National Environmental Trust Fund (NETFUND) v Ndegwa (Civil Appeal E497 of 2024) [2026] KECA 1601 (KLR)
The bottom line
#Kenya's Court of Appeal ruled a state environmental fund must honour a Kshs 5.5 million separation deal with its former CEO, dismissing its appeal.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the learned judge erred in declining to determine the legality of the respondent's third-term contract of employment dated 12th October 2016.
- 2.Whether the learned judge erred in holding that the Deed of Mutual Separation and Settlement dated 28th February 2018 was valid, lawful and enforceable.
- 3.Whether the respondent was entitled to enforce the substantive provisions of the Deed notwithstanding her contention that clause 6.1 thereof was inconsistent with section 12 of the Employment and Labour Relations Court Act.
- 4.Whether the learned judge properly awarded the respondent the monetary benefits stipulated under the Deed.
Key legal issues
#Whether the legality of the respondent's third-term contract of employment dated 12th October 2016 was properly before the trial court.
No. The claim was founded on the separation deed, not the employment contract; the appellant's defence attacked only the deed; and it never pleaded that the third-term contract was unlawful or sought relief against it. Submissions could not introduce the unpleaded issue.
The claim was founded exclusively on the deed of 28th February 2018, not the employment contract. The respondent pleaded the renewals, and the appellant expressly admitted paragraphs 3 to 6 of the statement of claim. Its defence set out particulars of fraud and illegality directed exclusively at the deed and never sought relief against the contract. Endorsing the settled pleading principles, the Court held that parties set the agenda for trial and cannot raise a fresh case without amendment; submissions cannot introduce an unpleaded issue.
Whether the Deed of Mutual Separation and Settlement dated 28th February 2018 was valid, lawful and enforceable.
Yes. The appellant failed to prove fraud, undue influence, want of authority or breach of any mandatory statutory requirement; no evidence showed that approvals of the Parent Ministry, National Treasury, SCAC or SRC were prerequisites; and its failure to call any trustee was fatal to its allegations.
Fraud and illegality, being pleaded, attracted a heightened evidential burden discharged only by strict proof. The appellant's sole witness admitted he had no evidence of fraud or undue influence and neither attended the Board meeting nor negotiated the deed. No circulars, statutory instruments or policy documents were produced showing that approvals of the Parent Ministry, National Treasury, SCAC or SRC were mandatory. Board minutes, resolutions and approvals were matters within the appellant's own custody and knowledge, attracting section 112 of the Evidence Act, so the burden lay on it.
Whether the respondent could enforce the deed's substantive provisions despite contending that clause 6.1 (arbitration) was inconsistent with section 12 of the Employment and Labour Relations Court Act.
Yes. The doctrine of election did not apply because the respondent questioned only the dispute-resolution forum, not her substantive obligations; clause 6.1 was severable and its invalidity did not void the deed; and ex turpi causa had no application as no root illegality was established.
The doctrine of election presupposes a valid contract whose benefits and burdens a party simultaneously accepts and rejects; the respondent challenged only the forum for dispute resolution. Following Trans Mara Sugar, where alleged illegality is confined to one provision, the court considers party intention, the gravity of the illegality, the centrality of the provision and public policy, and severs the offending clause where possible. Clause 6.1 merely prescribed the forum; substantive rights lay in clause 3.1. The appellant, moreover, never sought a stay pending arbitration and litigated to judgment.
Whether the learned judge properly awarded the respondent the monetary benefits stipulated under the deed.
Yes. Once the deed was held valid, entitlement fell to be determined by its terms; the sums were contractually agreed under clause 3.1, quantification was unchallenged, the appellant had partly performed, and public policy supported enforcement against a state corporation.
Once the deed was held valid, entitlement fell to be measured by clause 3.1, which stipulated twelve months' gross salary, gratuity and a three-month ex-gratia payment; quantification was never disputed and no alternative computation was offered. Partial performance, being payment of two years' gratuity, showed the parties initially regarded the deed as binding. Public policy cuts both ways: it demands legality but also that public bodies honour lawful contractual obligations, since commercial certainty and public confidence would suffer if state corporations could evade bargains whenever a new board took a different view.
Legal principles established
#- Parties are bound by their pleadings; a court, trial or appellate, may not determine an issue (such as the legality of a contract) that was never pleaded, even where it is raised only in submissions.
- Allegations of fraud, illegality or public policy as grounds for avoiding a contract must be specifically pleaded and strictly proved; mere suspicion, conjecture or dissatisfaction with a bargain is insufficient.
- The party asserting that a contract is illegal or required regulatory approvals bears the legal burden of proving it under sections 107, 109 and 112 of the Evidence Act, particularly where the relevant records are within its own custody and knowledge.
