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[2016] ZAGPPHC 533
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Potgieter and Another v Meyer (77243.2015) [2016] ZAGPPHC 533 (4 March 2016)
HIGH
COURT OF SOUTH AFRICA (GAUTENG DIVISION, PRETORIA)
Not
reportable
Not of
interest to other
Judges
CASE
NO:
77243/2015
DATE:
4 MARCH 2016
In the matter
between:
JOHANNES
ARNOLDUS
POTGIETER
First
Applicant
MCCOMB TRADlNG CC
T/A SCISSORS HANDS Second Applicant
and
FRANCOIS MICHAEL
MEYER
Respondent
Coram: Makgoka, J
Summary: Interdict
-
Restraint of trade
-
Sale of shares agreement- whether restraint was part of the
agreement- rectification of agreement
-
whether restraint reasonable and enforceable
ORDER
1. It is declared that
the restraint of trade clause\ in the agreement concluded between the
first and second applicants, on the
one hand, and the respondent, on
the other, on 12 March 2015, is valid and enforceable;
2.The respondent is
accordingly, interdicted from:
2.1 having an interest
in any hair or beauty salon or business within a radius of fifteen
kilometres from the second applicant;
2.2 encouraging any
employee to leave the employment of the second applicant;
2.3 interfering with
the employment relationships between the second applicant and any
of its employees;
2.4 in any manner
offering employment to, or employment to be offered to, or cause to
be employed or assist in the employment
of any employee or former
employee of the second applicant;
3. The respondent is
ordered to pay the costs of the application.
J U D G M E N T
MAKGOKA.
J
Introduction
[2] On 4 March 2016 I
made an order interdicting the respondent from breaching the terms of
a restraint trade in an agreement, in
the following terms:
1. It is declared that
the restraint of trade clause in the agreement concluded between the
first and second applicants, on the
one hand, and the respondent, on
the other, on 12 March 2015, is valid and enforceable;
2. The respondent is
accordingly, interdicted from:
2.1 having an interest in
any hair or beauty salon or business within a radius of fifteen
kilometres from the second applicant;
2.2
encouraging any employee to leave the employment of the second
applicant;
2.3 interfering with the
employment relationships between the second applicant and any of its
employees;
2.4 in any manner
offering employment to, or employment to be offered to, or cause to
be employed or assist in the employment of
any employee or former
employee of the second applicant;
3. The respondent is
ordered to pay the costs of the application.
[3] I undertook to
furnish the reasons for that order later. These are the reasons. This
first and second applicants seek to enforce
a restraint of clause in
an agreement.
[1]
They seek an
interdict prohibiting the respondent from having any interest in any
hair or beauty salon or business within a radius
of 15 kilometers
from the
second applicant's business premises. The applicants further seek
ancillary relief, concerning
the
solicitation of the employees of the second applicant.
The facts
[4) The facts are
simple. The first applicant (Mr Potgieter) is the sole member of the
second applicant, a close corporation, which
conducts business of
hair and beauty salon in Moreleta Park, Pretoria. Mr Potgieter and
the respondent (Mr Meyer) were members
of the second applicant, each
holding 50% member interest in the second applicant. In March 2015 Mr
Potgieter and the second applicant,
on the one hand, and Mr Meyer, on
the other, concluded a written sale of shares agreement in terms of
which, among others, Mr Meyer's
member interest in the second
applicant was transferred to Mr Potgieter. The agreement also
provided for the employment, by the
second applicant, of Mr Meyer as
a hairstylist on an interim basis from 1 March 2015 to 30 April 2015.
The agreement also included
a restraint of trade clause, which reads
as follows:
'11.1 FM Meyer undertakes
that he will not, for the Restraint Period, conduct or be in any way
involved with or have an interest
in any hair or beauty salon or
business within a radius of 15 kilometers from Scissor Hands' current
business premises at shop
no.5, Olivewood Shopping Centre, which is
on the corner of De Villebois and Wekker Street, Moreleta Park,
Pretoria, which carries
on business within the Republic of South
Africa.
