NCPB to pay trader Sh400 million for breach of contract

The National Cereals and Produce Board (NCPB) is set to pay nearly Sh400 million to a private firm for breach of a grain supply contract after losing an appeal to block the payout Wednesday.

The Court of Appeal ruled that NCPB must pay Erad Supplies & General Contractors, — which in 2004 inked a deal to supply the NCPB with 40,000 tonnes of white maize at $229 per tonne.

The grain supply was aimed at replenishing the country’s grain reserves that had been depleted by drought, but the ministry of Agriculture terminated the contract and Erad, which is owned by businessman Jacob Juma, sued NCPB for breach of contract.

The payout means tax payers will bear the burden despite Erad having not supplied a single grain to the board.

Erad had argued that termination of the contract made it incur heavy losses including loss of profits at the rate of $49 (Sh4, 165) a tonne and $1,838,000 (Sh156.2 million) as the cost of storing the maize.

“We think we have stated enough to indicate this notice of motion cannot stand. It lacks merit looked at from all perspectives. It is hereby accordingly dismissed with costs to the respondent (Erad),” read part of the ruling delivered by Justice Onyango Otieno, Wanjiru Karanja, and D.K. Maraga.

NCPB and Erad opted for arbitration in settling the dispute, and the arbiter, Evans Thiga Gaturu, who ruled in favour of the grain supplier in July 2009 by awarding it $3,106,000 (Sh264 million). The arbitral award also provided the amount would be compounded at an annual interest rate of 12 per cent if the payment is delayed—pushing the payout to Sh392 million. 

NCPB went to the High Court to challenge the award before Justice J Njagi and lost. The board appealed against the High Court decision and failed in judgement delivered by Justice George Odunga in February, prompting Erad’s auctioneers to descend on NCPB’s premises to enforce payment. NCPB then went to the Court of Appeal seeking to stop proceedings (court actions) that its lawyer Katwa Kigen argued amounted to stopping the payment to Erad. The judges, however, dismissed Mr Kigen’s arguments, saying essentially that the application did not seek the court’s help in stopping the payment.

The Court of Appeal argued that though the matter involves large sums of public money, it could not stop the arbitral award since NCPB’s lawyers had appealed against Justice Njagi’s decision to throw out its earlier bid to reverse the award.

“This court has stated on several occasions that negative orders cannot be stayed,” the judges ruled.

“We cannot make an order on a matter that is not before us. It was the duty of the applicant to make a proper application concerning that aspect (stopping the arbitral award) if it wanted us to consider it.”