Protheroe v Protheroe [2023] NSWCA 328 | Case summary

Court of Appeal (NSW)|2023-11-13|Before: Meagher JA, Mitchelmore JA, Slattery J

Background

The Protheroe family had farmed the Elmore property for over a century. Colin took the property over from his father in the 1960s. In the 1970s, Colin acquired the neighbouring property of Shannon Vale. Brian was born in 1976. He assisted with running the farms from an early age and, over time, became more involved in the management of the family's farming enterprise.
Through the 2000s, Colin and Brian's business strategy was to acquire irrigation farms around Narrandera. Some of the irrigation properties subsequently acquired were referred to as the "Strontian Trust farms". By 2008, the farming enterprises were conducted on just under 14,000 acres. Later acquisitions were funded by lending facilities with NAB. Those facilities were in default from at least 2012. In 2013, NAB threatened proceedings. The parties undertook a farm debt mediation and NAB agreed to postpone the sale of the mortgaged properties, giving the family until April 2014 to sell some of them. That did not occur and, in November 2014, NAB commenced the NAB proceedings for possession of all of the farms securing the debt.

The negotiation of the Deed

There was a mediation between NAB and Colin in February 2017 and, at about the same time, the NAB proceedings were fixed for hearing in July. The subject matter of those proceedings was the existing bank debt and the claim by NAB to enforce its securities over the three remaining properties held by Colin: Elmore, Shannon Vale and Delwood. Discussions between the bank and Colin were "reopened" in early June (J[183]). An in principle agreement was reached. Brian did not participate in the negotiations leading to that agreement (J[184]).
The "key terms" were set out in an email from NAB's solicitor to Colin's solicitor of 9 June 2017. They were: 1. Mr Protheroe immediately consents to judgment in favour of NAB (being monetary judgment and orders for possession). 2. NAB will not take any steps to enforce its judgment before 30 September 2017. 3. If Mr Protheroe pays NAB $1m by 30 September 2017, NAB releases all securities, guarantees and remaining liabilities and receivers retire. 4. If Mr Protheroe does not pay NAB $1m on 30 September 2017, Mr Protheroe hands over possession of his properties (and any farm equipment, water licence) immediately without any further argument. 5. All Protheroe parties having any involvement in the matter, including sons, release NAB and the receivers from all claims. 6. The 30 September 2017 deadline is fixed and will not be extended.
The email noted that the terms of the proposed settlement would "require the co-operation of Mr Protheroe's sons, and in particular Brian as a director of [CHP]" and that it was "Mr Protheroe's responsibility to procure his son's co-operation". Finally, the email requested that Colin confirm his "wishes" to settle the matter on the terms proposed before Friday 16 June 2017, and indicated that "the settlement documentation" would be circulated in the next week.
At this time Mr Jefferies, a solicitor, was acting for Brian and John, each of whom had provided a guarantee to NAB in connection with various facilities to Colin and CHP. In an email to Brian on 13 June 2017, Mr Jefferies recorded that he had spoken with a solicitor for NAB who confirmed the existence of the in principle settlement and that it was subject to the execution of a deed. Mr Jefferies continued: This would be a walk away for you and your brother. I am also seeking full releases (mutual) from your father as well, subject to your instructions, and the receiver. The draft Deed should be provided to me tomorrow.
