Consultation review of the arbitration act 1996: an evolution, rather than a revolution?

Consultation review of the arbitration act 1996

On 4 July 2023, I attended the LCIA‘s Paris-based breakfast seminar entitled ‟The arbitration act 1996 review: part two”. After croissants and coffee, the members of the panel – who counted Nathan Tamblyn, a law professor who recently joined the Law commission – launched into an animated discussion on where proceedings stand, in terms of conducting, and completing, the consultation review of the England & Wales arbitration act 1996 (the ‟Act”). The rationale of such Law commission’s consultation is that, now that the Act is 25 years’ old, it is due for a review. Also, England – and, in particular, London – wants to capitalise on the fact that the capital city of the United Kingdom (‟UK”) has become the most preferred seat of arbitrations, worldwide, as evidenced by the report entitled ‟2021 international arbitration survey: adapting arbitration to a changing world”, on a par with Singapore. This is no small feat, especially since we had ascertained, in our previous article ‟Arbitration in France & the UK: who has the upper hand?”, that the English arbitration arsenal and structure were less sturdy and less pro-arbitration, compared to the French ones, in particular in terms of enforcing arbitral awards no matter what, on English soil. Also, since Brexit has decimated any fluid, clear and streamlined judicial collaboration between the UK and the European Union, in particular as far as cross-border enforcement of civil and commercial court judgments is concerned, arbitration has found renewed vigour and strength, in becoming the dispute resolution process of choice, for transnational business players. Let’s investigate further what the findings of the Law commission’s consultation review of the arbitration act 1996 are, shall we?

By way of preliminary remark, let’s clarify that the Act applies only to England & Wales, as well as Northern Ireland. It does therefore not apply to Scotland, where the Arbitration (Scotland) Act 2010 is in force (the ‟Scottish act”).

The Law commission – a UK government body set up to promote the reform of the law – published its first consultation paper, entitled ‟Review of the arbitration act 1996 consultation paper”, in September 2022 (the ‟First report”). This opened the first consultation period, which closed down on 15 December 2022.

Then, the Law commission published its second consultation paper, entitled ‟Review of the arbitration act 1996 second consultation paper”, in March 2023 (the ‟Second report”). This opened the second consultation period, which closed down on 22 May 2023.

1. Confidentiality

In the First report, the Law commission assesses whether it is time to amend the Act, in order to insert a duty of confidentiality in arbitration in it.

The Law commission sets out, in the First report, that it does not think that making such duty of confidentiality mandatory, in the Act, is appropriate, because:

  • in some areas of arbitration, the default is transparency, not confidentiality, for example in arbitrations involving investor claims against states or when there are child welfare concerns in family law arbitrations;
  • there is a trend towards transparency, for example with an increasing practice of publishing arbitral awards, and
  • there is a debate about the public interest in increased transparency, for example with arbitrations involving public procurement contracts.

So, if the Act provided a default rule of confidentiality, it would necessarily be qualified by (many) mandatory exceptions.

The Law commission therefore concludes that it is a strength that the law of confidentiality can be developed appropriately by the courts, case by case. Also, the Law commission refers to arbitral rules – probably from arbitral institutions such as LCIA and ICC – which contain a variety of approaches to confidentiality, and that, in practice the current regimes usually work well.

Some commentators disagree, in particular in comparison to the above-mentioned Scottish act, which provides that, pursuant to its rule 26, disclosure by a party, the tribunal or any arbitrator of confidential information is actionable as a breach of confidence unless the disclosure:

  • is authorised, expressly or impliedly, by the parties (or can reasonably be considered as having been so authorised);
  • is required by the tribunal or is otherwise made to assist or enable the tribunal to conduct the arbitration;
  • is required (i) in order to comply with any enactment or rule of law; (ii) for the proper performance of the discloser’s public functions; or (iii) in order to enable any public body or office-holder to perform public functions properly;
  • can reasonably be considered as being necessary to protect a party’s lawful interests;
  • is in the public interest;
  • is necessary in the interests of justice; or
  • is made in circumstances in which the discloser would have absolute privilege had the disclosed information been defamatory.

If the Scottish act sets a general duty of confidentiality, before setting out key exemptions to that rule, including those recognised under the law of England & Wales, why would the Act could not?