11.2 FM Meyer
undertakes that during the Restraint Period, he will not, directly or
indirectly have an interest in any entity or
be involved in any
business within a radius of 15 kilometers as indicated in clause
11.1-
11.2.1 relating to
hair and beauty;
11.3 FM Meyer
undertakes not to directly or indirectly, without first obtaining the
written consent of JA Potgieter-
11.3.1 in any way
encourage any employee to leave the employment of MCComb Trading;
11.3.2
in any way interfere with the employment relationship between MCComb
Trading and any of its
employees;
[5]
On 1O September 2015 Mr Meyer resigned from the interim employment of
the second applicant. On the same date, two other employees
of the
salon, Mr. Van Zyl and Me Viviers, who had also been employed as
hairstylists by the second applicant, similarly tendered
their
resignations, also indicating that their last working day would be 26
September 2015. In respect of all three, the second
applicant
accepted their resignations and waived the notice period, thereby
relieving them of their responsibilities with immediate
effect.
However, the latter two employees subsequently returned to the employ
of the second applicant, on 12 September 2015 and
15 September 2015,
respectively. They indicated to Mr Potgieter that it was Mr Meyer who
had encouraged and enticed them to resign
from the employ of the
second applicant and join him in his new business venture.
The applicants'
case
[6] In the founding
affidavit deposed to on behalf of the applicants, Mr Potgieter state
that on 10 September 2015 it came to his
attention that Mr Meyer was
rendering services as a hairstylist from a hair salon situated within
the 15 km restraint of trade
area. After a letter was written to the
owner of the salon informing her of the restraint of trade to which
Mr Meyer had bound
himself, assurance was given that Mr Meyer would
no longer render hair and beauty services there. It also came to the
attention
of Mr Potgieter that Mr Meyer was intending to open a hair
and beauty salon at premises one kilometer from the salon of the
second
applicant.
The respondent's
case
[7] In his answering
affidavit, Mr Meyer does not deny the above factual averments. He,
however, contends, in the main, that the
agreement does not reflect
the true agreement of the parties because the parties never agreed to
a covenant of restraint of trade,
and therefore seeks rectification
of the agreement by expungement of the whole of the restraint of
trade clause. He says that it
was always understood between him and
Mr Potgieter that he was to open a hair and beauty salon in
Midstream, Centurion, which is
within 15 km radius of the second
applicant's salon, which intention fell through, for reasons which
are not relevant to the present
application.
[8] In the alternative,
in the event his claim for rectification of the agreement not being
upheld, Mr Meyer contends that the restraint
of trade clause which
the applicants rely on is unenforceable, on three grounds. First, he
contends that the second applicant has
no proprietary interest worth
of protection and the restraint of trade clause should therefore not
be enforced against him. Second,
he argues that the restrictive
condition in the restraint of trade clause is contrary to public
policy and is 'out of proportion
with any mandatory or persuasive
precedent.' Third, he denies that he had encouraged any of the
salon's employees to resign or
that he had offered them employment.
It is convenient to dispose of the last of the points (concerning the
employees of the second
applicant). Thereafter, I shall consider Mr
Meyer's main argument, followed by a discussion on the enforceability
of the restraint,
as reflected in the specific defences raised in the
alternative by Mr Meyer.
Solicitation of
the
second applicants'
employees
[9] In this regard,
there is direct evidence that Mr Meyer has actively solicited at
least two employees of the second applicant
(Mr Van Zyl and Me
Viviers) to terminate their employment with the second applicant. Mr
Meyer seeks to meet this allegation by
broad denials, and by
suggesting that the employees were unsatisfied with the management of
the salon and maintenance of the premises.
That is simply not enough,
in the light of the confirmatory affidavits of both employees, in
which they confirm that it was Mr
Meyer who had solicited them to
leave the employment of the second applicant. What is more, it is
instructive that those employees
tendered their resignations on the
same date that Mr Meyer tendered his, and all three mentioned their
last day as 26 September
2015. On these considerations, I am
satisfied that the applicants are entitled to an interdict on this
aspect.
Agreement not a
true reflection of the parties' intention
[10] I turn now to Mr
Meyer's main argument. According to Mr Meyer, the restraint of trade
clause was inserted due to a common error
between the parties under
the circumstances which he describes as follows:
'Pursuant to the
negotiation between the first applicant and I, he gave instructions
to his girlfriend, Laurien Kemp, who is an
attorney, to have an
agreement drawn up. During March 2015, the said Laurien Kemp
presented me with the agreement, I simply asked
her whether
everything is in order with reference to the purchase price of R1O
000 and my continued employment on an interim basis.
