In November 2000, Kenneth Makate – who was then employed as Finance Manager at Vodacom – proposed that the mobile operator introduce a mechanism which allowed users with no credit to notify others to contact them. This idea purportedly developed into the ‘Please Call Me’ product (PCM), a lucrative initiative which was launched in March 2001, and subsequently generated tens of billions of Rands in total revenue for Vodacom.
Although Makate neither designed, funded nor implemented PCM, and MTN introduced the same product prior to Vodacom, Philip Geissler, then-Director of Product Development, agreed to compensate Makate should his idea prove commercially successful. When Vodacom later denied the existence of this agreement and disputed Geissler’s authority to bind the company, Makate instituted legal proceedings in 2008. And so commenced one of South Africa’s longest-running legal battles. Eventually, in 2016, the Constitutional Court found in favour of Makate: documentary evidence – including internal emails – supported the existence of the agreement, and Geissler had ostensible authority to bind Vodacom to said agreement.
Resultantly, the Constitutional Court ordered the parties to engage in good faith negotiations to establish reasonable compensation for Makate, failing which Vodacom’s CEO, Shameel Joosub, was mandated to determine this amount within a reasonable period of time. Unsurprisingly, negotiations broke down and Joosub stepped in. Ultimately, he concluded that Vodacom owed Makate R47 million. In calculating this figure, Joosub evaluated four different models based on a contract period of five years. He averaged the present-day outcomes of the two most favourable models, namely a forward-looking model based on the computation Vodacom would have agreed to pay Makate for his idea in 2001 (R51.5 million), and the revenue sharing model which retrospectively determines what Vodacom would have paid Makate for using his idea in terms of a five-year contract concluded in 2001 (R42.2 million). Makate rejected this offer, and approached the High Court to set aside the CEO’s determination. Ruling in favour of Makate, the High Court found the amount to be unreasonable, and remitted the matter back to Joosub who was instructed to again determine compensation. Significantly, the High Court issued certain directives to guide his calculation: Makate was entitled to 5% of total voice revenue generated from PCMs from March 2001 to March 2021, 27% of revenue generated from return calls to PCMs, and the time value of money calculated at 5% for each successive year.
On appeal, the SCA was tasked with both interpreting the order of the Constitutional Court in light of Joosub‘s mandate and the compensation he proposed, and adjudicating whether the High Court erred in remitting the matter back to the CEO and imposing the aforesaid directives. Applying the two-leg test in the seminal case of Bekker v RSA, Mocumie JA – writing for the majority – held that the standard of review applicable to instances where a third party is nominated to make a valuation is that of a reasonable person. Accordingly, where a third person reaches a valuation in a manner that is so unreasonable, irregular or factually incorrect that it leads to a manifestly inequitable outcome, the parties are not bound by that valuation. The SCA agreed with the High Court’s assessment that the R47 million compensation determined by Joosub was unreasonable. Prefacing this finding, Mocumie JA noted Joosub’s arbitrary reduction of the PCM response rate by 70%, his departure from the agreed rate of 5% of total revenue, and his omission of mobile termination rates and the revenue emanating from contract subscribers’ PCMs. However, Mocumie JA held that the court a quo failed to consider the second leg of the Bekker test, that is whether the proposed compensation was manifestly inequitable.
Significantly, both parties accepted that the rate for establishing compensation was 5% of the share in the accrued revenue generated by PCMs. Vodacom, however, contended that Joosub had a wide discretion – guided by his skills, knowledge and vast experience – to determine compensation, and that the High Court thus lacked the requisite expertise to question his valuation absent prima facie evidence of bad faith. Highlighting the ‘unpredictable variables’ impacting Joosub’s determination, Vodacom emphasised the generosity of the compensation – 5% of PCM revenue calculated from 2001 looking forward – and criticised Makate’s ‘outrageous’ alternative calculation of R28 billion. Comparatively, Makate averred that Joosub failed to properly identify the references he employed to arrive at R47 million, or to incorporate critical information – in the public and private domain – relevant to establishing the revenue Vodacom generated through PCMs from 2001 to 2021.
In assessing these arguments, Mocumie JA recognised the duration of the agreement between Vodacom and Makate as central to the SCA’s enquiry. For one, Joosub’s valuation was based on limiting the contract period to five years – a two-year extension of the standard three-year contract. Makate, however, noted that Vodacom had contracted various service providers beyond a five-year period. Vodacom countered that, unlike its service providers, Makate never delivered a finished product or contributed technical expertise in product maintenance. Rejecting Vodacom’s argument, Mocumie JA found that this could not explain why the CEO – looking forward from 2001, alternatively, back to 2001 – would have elected not to proceed with PCM beyond five years. Indeed, PCM continues to generate revenue for Vodacom more than 20 years after its implementation. Accordingly, the demands of business dictate that Vodacom would have invariably extended Makate’s contract beyond the five-year mark.
Concluding that Joosub’s valuation was manifestly inequitable, Mocumie JA analysed the wording, purpose and contextual backdrop of the Constitutional Court’s operative order. He confirmed that ‘compensation’ plainly refers to Makate’s entitlement to claim payment from Vodacom flowing from a ‘special contract’ which operates beyond the ambit of the typical employer-employee relationship. Accordingly, the parties envisioned that Makate would be duly compensated for his idea based on the contract’s duration, and which idea has generated substantial revenue for Vodacom.
Consequently, the SCA set aside and substituted the High Court’s order with the following: Makate is entitled to be paid 5% to 7.5% of the total revenue derived from PCM from March 2001 to date, plus mora interest thereon, and which total revenue is delineated in the calculation models submitted by Makate. Forensic analysts estimate this payout to be somewhere between R29 billion and just over R55 billion – an amount which would firmly establish Makate as one of the country’s wealthiest individuals. Vodacom, however, has vehemently rejected the SCA’s finding, and intends to apply for leave to appeal to the Constitutional Court. Watch this space.
