Legal victory for APM Terminals as court blocks Transnet’s tender award for DCT Pier 2

News

A high court has ruled in favour of APM Terminals, blocking Transnet’s award of the DCT Pier 2 upgrade contract to ICTSI.

Durban, South Africa

The KwaZulu-Natal High Court has issued an order prohibiting Transnet SOC Limited from proceeding with its decision to award a tender for the Durban Container Terminal Pier 2 (DCT2) to International Container Terminal Services Inc. (ICTSI). The ruling was issued earlier today in a case filed by APM Terminals against Transnet SOC Limited, questioning the award of the tender to the Philippine port operator.

The legal process launched by APM Terminals involves a two-part application for urgent relief, where Part A requests an interdict to halt the contract awarded to ICTSI, which has now secured a ruling, and Part B, which seeks a judicial review to have the tender award decision declared invalid, aiming to declare APM Terminals as the preferred bidder.

The bidding process for the Durban Container Terminal Pier 2 began with Transnet issuing the Request for Quotation (RFQ) on 11 February 2022. Transnet received responses from 21 bidders, of which ten, including APM Terminals and ICTSI, advanced to the RFP stage. ICTSI was selected as the preferred bidder on 6 July 2023 and secured the contract on 1 March 2024.

APM Terminals has advanced two key grounds for its review of the tender award. Firstly, it alleges that ICTSI did not meet the solvency test required by the RFQ. Secondly, APM Terminals contends that there was no independent third-party verification of ICTSI’s solvency, a requirement outlined in both the RFQ and the Request for Proposal (RFP). As a result, APM Terminals argues that ICTSI should have been excluded during the RFQ stage of the tender process, which did not occur.

Solvency calculation

The court said that all bidders, except ICTSI, adhered to the solvency ratio calculation as outlined in the RFQ. The correct method required bidders to extract “total equity” from their audited financial statements and then insert it into the solvency ratio calculation, with the result needing to be at least 0.4. However, ICTSI replaced total equity with market capitalisation and calculated its solvency ratio to be 1.28, far exceeding the prescribed 0.4. The court said if ICTSI used the right method to calculate its solvency it would not have met the prescribed 0.4 ratio.

“Indeed, it would have fallen dismally short of it because the solvency ratio calculation, when applied as it was published by Transnet, would have yielded the second respondent (ICTSI) a ratio of 0.24,” the ruling said, resulting in the company’s disqualification from the bidding process.

The court explained that none of the bidders, including ICTSI, appeared to have difficulty understanding or applying the solvency ratio calculation, as no clarification was sought and all accepted the RFQ and RFP requirements, as confirmed by Transnet.

Tender delay

The court dismissed Transnet’s claims that granting relief to APM Terminals would severely harm both the company and the country, noting that the port’s longstanding inefficiencies have persisted for over 60 years without significant resolution. The court emphasised that Transnet could not genuinely claim harm from a delay in its plans for the Durban Container Terminal Pier 2, particularly since it took six months for private negotiations with ICTSI. Ultimately, the court found that APM Terminals had “good prospects of success” in its legal battle.

“As to harm, it is difficult to discern Transnet suffering any harm, other than delay. If the validity of tenders needs to be extended to cover the time between the date of this judgment and the hearing of the review application that can be easily accomplished. The current tender has not yet been implemented and the tender process has been allowed to drag on for over two and a half years since first being published on 11 February 2022,” the court said.

The ruling

The court’s ruling prohibits Transnet from implementing the tender award made on 1 March 2024 until a final determination is made in Part B of the application. As a result, Transnet is barred from taking any steps to finalise the contract or engage in negotiations with ICTSI or any third parties regarding the tender. Moreover, the court has prohibited the implementation of any contracts associated with the tender, effectively halting all related actions by both parties involved.

“Transnet SOC Ltd (Transnet) notes the judgement of the KwaZulu-Natal High Court in respect of APM Terminals’ application to seek an interdict in respect of the selection of an equity partner for the Durban Container Terminal (DCT) Pier 2. Transnet wishes to affirm its commitment to the judicial process and is currently evaluating its options,” Transnet said.

In addition, the court has ordered both Transnet and ICTSI to pay the legal costs incurred by APM Terminals BV, which include expenses for two counsels.

The parties involved have also been granted permission to request a specific date for the hearing of Part B of the application.

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