Like in the French set of rules relating to arbitration, codified at articles 1442 to 1527 of the civil procedural code (‟CPC”), which makes confidentiality the statutory default rule for domestic arbitral procedures (subject to statutory exceptions or explicit agreement between the parties deciding otherwise), setting out, in black and white, in the Act, that confidentiality is the default regime, would increase the attractiveness of arbitral proceedings in England, and London in particular. Referring to ‟English case law, which assumes that arbitration proceedings are confidential” is too vague and muddled, for foreign parties who want to have explicit, clear and transparent provisions, set out in the Act, relating to the confidentiality of their future arbitration proceedings.

We therefore think that the Law commission passed a great opportunity to increase the attractiveness of the Act, with respect to its findings on confidentiality.

2. Independence and disclosure

The First report notes that there is no duty of independence on arbitrators, in the Act, while there is a duty of impartiality on them, set out in its section 33.

Surprisingly, the Law commission thinks that arbitrators can be not independent, yet impartial. That standard of impartiality would be achieved, according to the Law commission, by the arbitrator disclosing any connections to the parties, so that the parties can consider the (dependency or partiality) matter for themselves.

Again, the Law commission refers to English case law – common law – which already recognises that an arbitrator must be free from apparent bias: whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal/arbitrator was biased. According to the Law commission, this is reflected in section 24 of the Act, whereby an arbitrator can be removed by the court if there are justifiable doubts as to this arbitrator’s impartiality.

We thoroughly disagree with this view and think that it is imperative that arbitrators are both independent and impartial. Indeed, it is extremely difficult to be impartial, if one is not independent. Indeed, in our article on the shortcomings and needed areas of improvement for the Court of Arbitration for Sports (‟CAS”), we disclosed that some white male arbitrators had been appointed in a disproportionately large number of CAS arbitrations (i.e. fourteen men have been appointed over 100 times). This issue, which touches on both a lack of diversity and a lack of impartiality, with respect to CAS arbitrators, has come to the fore in a judgment from the Swiss Federal Tribunal (‟SFT”) dated 4 March 2022, in which the SFT had to decide whether the challenged CAS arbitral award should be declared null and void, on the grounds that Mark Hovell, the president of the CAS’ panel of arbitrators, had initially disclosed the fact that he was simultaneously chairing another case involving the ‟Fédération Internationale de Football Association” (‟FIFA”). One of the parties to the CAS arbitration requested further disclosures, which were eventually made on 16 October 2020. These disclosures revealed that this president of the CAS tribunal had been involved in no less than ten additional ongoing arbitrations involving FIFA, in two of which he had been appointed by FIFA itself. They moreover revealed that a colleague of the president’s law firm, Mills & Reeve, had recently advised FIFA on a GDPR-related matter. If CAS – and other arbitral institutions – had a rule that arbitrators have to be both impartial and independent, this unsavoury situation, related above, could not have happened, and the SFT would have had to declare the challenged CAS arbitral award null and void.

We therefore think that, like article 1456 of the French CPC provides, the Act should set out, in black and white, that each arbitrator must disclose, before accepting their mission, each circumstance which may impact their independence and/or impartiality. This would increase the trustworthiness of England, and London in particular, as an appropriate seat of arbitration, for transnational business parties.

3. Discrimination

The First report raises an interesting point, in relation to discrimination, and lack of diversity, in arbitral appointments, i.e. that women are still around three times less likely to be appointed as arbitrators than men. It transpires, from the First report, that some arbitration agreements contain terms which require that the arbitrators be ‟commercial men” (sic). Consequently, ‟commercial women” cannot be appointed as arbitrators, within the scope of such arbitration agreements.

Such rather unsavoury terms set out in some arbitration agreements have led to a Supreme court decision in Hashwani v Jivraj (2011), in which the court said that an arbitrator, although appointed under a contract, was not appointed under a contract of employment, and therefore the employment law rules against discrimination did not apply. This current case law, according to the Law commission, while correct in law, has revealed that equality legislation did not extend to arbitration, which must be questioned as a matter of policy.

Consequently, the First report proposes that:

  • the appointment of an arbitrator should not be susceptible to challenge on the basis of the arbitrator’s protected characteristics (such as their age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation); and
  • any agreement between the parties in relation to the arbitrator’s protected characteristics should be unenforceable, unless, in the context of that arbitration, requiring the arbitrator to have that protected characteristic is a proportionate means of achieving a legitimate aim.