She responded by
saying everything was in order and I proceeded to sign the agreement.
I am a hairstylist and I am not
au fait
with legal
documents and I had no reason to doubt what Laurie Kemp said to me.
At no point in time could there have been any misapprehension
of the
fact that I would work in competition with the second applicant in
Centurion. That much is revealed by the applicants own
founding
affidavit where the first applicant states under oath in paragraph
5.19 that I expressed my intention to him to open a
hair and beauty
salon in Midstream Estate even before we had signed that sale of
members' interest agreement.
[11] Mr Meyer seems to
suggest that he signed the agreement without reading it, because he
says that he did not 'even know that
the restraint of trade clause
was in the agreement.' According to him, he would not have signed the
agreement, had he known of
the clause. I have to consider this, from
a factual point of view, and legally. Factually, the suggestion that
Mr Meyer did not
read the agreement is not borne out by the facts.
There are instances which indicate that he read the agreement before
signing
it. For example, he queried a few clauses relating to the
amount of sale, dates of interim employment period and completed by
hand,
his
domicilium
address.
[12] What is more, and
as correctly pointed out on behalf of the applicants, the restraint
of trade clause was not hidden. It is
clearly incorporated as part of
the agreement, and reference to it is made in the definitions of the
agreement. Furthermore, it
appears that Mr Meyer had the agreement
for more than two weeks before signing it, and thus had ample time to
read the agreement.
It is also telling that nowhere in the letters
exchanged between the parties prior to the launch of the urgent
application, was
this point ever raised. It was raised for the first
time in the answering affidavit, thereby giving credence to the
suggestion
that this was an after-thought defence. For these reasons
I do not accept the assertion that there was any common error between
the parties regarding the restraint of trade.
[13] In any event, as
far as the law is concerned, the general principle here is
that a
person
who
signs
a
contract
is
taken
to
be
bound
by
the
ordinary
meaning
and
effect of
the words which appear over his or her signature.
[2]
The signer will be held bound unless he or she can show, for example,
that the other party misled him or her regarding the terms.
[3]
There is no such suggestion in the present case. For all of the above
considerations, I accept that the parties agreed to a restraint
of
trade clause as part of the
agreement.
Enforceability
of
the restraint
Proprietary
interest
[14] It is trite that
before an agreement of restraint of trade will be enforced, it
must
[4]
protect some proprietary
interest of the person who seeks to enforce it. It
is
generally
accepted
that
a
restraint
is
against
public
policy
if
it
does
not
protect
any
proprietary
interest but seeks merely to exclude competition. In
Super
Safes (Ply) Ltd and Others v Voulgar ides and Others
1975
(2) SA 783
(W) at 785E-F
the
following is
stated:
'A
bare covenant not to compete cannot be upheld. A restraint against
competition must, if it is to be valid, serve some interest
of the
person in whose favour it was inserted - the purchaser of business,
for example, who requires protection against the erosion
of its
goodwill by the competition of the seller; or the employer who
requires that his trade secrets and his trade connections
be
protected against exploitation by the man whom he is taking into his
employment'.
[15] Mr Meyer contends
that in the present case, there is no such proprietary interest. He
says that the manner in which hairstylists
operate is determinative
of whether a hair salon has a proprietary interest worthy of
protection. To become a hairstylist, he attended
various courses and
for which he paid himself. He acquired no training or special
knowledge during his tenure with the salon. He
also did not shape any
special relationships with clients during his employ with the second
applicant. He emphasizes that there
is no specific skill that he has
been taught by the salon. He further points out that there are
approximately fourteen hair salon
within two kilometers form where
the applicant salon is situated and hairstylists even refer clients
to each other. Mr Meyer further
argues that he cannot be restrained
from using his own skill, knowledge and experience as a hairstylist.
[16] For that
proposition, he placed reliance on
Automative
Tooling v Wilkens.
[5]
There, the respondents were specialist artisans and technicians,
employed in
the
appellant's business in
specialised
technological
field relating to the design of special purpose machines and tooling.
