The effect of the Constitutional Court judgment in the Vodacom “Please Call Me” saga
On 26 April 2016 the Constitutional Court handed down its judgement in the matter of Kenneth Nkosana Makate v Vodacom (Pty) Ltd[1]. For purposes of this article the emphasis will be placed on three of the pertinent issues raised in the judgment and the consequences thereof, these are:
- The interpretation of the word “debt” as provided for in the Prescription Act 68 of 1969;
- Ostensible Authority: When it should be pleaded; and
- The enforceability of an agreement to negotiate in good faith;
Background
Mr Makate a former employee of Vodacom instituted action against Vodacom in 2008 seeking an order to compel Vodacom to comply with its obligations under an agreement which Mr Makate alleged he entered into with Vodacom. Mr Makate alleged that he entered into an agreement with Vodacom in terms of which Vodacom and Mr Makate would enter into negotiations pertaining to the remuneration he would receive for his “Please Call Me” idea.
Vodacom’s response was however, inter alia that Mr Makate’s claim had prescribed, that there was no such agreement or that the individuals who purportedly represented Vodacom during the conclusion of this agreement did not have actual or ostensible authority to enter into the agreement on Vodacom’s behalf.
The trial Court found that the alleged contract was in fact concluded however that Mr Makate’s claim had prescribed and in any event as Mr Makate did not plead estoppel in replication to Vodacom’s plea of no actual or ostensible authority, he could therefore not rely on this and his claim was therefore dismissed with costs.
The trial Court as well as the Supreme Court of Appeal refused leave to appeal however the Constitutional Court granted Mr Makate’s leave to appeal and subsequently found in favour of Mr Makate.
The interpretation of the word “debt” as provided for in the Prescription Act 68 of 1969
As stated above, Mr Makete approached the court for an order compelling Vodacom to enter into negotiations with him pertaining to the remuneration he would receive.
The trial court found that this claim related to debt and seeing that the cause of action arose more than 3 years prior to the instituting of the action against Vodacom, that Mr Makete’s claim had prescribed in terms of the Prescription Act.
The Constitutional Court found that Mr Makate’s claim had not prescribed as it fell beyond the scope of the word “debt”, as the relief sought was not an amount of money, goods or service, which Vodacom had to pay or render to Mr Makate, but rather the enforcement of an agreement to negotiate in good faith.
This is a confirmation of the interpretation of the word “debt” as found by the Appellate Division in Electricity Supply Commission v Stewarts and Lloyds of SA (Pty) Ltd 1981 (3) SA 340 (A) (Escom). The Appellate Division here found that the word should be interpreted using the shorter Oxford English Dictionary, namely:
“1. Something owed or due: something (as money, goods or service, which one person is under an obligation to pay or render to another. 2. A liability or obligation to pay or render something; the condition of being so obligated.”
In my view the Constitutional Court, being a court of equity,[2] (on the backdrop that the remedy provided for the aggrieved party must be just and equitable in the light of the facts, the implicated constitutional principles and the controlling law) was correct in its interpretation. This ruling will surely have an impact on what sort of claims in the future will be regarded as falling within the ambit of the Prescription Act.
Ostensible Authority
Ostensible authority is where a principal represents by words or actions to the outside world that it’s representative (or agent) has the necessary authority to bind the principal. Whether the representative then in fact had the actual authority to bind the principal becomes immaterial.
The High Court held that in order for a party to rely on ostensible authority, that party should plead estoppel, which according to the trial Court could only be done in replication. The authority for its ruling was Amler’s Precedents of Pleadings, additions 7 (2009).
According to Amler
“A plaintiff wishing to rely on estoppel must plead it in the replication in the reply to the defendant’s plea where reliance is placed on the true facts.”
Amler further states
“Because estoppel can only be raised as a defence, a plaintiff intending to rely upon estoppel is well advised to allege actual authority and rely on estoppel as an alternative in the replication.”
The trial Court held that Mr Makate had not established ostensible authority as he did not plead Estoppel in replication.
The Constitutional Court however found that the facts accepted by the trial Court confirmed that there was ostensible authority and that the trial Court erred in finding that it had to be pleaded in replication. This is a contradiction of Amler and academics and scholars that teach law students that ostensible authority in essence can only be pleaded through estoppel and then only in replication. I agree with the Constitutional Court’s ruling seeing that in my view it is illogical that if a party (plaintiff) foresees that a defendant will plead no authority, why the plaintiff should be compelled to wait until the defendant has filed its plea to then only in replication use estoppel whereas the plaintiff could have pleaded ostensible authority from the outset.
