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18 December 2017 09:08 (South Africa)
Opinionista Pierre de Vos

‘Please Call Me’ ruling: David can defeat Goliath

  • Pierre de Vos
    Pierre de vos
    Pierre de Vos

    Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

If large numbers of Vodacom customers make it clear to Vodacom that they will change their service provider if it fails to reach a fair settlement with Kenneth Nkosana Makate, the service provider might be persuaded to do the ethical thing.

Sometimes the formalistic application of technical legal rules by courts stands in the way of achieving a just and fair outcome in a dispute between parties who have unequal bargaining power. But as the Constitutional Court demonstrated this week in its judgment on the “Please Call Me” dispute between Kenneth Nkosana Makate and Vodacom, this need not always be so. With a little resourcefulness and a strong sense of justice, courts will often be able to interpret and apply technical legal rules in a manner that will produce a reasonably just outcome.

Kenneth Nkosana Makate’s struggle to be compensated by Vodacom for his idea to develop a “Please Call Me” service (an idea that has generated billions of rand for Vodacom) started as a love story.

In November 2000, while employed as a trainee accountant at Vodacom, Makate was involved in a long-distance relationship with a student who later became his wife. As the Constitutional Court explains (in a judgment penned by Jafta J) they “experienced communication difficulties, owing mainly to the fact that his girlfriend could not afford to buy airtime for purposes of making telephone calls to him”.

He then thought up the idea of a “Please Call Me” service, which would allow a person without airtime on his or her cellphone to send a message to another person asking that person to call back. He presented the idea to a certain Phillip Geissler, the Director of Product Development and Management at Vodacom, and negotiated and agreed that Vodacom would use Makate’s idea to see whether it is popular.

If the product was successful then the [Mr Makate] would be paid a share in the revenue generated by it. Although [Mr Makate] had indicated that he wanted 15% of the revenue, the parties deferred their negotiations on the amount to be paid to [Mr Makate] for a later date. However, they agreed that in the event of them failing to agree on the amount, Vodacom’s Chief Executive Officer (CEO) would determine the amount.”

As every South African knows, Makate’s idea was a winner. Vodacom’s internal newsletter at the time celebrated this then new product and thanked Kenneth Makate “from our finance department” for suggesting the service to the product development team. Later the then CEO of Vodacom, Alan Knott-Craig claimed in his autobiography that he had thought up the idea.

The Constitutional Court rather politely states that Messrs Knott-Craig and Geissler deliberately created a false narrative pertaining to the origin of the idea on which the “Please Call Me” product was based. “They dishonestly credited Mr Knott-Craig with the idea and this lie was perpetuated in the latter’s autobiography. When the media queried the correctness of the story, Mr Knott-Craig solicited confirmation from Mr Geissler”, who then lied to the media about the origins of the “Please Call Me” idea.

When Makate approached the court to force Vodacom to start negotiations about the amount owed to him, Vodacom fiercely resisted the claim.

First, Vodacom argued that there was no agreement between Makate and Geissler at all. In effect Vodacom argued that Makate was lying about reaching an agreement with Geissler about the use of his idea by Vodacom and about the promise to pay him for this use.

Both the High Court and the Constitutional Court had no difficulty in dismissing this argument. This was partly because the court found Mr Makate and his corroborating witness to have been truthful and credible in their testimony.

But it was also partly because Vodacom could present credible testimony to challenge those of Makate and his corroborating witness. Tellingly, Vodacom never called Geissler to testify, suggesting that Vodacom knew that Mr Geissler would either have to lie under oath about the existence of the agreement or would torpedo one of the main arguments presented by the company.

Knott-Craig did testify: The Constitutional Court noted in this regard that he “performed dismally as a witness. The trial court found no difficulty in rejecting his evidence. The court’s analysis of his evidence was rightly scathing. He was willing to lie about matters which were documented in the records of Vodacom.”

Vodacom was seemingly on firmer legal ground when it invoked two important technical legal arguments to avoid having to share their profits for “Please Call Me” with the person who invented the idea.