There is no evidence that Mr Jefferies received a draft of the Deed on the following day (cf J[183], which in suggesting otherwise is not supported by the evidence). The evidence indicates that the first draft of the settlement deed was provided by NAB's lawyers to Colin's lawyer on the afternoon of 16 June 2017.
Colin had not confirmed his agreement to the proposal outlined in the earlier email of 9 June 2017 before the first deadline of 16 June 2017. Indeed, he had not indicated his agreement to the proposal by the morning of 22 June 2017.
On 26 June 2017, Mr Jefferies received a draft version of the Deed which was described as containing "edits that were requested by Colin". Those edits included proposed amendments to cll 7.2 and 7.3, which were underlined (as appears below): 7.2 Releases between Borrower Parties On and from the Effective Date, each of the Borrower Parties other than the Company releases and discharges each other Borrower Party and their directors, officers, employees or agents (as applicable) from all Claims which he, she or it has or which but for this document he, she or it could, would or might at any time hereafter have or have had against each other Borrower Party and each of the directors, officers, employees or agents (as applicable) of each other Borrower Party in connection with or arising out of the matters alleged in the Proceedings and the matters set out in the Statement of Agreed Facts. 7.3 NAB release of Brian Protheroe and John Protheroe On and from the Effective Date, each of NAB and the Company releases and discharges each of Brian Protheroe and John Protheroe from all Claims which NAB or the Company has or which but for this document it could, would or might at any time hereafter have or have had against either of them Brian Protheroe or John Protheroe in connection with or arising out of the matters alleged in the Proceedings and the matters set out in the Statement of Agreed Facts.
On receipt of that draft, Mr Jefferies immediately responded on a "without prejudice" basis to NAB's solicitors. His focus was on cl 7.2: I have not taken instructions from my clients as yet, however would you please provide me with an explanation to the proposed amendments to Clause 7.2 as my clients do not want to have the Company taking any action as against them (notwithstanding Clause 9(c)).
Mr Jefferies then took instructions from Brian and communicated those instructions to NAB's solicitors on 28 June 2017: Regarding Clause 7.2 - I am instructed that they wish to insert the following - Borrower Parties other than the Company (except in its capacity as trustee of CH Protheroe Family Trust & Strontian Trust)…
NAB's solicitors responded on the same day, pointing out that the further amendment sought by Brian and John to cl 7.2 was not necessary for their protection in view of the existing release in their favour in cl 7.3. From NAB's perspective, the primary difficulty was that the change to cl 7.2 would create a conflict with cl 8, the effect of which was to make NAB and CHP's release of any claims against Colin conditional upon Colin's payment of the settlement sum to NAB.
The Deed as finally executed in July 2017 did not contain the further amendment sought by Brian and John to cl 7.2, but did contain the amendments proposed by Colin (see below at [32]).

