National Environmental Trust Fund (netfund) v Catherine Gaki Ndegwa
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
#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.
- 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.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "National Environmental Trust Fund (netfund) v Catherine Gaki Ndegwa", 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.