[2022] KEHC 12422 (KLR)

Gilbi Construction Limited v Lebulellah and Associates Advocates (Miscellaneous Application 202 of 2021) [2022] KEHC 12422 (KLR) (Commercial and Tax) (12 May 2022) (Ruling)

Neutral citation: [2022] KEHC 12422 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Miscellaneous Application 202 of 2021

JN Mulwa, J

May 12, 2022

Between

Gilbi Construction Limited

Applicant

and

Lebulellah and Associates Advocates

Advocate

Ruling

1. Before court for consideration are two applications. The first one is the Client’s Reference brought by way of a Chamber Summons dated November 5, 2021 while the second is the Advocate’s Notice of Motion dated November 4, 2021. The two applications arise from the Deputy Registrar’s ruling of October 22, 2021 in respect to the Advocate-Client Bill of Costs dated March 24, 2021.

2. The Client’s Reference was brought under Rule 11(2) of the Advocates Remuneration Order 2014 and Section 3A Civil Procedure Act. It seeks the following orders:1. Spent2. Spent.3. Spent.4. Thatthis Honourable Court be pleased to set aside the decision of the Taxing Officer with respect to the Advocate's Bill of Costs dated March 24, 2021. 5.Thatthis Honourable Court be pleased to remit the Bill of Costs dated March 24, 2021 for taxation before another Taxing Officer other than Honourable Stephany Githogori DR6. Thatthe costs of this application be provided for.

3. The application is based on the grounds that the Bill of Costs which was taxed at Kshs 7,884,613. 70 emanated from instructions issued to the Advocate in Nairobi HCCC No 431 of 2013: Gilbi Construction Ltd v Chania Gardens Ltd. That the matter before the court was an application seeking interim measure of protection whilst the substantive dispute was heard and determined by an Arbitrator. That the Taxing Officer erred by using the value of the subject matter as the basis for calculating instruction fees in the circumstances and by applying the wrong principles thereby arriving at a wrong conclusion.

4. Further, that the Taxing Officer erred by finding that the Client had not proved payment of fees despite evidence showing the same. In its view, the Taxing Officer misapprehended the law on “without prejudice” communication and the exceptions thereto particularly where payment was made and accepted. That there are glaring errors on the face of the Ruling of the Taxing Officer.

5. The Advocates responded to the application vide Grounds of Opposition dated February 3, 2022. The Advocates contend that the Client has failed to lay any legal or factual basis for the orders sought; That the Court cannot interfere with the Taxing Officer's decision on taxation, as the Client has not shown that either the decision was based on an error of principle, or the fees awarded was manifestly excessive as to justify an inference that it was based on an error of principle, and that the taxing officer took into consideration only relevant factors and legal principles in taxing the bill of costs.

6. It is a further submission by the Advocates that the sum awarded as instruction fees was arrived at after consideration of relevant factors, including the disclosed value of the subject matter sought to be secured by the Client through the demised suit and application. It is stated that by the pleadings the Client sought mandatory order compelling the opposing party to deposit Kshs 300,000,000 into an account. That in any event, the Taxing Officer in fact awarded the Advocate less than the basic allowable instruction fees. Additionally, the Advocates contended that any errors by the taxing officer as may be found, did not materially affect the assessment.

7. On the other hand, the Advocate’s Notice of Motion was brought under Section 51 of the Advocates Act; Rule 13A Advocates Remuneration Rules; Section 3A and 63(e) of the Civil Procedure Act and Order 41 Rule 1 of the Civil Procedure Rules seeking the following orders: -1. Thatthe Court be pleased to enter Judgment in favour of the Applicant/Advocates against the Respondent on the amount certified on the Certificate of Taxation dated November 2, 2021, together with interest at the rate of 14% per annum from the date of the Bill of Costs being March 24, 2021 until payment in full.2. Thata Decree issues in respect of the sums certified on the Certificate of Taxation herein dated November 2, 2021, together with interest at the rate of 14% per annum from the March 24, 2021 until payment in full, and that the Applicant be at liberty to execute for recovery of same in such manner as a Decree of this Honourable Court.3. Thatthe costs of this application be provided for.

