[2022] KEHC 14361 (KLR)

KTK Advocates v Rift Energy Corporation & 4 others (Miscellaneous Application E653 of 2020) [2022] KEHC 14361 (KLR) (Commercial and Tax) (19 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14361 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Miscellaneous Application E653 of 2020

EC Mwita, J

October 19, 2022

Between

KTK Advocates

Applicant

and

Rift Energy Corporation

1st Respondent

Rift Energy Kenya

2nd Respondent

Peter Deeb

3rd Respondent

Kenneth T Hern

4th Respondent

Charles Mbire

5th Respondent

Ruling

1. This ruling disposes of two applications, Chamber Summons dated March 10, 2022 by the 1st to 4th respondents application challenging the ruling of the taxing officer delivered on February 21, 2022 (first application) and motion dated March 29, 2022 by KTK Advocates seeking entry of judgment on taxed costs (the second application).

Background 2. The background leading to the two applications is that on June 21, 2012, Rift Energy, the 2nd respondent, entered into a production sharing agreement with the Government of Kenya. Rift Energy was to undertake oil exploration in Block L19 exploration area for a two-year period. When the period expired, Rift Energy sought and was granted an extension for two year from September 19, 2014 to September 19, 2016. On September 27, 2016, the Government of Kenya granted a further twelve-months extension up to September 19, 2017.

3. In August 2017, Rift Energy sought the advocate’s assistance in following up on the request for further extension of the additional exploration period. Rift Energy wrote to the Ministry of Energy on September 3, 2017 seeking an extension of eighteen months and again on November 2, 2017 seeking an extension for three years. Rift Energy instructed the advocate to hand-deliver the two requests for extension and follow-up on the issue.

4. On November 1, 2017, the advocate demanded a fee deposit of USD 100,000 from Rift Energy but when Rift Energy’s board considered the demand, it felt the demand was excessive given that the advocate’s role was limited to following up on the requests for extension of the exploration period.

5. The advocate then filed a bill of costs dated January 23, 2021 which was taxed and instruction fee allowed at Kshs. 11,900,000, prompting the two applications by either side.

First application 6. The first application is brought under Article 50 (1) of the Constitution, rule 11 of the Advocates Remuneration Order, section 3A of the Civil Procedure Act and Order 5 of the Civil Procedure Rules. It seeks extension of time to file a reference against the decision of the taxing officer dated February 21, 2022 and the reference be deemed to have been filed on time.

7. The application also seeks to set aside the impugned decision by the Taxing Officer in respect of the advocate/client Bill of Costs dated January 23, 2021 and that the Bill of Costs be remitted back for taxation afresh. The application is supported by the grounds on its face, supporting and further affidavits sworn by Peter M. Deeb on March 10, 2022 and May 20, 2022 respectively, and written submissions dated May 20, 2022

8. The gist of the application is that the bill of costs was not served on the respondents and as a result, taxation proceeded in their absence. It is also asserted that the taxing officer erred in law by awarding costs against the 1st, 3rd and 4th respondents even though there was no advocate-client relationship between them and the advocate. The respondents relied on Wilfred N. Konosi t/a Konosi & Co. Advocates v Flamco Limited [2017] eKLR for the argument that in the absence of advocate-client relationship, the taxing officer had no jurisdiction to tax a bill of costs under section 10 of the Advocates Remuneration Order.

9. The respondents further asserted that Rift Energy, the 2nd respondent being a limited liability company, is separate and independent from its officials (directors) and the 1st respondent also a distinct limited company. The 3rd and 4th respondents stated that correspondence they may have written to the advocate on the extension of exploration period on behalf of the 2nd respondent did not make them clients or personally liable for legal fees.According to the 3rd and 4th respondents, an agent of a disclosed principle is not liable for actions of the principle. They relied on Meru Farmers’ Co-operative Union v Abdul Aziz Suleiman [1966] EA 436 and Antony Francis Wareham t/a AF Wareham & 2 others v Kenya Post Office Savings Bank [2004] eKLR. It is contended that fees for legal services rendered to the 2nd respondent cannot be claimed from the 1st, 3rd and 4th respondents who were not clients.

10. On the principle considerations for reviewing a taxing officer’s decision, the respondents rely on Preller v Jordaan and another [1957] (3) SA 201 (O) at 203 C-E cited in Rosy Mackonie N. O. on behalf of Chanel Rochwen Erica Reid & another v the Premier of the Free State Provincial Government. (Free State High Court, Bloemfontein Case No 4131/2009).

11. The 1st to 4th respondents blame the taxing officer for disregarding the fact that the request for extension of the first additional exploration was an administrative process that the 2nd respondent had on various occasions undertaken directly. The taxing officer therefore erred by applying Schedule 1 of the Advocate Remuneration Order with respect to sale and purchase of land when determining instruction fees yet all the advocate did was follow up the already submitted request for extension of the exploration license where no sale was involved.