The terms of the Deed

The parties to the Deed were NAB, the receivers of CHP and the "Borrower Parties", defined as "the Parties other than NAB and the Receivers", which in turn described CHP, Colin, Elmore Farming Pty Ltd and Colin's wife, Ms Gyberg (together, the "Protheroe Parties"), as well as Brian and John.
Recital A provided that the "background" to the Deed was set out in the Statement of Agreed Facts. The 32 paragraphs of the Statement of Agreed Facts were divided under the following headings - Background, Default, The Proceedings, Receivership of the Company, Sale of Properties, and Other matters. The word "background" in Recital A is to be read as referring to all of the matters set out in the Statement of Agreed Facts, rather than only to those appearing under the first heading.
By cl 3, the parties agreed to settle the NAB proceedings on the terms of a consent judgment, which provided for judgment against Colin and CHP in the sum of $6.74 million and possession of the Elmore, Shannon Vale and Delwood properties. NAB agreed not to enforce that consent judgment if Colin paid $1 million to the bank by 5pm on 29 September 2017 (cll 4, 5).
Clause 7 contained the releases by the parties: cl 7.1, the releases by the Borrower Parties of NAB and the Receivers; cl 7.2, the releases between the Borrower Parties; and, cl 7.3, the releases by NAB and CHP of Brian and John.
The final form of cll 7.2 and 7.3 was as follows: 7.2 Releases between Borrower Parties On and from the Effective Date, each of the Borrower Parties other than the Company releases and discharges each other Borrower Party and their directors, officers, employees or agents (as applicable) from all Claims which he, she or it has or which but for this document he, she or it could, would or might at any time hereafter have or have had against each other Borrower Party and each of the directors, officers, employees or agents (as applicable) of each other Borrower Party in connection with or arising out of the matters alleged in the Proceedings and the matters set out in the Statement of Agreed Facts. (Emphasis added.) 7.3 NAB release of Brian Protheroe and John Protheroe On and from the Effective Date, each of NAB and the Company releases and discharges each of Brian Protheroe and John Protheroe from all Claims which NAB or the Company has or which but for this document it could, would or might at any time hereafter have or have had against either of Brian Protheroe or John Protheroe in connection with or arising out of the matters alleged in the Proceedings and the matters set out in the Statement of Agreed Facts.
The reference to the "Company" was to CHP. "Claim" was defined as: All liabilities, claims, demands, suits, causes of action, damages, debts, verdicts and judgments whatsoever whether at law or in equity or under any statute in connection with or arising out of the circumstances referred to in the Proceedings and the matters set out in the Statement of Agreed Facts, whether known or unknown by any Parties as at the date of this document. (Emphasis added.)
Clause 9 described the circumstances in which the Deed could be relied on as a bar to any "Claim", principally meaning any suit or cause of action brought for damages, debt or otherwise. The provision that would bar a claim brought by one Borrower Party against another was cl 9(b): 9 Bar to further Proceedings … (b) From the Effective Date, this document may be pleaded by the Borrower Parties as a full and complete defence to any Claim by any other Borrower Party other than the Company arising out of any of the facts, matters and circumstances referred to in the Proceedings or any of the matters set out in the Statement of Agreed Facts.
The terms of the release in cl 7.2 are broader than those of the bar in cl 9(b). No attention was drawn to this difference in argument, the parties accepting, correctly in my view, that the release is the primary provision to be construed and applied. If that provision is engaged, the releasee has the benefit of a release which may be pleaded or otherwise relied on without recourse to cl 9(b), which in substance is confirmatory of a releasee's right to plead the release in answer to any released claim.

