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Nested Contact Groups - Outlook 2016 / Office 365

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I'm having trouble sending email when using nested local contact groups.

 

The contact group I'm using to send is called "Group 2" and "Group 1" is member of that group.

 

Sending to "Group 1" on it's own works, it's only when I add it to "Group 2" that I see the below error.

 

The error I'm seeing is:

 

Your message did not reach some or all of the intended recipients.

      Subject:    Test #12
      Sent:    10/11/2017 10:08 AM

The following recipient(s) cannot be reached:

      'Group 1' on 10/11/2017 10:08 AM
            None of your email accounts could send to this recipient.

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