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ELRCPartially AllowedNairobi ELRC Cause No. 649 of 2019· [2024] KEELRC 1288 (KLR)

Ndegwa v National Environmental Trust Fund (NETFUND) (Cause 649 of 2019) [2024] KEELRC 1288 (KLR)

Employment and Labour Relations Court
27 May 2024
4,016 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~16 min to read original · ~4 min brief

The bottom line

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A Kenyan court enforced a mutual separation agreement, awarding a former state corporation CEO over Kshs.5.5 million in unpaid exit payments.

What this practically means

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Executive summary

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The Claimant, formerly Chief Executive Officer of the Respondent from November 2006, left office on 30th September 2018 under a Deed of Mutual Separation Agreement and Settlement dated 28th February 2018, under which the Respondent's Board of Trustees agreed to pay 12 months' gross salary, gratuity and 3 months' basic pay ex-gratia. The Claimant sued for the unpaid sums; the Respondent, through the Attorney General, denied the agreement's validity, contending it lacked National Treasury approval, was signed in secrecy, contravened the State Corporations Act and Mwongozo, and was anchored on an unlawful third-term contract. The court framed three issues. First, it held the lawfulness of the 2016 contract was unpleaded and could not be raised in submissions, as parties are bound by their pleadings. Second, it found the Separation Agreement valid: it was drafted by the Respondent's advocates, executed by four trustees including the Chairperson, made at the Respondent's instance after a strategic change of direction, and no evidence established that SCAC, National Treasury, Parent Ministry or SRC approval was required, or any fraud, duress or illegality. Clause 28 of the contract provided only for unilateral termination, and the backward-looking Clause 29 could not supersede the later agreement; whatever is created by agreement may be dissolved by agreement. Third, the court awarded the contractual payments: 12 months' gross salary of Kshs.4,350,128.40, one year gratuity of Kshs.121,600.60 and 3 months' ex-gratia of Kshs.1,087,523.10, totalling Kshs.5,559,252.10. Interest, though prayed, was not included in the orders, and each party was ordered to bear its own costs.

Key legal issues

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01

Jurisdiction despite arbitration clause

Holding

The ELRC had jurisdiction to determine the suit notwithstanding the arbitration clause in the employment contract.

Reasoning

Claimant's counsel relied on Samuel Kamau Macharia and Kennedy Amuhaya Wanyonyi to establish jurisdiction; the court proceeded to determine the suit without any jurisdictional objection upheld.

p. 3
02

Validity of the contract of employment dated 12th October 2016

Holding

The lawfulness of the contract was not an issue for determination as it was unpleaded; the Respondent was bound by its pleadings admitting a valid contract.

Reasoning

The Respondent never pleaded that the contract was unlawful; it only raised the point in submissions. Submissions are neither pleadings nor evidence. The Reply acknowledged a valid contract as the foundation of the employment relationship, so the issue fell by the wayside.

p. 6
03

Validity of the Separation Agreement dated 28th February 2018

Holding

The Separation Agreement was valid, legally binding and enforceable; the Respondent failed to prove illegality, fraud or vitiation on a preponderance of probabilities.

Reasoning

The agreement was drafted by the Respondent's advocates, signed by four trustees including the Chairperson, and executed at the Board's instance following a strategic change of direction. RWI admitted no fraud or undue influence. No evidence showed any approval by National Treasury, SCAC, Parent Ministry or SRC was legally required. Whatever is created by agreement may be dissolved by agreement.

p. 9
04

Termination clause and supersession clause arguments

Holding

Clause 28 provided only for unilateral termination by notice, whereas the separation was mutual; Clause 29 was backward-looking and could not supersede the later Separation Agreement.

Reasoning

A notice by either party is unilateral and non-negotiable, unlike the bilateral Separation Agreement. Clause 29 referred to agreements hitherto entered into, i.e. prior arrangements, and could not fetter future freedom to contract.

p. 7
05

Reliefs

Holding

The payments under Clause 3 of the Separation Agreement were awarded as prayed, totaling Kshs.5,559,252.10.

Reasoning

Clause 3 of the Deed provided for 12 months gross salary, ex-gratia of 3 months basic pay and gratuity; these were awarded as the agreement was held valid.

p. 9

Legal principles established

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  • Parties are bound by their pleadings; an unpleaded issue cannot be raised for the first time in submissions.
  • Whatever is created by agreement may be extinguished by agreement (eodem modo quo oritur eodem modo dissolvitor).
  • An entire-agreement/supersession clause operates prospectively, not to defeat later agreements.
  • Boards of state corporations are the employer and no National Treasury, SCAC or SRC approval of a separation agreement is required unless the law so provides.

Court orders

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  1. 1.Judgment entered in favour of the Claimant against the Respondent for 12 months gross salary Kshs.4,350,128.40
  2. 2.One year gratuity Kshs.121,600.60
  3. 3.3 months ex-gratia payment Kshs.1,087,523.10
  4. 4.Total award of Kshs.5,559,252.10
  5. 5.Each party to bear its own costs

Authorities

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Legislation

  • Law of Contract Act
  • State Corporations ActSection 6(2)
  • Mwongozo Code of Governance for State Corporations
  • Constitution of KenyaArticle 159(2)(d)
  • Constitution of KenyaArticle 48
  • Civil Procedure ActSection 1B
  • Civil Procedure RulesOrder 21 Rule 1

Cases cited (16)

  • Samuel Kamau Macharia & another V Kenya Commercial Bank & 2 others
    (2012) eKLR
  • Kennedy Amuhaya Wanyonyi V African Medical and Research Foundation
    (2014) eKLR
  • Miriti V Thananga Tea Growers Sacco Ltd & another
    (2014) eKLR
  • Garvey V Richard
    (2011) JMCA 16
  • National Bank of Kenya Ltd V Pipeplastic (K) Ltd & another
    (2022) EA 503
  • Godfrey Allan Tolo V Tobias O. Otieno & another
    (2022) eKLR
  • Speaker of County Assembly Kisii County & 2 others V James Omamba Nyarge
    App No. 51 of 2014
  • Peter Macithi Muigai & 2 others V Ben Chikamai & another
  • Republic V Cabinet Secretary, Ministry of East Africa Community & Regional Development Ex parte – Omar Mohammed Sheikh
    (2019) eKLR
  • Attorney General V Law Society of Kenya & another
    (2017) eKLR
  • Ahmed Abdikadir & Co. Advocates V National Bank of Kenya
    (2006) eKLR
  • Hosea Sitienei V University of Eldoret & 2 others
    (2018) eKLR
  • Independent Electoral and Boundaries Commission & another V Stephen Mutinda Mule & 3 others
    (2014) (Supra)
  • David Sironga Ole Tukai V Francis Arap Muge & 2 others
    (2014) eKLR
  • R. V Clarke
    (1927) 40 C.L.R 227
  • Sudbrook Trading Estate Ltd V Eggleton
    (1983) 1 A.C 444
Jurisdiction invoked
Article 162(2) of the Constitution – Employment and Labour Relations Court; jurisdiction sustained notwithstanding the arbitration clause in the employment contract

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Ndegwa v National Environmental Trust Fund (NETFUND) (Cause 649 of 2019) [2024] KEELRC 1288 (KLR)", Case Analysis (2024). Nairobi ELRC Cause No. 649 of 2019. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2024/1288/eng@2024-05-27

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.