Disposition

In determining whether, by the application of cl 7.2, Colin had the benefit of a release from and discharge of Brian's proprietary estoppel claim, the primary judge did not distinguish between the principles applying to the construction of contracts, including deeds, which require that their meaning be determined objectively (as to which see Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [36]-[42]), and the application of the equitable doctrine considered in Grant v John Grant at 124-129.
Equity may in its auxiliary jurisdiction relieve a releasor from unconscientious reliance by a releasee on the general words of a release. The underlying equitable doctrine was described by Pollock CB in Lyall v Edwards (1861) 6 H & N 337 at 347 [158 ER 139 at 143] as being "that a release cannot apply, or be intended to apply to circumstances of which a party had no knowledge at the time he executed it, and that if it is so general in its terms as to include matters never contemplated, the party will be entitled to relief" (emphasis added).
In Grant v John Grant, the release was in general terms and applied to any claim whatsoever that each party "at any time had or has at or prior to the completion [of the agreement] against the other for or by reason or in any respect of any act, cause, matter or thing" (at 122). The defendant pleaded that release in answer to the plaintiff's money claim. In reply, the plaintiff relied on three matters, the first and second of which were directed to the construction of the release at law (at 123-125). The third assumed the release did apply to the claim and maintained that the defendant's reliance on the general words of the release was liable to be restrained in equity.
The plurality (Dixon CJ, Fullagar, Kitto and Taylor JJ) described the releasor's equity as proceeding upon the principle that (at 129-130): … a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.
That principle might provide an answer to a defence of release, such as that raised by Colin, if the claim is within the terms of the release on its proper construction at law. While the entitlement to equitable relief does not strictly depend upon it first being established that the release applies at law (see Reid v Commonwealth Bank of Australia (2022) 109 NSWLR 149; [2022] NSWCA 134 at [33]-[34] per Leeming JA; and Grant v John Grant at 128-129), ordinarily the occasion for considering such equitable relief will not arise if, on its proper legal construction, the release does not apply to the relevant claim.
Accordingly, if on the proper construction of cl 7.2 Brian's claim is not released, it is unnecessary to consider whether equity might in any event have permanently restrained Colin from relying upon the general terms of the release.
Colin's case before the primary judge and in this Court was that Brian's claim had arisen by the time the Deed was executed. To answer the description in cl 7.2, such a claim had to be one which Brian "has … in connection with or arising out of" matters either alleged in the NAB proceedings or set out in the Statement of Agreed Facts.
The only matter which it is submitted brings Brian's claim within the scope of the release in cl 7.2 is the reference to Colin's ownership of the Elmore and Shannon Vale properties in par 3 of the Statement of Agreed Facts. That paragraph states: 3. As security for the finance provided by NAB: a. Mr Protheroe granted mortgages in favour of NAB over various farms owned by him, being farms known as "Inverleigh", "Piney Range", "Elwood" [sic: "Elmore"], "Delwood" and "Shannon Vale" and a licensed hotel known as the "Hydro Tavern"; and b. the Company granted: i. mortgages in favour of NAB over various farms that it owned being the farms known as "Strontian", "Glen Ayr" and "Walleringa"; and ii. a fixed and floating charge in favour of NAB over all assets owned by it in its own capacity and as trustee of the CH Protheroe Family Trust; c. each of the Company, Colin Protheroe and Colin Protheroe's sons, Brian Protheroe and John Protheroe provided guarantees in favour of NAB in connection with the Facilities (together, the Securities). (Emphasis added.)
Although in oral argument Colin's counsel also relied on allegations made in the NAB proceedings that Colin was the "registered proprietor" of the Elmore and Shannon Vale properties, he accepted that these references to the ownership of those properties took his argument no further than those in par 3 of the Statement of Agreed Facts.
The factual matters in par 3 appear under the heading "Background" and identify the mortgages, charges or guarantees given by Colin, CHP, Brian and John to NAB between 2008 and 2010 for the term, overdraft and equipment finance facilities provided by NAB to Colin and CHP. Paragraphs 3(a) and (b) identify Colin and CHP as owners of farm properties mortgaged to the bank. Under a later heading, "The Proceedings", it is recorded that NAB commenced the NAB proceedings against Colin and CHP, that in those proceedings Colin brought a cross-claim, and that NAB denied the allegations contained in that cross-claim.
There is no suggestion in the Statement of Agreed Facts that there was any issue or question as to Colin's legal ownership or as to the efficacy of the mortgages he granted to the bank. Nor is there any reference whatsoever to any claim by Brian to a beneficial interest in any of the properties or to any dispute between Colin and Brian as to whether Brian was entitled to any such interest.
The phrase "in connection with" is "capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote" (Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 288; [1993] FCA 456) and does not require a causal relation between the subject and object of the connection (CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121 at [210]). The nature and degree of connection which will sufficiently answer that description in a particular case depends on the context and purpose for which the connection is required. Here, that purpose is to identify claims which are released by reason of their connection with particular matters.