12. The 1st to 4th respondents maintain that they did not receive taxation notices subsequent to October 28, 2020 when the advocate instructed to act for them withdrew. They rely on Republic v Kenyatta University & another Ex-parte Wellington Kihato Wamburu [2018] eKLR to urge the Court to grant their request for extension of time to lodge the reference made contemporaneously with the reference.

13. The respondents fault the taxing officer for allowing instruction fee of Kshs. 11,900,000 on the basis that the value of the subject matter was Kshs. 2,000,000,000 yet there was no monetary claim in the matter.

14. On the delay to file the reference, the respondents argue that a delay of two days was not inordinate. They assert that the reason for the delay was due to the time taken to appoint an advocate after the taxing officer made the decision in their absence and for the 3rd respondent who resides in Canada who had to swear affidavits in support of the reference and have them notarized.

Response 16. The advocate has opposed the application through a replying affidavit sworn by Donald B. Kipkorir on March 29, 2022 and written submissions dated 15th June. The advocate contends that the application has no basis as it is founded on Article 50 of the Constitution and section 3A of the Civil Procedure Act and not rule 11 of the Advocates Remuneration Order.

17. According to the advocate, the bill of costs and notice for taxation were served upon the firm of Jane Gachuiga & Associates Advocates which was initially on record for all the respondents before Havi & Company Advocates came on record for the 5th respondent. Subsequently, the 1st to 4th respondents changed their advocate and appointed Havi & Company Advocates while the 5th respondent appointed Jane Gachuiga & Associates Advocates. Non participation by the respondents in the taxation proceedings was, therefore, deliberate.

18. The advocate asserts that the 5th respondent introduced him to the 3rd and 4th respondent who informed him that they owned the 1st and 2nd respondents. The advocate also states that from the time instructions were given in April 2017, legal fees had not been paid and the reference is therefore is the respondents attempt to avoid paying his legal fees.

19. The advocate further asserts that the reference did not meet the statutory requirements and relies on Machira & Co. Advocates v Magugu [2002] EA 428 for the proposition that a reference ought to be brought in accordance with Paragraph 11 of the Advocates Remuneration Order.

20. The advocate takes the view, that there was advocate-client relationship with the respondents and relies on Ochieng’ Onyango, Kibet & Ohaga Advocates v Akiba Bank Limited, (Nairobi HC Misc. Application No. 330 of 2005 for the position that a retainer or an advocate’s authority to act can be implied from the conduct of the parties to infer advocate–client relationship.

21. The advocate again relies on Machira t/a Machira & Co. Advocates v East Africa Standard [2001] eKLR, to argue that he deserves protection of the law to enjoy the fruits of the judgment.

22. Citing Joreth Limited v Kigano & Associates Advocates [2002] eKLR, the advocate maintains that taxation of the bill of costs is the sole discretion of the taxing officer and argues that the reference does not meet the threshold for review as it does not show how the taxing officer violated principles on taxation.

23. The advocate again relies on Otieno Ragot & Co. Advocates v National Bank of Kenya Ltd, [2020] eKLR; [2020] JELR 93401 (CA) for the argument that since a reference is an appeal from a taxing officer’s decision, additional evidence ought to be adduced with leave of court. The advocate urges the court to dismiss or strike out the reference dated March 10, 2022 with costs.

Second application 24. The second application is a notice of motion dated March 29, 2022 under section 51(2) of the Advocates Act, seeking entry of judgment in terms of the taxed costs against the 1st to 4th respondents for Kshs. 13,836,465. The application also seeks interest at 14% from February 28, 2022, until payment in full as well as costs for the application.

25. The application is based on the grounds on face of the motion, supporting affidavit sworn by Donald B. Kipkorir on March 29, 2022 and written submissions dated June 15, 2022.

26. The advocate asserts that the 1st to 4th respondents instructed him to advise them in respect to the award for oil and gas exploration on Block L19 measuring over 3,000,000 acres in the Coastal region and specifically to apply for and follow up on the necessary regulatory and statutory approvals, advise generally on the industrial, economic, commercial and political situation in Kenya and negotiate with the Ministry of Energy on extension of exploration period and incidental works thereto.

27. According to the advocate, since legal services had been rendered to the clients from August 2017, the bill of costs was properly taxed on February 28, 2022 and allowed at Kshs. 13,835,465. For that reason, judgment should be entered as prayed.

Response 28. The 1st to 4th respondents filed grounds of opposition dated May 18, 2022, stating that the certificate of taxation dated March 28, 2022 for Kshs. 13,835,465 had been challenged through the reference dated March 10, 2022 and, therefore, judgment should not be entered while the reference is pending.

