--- a/mercurial-server/src/jetbrains/buildServer/buildTriggers/vcs/mercurial/HgVcsRootFactory.java	Thu May 30 15:09:10 2013 +0400
+++ b/mercurial-server/src/jetbrains/buildServer/buildTriggers/vcs/mercurial/HgVcsRootFactory.java	Mon Jun 03 15:12:12 2013 +0400
@@ -7,6 +7,7 @@
 import org.jetbrains.annotations.NotNull;
 
 import java.io.File;
+import java.io.IOException;
 
 /**
  * @author dmitry.neverov
@@ -23,23 +24,36 @@
   public HgVcsRoot createHgRoot(@NotNull VcsRoot root) throws VcsException {
     HgVcsRoot hgRoot = new HgVcsRoot(root);
     String customClonePath = hgRoot.getCustomClonePath();
-    if (!StringUtil.isEmptyOrSpaces(customClonePath) && !myDefaultWorkFolderParent.equals(new File(customClonePath).getAbsoluteFile())) {
-      File parentDir = new File(customClonePath);
-      createClonedRepositoryParentDir(parentDir);
+    if (StringUtil.isEmptyOrSpaces(customClonePath))
+      return hgRoot;
 
-      // take last part of repository path
-      String repPath = hgRoot.getRepository();
-      String[] splitted = repPath.split("[/\\\\]");
-      if (splitted.length > 0) {
-        repPath = splitted[splitted.length-1];
-      }
+    File canonicalCustomCloneDir = getCanonicalCustomCloneDir(customClonePath);
+    if (myDefaultWorkFolderParent.equals(canonicalCustomCloneDir))
+      return hgRoot;
 
-      File customWorkingDir = new File(parentDir, repPath);
-      hgRoot.setCustomWorkingDir(customWorkingDir);
+    createClonedRepositoryParentDir(canonicalCustomCloneDir);
+
+    // take last part of repository path
+    String repPath = hgRoot.getRepository();
+    String[] splitted = repPath.split("[/\\\\]");
+    if (splitted.length > 0) {
+      repPath = splitted[splitted.length-1];
     }
+
+    File customWorkingDir = new File(canonicalCustomCloneDir, repPath);
+    hgRoot.setCustomWorkingDir(customWorkingDir);
+
     return hgRoot;
   }
 
+  private File getCanonicalCustomCloneDir(@NotNull String customClonePath) throws VcsException {
+    try {
+      return new File(customClonePath).getCanonicalFile();
+    } catch (IOException e) {
+      throw new VcsException("Cannot resolve custom clone path", e);
+    }
+  }
+
   private void createClonedRepositoryParentDir(final File parentDir) throws VcsException {
     if (!parentDir.exists() && !parentDir.mkdirs())
       throw new VcsException("Failed to create parent directory for cloned repository: " + parentDir.getAbsolutePath());

--- a/mercurial-tests/src/jetbrains/buildServer/buildTriggers/vcs/mercurial/HgVcsRootFactoryTest.java	Thu May 30 15:09:10 2013 +0400
+++ b/mercurial-tests/src/jetbrains/buildServer/buildTriggers/vcs/mercurial/HgVcsRootFactoryTest.java	Mon Jun 03 15:12:12 2013 +0400
@@ -8,9 +8,12 @@
 import org.testng.annotations.BeforeMethod;
 import org.testng.annotations.Test;
 
+import java.io.File;
+
 import static jetbrains.buildServer.buildTriggers.vcs.mercurial.ServerPluginConfigBuilder.serverPluginConfig;
 import static jetbrains.buildServer.buildTriggers.vcs.mercurial.VcsRootBuilder.vcsRoot;
 import static org.testng.AssertJUnit.assertFalse;
+import static org.testng.AssertJUnit.assertNull;
 
 @Test
 public class HgVcsRootFactoryTest {
@@ -43,4 +46,19 @@
     assertFalse("Custom clone dir contains password", hgRoot.getCustomWorkingDir().getName().contains(password));
   }
 
+
+  @TestFor(issues = "TW-28974")
+  public void should_use_default_dirs() throws Exception {
+    TempFiles tmp = new TempFiles();
+    File cachesDir = tmp.createTempDir();
+    File nonCanonicalCachesDir = new File(cachesDir.getCanonicalPath() + "/../" + cachesDir.getName());
+    ServerPluginConfig pluginConfig = serverPluginConfig().cachesDir(cachesDir).build();
+    VcsRoot root = vcsRoot()
+            .withUrl("http://acme.com/repo")
+            .withCloneRepositoryTo(nonCanonicalCachesDir)
+            .build();
+    HgVcsRoot hgRoot = new HgVcsRootFactory(pluginConfig).createHgRoot(root);
+    assertNull("Custom working dir is used instead of default one", hgRoot.getCustomWorkingDir());
+  }
+
 }