The Court of Appeal has set aside a High Court decision upholding a $3.1 million (Sh400 million) arbitration award to Erad Supplies and General Contractors Limited, a firm linked to Sirisia MP John Waluke, citing substantial fraud allegations requiring fresh judicial scrutiny.
The award had accrued to over Sh1 billion as at April 2025, according to National Cereals and Produce Board (NCPB).
In a landmark ruling delivered on Friday, the appellate judges remitted the 21-year-old dispute to the High Court to determine whether the award was obtained through forged documents or exceeded the arbitrator's mandate.
The dispute dates back to a 2004 government contract where Erad was to supply 40,000 metric tons of maize to the National Cereals and Produce Board (NCPB) to alleviate a national shortage.
Trucks loaded with maize queuing to deliver the produce to the National Cereals and Produce Board Eldoret depot in Uasin Gishu County on February 2, 2023.
Photo credit: File | Nation Media Group
Erad failed to deliver, citing NCPB’s breach of contract by refusal to open a Letter of Credit (LC) contrary to the contract terms and trade usages.
The company argued that the NCPB did open LCs for other successful bidders, implying a discriminatory breach. The arbitrator ruled in favour of Erad in 2009.
While Erad claimed NCPB breached terms by refusing to the LC, the State agency countered that the arbitration award—which grew from Sh560 million (2009) to Sh1 billion (2025)—relied on fraudulent storage claims.
This is because, according to NCPB, investigations revealed that South Africa's Chelsea Freight Limited, allegedly contracted by Erad for maize storage, denied involvement in the transaction.
It emerged that Chelsea Freight's registration showed operations in air transport—not grain storage—casting doubt on Sh100 million storage charges.
Detectives also found that Chelsea Freight was engaged in financial intermediation, insurance, real estate, and business services, but it was not involved in maize supply.
NCPB further argued that Erad never sourced maize, rendering its claims for breach of contract illegitimate.
In June 2011, the High Court dismissed NCPB’s application against the arbitral award and allowed Erad's request to have the said award adopted as a judgment.
Consequently, Erad began execution of the judgment, having already collected Sh300 million out of the Sh560 million awarded.
This ruling prompted the NCPB's appeal to the Court of Appeal, where the appellate bench faulted the High Court for its decision.
In its judgment, the Court of Appeal found that the High Court erred by narrowly interpreting public policy concerns and failing to scrutinise serious allegations of fraud.
The court found that the Ethics and Anti-Corruption Commission (EACC) presented evidence that Chelsea Freight, allegedly hired to store maize, denied any involvement in the transaction.
Investigators found no proof that maize was ever sourced or stored, casting doubt on the legitimacy of the Sh100 million storage claim.
Sirisia MP John Waluke.
Photo credit: File
"We are satisfied that the additional evidence, which alleged that the award was procured through misrepresentation and was not enforceable in law, raised material and substantive issues that require interrogation," said the court.
Further, the court noted the arbitrator exceeded his mandate by awarding damages to Chelsea Freight—a non-party to the contract— $1.14 million for alleged storage charges and imposing a 12% interest on costs, a power reserved for taxing officers.
The judges emphasised that enforcing an award based on unverified documents and inflated claims for loss of profit arising from a transaction not performed would offend Kenya’s constitutional principles of accountability and prudent use of public funds.
While acknowledging the acquittal of Erad directors (Waluke and Grace Wakhungu) in related criminal proceedings, the court emphasised that civil cases operate on a lower evidentiary standard.
The court clarified that the civil standard of proof (balance of probabilities) still required scrutiny of the arbitration’s integrity.
It ruled that enforcing an award based on potentially fraudulent claims would violate Kenya’s public policy, particularly given the misuse of public funds.
The judges remitted the case to the High Court for a fresh hearing, directing it to examine the additional evidence and reconsideration of fraud claims.
"The ruling and order of the High Court dated June 28, 2011 is set aside in its entirety. The matter is remitted back to the High Court for the court to substantively determine the application on its merits, including consideration of the additional evidence adduced," said the court.
The High Court must now re-examine the authenticity of the arbitration documents and whether the award conflicts with public policy.