8. The application is supported by the Affidavit of Eugene Lubale Lubulellahand premised upon the grounds that the Advocates _ Client Bill of Costs herein has been taxed and a Certificate of Taxation issued therefrom; the Advocates wish to proceed and realize the costs by way of execution hence judgment and Decree are required, and thus urges that the prayers be granted as prayed.

9. In opposition, the Client filed a Replying Affidavit sworn on January 13, 2022 by its managing director Harish Gopal Vekaria. He averred that the Client is aggrieved by the decision of the Taxing Master and urged that its application be heard on priority basis as a finding thereon could render the Advocate’s application nugatory.

10. I have considered the parties submissions. It is well settled that a taxing officer exercises a discretionary power in taxing a Bill of costs. However, such power has to be exercised judiciously according to the scale provided in the Remuneration Order, and where discretion is given for variation, justification must be given for the same. For that reason, a judge sitting on a reference can only interfere with the exercise of a taxing officer’s discretion if it is shown that an error of principle was committed in the assessment of the costs. This was the holding of the Court of Appeal in the case of Kipkorir, Tito & Kiara Advocates v Deposit Protection Fund Board [2005] eKLR where it was stated thus;“On reference to a Judge from the Taxation by the Taxing Officer, the Judge will not normally interfere with the exercise of discretion by the Taxing Officer unless the Taxing Officer, erred in principle in assessing the costs.”

11. Similarly, in KanuNational Elections Board & 2 others v Salah Yakub Farah [2018] eKLR, Mativo J cited the South African case of Visser vs Gubb 1981 (3) SA 753 (C) 754H – 755C where the court posited that:“The court will not interfere with the exercise of such discretion unless it appears that the taxing master has not exercised his discretion judicially and has exercised it improperly, for example, by disregarding factors which he should properly have considered, or considering matters which it was improper for him to have considered; or he had failed to bring his mind to bear on the question in issue; or he has acted on a wrong principle. The court will also interfere where it is of the opinion that the taxing master was clearly wrong but will only do so if it is in the same position as, or a better position than, the taxing master to determine the point in issue… The court must be of the view that the taxing master was clearly wrong, i.e. its conviction on a review that he was wrong must be considerably more pronounced than would have sufficed had there been an ordinary right of appeal.”

12. With these principles in mind, the issues for determination are:

Whether the client is bound by the items stated in his Notice of Objection to TaxationThe Advocates submitted that the Client is bound by his pleadings, in the sense that he is only allowed to challenge the taxation on the items indicated in his Notice of Objection to Taxation. In this regard, the Advocates contended that since the Client indicated in his Notice of Objection to Taxation that he was only challenging items 1, 23, 25, 26, 50, 51 and 53 of the Bill of Costs, the Client cannot now seek to introduce the issue of the existence of an alleged fees agreement between them in the present Reference. It was argued that to entertain the same would be to steal a match upon the Advocates. Reliance was placed on the case ofPaul Imison & another v Jodad Investments Ltd [2014] KLR. 13. On the other hand, the Client urged that its claim that the Advocates legal fees were fully settled pursuant to an alleged Fees Agreement between them has a direct bearing on items 1, 23, 24, 25, 26, 50 and 51 of the taxed Bill of Costs hence the argument by the Advocates cannot stand.

14. Rule 11(1) of the Advocates Remuneration Order provides for the filing of a Notice of Objection to Taxation in the following terms:-“11 (1) should any party object to the decision of the taxing officer; he may within fourteen days after the decision give notice in writing to the taxing officer of the items of taxation to which he objects”

15. The Notice of Objection to Taxation dated November 4, 2021, lodged by the Client reads as follows;“Take Notice that the Respondent/Client object to the decision and/or ruling and/or finding of the taxing officer delivered on October 22, 2021 with respect to the Advocate/Client Bill of costs dated March 24, 2021 and hereby requests for the taxing master’s reasons for taxation on her ruling on the following items of the aforesaid Bill of Costs.1. Item 1: Instruction fees2. Item 23, 25, 26, 50, 51 and 53: the totals arrived at following taxation of item 13. Item 24: Increase by ½.