Use of the word "matters" in cl 7.2 suggests something material or of substance with which a claim may be connected, or out of which a claim may arise, rather than an isolated fact without regard to the context in which that fact may have been alleged or stated.
The other relational phrase, "arising out of", is narrower and requires "some causal or consequential relationship between the subject and the object, but [does] not require the direct or proximate relationship which would be necessary if the expression was 'caused by'" (CSR Limited v Adecco at [206]). See also Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1; [2008] NSWCA 114 at [45]-[68] (per Basten JA).
Brian's claim arose out of events occurring and assurances given as between Colin and Brian over a long period commencing around the time that Brian left school. In no sense did it arise out of or result from the fact that Colin was legal owner of the two properties and had mortgaged them to NAB. Whilst Colin's ownership of the properties was necessary for the relief sought by Brian, his claim did not arise from or as a consequence of that ownership. Rather it arose from Colin's conduct, including statements and assurances with respect to the properties, and Brian's detrimental reliance on that conduct. Nor did Brian's claim have any relevant connection with the fact of ownership, which taken alone did not signify the existence of any claim, the identity of the claimant, the circumstances giving rise to any such claim or the nature of the claim.
Implicitly acknowledging the foregoing analysis, Colin's case is not that there is a sufficient connection or relationship between Brian's proprietary estoppel claim and the fact that Colin as legal owner had mortgaged the Elmore and Shannon Vale properties to NAB between 2008 and 2010. Rather, Colin's argument is that the reference to his ownership in par 3(a) is to be understood, in circumstances where there is no reference to Brian's claim (or to any other claim) to a beneficial interest in those properties, as conveying that Colin's legal interest was not subject to any such beneficial interest. It is said to follow that Brian's claim was connected to, in the sense of being inconsistent with, the statement as to Colin's ownership. Attempting to accommodate the language of cl 7.2, that claim is "in connection with … the matters set out in the Statement of Agreed Facts" because it seeks to contradict one of those matters.
This argument should be rejected.
Paragraph 3 of the Statement of Agreed Facts is concerned with the recording of securities granted by Colin and CHP to NAB in relation to facilities taken out between 2008 and 2010. It was a necessary incident of the granting of those securities that Colin and CHP be the legal owners of the relevant properties. No mention is made as to whether the beneficial ownership of those properties is in someone other than Colin. So much is clear from the distinction drawn by pars 3(a) and (b) between the properties "owned" by Colin, including Elmore and Shannon Vale, and the properties "owned" by CHP. In particular, the fact that the properties referred to in par 3(b)(i) were at the relevant time held by CHP in its capacity as trustee of the Strontian Trust, the beneficiaries of which were Colin, Brian and John, means the reference to those properties being "owned" by CHP was to be understood as necessarily limited to ownership in a legal sense. There is no reason to read the earlier reference in par 3(a) to the properties "owned" by Colin as saying anything about the beneficial ownership, or any claims to a beneficial ownership, in those properties.
That is confirmed by reference to the circumstances in which the release was executed and its textual context. In addition to considering the application of the equitable doctrine referred to above, Grant v John Grant contains often-cited statements as to the principles applicable to the proper interpretation at law of a general release. The first is that the general words of the release are to be read subject to the particular matters that are shown by the recitals to be the "occasion of the instrument" (at 131). The second and related principle is that the words of release should be construed with regard to the tenor of the deed, a reference to "indications … in the provisions of the deed" as to whether or not a general release was intended to go beyond the immediate area of disputation between the parties (at 131-132). In other words, the general release provision must be construed in its commercial context and also its broader textual context.
Here, the release in cl 7.2 is limited by the requirement that any claim to be released be connected with or arise out of the allegations in the NAB proceedings or agreed facts as stated. Those limitations focus principally on the relationship between NAB and Colin, CHP, Brian and John, and in that context do not contain any reference to claims such as the one made by Brian. In those circumstances, the references to "ownership" in par 3 are to be read as directed to matters happening as between the bank and the borrower parties, particularly with respect to the granting of mortgages and other securities. There is no reason in the text of the Deed or in the surrounding circumstances for reading its language as saying anything about any beneficial interests held or claimed with respect to the properties owned by Colin and mortgaged to NAB.
So much is consistent with the primary judge's finding that the purpose of the Deed was "recording the end of the relationship between members of the Protheroe family and the NAB" (J[229]).
In the result, the appeal should be dismissed on the basis that Brian's claim was not released by cl 7.2 of the Deed.