The Constitutional Court therefore ruled that Vodacom is bound by the agreement as the CEO had authority to bind Vodacom.
When pleading ostensible authority from the outset, a plaintiff must accordingly allege and prove that as it appears to others, the representative of the principal had the ostensible authority to bind the principal and that the plaintiff acted there upon.
The issue was further raised between the difference between ostensible authority and estoppel and it is on this issue that there is a difference of opinion between the majority judgment and the minority judgment. The minority judgment and the majority judgement however came to the same conclusion as to the relief sought and accordingly for purposes of this article is not included herein.
The enforceability of an agreement to negotiate in good faith
The Constitutional Court confirmed the position that an agreement to negotiate in good faith is enforceable in the event that the agreement contained a deadlock-breaking clause. In other words a clause that describes what will happen should the parties not be able to agree. In this instance the deadlock clause determines that should Mr Makate and Vodacom not reach a settlement the matter should be referred to the CEO of Vodacom.
Whether an agreement to negotiate in good faith which does not contain a deadlock-breaking clause is enforceable or not however remains a grey area in our law. Unfortunately the Constitutional Court did not make a ruling on this nor did they expand on the issue.
Conclusion and way forward
The effect of the ruling is accordingly that Vodacom and Mr Makate have 30 days from date of the judgement to start with negotiations in good faith in order to determine the reasonable compensation that Vodacom will pay Mr Makate for his idea of the “please call me”.
One of the first questions that springs to mind is how the amount will be calculated and what the basis will be? One argument is that Mr Makate is entitled to a percentage of the profit that Vodacom has made, is currently making and will be making in the future. On the other hand had Mr Makate been able to and did in fact register a patent he would have only been entitled to 20 years of protection, albeit against all third party infringers. The question is why he then in this instance, where no such patent exists, be entitled to remuneration in perpetuity. Another argument might be that the only advantage that Vodacom had over its competitors for using Mr Makate’s idea was the approximate 3 months that it took Vodacom’s competitors to offer a similar service to its clients and consequently that Mr Makate is only entitled to a percentage of the profits that Vodacom made during this period.
What the outcome of the negotiations will be remains to be seen and then if they can’t reach an agreement this would mean that the CEO Vodacom will decide what the remuneration should be and his decision will be final. The important question then is whether it is the current CEO of Vodacom or whether it should be Mr Alan Knot Craig who was the CEO when the initial agreement was entered into. A further question is then that should either one of the parties not be satisfied with the decision of the CEO will that party then be entitled to appeal the decision or only take the decision on review. It is my view that seeing that it was agreed between the parties that the decision of the CEO will be final that the decision is not appealable but only reviewable, which means that the decision can only be overturned if the aggrieved party can prove fraud or impartiality of the CEO. Now the question on whether the CEO of Vodacom, past or present can be impartial remains to be seen.
In the meantime and in the background of the dispute between Mr Makate and Vodacom another dispute has arisen. As can be imagined the legal fees incurred to date in this matter amounts to millions and the legal fees had to be paid by someone, and for this there were funders. It is these funders that are now in dispute as to what percentage of Mr Makate’s claim which funder is entitled to. Recently an urgent application was brought by one of the alleged funders to interdict Mr Makate or any of the other funders or legal representatives to negotiate with Vodacom on Mr Makate’s behalf. The result of this High Court application was that seeing that there was an arbitration clause in the funding agreement and that the parties had already initiated arbitration proceedings that the funders’ dispute should be decided through the arbitration process. Mr Makate is accordingly allowed to proceed with his negotiations with Vodacom.
Although Mr Makate has won the Constitutional Court case it is clear that his battles with Vodacom and then with his funders is in no way complete and currently there are more questions than answers.
[1] Makate v Vodacom (Pty) Ltd [2016]ZACC13
[2] Steenkamp NO v Provincial Tender Board, Eastern Cape [2006] ZACC 16; 2007 (3) SA 121 (CC); 2007 (3) BCLR 300 (CC) (Steenkamp) at para 29