The facts had established that the know-how
acquired by the
respondents was no more than specialist skill in manufacturing
machines. Those skills did not belong to the appellant,
but
to the
respondents as part of their general stock of skill and knowledge
which they could not be prevented from exploiting. Accordingly,
it
was held that the appellant had no proprietary interest worthy of
protection, and therefore, the restraint was inimical to public
policy
and
unenforceable.
[6]
[17] That is a far cry
from what the applicants are seeking in the present case. They do not
say that Mr Meyer's skills belong to
the second applicant, and
therefore he cannot use them. They say that he, as former owner and
hairstylist of the business of the
second applicant, he has developed
connections with the clients of the second applicants, which puts him
in a favourable position
to lure them to his new business in
competition with the second applicant. Therefore, reliance on
Automative Tooling
is misplaced, and misses the point of what
the applicants' case is.
[18] The applicants'
contention is simply that the clients and employees of the second
applicant form the overwhelming majority
of the goodwill of the
business. They further emphasise that in the hair a beauty industry,
the client basis is directly linked
to the individual hairstylists
and/or beauticians involved with the specific clients. This,
according to Mr Potgieter, led him
to insist that a restraint of
trade clause be inserted in the agreement, in order to protect the
second applicant against direct
competition from Mr Meyer, which the
latter accepted and bound himself willingly.
[19] In the nature of
the hair and beauty business, it seems that client connection is
important. In argument, counsel for the applicants
referred me to
Xavier
Hair Lab
v
Versace-Peters.
[7]
This case bears striking similarities to the present one. The
facts
briefly were that the sellers of a hair salon soon set up another
hair salon in competition with the purchaser of their former
business, despite a restraint of trade clause in the sale agreement.
There, the court observed that it was clear from
the
wording
of the restraint that the object of the restraint was to prevent the
respondents, the sellers of the hair salon from engaging
in a
business, a hair salon, in competition with the business with
resultant damage being caused to the goodwill of the applicant's
business. The insertion of the restraint clause was to guard against
this particular apprehension that the applicant had insofar
as the
respondents were concerned. In para 25 of the judgment, the court,
having concluded that there was apprehension on the part
of the
purchaser that the sellers would unfairly set up competition,
said:'This apprehension is reasonable given that the respondents
have
had an opportunity to develop a personal relationship with the
clientele, and the ability to influence them, to solicit their
custom
and divert them away from the applicant's business cannot be ruled
out. In
Marion White
Ltd v
Francis
it
was stated that:
"It is accepted
by the plaintiff company that the burden rests on them to establish
that this covenant is one which is reasonable
in the interests of the
parties and reasonable in the public interest, and that it is for the
protection o1 some interest of the
plaintiff company's in respect of
which the plaintiff company is entitled to protection. It is obvious
that in an establishment
such as a ladies' hairdresser's
establishment the assistants who actually deal with the customers,
who dress their hair, wash their
hair, and do whatever else they do
for the customers, provide a very important part of the personal
contact between those engaged
in the business and the customers of
the business. That constitutes an important element of the goodwill
of the business: and that
is an interest which the employer is
entitled to have protected".
(foot notes omitted)
(20] In
Branco and
Another tla Mr. Cool v Gale
1996 (1) SA 163
(E) the position is
summarised as follows:
'As I see the
position, when an employee has access to the customers of a business
and is in a position to build up a particular
relationship with
customers, with the result that when he leaves his employer's service
he could easily influence customers to
follow him and trade with him
at the expense of his erstwhile employer there is no reason why, in
principle, a restraint should
not be enforced to protect the
employer's trade connections.
[21] In the
Rawlins
case
supra
at 541D-1 Nestadt JA has the following to say
regarding the protection of trade connections:
'The
need of an employer to protect his trade connections arises where the
employee has access to customers and is in a position
to build up a
particular relationship with the customers so that when he leaves the
employer's services he could easily induce
the customer to follow him
to a new business (Joubert General
principles of
the
Law
of
Contract
at 149).
Heydon
The
Restraint of Trade
Doctrine
(1971) at 108, quoting an American case, says that the "customer
contact" doctrine depends on the notion that the employee,
by
contact with the customer, gets the customer strongly attached to him
that when the employee quits and joins a rival he automatically
carries the customer with him in his pocket'. See also
Recycling
Industries (Pty) Ltd v Mohammed and Another
1981 (1) SA 250
(E) at 256C-F);
Drewtons
(Ply) Ltd v Carlie
1981 (4) SA 305
(C) at 307G-H and 314C and G).
