[2022] KEHC 14576 (KLR)

Humphrey and Company LLP v Paleah Stores Limited (Miscellaneous Application 314 of 2022) [2022] KEHC 14576 (KLR) (Commercial and Tax) (13 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14576 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application 314 of 2022

WA Okwany, J

October 13, 2022

Between

Humphrey and Company LLP

Advocate

and

Paleah Stores Limited

Client

Ruling

1. This ruling determines the clients reference dated March 23, 2022 which seeks the following orders;-1. Spent2. Spent3. The decision (ruling and reasons on taxation) dated and delivered on the March 11, 2022 by the Hon. Deputy Registrar be set aside and/or reviewed by this honourable court.4. The costs of this application be provided for.

2. The application was supported by the affidavit of Patrick Njiru and was based on the following grounds;-a.That following a taxation of the respondent's Bill of Costs dated October 27, 2021, the Hon. Deputy Registrar/the taxing officer vide a decision (ruling and reasons on taxation) dated and delivered on the 11th March, 2022 has ordered that Humphrey & Company LLP (the Respondent herein be paid by the Applicant a sum of Kshs.242 179 864. 02 as the advocate/client costs arising from retainer in the High Court Income Tax Appeal No.E009 of 2021: Paleah Stores Limited —vs- Commissioner of Investigations & Enforcement).b.That the applicant herein vide an Application dated March 7, 2022 challenged the jurisdiction of the Hon. Deputy Registrar to proceed with the taxation of the said Bill of costs on account that there existed a retainer agreement between the advocate and the client.c.That the taxing officer erred in law and fact dismissing the client/respondent's Application dated March 7, 2022 and proceeding to tax the Advocate-Client Bill of Cost dated October 27, 2021. d.That the taxing officer erred in law and fact holding that there was no valid agreement for legal fees which was agreed to by both parties on record that the advocate and the client agreed on the fees payable and indeed the client paid the same.e.That the taxing officer proceeded to tax the Advocate/Client Bill of Costs contrary to section 45(6) of the Advocates Act because evidence adduced clearly pointed out that that there existed a retainer agreement.f.That vide a letter dated March 14, 2022 addressed to the Deputy Registrar of the court and filed electronically in court, the respondent law firm has now sought for a Certificate of Costs to enable it proceed with execution of the assessed costs.g.That the matter subject of the retainer, High Court Income Tax Appeal No.E009 of 2021: Paleah Stores Limited —vs- Commissioner of. Investigations & Enforcement) is still pending in the High court on preliminary application and the appeal is yet to be certified ready for hearing.h.That the taxed amount of Kshs.242,179,864. 02/= is manifestly high and punitive in the circumstances, particularly on a consideration that the subject matter of the retainer is tax appeal from the Income Tax Tribunal and that the taxing officer premised the subject matter of the appeal as the being the disputed tax liability.i.That the award of instruction fees of Kshs 138,997,012. 05/= is manifestly high and punitive in the circumstances, particularly on a consideration that the subject matter of the retainer is tax appeal from the Income Tax Tribunal and that the taxing officer premised the subject matter of the appeal as the being the disputed tax liability.j.That The taxing officer erred in law by failing take into consideration principles of taxation, that in an appeal, instruction fees in not based on the value of the subject matter of the appeal.k.That curiously, the taxing officer went outside the Bill of Costs dated October 27, 2021 and written submissions of the parties and proceeded to increase the Bill of Costs by an additional one half of the taxed figure amounting to Kshs. 69,590,966. 25/=) without giving reasons and justification from the bill of costs that was presented for assessment.l.That curiously again, the taxing officer went outside the Bill of Costs dated 27th October,2021 and the written submissions of the parties and proceeded to increase the Bill of Costs by an additional award for Value Added Tax(VAT) @16% amounting to Kshs. 33,403,663. 72/= without giving reasons and justification from the Bill of Costs that was presented for assessment.m.That despite a spirited challenge by the Applicant on the taxing officer's jurisdiction to proceed with taxation, the taxing officer was determined to proceed with the assessment and she rather casually ignored to consider the evidence of the retainer agreement (and payments therefrom) between the parties.n.That this Application/ Reference has been made without unreasonable delay and timeously from the time the Applicant was supplied by court with the Ruling and Reasons for the taxation.o.That it is in the interest of justice and public interest that this Reference be allowed.