16. It is clear from the Notice of Objection filed by the Client that it did not raise the issue of the existence of a fees agreement between it and the Advocate. It is also evident from the Bill of Costs that all the items objected to by the Client in the said Notice are affected by item 1 which is the instruction fees chargeable. Further, it is common knowledge that a fees agreement between an Advocate and a Client will normally provide for the advocate’s remuneration or fees payable by a Client for instruction or engagement of the Advocate. See Omulele & Tollo Advocates v Mount Holdings Limited [2016] eKLR.

17. This means that the existence or otherwise of an alleged fees agreement is bound to affect all the items listed in the notice of objection in so far as it has a direct bearing on the instruction fees chargeable by the advocate. For this reason, the argument advanced by the Advocates that the Client cannot raise the issue of the existence of a fees agreement at this point cannot hold.

Whether there was a fees agreement between the Client and the Advocates? 18. The client submitted that the Taxing Officer erred by failing to take into account the fact that it had paid all fees pursuant to an agreement between itself and the Advocates. It faulted the Taxing officer for rubbishing off correspondence between two former partners of the Advocates’ firm namely Mr. Eugene Lubulellah and Dr Wilfred Mutubwa on the basis that they were privileged information without considering that there are exceptions to the “without prejudice” rule. It argued that the letters contained an offer which was accepted by Mr Lubulellah and money was paid pursuant to that agreement hence it is oppressive, dishonest, and dishonourable for the Advocates to turn around and deny having received money on account of the agreement.

19. Further, the Client noted that the Advocates do not dispute that it was Dr Mutubwa who had a personal relationship with the Client and neither do they dispute receiving the fees paid from Dr Mutubwa.

20. On the other hand, the Advocates submitted that the “without prejudice” discussions between Mr Eugene Lubulellah and Dr. Mutubwa were not in any way binding upon the firm of Lubulellah & Associates. It contended that the correspondence between the two Advocates cannot form part of these proceedings as they were "privileged" and thus inadmissible in evidence under Section 23(1) of the Evidence Act. The Advocate further submitted that if indeed the Client paid moneys to Dr Mutubwa, its only recourse would be to pursue Dr Mutubwa or Mutubwa & Company Advocates for recovery of the alleged sums advanced to him and received by him without authority of the Advocates’ firm.

21. Section 45 of Advocates Act stipulates as follows with regard to Agreements on remuneration of Advocates;

“(1) Subject to section 46 and whether or not an order is in force under section 44, an advocate and his client may—a.before, after or in the course of any contentious business, make an agreement fixing the amount of the advocate’s remuneration in respect thereof;b.before, after or in the course of any contentious business in a civil court, make an agreement fixing the amount of the advocate’s instruction fee in respect thereof or his fees for appearing in court or both;c.before, after or in the course of any proceedings in a criminal court or a court martial, make an agreement fixing the amount of the advocate’s fee for the conduct thereof,and such agreement shall be valid and binding on the parties provided it is in writing and signed by the client or his agent duly authorized in that behalf.” 22. From the above provisions, it is clear that a fees agreement can only be considered valid and binding on the parties if it is in writing and signed by the client or his duly authorized agent. In the instant case, the Client claims that the fees agreement is contained in two letters exchanged between Mr. Lubulellah from the Advocates’ firm and Dr. Mutubwa, a former partner in the firm, on a “without prejudice” basis. The Client did not exhibit or annex the said letters to the present Reference to enable this court appreciate their contents, import and impact on the fees payable by the Client. The only annexture to the present Reference was the Ruling of the Taxing Officer which was marked “PM 2”. In the premises, the court cannot tell if indeed the letters related to a fees agreement between the parties pursuant to which the Client made any payments. Without being shown the letters, it is also impossible for the court to tell whether this was a case where “without prejudice” communication would be admissible in evidence. To that end, the court cannot therefore make any further comments on this issue.