[22] It seems
therefore, on the authorities referred to above, that the argument by
Mr Meyer that there is no proprietary interest
worthy of protection
is devoid of any merit. The nature of the hair and beauty industry,
where service is based on a particular
stylist or beautician, client
connection and the salon's employees do indeed form a substantial
part of the goodwill of the business.
Mr Meyer's attempt to
trivialise the role of individual stylists by saying regular clients
can be referred to any stylist, or to
any other salon, is not only
untenable, but disingenuous. The very fact of him wishing to branch
out to set up his own business
is a strong indicator that he relied
on his 'personal touch' and relationships that he developed earlier,
first as a part-owner
of the salon of the second applicant, and later
as a hairstylist of the business.
[23] I therefore
conclude that the applicants have a proprietary interest worthy of
protection at law.
Restraint is
against public policy?
[24] The approach to
be adopted in determining whether an agreement in restraint of trade
is enforceable in law was established
in
Magna Alloys and Research
(SA)
(Ply) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874(A).
The
effect of the judgment in that case is summarised as follows in
Sunrise Records (Pty)
Ltd v
Frohling
and Others
1990 (4) SA 782
(A) at 794C-E:
'In
determining whether a restriction on the freedom to trade or to
practice a profession is enforceable, a court should have regards
to
two main considerations. The first is that the public interest
requires, in general, that parties should comply with their
contractual obligations even if these are unreasonable or unfair. The
second consideration is that all persons should, in the interests
of
society, be permitted as far as possible to engage in commerce or the
professions or, expressing this differently, that it is
detrimental
to society if an unreasonable fetter is placed on a person's freedom
of trade or to pursue a profession. In applying
these two main
considerations a court will obviously have regard to the
circumstances of the case before it. In general, however,
it will be
contrary to the public interest to enforce an unreasonable
restriction on a person's freedom to trade'. See, too,
Paragon
Business Forms (Pfy) Ltd v Du Preez
1994 (1) SA 434
(SE) at
442C-F;
Den Braven SA (Pfy) Ltd v Pillay
2008 6 SA 229
(D)
para [26).
[25] In
Basson v
Chi/wan and Others
1993 (3) SA 743
(A) at 767E-F) it was held
that a covenant in restraint of trade is unreasonable if:
'(D)it
die een party verhinder om horn, na bei!indiging van hul kontraktuele
verhouding, vrylik
in die handels-en
beroepswereld te laat geld, sonder dat 'n bestermingwaardige belang
van die ander party na behore daardeur gedien
word. So iets is op
sigself strydig met openbare beleid.'
[26] The court went on
to formulate the test for unreasonableness as being a 4-stage enquiry
in which the following questions were
considered:
(a)
Does one party have an interest deserving protection at termination
of the employment relationship?
(b) Is such interest
being prejudiced by the other?
(c) If so, does the first
party's interest weigh against the second party's, such that the
second party should be economically inactive?
(d)
Are there any other relevant facts of public policy?
[27] In
Reddy v
Siemens Telecommunications (Pty) Ltd
Malan AJA weighed the
respective interests of ex-employees and ex-employers in the context
of the constitutional considerations:
At para [17] the learned Judge
of Appeal held:
'The
four questions identified in
Basson
comprehend the
considerations referred to in 36 (1) [of the constitution]. A fifth
question, implied by question (c) which may be
expressly added,
vis
whether the restraint goes further than necessary to protect the
interest, corresponds with s 36(1)(c) requiring considerations of
less restrictive measures to achieve the purpose of the limitation.
The value judgment required by
Basson
necessarily requires
determining whether the restraint or limitation is 'reasonable and
justifiable in an open and democratic society
based on human dignity,
equality and freedom'.
[28] The
onus
is
on Mr Meyer to show, on a prepondarance of probabilities, that is
would be unreasonable to enforce the covenant in restraint
of trade
that he had undertaken in favour of the applicants (see
Magna
Alloys
(above, at 893C-E);
Basson v Chi/wan
(above, at
7751-7778) and that the applicants are not entitled to the protection
of their customer connections (compare
Rawlins and Another v
Caravantruck (Pty) Ltd
1993 (1) SA 573
(A) at 544H-1). The time
at which reasonableness is to be tested, is when enforcement is
sought. In other words the circumstances
existing at the time
enforcement is sought should be taken into account
(Reddy v
Siemens
2007 (2) SA 486
(SCA) para [16] and
Den Braven
SA
(Pty) Ltd v Pi/lay
2008 (6) SA 229
(D) para [46].