The Law commission adds that discriminatory terms relating to the appointment of an arbitrator in the arbitration agreement would be unenforceable. Similarly, the proposal made by the Law commission would limit the grounds on which to challenge an arbitrator, by precluding discriminatory challenges (so, in practice, the proposal applies when party A makes an appointment, and party B wants to object to it. The proposal only prohibits party B from acting on prejudice, by citing the arbitrator’s protected characteristics as a justification of their objection).

The First report further adds that, in some contexts, it may be appropriate to require an arbitrator to have a particular characteristic, such as a requirement that an arbitrator has a nationality different from the arbitral parties. However, the Law commission sets out that there would be no blanket exceptions, and it would depend on the context of each case.

The Second report investigates the topic of discrimination further, upon receipt of responses from consultees after the end of the first consultation period. Some consultees suggested that it would always be justified to require the arbitrator to have a nationality different (and neutral) from the parties. The Law commission thinks that the nationality of an arbitrator does not matter, if they are impartial. However, in the Second report, the Law commission asks consultees whether they agree that it should be deemed justified to require an arbitrator to have a nationality different from that of the arbitral parties. During the above-mentioned LCIA event in Paris, on 4 July 2023, Mr Tamblyn, from the Law commission, confirmed that no further proposal would be made by the Law commission, with respect to tackling discrimination and requiring an arbitrator to have a neutral nationality.

We applaud the bold move made by the Law commission in the First report, since no country that we are aware of – and certainly not France – has tackled discrimination, inclusivity and diversity head on, in its national legal framework relating to arbitration proceedings. If these amendments are made to the Act, England, and London in particular, will win the heart of many transnational business stakeholders who, at the moment, despair that so few progress has been made, in the arbitration world, in recent years, to improve diversity, and in particular ethnic and gender diversity.

4. Immunity of arbitrators

The First report sets out that section 29 of the Act provides that an arbitrator is not liable for anything done in the purported discharge of their functions as an arbitrator, unless done in bad faith. However, this immunity does not extend to two situations, as follows:

  • an arbitrator may incur liability when they resign, even if such resignation was done for good reasons. For example, an arbitrator is expected to resign if they learn of a conflict of interest – during the course of the arbitration proceedings – which give rise to justifiable doubts as to their impartiality, or if they think that the parties’ agreed procedure is unfair. An arbitrator who resigns can apply to the court for immunity from liability, but such an application involves time and cost, and the courts in England & Wales might not always be readily accessible to non-lawyer or international arbitrators, and
  • when an arbitral party makes an application to court which impugns an arbitrator, for example an application to remove an arbitrator, English case law has held that such arbitrator can be liable for the costs of that application, even if the party making the application is unsuccessful. These costs may be very sizeable and are not covered by professional indemnity insurance.

Consequently, the Law commission thinks that the Act should be amended, with respect to immunity of arbitrators, in order to support an arbitrator in acting impartially. An arbitrator should feel able to make appropriate decisions without the fear that a disapproving party might seek to cow them into submission by threats of challenge which incur personal liability.

Accordingly, the Law commission proposes that the immunity of arbitrators be strengthened in the Act, and, in particular, that the case law which holds them potentially liable for the costs of court applications should be reversed (i.e. by adopting explicit language to this effect in the Act). The Law commission also wants to limit any liability arbitrators may incur upon resigning, to cases in which their resignation is shown to be unreasonable.

These inputs and amendment suggestions to the Act, made by the Law commission, are very wise and will ensure, if implemented, that the best arbitrators in the world agree to hold arbitrations in England, and in particular in London. Indeed, arbitrators will be reassured that their liability is restricted – if not, almost impossible to trigger – should they accept arbitral appointments in London.

5. Summary disposal

A summary judgment (i.e. when the court decides a claim or issue without a trial) may be handed down by an English court, when an issue has no real prospect of success, and there is no other compelling reason why it should be disposed of at a trial.