Determination 29. As stated at the beginning of this ruling, there are two applications dated March 10, 2022 and March 29, 2022, the first application and second applications respectively. The first application seeks extension of time to file a reference and the reference be deemed to have been filed on time to challenge the decision of the taxing officer dated February 21, 2022.

30. The second application is a motion seeking entry of judgment in terms of the taxed costs arising from the impugned decision by the taxing officer. It is appropriate therefore to deal with the first application since the result thereof will determine the fate of the second application.

First application 31. The first application raises three issues; whether time to file a reference should be extended; whether notice for taxation was served; whether the 1st, 3rd, and 4th respondents were clients and, depending on the answer to those issues, whether the taxing officer applied the correct schedule to determine instruction fee.

Extension of time 32. The respondents urge that time for filing the reference be extended and the reference be deemed to have been filed within time. The reason why the reference was not filed on time is that the respondents needed Time to appoint an advocate and that it took a while for the 3rd respondent to sign the affidavits in Canada and have them notarized. According to the respondents, taxation proceeded in their absence and that was why they took a while to react the decision by the taxing officer. The advocate holds the view that the respondents were served and were aware of the taxation but deliberately failed to attend.

33. I have considered the issues and perused the record. The decision of the taxing officer was delivered on February 21, 2022 while this application was filed on March 10, 2022, which according to the respondents was outside the 14 days period by only two days. The time for filing a reference is 14 days from the date of the decision of the taxing officer. The court however has discretion to extend time if an applicant has shown that he/she had been prevented by good reason to file the reference on time.

34. In this case, the respondents delay in filing the reference was only two days. The reference should have been filed by 7th March but was filed on 10th which in is such a short time that should not prevent the respondents from accessing the court and have their grievances heard. Furthermore, the reasons given for not filing the reference on time are not implausible.

35. In Meru Farmers’ Co-operative Union v Abdul Aziz Suleiman [1966] EA 436, Sir Charles Newbold observed that rules of procedure are designed to assist the court in carrying out its functions in the administration of justice. Applying that principle in the present application, I find that granting an extension of time would be for the proper administration of justice.

36. In the circumstances, I do not find any prejudice to be suffered by advocate if time is extended to allow the respondents challenge the taxing officer’s decision and the reference be deemed to have been filed on time. Leave to file the reference is therefore granted and the reference is deemed to have been filed on time.

Service of taxation notice 37. The next issue is whether the 1st, 2nd, 3rd and 4th respondents were served with notices for taxation. These respondents argue that they were not served with the notices for taxation subsequent to Havi & Company taking over instructions on their behalf. The advocate maintains that the respondents were aware of the date for taxation but deliberately failed to attend.

38. I have considered the issue and perused the record. The record shows that Havi & Company Advocates were previously acting for the 5th respondent. The advocate admitted as much and stated that Havi & Company Advocates later took over the conduct of the matter on behalf of the 1st to 4th respondents swapping places with the advocate who previously acted for them.

39. On June 7, 2021, the advocate took a date at the registry for mention of the matter on July 1, 2021 before the taxing officer. When the matter was mentioned before the taxing officer on July 1, 2021, Ms. Wanjiru appeared for the advocate but there was no appearance for the respondents. Ms. Wanjiru informed the taxing officer that the respondents had been served and a “Return” (affidavit) of service had been filed. The court set the ruling for July 22, 2021.

40. The record does not show that the taxing officer satisfied herself that indeed the respondents had been served; who had been served on their behalf and that the affidavit of service had actually been filed and was on the portal. Without the taxing officer confirming the fact of service in her record, it would be difficult to wish away the respondents’ claim that they were not served.

41. Service of taxation notices was necessary for purposes of fair hearing so that no party could be condemned unheard. Where the 1st to 4th respondents asserted that they had not been served, the burden fell on the advocate disprove that claim and satisfy this court that those respondents had properly been served and were aware of the date set for taxation.

42. I have perused the replying affidavit by the advocate sworn on March 29, 2022 and note that no affidavit of service was annexed together with the notices served. In this respect, there is no clear and satisfactory proof that the 1st to 4th respondents were aware of the date fixed for mention with regard to taxation of the bill of costs. As it is, the advocate has not rebutted the respondents’ claim that they were not served with the notices for taxation.

Advocate client relationship 43. That takes us to the next issue whether there was advocate client relationship with the 1st, 3rd and 4th respondents. The bill of costs was initially against five parties but the 5th respondent is not involved in this application.

44. The 1st and 2nd respondents are corporate entities (juristic persons) while the 3rd and 4th respondents are individuals, (natural persons). The bill of costs was taxed against all the 4 respondents and allowed at Kshs. 13, 835,465, instruction fee being Kshs. 11,900,000.