First, they invoked the apartheid-era Prescription Act and argued that Makate’s claim had prescribed because he had waited more than three years from the moment the debt to him arose to institute a claim. Second, Vodacom argued that Geissler did not have the authority to conclude the agreement on behalf of Vodacom and that the “agreement” between Makate and Vodacom was therefore not legally binding.

The High Court had ruled against Makate by accepting the legal soundness of the two technical legal arguments advanced by Vodacom. In the Constitutional Court judgment Justice Jafta spent at least two dozen pages to construct credible counter-arguments to address the claims made by Vodacom. This ultimately allowed the Court to rule in favour of Makate and to ensure a relatively just outcome in the case.

The legal issues involved are complicated and in discussing them here it is necessary to simplify the arguments for the sake of brevity.

The court found that where a company like Vodacom acts “by words or conduct” in such a manner, it creates an appearance that one of its employees (in this case Mr Geissler) has the power to act on behalf of the company, then any agreement reached by that employee could be enforced. Nothing more would be required.

In this regard the court found that Vodacom had indeed created the appearance that Geissler had the authority to reach an agreement with Makate on its behalf. Geissler was one of the members of the board of Vodacom and had “enormous power in relation to his portfolio” of product development.

Given these circumstances, and given the need to consider this question “with the view to doing justice to all concerned”, the court found that Makate had established that Geissler had apparent authority to bind Vodacom to an agreement.

On the issue of prescription, the court invoked section 39(2) of the Constitution which demands that any legislation (in this case the apartheid-era Prescription Act) must be interpreted to promote the spirit, purport and objects of the Bill of Rights. The act limits the right contained in section 34 of the Bill of Rights to have any dispute that can be resolved by the application of law decided in a fair hearing before a court or other impartial tribunal.

The act therefore had to be interpreted – if it was possible to do so given its wording – to limit this right as little as possible. The Prescription Act prohibits a litigant from instituting a claim against another after a period of more than three years had lapsed “from the date on which the debt arose”.

The court found that a “debt” must be interpreted narrowly as an obligation to pay money, deliver goods, or render services. Here Makate did not ask to enforce any of these obligations. Instead, he requested an order forcing Vodacom to commence negotiations with him for determining compensation for the profitable use of his idea. For this reason it was held that the provisions of the Prescription Act did not apply.

Unfortunately, Makate’s victory in the Constitutional Court will not bring the case to an end. Because the original agreement was that Vodacom would negotiate in good faith with Makate for determining a reasonable compensation payable to him in terms of the agreement, that negotiations must first be concluded before Makate will see any of the profits of his “Please Call Me” invention.

The court made it clear that Vodacom had a legal obligation not to enter into these negotiations in bad faith.

They are not allowed to enter into those negotiations just to go through the motions. For that would not be what they have agreed to do, but a charade. Both sides must enter into negotiations with serious intent to reach consensus.”

Given its previous behaviour it is not clear that Vodacom will negotiate with such serious intent. This is evident from the rather harsh remarks made by Justice Jafta about the behaviour of the company and its executives regarding this case:

The stance taken by Vodacom in this litigation is unfortunate. It is not consistent with what was expected of a company that heaped praises on the applicant for his brilliant idea on which its “Please Call Me” service was constructed. The service had become so popular and profitable that revenue in huge sums of money was generated, for Vodacom to smile all the way to the bank. Yet it did not compensate the applicant even with a penny for his idea. No smile was brought to his face for his innovation…. In not compensating the applicant and persisting in advancing the legal defences even after the trial court had emphatically found that an agreement was concluded, Vodacom associated itself with the dishonourable conduct of its former CEO, Mr Knott-Craig and his colleague, Mr Geissler. This leaves a sour taste in the mouth. It is not the kind of conduct to be expected from an ethical corporate entity.”

Perhaps it is here that pressure from ordinary consumers may be of assistance. If large numbers of Vodacom customers make it clear to Vodacom that they will change their service provider if Vodacom fails to reach a fair settlement with Mr Makate, Vodacom might be persuaded to do the ethical thing.

After all, it is a sad fact that most companies do the “ethical thing” only when not doing the ethical thing will hurt the bottom line. DM

  • Pierre de Vos
    Pierre de vos
    Pierre de Vos

    Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

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