Whether the Taxing Officer erred by using the value of the subject matter as the basis for calculating instruction fees 23. The Client submitted that the taxing officer made an error in principle by using the subject matter as the basis for calculating the instruction fees. It argued that the Advocates instructions were limited to an application under Section 7 of the Arbitration Act for an interim measure of protection pending the hearing and determination of a dispute before an Arbitrator. It was submitted that whereas the value of the subject matter is disclosed in the pleadings in such an application, the same should not be the basis of calculating instruction fees as the client already paid fees based on that basis in the arbitration proceedings where the substantive dispute was heard and determined. Further, the Client argued that the sum of Kshs 300,000,000. 00 could not have been used as the value of the subject matter since there was no substantive claim of that value to be determined by the court. The Client relied on the cases of Muri Mwaniki & Wamiti Advocates v Draft & Develop Engineers Limited [2021] eKLR and Eastland Hotel Limited v Wafula Simiyu & Co Advocates[2014] eKLR.

24. According to the Advocates however, in the suit that was the subject of the taxation, that is HCCC No 431 of 2013 (OS), the pleadings sought more than mere injunctive relief as the Client also sought a mandatory order compelling the Respondent therein to deposit Kshs 300,000,000 in court or in a joint interest earning account pending the determination of the Arbitration. In the Advocates’ view, it was therefore obvious that the aforesaid sum was the disclosed value of the subject matter of the suit and in support of this, the Advocate relied on the case of Rachuonyo and Rachuonyo Advocates v National Bank of Kenya Limited (2021) eKLR.

25. Further, it was the Advocates submission that if the said sum was not the subject matter of the suit, then it would not have been pleaded or formed part of the final orders sought by the Client. Additionally, the Advocates contended that it is clear from the Bundle of Documents and Annexures it filed in the taxation that the matter was extremely complex and entailed perusing copious documents, preparing pleadings and correspondences as well as court and registry attendances.

26. In Joreth Limited v Kigano & Associates Advocates [2002] EA 92, the court when determining the value of the subject matter for taxation purposes stated that:“The value of the subject matter of a suit for purposes of taxation of a bill of costs ought to be determined from the pleadings, judgment or settlement(if such be the case) but if the same is not so ascertainable the taxing officer is entitled to use his discretion to assess such instruction fee as he considers just, taking into account, among other matters, the nature and importance of the cause or matter the interest of the parties, the general conduct of the proceedings, any direction by the trial judge and all relevant circumstances.”

27. In the instant matter, it is not in dispute that the Bill of Costs arose from instructions issued by the Client to the Advocates to institute Milimani HCCC No 431 of 2013: Gilbi Construction Ltd v Chania Gardens Ltd on its behalf. It is not contested that subject suit was instituted for the sole purpose of seeking an injunction or interim measures of protection under Section 7 of Arbitration Act 1995 to restrain the Defendant therein from dealing in any way with a certain property pending the hearing and determination of arbitration proceedings between the parties. According to the Bill of Costs, it is clear that the only actions taken by the Advocate in the subject suit were: drawing of the Originating Summons and a Chamber Summons Application; making copies of the same; attending court to file the same; serving the Respondent with the said pleadings; and drawing a one-page correspondence. All these actions were done on October 3, 2013 and October 10, 2013. Further, from the Ruling of the Taxing Officer, it is noted that the subject suit was dismissed for want of prosecution and was never scheduled for hearing at any point.