45. The 1st, 3rd and 4th respondents argue that they could not be held responsible for the advocate’s legal fees since there was no advocate client relationship between them and the advocate. They 3rd and 4th respondents assert that they acted on behalf of a disclosed principle (2nd respondent) which did not make then liable for the actions of the principle. The advocate maintains that the 5th respondent introduced him to the 2nd respondent and informed him that the 3rd and 4th respondents owned the 1st and 2nd respondents and, therefore, the 1st , 3rd and 4th respondents are liable for the legal fees.

46. The law is clear that is a corporation a distinct entity from its officials and officials cannot be personally liable for actions of the corporation. This is so because a corporation does not have its own brain or mind but operates and acts through its officials. Acts by officials on behalf the company do not in law make them personally liable for the company’s actions though carried out by the officials. An official of a corporation can only be held liable for activities of the corporation if the official personally undertook to be so liable or exceeded their mandate as directors or officials.

47. In the present dispute, the advocate has not demonstrated to this court that the 3rd and 4th respondents had personally undertaken to pay their legal fees to make them personally liable for the taxed costs. The mere fact that one of the officials wrote letters on behalf of the 2nd respondent, a corporate entity, could not be the basis for filing and eventually having the bill of costs taxed against the 3rd and 4th respondents as individuals. Similarly, a letter written by an official on behalf of the 2nd respondent, a corporate client, which letter was acted upon by the advocate in furthering instructions of that corporate client, could not make that official personally liable to pay legal fees for the advocate.

48. In the circumstances, I agree with the 3rd and 4th respondents that there was no legal basis to have their names in the advocate-client bill of costs. The advocate client costs awarded against them was legally untenable and cannot stand.

49. In the same vein, the 1st respondent is a corporate entity distinct from the 2nd respondent. The 1st respondent maintains that it had no advocate-client relationship with the advocate. I have perused the replying affidavit filed by the advocate but cannot trace deposition in to show that there was such a relationship. What I note from the advocate’s deposition is that he was informed that the 3rd and 4th respondents owned the 1st and 2nd respondents (companies). The fact that the two companies are owned by the 3rd and 4th respondents could not establish advocate-client relationship between the advocate and the 1st respondent.

50. I have also perused the record but again could not trace any instructions from the 1st respondent to the advocate. All I could see were letters by the 2nd respondent but not the 1st respondent. It was up to the advocate to demonstrate to the satisfaction of this court existence of advocate-client relationship between the 1st respondent and the advocate in so far as the instructions in relation to which the bill of costs was taxed were concerned. That having not been done, it is my finding that there was no legal basis for the award of advocate client costs against the 1st respondent.

51. Whether proper Schedule for fees was applied

52. The next issue is whether the taxing officer applied the proper scale of fees in the taxation of the bill of costs. Having determined that there was no service of notices for taxation and that there was no advocate-client relationship between the advocate and the 1st 3rd and 4th respondents, I do not find it necessary to deal with this last issue. This is so because parties will have an opportunity to address the taxing officer on the proper scale for fees or schedule to apply in taxing instruction fee. In that regard, it is inappropriate to express views on that issue as it may be prejudicial to the taxing officer who has to deal with the bill afresh upon all parties to the bill of costs being served.

Second application 53. It is clear by now that the first application is for allowing. This being the case, the second application is not available for consideration as it is rendered premature.

Conclusion 54. Having considered the two applications, the responses and submissions, the conclusion I come to is that the first application has merit. The 1st to 4th respondents have demonstrated that the time lapse before filing the reference was not inordinate as to deny them the opportunity to challenge the taxing officer’s decision. As this court exercises discretion, the applicants deserve this discretion given that the time lapse was very short. I am also satisfied that there was no service of taxation notices to the 1st to 4th respondents for mention for 1st July 2021 when a date for the ruling was set. The respondent have also demonstrated that there was no advocate-client relationship between the advocate and the 1st, 3rd and 4th respondents. The advocate could not therefore file advocate-client bill of costs against them and the taxing officer could not award costs against the 1st, 3rd and 4th respondents.

55. As to whether the taxing officer properly taxed the advocate-client bill of costs and the applicable schedule, I defer that issue to the taxing officer.

56. In the end, the first application succeeds and is allowed. Time for filing the reference is extended and the reference is deemed to have been filed on time. The decision of the taxing officer dated February 21, 2022 is set aside. The advocate-client bill of costs dated January 23, 2021 is remitted to the taxing officer for taxation afresh. The bill of costs shall however be taxed against the 2nd respondent, Rift Energy, only. The second application is struck out. Each party will bear own costs for the two applications

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER 2022E C MWITAJUDGE