3. The respondents opposed the application through the grounds of opposition dated June 6, 2022 and by a replying affidavit sworn by George Mbaye who that there was no retainer agreement written or oral between the parties. He further states that the client did not have any written agreement as required by law to qualify as a retainer agreement.

4. The application was canvassed by written submissions which I have considered. The first issue is whether there was a retainer agreement between the client and the firm of Humphrey & Co LLP.

5. Section 45 of the Advocates Act with respect to retainer agreements provides that;45. Agreements with respect to remuneration“(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)………………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.”

6. The applicant contends that the retainer agreement between them and the advocate was contained in the correspondence between the parties. In the case of Omulele & Tollo Advocates v Mount Holdings Ltd CA 75 of 2015 the Court held:-“A retainer means the instruction, employment or engagement of an advocate by his client.On the other hand, a retainer agreement is merely a contract in writing prescribing the terms of engagement of an advocate by his client, including fees payable. Therefore, it is submitted while a retainer denotes a relationship between parties, the retainer agreement is merely the physical written document or manifestation of such a relationship……..As the section [45 of Advocates Act] indicates, under such agreement, the parties fix or put a cap on the advocates instruction fees….both parties are beholden to the amount so fixed. From the foregoing it should thus be clear that the presence of a retainer is what in turn gives rise to the retainer Agreement………..It follows that for the retainer agreement to be valid and binding, the same must have been put in writing and signed by client and /or his agent. It is erroneous as submitted By Counsel for the Respondent that retainer and retainer agreement mean one and the same thing.”

7. Further in Abuodha & Ominion Advocates v Kakuta Mai Hamisi Misc App 46 of [2015] eKLR , the Court observed:-“….In my view for a document to constitute a valid and binding agreement for fees for the purposes of section 45 of the advocates Act, the same must not only be so as to bar the advocate from taxing his costs more so as there is no evidence that the client accepted the proposal by the advocate even if it were to be found that the letter dated 20th June 2013 was a proposal on the final fee note. An agreement must contain an offer and acceptance and where one condition is not satisfied there is no binding agreement…”

8. In view of the foregoing, a retainer agreement like a contract ought to be in writing. I have perused the correspondence in form of a text message and I note that the same could not amount to a retainer agreement. The Client and the Advocate did not agree on the actual amount payable to the Advocate in a document or agreement signed by the parties for any of the services rendered in the matter giving rise to the taxation.

9. The second issue for determination is whether the taxing master erred in principle in assessing the instruction fees. The client contends that instruction fees of Kshs 138,997. 012. 05 was manifestly high and punitive and that in an appeal the instruction fees was not based on the value of the subject matter.

10. The case of Kipkorir,Titoo & Kiara Advocates v Deposit Protection Fund Board [2005] eKLR the Court of Appeal held that :-“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, inArthur v Nyeri Electricity Undertaking [1961] EA 497: it was held that:-“where there has been an error in principle the court will interfere but questions solely of quantum are regarded as matters with which the taxing officers are particularly fitted to deal and the court will interfere only in exceptional case”.

12. The court can only interfere with the assessment of the instruction fees where there is an error in principle. The taxing master, in assessing the instruction fees, observed that the matter was still ongoing and that there was no judgment or settlement on record. She therefore relied on the pleadings and stated that the value of the subject matter was Kshs 9,233,134,137. 00 derived from the judgment of tax appeals tribunal.

13. It is trite that the subject matter for purposes of taxation ought to be determined from the pleadings, judgment or settlement. InJoreth Ltd vs Kigano & Associates (2002 )1 EA 92 the court of appeal held that:-“the value of the subject matter 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 ascertainable the taxing officer is entitled to use his discretion to assess such instruction fees as he considers just taking in account, amongst other matters, the nature and the 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 other relevant circumstances.”

14. In view of the foregoing, I find that the taxing master applied the correct schedule for taxing the instruction fees. The value of the subject matter could be ascertained from the judgement of the tax appeals tribunal. I do not therefore see an error in principle in ascertaining the instruction fees.

15. In the upshot I find that the application dated lacks March 23, 2022 merit and I therefore dismiss it with costs to the respondent.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 13TH DAY OF OCTOBER 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Chepngeno for Respondent.Mr. Eddy Omondi for Applicant.Court Assistant- Sylvia