28. In Muri Mwaniki & Wamiti Advocates v Draft & Develop Engineers Limited [2021] eKLR, the court when faced with similar circumstances pronounced itself as follows:“The Applicant instituted the suit for the sole purpose of seeking Interim measures by Court under Section 7 of Arbitration Act 1995 , which is for the sole purpose of preserving the subject matter and/or maintaining status quo pending hearing and determination before the parties’ choice of forum in Arbitration proceedings. These Court proceedings were not complex, protracted and did not involve settling of parties’ rights and obligations in the dispute as the Court’s jurisdiction is ousted by the parties’ Arbitration Agreement.In the absence of any, an elaborate explanation whether and why in this instance it took long to prosecute the Application in Court and/or it was protracted or complex, the matter was in Court merely to protect the subject-matter of the suit before hearing by the Arbitral Tribunal.Therefore, taxation of the Bill of Costs herein would not entail the value of the subject-matter as it was not a full hearing and determination of the subject-matter in Court. Secondly, during Arbitration proceedings; parties’ Counsels, Arbitrator or Arbitral Tribunal agree of Legal Fees upfront, that is where, the value of subject matter, complexity, length of time other incidental expenses are considered and visited on the clients/parties for payment. To do the same in Taxation proceedings would amount to double charge and payment. So, taxation of Bill of Costs herein relates only to what transpired in Court, in this case, pursuit of Interim orders and/or recognition and enforcement of Arbitral award which was not confirmed on the record.…In this case, the matter was heard and determined through Arbitration proceedings and this is where preparation and perusal of voluminous documents would be in order to determine the dispute…For these reasons the Court finds the Taxing Officer applied correct principles and applied the discretion judiciously.” [Emphasis mine]The above holding resonates very well with the circumstances in this matter.

29. For the foregoing reasons, I find that the taxing officer committed a grave error of principle in ascertaining the subject matter of the suit by using the value of the subject matter as the basis for calculating instruction fees, when the real issues in controversy where dealt with during the arbitration proceedings. Without a doubt this resulted in a manifestly excessive instruction fees which also constitutes an error of principle that justifies interference by this court. See Arthur v Nyeri Electricity Undertaking [1961] EA 497.

Whether there were glaring errors on the face of the ruling of the taxing officer. 30. The Client contended that there were glaring errors in the Ruling of the taxing officer as she indicated that the Bill of costs filed in the present case sought Kshs 11,095,709. 69 instead of Kshs 8,247,151. 02. Further, that the Taxing officer also indicated that the Bill emanated from instructions issued in HCC 378 of 2017 instead of HCC 431 of 2013. In the Client’s view, the said errors are not mere typographic errors which the court can overlook but material errors which show that the taxing officer was lethargic.

31. According to the Advocates however, the errors did not materially affect the taxing officer’s assessment of fees payable and this Court should not upset the taxation merely because in its opinion, the amount awarded was high.

32. The errors alluded to by the Client are glaringly evident in the Ruling of the taxing officer. The question that this court has to grapple with therefore is what effect they have on the decision of the taxing officer, if any. I note that the Advocates lodged another Bill of Costs against the Client herein in Misc Application No 203 of 2021 at the same time with the Bill of Costs which is the subject of the instant Reference. The two Bills were taxed together and it seems that this is what caused the confusion and errors in the Rulings.

33. I however agree with the Advocates submission that the errors did not materially affect the taxing officer’s assessment as the orders sought by the Client in the two suits which were the subject of the Bills of Costs were similar. The Taxing Officer calculated the instruction fees in both Bills on the basis of the subject matter which this court has already found to be an error of principle. However, as regards the costs spent by the Advocates in undertaking the client’s instructions, the taxing officer indicated the specific amount spent in the respective Bills without confusing the two. In the circumstances, the court is not persuaded that the Taxing Officer was lethargic. It is clear as to the Taxing Officers intentions and actions, well exhibited in the rulings.

Conclusion 34. For the foregoing reasons, the Reference filed by the Client succeeds. The Taxing Officer’s assessment of the instruction fees is hereby set aside. The subject Bill of Costs is remitted for fresh taxation by a different Taxing Officer in light of the court’s findings herein. The Advocates Notice of Motion dated November 4, 2021 is hereby dismissed. The Applicant is awarded Costs of both applications.

35. This ruling applies to Misc Application No E203 of 2021. Orders accordingly.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 12TH DAY OF MAY 2022J. MULWAJUDGE.