Conclusion

The following orders should be made: 1. Appeal dismissed. 2. Appellant pay the respondent's costs of the appeal.
MITCHELMORE JA: I agree with Meagher JA.
BASTEN AJA: I agree with Meagher JA.

Amendments 29 January 2024 - Removed "Background" subheading between [1] and [2] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 January 2024

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Colin Protheroe, owns two properties called Elmore and Shannon Vale. The respondent, Brian Protheroe, is Colin's son. His claim to a proprietary estoppel was successful at first instance, with the primary judge making a declaration that the two properties were held by Colin on constructive trust for Brian. Colin and Brian and others were parties to a deed of release and settlement with NAB. Clause 7.2 of the deed provided that the borrower parties, who included Colin and Brian, released each other from all claims "in connection with or arising out of … the matters set out in the Statement of Agreed Facts". Paragraph 3(a) of the agreed facts recorded that Colin was owner of Elmore and Shannon Vale and made no mention of the possibility of Brian's equitable claim. Ground 1 of the appeal was directed to the conditions of relief granted by the primary judge. It was abandoned during oral submissions. The remaining and only issue in the appeal is whether the primary judge correctly concluded that cl 7.2 did not operate to release Colin from Brian's proprietary estoppel claim. The Court (Meagher JA, Mitchelmore JA and Basten AJA agreeing) dismissed the appeal, holding: (1) In determining whether Colin had the benefit of a release under cl 7.2, the parties and the primary judge did not clearly distinguish between the principles applicable to the construction of contracts at law and the application of the equitable doctrine considered in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112; [1954] HCA 23: [9], [36] (Meagher JA); [59] (Mitchelmore JA); [60] (Basten AJA). (2) That equitable doctrine might provide an answer to a defence of release, such as that raised by Colin, if the claim is within the terms of the release on its proper construction at law. However, while the entitlement to equitable relief does not depend upon it first being established that the release applies at law, the occasion for considering equitable relief will generally not arise if, on its proper legal construction, the release does not apply to the relevant claim: [37]-[41] (Meagher JA); [59] (Mitchelmore JA); [60] (Basten AJA). Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112; [1954] HCA 23; Reid v Commonwealth Bank of Australia (2022) 109 NSWLR 149; [2022] NSWCA 134, applied. (3) In the present case, on its proper construction, the release does not apply to Brian's proprietary estoppel claim. That claim is not "in connection with" and does not arise out of any matter set out in the Statement of Agreed Facts as contended for by Colin. The matter relied on was a statement in par 3(a) of the agreed facts that Colin was the "owner" of the two properties. Colin contended that this statement conveyed that his legal ownership was not subject to some other beneficial interest; and that Brian's claim was connected with such a statement because it sought to contradict it. The statement as to ownership did not say anything about beneficial ownership. Furthermore, there was no relevant connection with the fact of ownership, which, taken alone, did not signify the existence of any claim, the identity of the claimant, the circumstances giving rise to the claim or its nature. Nor did the claim arise out of the fact of ownership in the sense that the claim was a consequence of that fact: [42]-[56] (Meagher JA); [59] (Mitchelmore JA); [60] (Basten AJA). Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280; [1993] FCA 456; CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121; Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1; [2008] NSWCA 114, considered.

JUDGMENT

MEAGHER JA: The narrow question raised by this appeal is whether the terms of a release contained in a deed of settlement between a bank and several borrower parties capture and release a claim by one of the borrower parties against another.
The respondent, Brian Protheroe (Brian), is the son of the appellant, Colin Protheroe (Colin). Brian claims a beneficial interest in two farms near Narrandera, NSW called Elmore and Shannon Vale. Those farms are currently owned by Colin. Brian's case is that Colin made representations over many years that Brian would be entitled to the farms upon Colin's retirement or death, which representations he relied upon to his detriment including by making a decision not to attend university, by continuing to work on the family properties, initially for no or minimal wages, and by not pursuing other work and career opportunities.
The primary judge (Slattery J) upheld Brian's claim to a proprietary estoppel and made a declaration that the two farms were held by Colin on constructive trust for Brian (Protheroe v Protheroe [2023] NSWSC 188). In fashioning that remedy, the primary judge required, as a condition of the transfer of the properties, that Brian first discharge a mortgage in favour of the Commonwealth Bank of Australia (CBA) over the two farms of $780,000 and pay Colin a sum of $1.1 million to enable Colin "to acquire and conduct a viable small rural hospitality business".

(2022) 109 NSWLR 149

Protheroe v Protheroe

At a glance

Court

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Before

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Source

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Judgment (6 paragraphs)

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Cases Cited (15)

Cited By (4)