- Contracts, including employment contracts, may be varied or discharged by mutual agreement, and courts will enforce such bargains unless illegality, fraud, coercion or undue influence is proved; a party cannot escape merely because the bargain turned out badly.
- A provision of a contract that is inconsistent with statute (such as an arbitration clause said to offend section 12 of the Employment and Labour Relations Court Act) does not void the entire agreement where the illegality is confined to that provision and the clause is severable.
- State corporations may not evade contractual obligations lawfully concluded by a predecessor board merely because a subsequent board takes a different view of the bargain, absent proof of fraud, illegality or want of authority.
Court orders
#- 1.The appeal is hereby dismissed.
- 2.Costs of the appeal are awarded to the respondent.
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Authored the Court's leading judgment on a first appeal. Held that the legality of the respondent's third-term contract was never pleaded; that the Deed of Mutual Separation and Settlement was valid since fraud and illegality were not strictly proved and no mandatory approvals were demonstrated; that the arbitration clause 6.1 was severable; and that the award mirrored the parties' bargain. Found no merit in the appeal and dismissed it with costs to the respondent.
In the end, having re-evaluated the entire record, I am satisfied that the learned judge properly directed himself on the applicable principles of law and correctly evaluated the evidence before him and thus arrived at the correct decision. Accordingly, I find no merit in the appeal.p. 19
Wrote a short concurring judgment confirming full agreement with the reasoning and conclusions of Musinga, JA, and adding nothing.
I am in full agreement with his reasoning and conclusions and therefore, have nothing useful to add.p. 20
Wrote a short concurring judgment confirming full agreement with the reasoning and conclusion reached by Musinga, JA, and adding nothing.
I am in full agreement with both the reasoning and the conclusion reached therein and have nothing useful to add.p. 20
- On appeal from
- Employment and Labour Relations Court
- Jurisdiction invoked
- First appeal to the Court of Appeal from the Employment and Labour Relations Court; the judgment invokes the first-appellate duty of re-evaluation but does not expressly cite the enabling constitutional or statutory provision.
Relief refused
#Setting aside the judgment of the Employment and Labour Relations Court and dismissal of the respondent's claim
The appeal lacked merit: the deed was validly executed, fraud and illegality were not proved, and no evidence showed that regulatory approvals were mandatory; the pleadings never challenged the employment contract itself.
Invalidation of the entire Deed of Mutual Separation and Settlement on the ground that clause 6.1 (arbitration) was inconsistent with section 12 of the Employment and Labour Relations Court Act
Clause 6.1 was a severable forum clause whose invalidity did not void the deed, and the appellant never sought a stay of proceedings pending arbitration, having litigated the dispute to conclusion.
Costs of the appeal to the appellant
The appeal was dismissed with costs to the respondent.
Costs
Appeal dismissed with costs to the respondent (verbatim: "this appeal is hereby dismissed with costs to the respondent"). The trial court had separately directed that each party bears its own costs.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
As Lilan and Okello, JJ.A. agree, this appeal is hereby dismissed with costs to the respondent.
In the end, having re-evaluated the entire record, I am satisfied that the learned judge properly directed himself on the applicable principles of law and correctly evaluated the evidence before him and thus arrived at the correct decision. Accordingly, I find no merit in the appeal.
It is trite law that fraud must not only be specifically pleaded but must also be strictly proved. The same principle applies where a party seeks to avoid contractual obligations on the ground of illegality or public policy.
Indeed, one of the more compelling aspects of the learned judge's reasoning was the application of the principle eodem modo quo oritur, eodem modo dissolvitur, which translates to "it is discharged in the same manner in which it was created."
Where, upon consideration of those factors, the offending provision can be severed without defeating the parties' bargain or undermining public policy, the remainder of the agreement remains valid and enforceable.
In our view, there is an important distinction between challenging the enforceability of a contractual mechanism for resolving disputes and repudiating the substantive obligations assumed under the contract itself.
As this is a first appeal, our duty is to analyze and re-assess the evidence on record and reach our own conclusions in the matter.
Issues in the judgment
#The judgment as provided carries no caption: the appeal number, the respondent's name and any neutral citation are nowhere stated, so the case title and case number fields are incomplete and the respondent is identified only by role.
Internal inconsistency in the narrative of the hearing: the appellant's counsel is identified as Ms. Mbilo, a female Deputy Chief State Counsel referred to elsewhere as 'She', yet the same submissions are later narrated with the male pronoun 'He'.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "National Environmental Trust Fund (NETFUND) v Ndegwa (Civil Appeal E497 of 2024) [2026] KECA 1601 (KLR)", Case Analysis (2026). . Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1601/eng@2026-07-31
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.