Vodacom (Pty) Ltd v Kenneth Nkosana Makate and Shameel Joosub NO

Kenneth Makate, a trainee accountant at Vodacom, invented the "Please Call Me" (PCM) product in 2000. He and Vodacom's Director agreed that if the product was successful, Makate would be paid a share of revenue generated. The parties agreed that if they could not agree on compensation, Vodacom's CEO would determine the amount. PCM became highly successful. After protracted litigation, the Constitutional Court in 2016 ordered the parties to negotiate in good faith to determine reasonable compensation, failing which the CEO would determine it. Negotiations failed and the CEO determined compensation at R47 million based on four models and a five-year contract period. Makate challenged this determination in the high court, which remitted the matter to the CEO with detailed directives. Vodacom appealed.

• What is the correct interpretation of the Constitutional Court's order regarding the CEO's mandate to determine compensation?
• What is the standard of review applicable to the CEO's determination as a deadlock-breaker?
• Was the CEO's determination of R47 million manifestly inequitable?
• Was the CEO's limitation of the contract to five years reasonable?
• Did the high court err in remitting the matter with detailed directives rather than substituting its own decision?
• Did the CEO properly account for incremental revenue, PCM volumes, call duration, and effective rates?

The appeal was dismissed with costs (majority); alternatively succeeded in part (minority). The majority set aside the high court order and substituted it with an order that Makate is entitled to 5-7.5% of total PCM revenue from March 2001 to date of judgment, calculated according to his Models 9A, 9B and 9BB, plus interest. The minority would have remitted the matter to the CEO to recalculate compensation using his original four models but with an 18-year contract period instead of five years.

The binding legal principles established are: (1) Where parties agree that a third party (such as a CEO acting as deadlock-breaker) will determine compensation, the Bekker test applies - the determination can be challenged only if: (a) the decision-maker did not exercise the judgment of a reasonable person (acted unreasonably, irregularly or wrongly); AND (b) the determination is manifestly unjust or patently inequitable. This is a two-stage test and both elements must be satisfied. (2) This review standard is distinct from administrative law review under PAJA and does not require the decision-maker to perform quasi-judicial functions or grant hearings. (3) The test incorporates the principles from Dean v Prince and Dublin v Diner regarding reasonableness, fairness and bona fides. (4) When determining compensation, where the facts have become known (such as the actual success and longevity of a product), the Bwllfa principle applies - facts should be preferred to speculation and prophecy. (5) A determination limiting compensation to an arbitrary short period (five years) when the product continues to generate revenue for a much longer period (18-20 years) is manifestly inequitable.

The majority judgment contains extensive obiter regarding: the interpretation of "share in revenue" in the Constitutional Court order; whether parties had agreed on a 5% revenue share; the proper calculation of PCM revenue including MTR, incremental revenue, call duration and effective rates; whether the Plascon-Evans rule was properly applied; the adequacy of document disclosure; the admissibility of evidence from former employees; and whether compensation should be based on forward-looking or backward-looking models. The minority discusses extensively whether Makate was entitled to a fixed percentage of revenue versus a lump sum share, and provides detailed analysis of the CEO's calculations regarding PCM volumes, call-back success rates, incremental revenue, call duration and effective rates - finding most of these reasonable. The minority also discusses the inapplicability of the rule that one bad reason vitiates a decision in the context of the Bekker test (as opposed to administrative review). Both judgments discuss the appropriate remedy and whether the matter should be substituted or remitted.

This case is significant for establishing the test for reviewing determinations by private deadlock-breakers or valuers. It confirms that the Bekker test applies: such determinations can only be set aside if the decision-maker did not exercise the judgment of a reasonable person (acted unreasonably, irregularly or wrongly) OR if the result is manifestly unjust or patently inequitable. The case demonstrates the two-stage enquiry required. It also addresses the distinction between this review standard and administrative law review under PAJA. The case illustrates tensions between contractual interpretation, the finality of expert determinations, and equitable intervention where outcomes are grossly unfair. It also applies the Bwllfa principle that facts should be preferred to prophecies when determining compensation. The case has significant implications for intellectual property rights of employees, determination of reasonable compensation for inventions, and the enforcement of agreements for revenue-sharing.