While summary judgment in court proceedings in England & Wales is well known and well-used, according to the Law commission, section 33(1)(b) of the Act requires that the arbitral tribunal adopt procedures which avoid unnecessary delay and expense. It gives the tribunal the power to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. Together, according to the Law commission, this probably empowers arbitrators to adopt a summary procedure to dispose of issues which are without any merit.

However, the First report notes, there is no express provision in the Act to adopt a summary procedure. Consequently, the Law commission sets out, in the First report, that some arbitrators were reluctant to adopt such summary procedure, for fear that their ruling may be challenged in court. This is because arbitrators are also under a duty to act fairly, and to give each party a reasonable opportunity to put their case (under section 33(1)(a)). Otherwise, an arbitrator’s rulings can be challenged for serious irregularity.

The Law commission therefore proposes to introduce a summary procedure, in the Act, that will vary according to the circumstances of the case, but should always allow a party a reasonable opportunity to argue that the issue should proceed beyond a summary procedure to a full hearing. Such summary procedure should be a combination of procedural due process and a suitable threshold for disposing of issues. Accordingly, the Law commission proposes that the Act should provide explicitly that an arbitral tribunal may adopt a summary procedure to dispose of a claim or defence. Such a provision should be non-mandatory: the parties should be able to agree to opt out from it in their arbitration agreement. Such summary procedure would require an application by one of the parties, and that such procedure to be adopted would be a matter for the arbitral tribunal, in the circumstances of the case, in consultation with the parties. As for the threshold, the Law commission proposes either that some arbitral rules use the sentence ‟manifestly without merit”, to describe issues which might be disposed of summarily, or that the test of ‟no real prospect of success” be introduced (like it is already used in English court proceedings).

Such an express provision would reassure arbitrators that a summary procedure can be fair, systematically processed and measured, in appropriate circumstances. It would support arbitrators in their duty to resolve disputes without unnecessary delay or expense.

We think that this innovation would be welcome, improve the efficiency of proceedings and bring the Act on a par with various institutional rules which already provide for summary disposal.

6. Court orders in support of arbitral proceedings

In the First report, the Law commission points out that section 44 of the Act provides that the court has power to make orders in support of arbitral proceedings. Section 44(2) lists the matters about which the court can make such orders (i.e. taking evidence of witnesses, taking of preserving evidence, granting an interim injunction, making orders to preserve assets, etc.).

Two questions have arisen about the operation of section 44: firstly, whether the court could make orders against third parties (who are not party to the arbitral proceedings), secondly to what extent section 44 is available when arbitral parties have also agreed a regime which provides for an emergency arbitrator.

With respect to the first point, the Law commission thinks that the powers of the court in arbitral proceedings, under section 44 of the Act, are the same powers of the court in domestic court proceedings. Accordingly, the Law commission finds that the court can make orders under section 44 against third parties, in appropriate cases. And ponders as to whether such powers of the court should be made explicit in the Act (of course they should!). The First report also clarifies that, where orders are made against third parties during the course of arbitration proceedings, those third parties should have the usual full right of appeal – rather than the restricted right of appeal which applies to arbitral parties. This is because, while arbitral parties have agreed to arbitration and therefore should have limited access to courts, third parties have not agreed to arbitration or to limit their recourse to court.

This reform would be welcome, in order to ensure that arbitration procedures – and arbitrators who conduct them – have the necessary and flexible tools to act, swiftly and decisively, to gather evidence, preserve assets, grant interim injunctions, in collaboration with English courts, and render justice.

With respect to the second point, the Law commission thinks that including provisions, in the Act, for the court to administer a scheme of emergency arbitrators, may go beyond the appropriate level of direct involvement of judges in arbitral proceedings, which is not suited to the courts. Also, the First report is unclear as to whether the Law commission sponsors the creation of statutory provisions, in the Act, that would empower the court to order compliance with a peremptory order of an emergency arbitrator, mirroring the provision currently only available to a fully constituted arbitral tribunal.

We think that both those issues relating to section 44 – court orders and emergency arbitrators – should now be clearly delineated and structured, within the future amended wording of the Act, to clarify, in a transparent, clear and efficient manner, how court orders, the appointment of emergency arbitrators and the enforcement of interim orders, would work, in practice, in England-seated arbitrations. This would make London-seated arbitrations more attractive to foreign parties (who are not familiar with the seminal – and often, rather obtuse – English case law on these topics). France has done exactly that, via article 1449 of the CPC, allowing a party to reach out to French courts, while the arbitral tribunal has not been set up yet, in order to obtain interim, preservation, or instruction measures.

