental income and related building expenses, and applied for a sale of the property. The Court held that her son could not oppose her right to ask that the property be sold as he could not establish grounds for oppression, as the hardship had been that the grandmother had never received a proper accounting of her interest in the income from the property. The Court therefore ordered the sale:

[16] An Order shall go directing the sale of the Property on the terms set out herein. Agata, as a one-third co-owner of the Property, has a right under the Partition Act, 1990, R.S.O. 1990 c.P.4. (“the Act”) to ask that the Property be sold. S. 2 of the Act says that tenants in common may be compelled to make or suffer partition or sale of the land, or any part thereof, whether the estate is legal and equitable or equitable only.

[17] Under S.3(1) of the Act, any person interested in the land may bring an action or make an application for the partition of such land or for the sale thereof under the directions of the court if such sale is considered by the court to be more advantageous to the parties interested.

[18] Agata therefore has a prima facie right to ask for the sale of the Property. In para. 2 of Tzembelicos v. Tzembelicos (2000), 118 A.C.W.S. (3d) 917 (Ont. S.C.J.), a decision of Mr. Justice Ground, he says:
Co-tenants should only be deprived of this statutory right in the limited circumstances described above, with this caveat. In our view, “oppression” properly includes hardship and that a judge can refuse partition and sale because hardship to the co-tenant resisting the application would be of such a nature as to amount to oppression.

He also noted, earlier in the Endorsement, that there are two other circumstances, in addition to oppression, which the Court looks to see if they are present. Those are malice and vexatious intent. If none of these are found by the Court to be the moving force of an Application for Partition and Sale, the sale will proceed.

[19] The onus is on the Respondent to prove that there has been oppression, malice or vexatious intent. See: Greenbanktree Power Corporation v. Coinamatic Canada Inc., 2004 CanLII 48652 (ON CA), [2004] O.J. No. 5158 (C.A.). There the Court says that oppression properly includes hardship, if the litigant opposing partition and sale can prove hardship. In the case before me, neither Agostino nor Fabio have proven this. The hardship has been that of Agata never having received a proper accounting of her interest in the income from the Property.

[20] I find on the facts before me that there is no oppression, malice or vexatious intent on Agata’s part in asking the Court to make an Order for partition and sale of the Property. Given her age and the lack of transparency in the operation of the apartment complex by Agostino, it is important to her to have the sale take place. Agostino, himself, has said that he owns other properties he manages, so he is not being deprived of his source of income. He can readily re-invest his share of the proceeds in a new venture with Fabio, if Fabio wishes to do so.

[21] This does not mean that Agostino cannot put in an Offer to purchase the Property at its fair market value. The fair market value, however, has to be determined by a real estate appraiser familiar with sales of multi-unit rental buildings.

[22] In addition, Agata has asked the Court to appoint a Receiver to operate the building until the sale takes place or until further Court Order. Section 101 of the Courts of Justice Act provides that the Court may appoint a receiver by interlocutory order where it appears to a judge of the court to be just or convenient to do so. See: Anderson v. Hunking ONSC 4008 (S.C.J.) at para. 15. There, the Court sets out a number of factors it can look at when making such an appointment, including the nature of the property and rights and interests of all parties in relation thereto.

[23] Agostino also points to Greenbanktree, supra, para.15, where the Court says that the appointment of a receiver is a very intrusive step and that it should be used sparingly, with the consideration for the effect on the parties as well as consideration of the conduct of the parties. He referred to Al-Ghabra v. Al-Ali, 2010 CarswellOnt 196 (S.C.J. Div. Ct.). In my view, this case has no applicability to the one before me. There the Court looked at whether there actually was a co-tenancy and what had actually been paid for the building in question. That is not the case before me.

[24] In Gartree Investments Ltd. v. Cartree Enterprises Ltd., 2002 CarswellOnt 733 (S.C.J.), the Court examined what factors and definitions of vexatious conduct should be looked at. There the Court found that the Applicant was using her right to obtain an Order for partition and sale to thwart the legitimate concerns of the majority of co-owners. That is not the case before me, given the facts I have outlined about Agostino’s behaviour.

In Kim v. Kim, 2019 ONSC 4563 (CanLII), separated spouses were the sole, equal shareholders of a corporation as well as its sole officers and directors. The corporation owned a commercial property in which one of the tenants, a printing business, paid less than market rate for its rent. The printing business was owned by their son and his spouse. The husband wished to evict the tenant to facilitate the sale of the building. The wife refused to agree on legal grounds. The husband then brought a motion to have control of the sale given to him exclusively, on the grounds that his wife's conduct was oppressive to his interests. The Court held that the husband could not show oppression as there was no serious issue to be tried, and dismissed the motion:

[70] The oppression remedy under s. 248 of the OBCA provides that a shareholder, officer, director or other stakeholder of a corporation, may, when the affairs of a corporation, or the powers of a director of the corporation, are being performed in a manner that is oppressive, unfairly prejudicial or that unfairly disregards the interests of the complainant stakeholder, apply to the court for an order to rectify matters in any way the court sees fit.

[71] In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada outlined the following principles:
• To establish a claim for the oppression remedy, a complainant must show that: (1) the evidence supports the reasonable expectation asserted by the complainant: BCE Inc., para. 68. (2) the reasonable expectation was violated by conduct that amounts to “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest: para. 68
• The oppression remedy is an equitable remedy. As a result, the court may enforce not just what is legal but what is fair having regard for business realities. Further, what is fair is judged by the reasonable expectations of the stakeholders just and equitable and the relationships at play: paras. 58-59.

[...]

[92] The following statement of principle by Justice Chozik in Marot v. Marot, 2019 ONSC 866, at para.56, is equally applicable here:
I also conclude that the wife's opposition to the husband's decision-making is not oppressive, unfairly prejudicial or amounting to unfair disregard. As a director of Injasuti, the wife has a fiduciary duty to act in the best interests of the company. She also has a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. The wife is entitled to, indeed she is obliged to, use her judgment to make decisions in the best interest of the corporation. The court is obliged to give deference to the business decisions of a director so long as those decisions lie within a range of reasonable alternatives. In my view, the wife's refusal to approve the Term Letter falls within a reasonable business alternative.

[93] The first requirement of the three-part test is that the moving party must show that there is a serious question to be tried. In other words, the claim must not be frivolous or vexatious. I am not satisfied that there is a serious issue to be
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