Revelation in Please Call Me case

Vodacom’s black economic empowerment share scheme, YeboYethu, has approached the Constitutional Court to become an amicus curiae in the Please Call Me case.

In its court papers applying to be allowed as a friend of the court, YeboYethu warned that unless the Constitutional Court overturns a Supreme Court ruling in favour of Nkosana Kenneth Makate, it would spell the end of the empowerment scheme.

Although YeboYethu said it could not comment on who was correct in the overall case, there were some inaccurate claims in Makate’s court papers that it wished to rectify.

The Supreme Court of Appeal (SCA) ruling in question ordered Vodacom to pay Makate 5% to 7.5% of revenue generated through Please Call Me over 18 years, including interest.

Crucially, it required that Vodacom use models developed by Makate’s team to calculate the revenue generated over the period.

Vodacom’s calculations in its Constitutional Court filings showed that this was between R29 billion and R63 billion. That represents 8.6% to 27% of Vodacom’s market capitalisation as of 20 September 2024.

Makate has disputed the accuracy of these calculations.

He has told the Constitutional Court that the R9.7 billion compensation he sought when the case was being heard in the Pretoria High Court in 2020 remained valid. That would represent 4.2% of Vodacom’s market cap.

The legal battle between Makate and Vodacom stems from a product idea he brought to his manager in November 2000 when he was a trainee accountant at the company.

Makate suggested what he called “the buzzing option” — a way to send a missed call to someone’s phone even when you didn’t have airtime.

While the technical aspects behind making a call without airtime didn’t work out, Vodacom eventually launched a service that uses a USSD code to generate a free SMS.

Initially named “Call Me”, Vodacom publicly thanked Makate for bringing his idea to the product development team.

According to Makate, he was promised compensation for the idea, and he had suggested a 15% revenue share during verbal negotiations.

Emails that emerged during the initial court case included an exchange between Makate and Vodacom’s then-head of product development, Philip Geissler.

These showed that Geissler had tried to manage Makate’s expectations and promised to speak to former Vodacom CEO Alan Knott-Craig about some kind of reward.

“As for rewards. All staff are expected to assist the company to achieve its goals. That is part of normal business,” Geissler wrote in an email to Makate.

“As for you and your assistance. Once the product is launched (and assuming it’s successful) I will speak to Alan. You have my word,” Geissler said.

Makate did not receive compensation for his idea and ultimately left Vodacom.

After finding someone to back his case, Makate sued Vodacom in 2008 — eight years after he shared the idea that would become Please Call Me.

The High Court and SCA initially ruled against Makate, but he found favour in the Constitutional Court in 2016 — another eight years after beginning the legal battle.

In essence, South Africa’s apex court ruled that Vodacom and Makate had a verbal agreement regarding compensation, although the amount was not determined.

It ordered the parties to negotiate compensation in good faith.

During negotiations, Makate’s team demanded R20 billion in compensation. Vodacom countered with R10 million.

Foreseeing such a situation, the Constitutional Court ordered that Vodacom CEO Shameel Joosub would act as a deadlock breaker, in line with the original verbal agreement.

Joosub returned with an offer of R47 million, which Makate labelled an “insult”.

He launched a fresh High Court challenge against the methods Joosub had used to calculate the compensation.

The High Court ruled in Makate’s favour. Vodacom took the ruling on review, and the Supreme Court also ruled in favour of Makate.

Vodacom then appealed to South Africa’s highest court to hear the case on constitutional grounds.

At the end of August, the Constitutional Court issued a directive stating that it would hear Vodacom’s arguments for why it should hear the appeal. Vodacom must present the merits of its case at the same time.

YeboYethu’s warning

As part of its amicus application, YeboYethu warned that whether Vodacom was ordered to pay R9.7 billion or R63 billion, it would have disastrous consequences for the scheme and its 80,000 black shareholders.

“It will likely be the end of the empowerment scheme, and those black individual investors will forfeit their investments and the opportunity for future earnings,” it stated.

YeboYethu said this would undermine the very basis for the existence of the black economic empowerment scheme.

It said this basis is to promote the achievement of the constitutional right to equality, increase participation of black people in the economy and promote a more equitable income distribution.

“Upholding the majority SCA judgment will go against these objectives, as the empowerment scheme will collapse,” it argued.

Regarding the specific inaccuracy in Makate’s court papers it wished to address, YeboYethu pointed to his claim that the R9.7 billion compensation would merely “delay Vodacom’s commitment to improving its network for a year”.

This likely refers to Vodacom South Africa’s capital expenditure budget, which has been roughly R10 billion annually for the past few years.

However, YeboYethu said this was an oversimplified way to view the issue.

“Such payment would lead to trigger events for purposes of the preference share arrangements and would commence the demise of YeboYethu and YeboYethu Investment Co,” it said.

Therefore, from the scheme’s perspective, the Supreme Court ruling would have permanent consequences.

YeboYethu also submitted that core to the matter was what constitutes “reasonable” compensation, as per the Constitutional Court’s original 2016 ruling.

It argued that the terms imposed or construed by the SCA ruling would be contrary to public policy, given that they would lead to the collapse of an empowerment scheme.

“This cannot be construed as ‘reasonable’ in the circumstances. As such, it will be submitted that Vodacom should be granted leave to appeal and its appeal upheld,” YeboYethu stated.

“In essence, Mr Makate should be awarded the CEO’s determination of R47 million or such appropriate amount but certainly not the amount that follows from the SCA majority judgment.”