7. Challenging the jurisdiction of the tribunal

In the current version of the Act, when a party to arbitration proceedings thinks that they never agreed to arbitration, or that the arbitral tribunal is incompetent, they may make their objection to the tribunal that it lacks jurisdiction (section 30), or they may make that objection to the court (section 32). Also, if an arbitral party has asked the tribunal to rule on its own jurisdiction under section 30, that party can, if unsatisfied with that ruling, then apply to court under section 32. Additionally, where the arbitral tribunal issues an award, an arbitral party can apply to court, under section 67, to challenge that award on the basis that the tribunal lacked jurisdiction. Such award challenged under section 67 might be an award on jurisdiction, or an award on the merits of the main dispute.

The Law commission points out that the main concern, with those situations, relates to the case where a party has asked the tribunal to rule on its own jurisdiction, under section 30, but, unsatisfied with that ruling, asks the court to consider the jurisdiction of the tribunal under section 67.

Currently, English case law (not the Act) states that such challenge is potentially a full rehearing (i.e. the court can rehear the evidence on jurisdiction, as well as the arguments). Therefore, the ruling by the tribunal is given no weight.

The Law commission, in the First report, asks whether such challenge should be a rehearing, or instead an appeal. With an appeal, the court would not ordinarily hear oral evidence or new evidence. It would ordinarily be limited to a review of the tribunal’s ruling, allowing the appeal only where the tribunal’s ruling was wrong.

The Law commission thinks that, for reasons of reduplication, delay, increased costs and fairness, any subsequent challenge under section 67 should be by way of an appeal, and not a rehearing.

The Law commission further muses as to whether such approach should also apply to applications made under section 32 (appeal, not rehearing), for consistency.

On this same topic, the First report also provisionally proposes that:

  • section 67 be amended to include the further remedy that the court may declare the award to be of no effect (for consistency within section 67 and with similar remedies available under section 68 (Challenge for serious irregularity)), and
  • an arbitral tribunal should be able to make an award of costs in consequence of an award ruling that it has no substantive jurisdiction (as a party who wrongly initiates arbitration proceedings should bear the costs it has caused to be incurred).

In the Second report, and further to the Law commission reviewing responses from consultees received during the first consultation period, it is reiterated that the challenge to the arbitral’s jurisdiction should be an appeal, not a rehearing. In particular, there should be no new arguments, no new evidence, and no rehearing of evidence (especially at the request of the arbitral claimant). According to the Law commission, the court should allow the challenge only where the decision of the arbitral tribunal on its jurisdiction was wrong. But, then, the Law commission sets out, in the Second report, that such appeal process, under section 67, should be encapsulated in rules of court, rather than in the Act! This rather obscure comment was reiterated by Mr Tamblyn, from the Law commission, during the LCIA event on 4 July 2023. Let’s wait and see what the third report, to be issued by the Law commission, says on that point.

The Second report also stresses that, even if a party appeals under section 67 because it did not agree to arbitration (like it happened in the Kabab-Ji v Kout Food case), the arbitral tribunal should still retain the opportunity to rule on its own jurisdiction, under the competence-competence principle. This is enshrined in section 30 of the Act, which provides that the tribunal can rule on its own jurisdiction, and perhaps also before a court does.

8. Appeals on a point of law

In the First report, the last major point raised by the Law commission relates to the scope of section 69 of the Act, which allows an arbitral party to appeal the arbitral award to the court, for the court to reconsider a contested question of law, but only in limited circumstances.

The Law commission decides not to propose any reform to section 69, in the end, because it wants to ensure:

  • the finality of arbitral awards, and
  • that errors of law are corrected, so that the law is applied consistently and in common to everyone,

a balance which, according to the Law commission, section 69 strikes already, in its current wording.

While rarely invoked, there are a few appeals made, each year, under section 69.

The Law commission further stresses that section 69 is non-mandatory, and parties can agree a different position on appeals on points of law – whether more generous or less. This is reflected in arbitration agreements, and arbitral rules from UK-based arbitration institutions such as ICC and LCIA, which have long settled on their preferred relationship with section 69, by opting-in, or opting-out.

