The Durban high court has dismissed a bid by Maersk’s APM Terminals to put a stop to Transnet’s R11bn deal with Philippines-based International Container Terminal Services (ICTSI) for the privatisation of Durban’s Container Terminal 2 (DCT2).
While APM — a runner-up in the tender process — had secured an interdict, stopping the implementation of the tender, it then sought to “review” the process to set aside the award of the 25-year concession. The case was heard by judge Mahendra Chetty earlier this year.
On Friday he handed down his judgment, dismissing the review but ordering the parties to bear their own costs.
He said the question in the matter was whether a “slip” in the process of a contract of national importance should be reviewed and set aside at the instance of an aggrieved bidder — bearing in mind that judicial review was a discretionary remedy and it did not follow that an invalid act would be set aside.
The “slip” APM had identified was that ICTSI had not met the solvency threshold contained in the responsiveness phase of the tender. However, Chetty said it was common cause that ICTSI had the necessary financial capacity to secure investments for the development of the port. He said this was no ordinary tender but one which aimed at Transnet securing a private partner to develop and operate the port, through the DCT2, over 25 years.
“There is no dispute that DCT2 has been plagued for decades by limited operating capacity, resulting in freight backlogs and congestion. This has had a significant knock-on effect on the local economy, resulting in an increase in the costs of goods moving in and out of the country,” said Chetty.
The crisp issue was whether Transnet was obliged to disqualify ICTSI only for the reason that it failed to comply with the solvency ratio calculated on the basis of total equity over total assets
“Vessels are berthed for longer than expected, resulting in increased costs to the shipping company and negatively affecting supply chains.”
Chetty said during the “straight price shoot-out phase”, ICTSI’s offer exceeded that of APM by almost R2bn. APM was thus ranked second.
APM disputed that ICTSI had been assessed on the same solvency ratio as it and other bidders. It was common cause that if ICTSI had used a formula using total equity/total assets — as the other bidders had — instead of market capitalisation, it would have failed the threshold set out in the bid specification.
He said in December 2023 Transnet appointed an external consultant to test ICTSI’s “financial soundness”. That month Growthstone Assurance Incorporated had reported ICTSI was in a “good position” to raise additional capital for further investment in DCT2.
In March 2024 Transnet responded to APM’s initial complaint regarding the issue, saying ICTSI’s failure to meet the specified threshold “was not material”.
The crisp issue was whether Transnet was obliged to disqualify ICTSI only for the reason that it failed to comply with the solvency ratio calculated on the basis of total equity over total assets.
Transnet and ICTSI maintained that the challenge was premised on a “narrow technical ground” intended to disqualify ICTSI in the final leg of what was a fair and lawful tender process in order for APM to secure for itself “the winning position”.
Chetty said the noncompliance had to be assessed through the light of the tender documents as a whole, including the objectives for the development of the DCT2. There was a clause in the document that, on plain reading, gave Transnet the privilege of being the sole judge of each bidder’s conformity with the requirements and granted it the power to waive any requirement.
This is not a case where the spectre of corruption and malfeasance lingers over the choice of a successful bidder.
— Judge Mahendra Chetty
Transnet had argued it was entitled to secure the best financial deal for itself and to secure a long-term partner to develop the port.
“It was apparent that those entrusted with drawing up the tender document clearly contemplated that the purpose was to maximise the financial potential of the public/private sector partnership. Transnet had made no secret of its intention.”
He said even after the complaint of the solvency ratio was raised, Transnet’s investigations provided it with further evidence of the suitability of ICTSI as a partner. Transnet, more than any competing bidder, was best suited to understand the purpose and meaning of its own tender process and, more importantly, the specific characteristics it was looking for in a suitable business partner.
“This is not a case where the spectre of corruption and malfeasance lingers over the choice of a successful bidder. Having regard to the record, I agree with Transnet that there was nothing suggestive of untoward, unlawful or irrational conduct on its part, following APM’s complaint.”
While it could not be disputed – applying the rigours of strict compliance – that an irregularity occurred, to disqualify ICTSI would have been to disqualify a meritorious tenderer and open the way for a significantly lower bid to have prevailed, he said. “It would have had the effect of retarding, rather than promoting, the value of competitiveness which is referred to in the constitution.”
Chetty found that Transnet had not fallen foul of the tender provisions, dismissing the application.
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