[29] In this regard,
it was contended on behalf of Mr Meyer that he should be absolved
from the restraint because its enforcement
would be contrary to
public policy and 'a travesty of justice' for the following reasons:
that Mr Potgieter acquired his interest
in the second applicant
'almost free' (for R1O 000); that the applicants have always known of
his intention to be employed within
15 km radius of the business of
the second applicant; that he was earning a salary of R20 000 per
month and has no matric or other
means of income; that there are 14
other salons within the immediate vicinity of the second applicant's
business and hairstylists
refer clients between each other; he would
always have left the employ of the second applicant.
[30] In my view, none
of the factors mentioned above qualify, either individually or
cumulatively, as a basis to conclude that the
enforcement of the
restraint would be contrary to public policy. Most, if not all, of
the factors were known to Mr Meyer when he
agreed to the restraint of
trade clause in the agreement. The enforcement of any restraint
clause of necessity imposes some degree
of hardship on the party to
whom it applies. However, the mere fact that the restraint imposed
hardship does not
per
se mean that it is unreasonable. On the
facts of the present case, I find no unreasonableness. I find the
period of 24 months to
be reasonable. There has not been any
challenge to the territorial scope of the restraint. I have already
found that the applicants
have made out a case regarding the
solicitation of the second applicants' employees.
Conclusion
(31)
To sum up.
The restraint of trade clause in
the
agreement concluded between the applicants and Mr Meyer is valid and
enforceable.
There was
no error at
all on the part of Meyer as to what he
was
agreeing to. There is nothing, from a policy point of view, that
renders the restraint to be against public policy. The applicants
have also
satisfied the trite requisites
[8]
for a final interdict, all of which must be present:
a clear
right on the part of the applicant; an injury actually committed or
reasonably
apprehended; and the absence of any other satisfactory remedy. The
application
should therefore succeed. Costs should follow the
event.
[32) In the result I
made the order referred to in para 1. For the sake of completeness, I
repeat the order here.
1.
It is declared that the restraint of trade clause in the agreement
concluded between the first and second applicants, on the
one hand,
and the respondent, on the other, on 12 March 2015, is valid and
enforceable;
2. The respondent is
accordingly, interdicted from:
2.1 having an interest in
any hair or beauty salon or business within a radius of fifteen
kilometres from the second applicant;
2.2 encouraging any
employee to leave the employment of the second applicant;
2.3
interfering with the employment relationships between the second
applicant and any of its employees;
2.4 in any manner
offering employment to, or employment to be offered to, or cause to
be employed or assist in the employment
of any employee or former
employee of the second applicant;
2.5 The respondent is
ordered to pay the costs of the application.
T.M. MAKGORA
JUDGE OF THE HIGH
COURT
Date of hearing:25
February
2016
Order made: 4 March
2016
Date of judgment:
4
March
2016
For the
applicants:Adv.
J.
A.
Venter
Instructed
by:WWB Botha Attorneys, Pretoria
For
the
respondent: Adv. P.I. Uys
Instructed
by:Charle
Rossouw
Attorneys,
Pretoria
[1]
The application was initially brought on 6 October 2015 on an urgent
basis. This court (per Jansen J) on 12 October 2015, ruled
that the
matter was not urgent.
[2]
Coetzee
v
Van
der
Westhuizen
1958
(3)
SA
847
(T)
at
851.
3
Leyland SA (Ply) v Rex Events (Ply) Ltd
1980 [4] All SA 598 (T).
4
LAWSA Vol 5 Part 1, para 432.
[5]
Automative
Tooling
Systems
(Ply)
Ltd
v Wilkens
2007
(2) SA 271
(SCA).
[6]
'Para 20.
[7]
Xavier
Hair Lab CC v CC v Versace-Peters and Another
(10/267730)
[2010] ZAGPJHC 115 (19 November 2010).
[8]
Setlogelo
v
Setlogelo
1914
AD 221