This current approach to appealing points of law decided upon in an arbitral award, in England, is way more permissive than the French legal framework applying, in particular, to appeals of international arbitral awards. Indeed, under French law, appeals on points of law of foreign awards are forbidden, and, even if an appeal is lodged (for other reasons than points of law), the enforcement of the challenged international arbitral award will still go ahead, on French soil, during the duration of the appeal process.

We think that the English approach to appeals on points of law, of arbitral awards, is way more sensible and appropriate than the French approach, in terms of fairness and equity (as, even in court proceedings, parties always have the right to appeal the first-degree decision). We therefore think that the Law commission’s decision to leave section 69 of the Act as it is, is sound and will in no way impact the competitiveness of London as the top arbitration centre, in particular vis-à-vis Paris.

9. Proper law of the arbitration agreement

The Second report mentioned a new proposal for reform of the Act, which had not been raised in the First report. This is because thirty-one responses to the First report asked the Law Commission to reconsider the question of the proper law of an arbitration agreement.

Identifying the proper law of an arbitration agreement can be complex, since it usually is a clause set out in a main contract (the matrix contract) and that the governing laws of the arbitration agreement and the matrix contract may defer. Also, the law of the matrix contract and arbitration agreement may, or may not, align with the law of the seat (i.e. the law of the judicial place where the arbitration is legally deemed to occur). Finally, when the arbitration agreement (or clause) is silent as to its governing law, it is necessary to determine what such governing law might be.

As explained in our article on the Kabab-Ji v Kout Food case, the current law in England for determining the proper law of an arbitration agreement was set out in the Supreme court decision Enka v Chubb (2020), as follows:

  • if there is a choice of law, express or implied, in the arbitration agreement, then that chosen law will govern the arbitration agreement, unless that choice of law is contrary to public policy;
  • if there is no such choice, and if the arbitration agreement forms part of a matrix contract, and if there is a choice of law, express or implied, for the matrix contract, then that chosen law will also govern the arbitration agreement;
  • if there is no choice of law anywhere, the arbitration agreement will be governed by the law with which it has the closest and most real connection, which is the law of the seat of the arbitration.

Consultees thought that the process set out in Enka v Chubb is not only complex, but also results in many more arbitration agreements being governed by foreign law. This is because many international contracts, despite providing for an arbitration to be seated in England (London!), have a foreign choice of law clause in the matrix contract.

In turn, the Law commission says in its Second report, that this may lead to an increased need for parties to present expert evidence on how that foreign law governs the arbitration agreement, which might increase delay and costs. And the applicability of foreign law would also oust English law on a number of important topics, such as separability, arbitrability, scope and confidentiality.

So, in the Second report, the Law commission proposes that a new rule be introduced into the Act, to the effect that the law of the arbitration agreement be the law of the seat, unless the parties expressly agree otherwise in the arbitration agreement itself. That default rule in favour of the law of the seat would see more arbitration agreements governed by English law, when those arbitrations are also seated in England & Wales. It would remove uncertainty over which law governs an arbitration agreement.

This new proposal from the Law commission, on the law of the arbitration agreement, would put the English regime on a par with the French one, which, pursuant to French material rules of international arbitration, also applies the law of the seat to arbitration agreements which do not set out any clear choice of law. This amendment in the Act would avoid a repeat of the nonsensical situation, which occurred in the Kabab-Ji v Kout Food case, where English courts unanimously found that the challenged arbitration agreement was governed by English law, rather than French law, pursuant to the Enka v Chubb case law, because the law of the matrix contract was English law, while French courts unanimously decided that the same arbitration agreement was governed by French law, pursuant to the French material rules of international arbitration which elected the law of the seat as the governing law.

All in all, the 4 July 2023 LCIA event on the consultation review of the arbitration act 1996, in Paris, was delightful and mind-titillating. We look forward to hearing more on this topic from the Law commission, which may publish a third paper, and/or power through to the policy development stage and present its findings to the UK parliament. As two-thirds of the Law commission’s recommendations are implemented, it is a safe bet to say that changes is on the way – for the better – to the English arbitration framework.

Crefovi’s live webinar: Consultation review of Arbitration act 1996 – an evolution not a revolution? – 2 August 2023

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