[2020] KEHC 744 (KLR)

IN THE HIGH COURT OF KENYA

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

MISC. CIVIL APPLICATION NO. E249 OF 2019

BETWEEN

RACHUONYO & RACHUONYO ADVOCATES....APPLICANT/ADVOCATE

AND

NATIONAL BANK OF KENYA LIMITED.................RESPONDENT/CLIENT

RULING

Introduction and Background

1. What is before the court is the reference by the Applicant (“the Advocates”) from the decision of the Deputy Registrar made under Rule 11 of the Advocates Remuneration Order (“the Order”) and brought by the Chamber Summons dated 11th June 2020. It is in respect of the ruling of the Deputy Registrar dated 27th May 2020 following taxation of an Advocate/Client Bill of Costs dated 24th June 2019.

2. The application is supported by the affidavit of Clifford Owuor Rachuonyo, an Advocate in the Applicant firm sworn on 11th June 2020. It is opposed by the replying affidavit of Eustace K. Nyaga, the Head of Credit Remedial, Collection and Recoveries of the Respondent (“the Bank”), sworn on 6th July 2020. The reference was canvassed by way of written submissions.

3. It is common ground that the Advocates represented the Bank in HCCC No. 258 of 2010, John Gitonga Kihara & Another v National Bank of Kenya Limited(“the Suit”).In the bill of costs, the Advocates claimed Kshs. 14,361,194. 42/- for services rendered to the Bank in defending the suit. The claim for instruction fees of Kshs. 7,614,500/- was pegged on instructions to defend the Bank in a claim for an injunction being sought by the Plaintiff restraining the Bank from selling, transferring or alienating LR. No. 280/11 and LR. No. 280/12 which, according to the Advocates, were valued at Kshs. 600,000,000/-

4. The Deputy Registrar considered the parties’ depositions, written and oral submissions and by the ruling dated 27th May 2020 stated as follows:

[5] The value of the subject matter has been highly contested by the Respondent claiming it to be Kshs. 160,000,000/- and the Applicant value being Kshs. 600,000,000/-. In Nairobi HCCC Misc. Number 394 of 2008 Kagwimi Kang’ethe & Company Advocates –vs- Penelope Compos & Another Mabeya J held as follows: “Let it be known that it is not necessary that the value of the subject matter be in the prayers, it is to be ascertained from the pleadings generally.”

In the Amended Amended Plaint dated 28th July 2015 paragraph 10, the plaintiff averred that the market value of the suit land was Kshs. 600,000,000/-. Paragraph 4L and 4N of the Plaint purports that the property was to be sold at Kshs. 60,000,000/-. The defence filed on 6th April 2013 at paragraph 4(iv) the Defendant statedthat the agreed price was Kshs. 60,000,000/-. I will use the amount of Kshs. 60,000,000. 00 as the value of the subject matter and calculate instruction fees …..

5. The Deputy Registrar awarded Kshs. 862,000. 00 as instruction fees, taxed off Kshs. 12,051,944. 40 from the total bill and certified Kshs. -760,202. 00 as the amount due to the Client after offsetting Kshs. 3,069,250. 00 already paid by the Bank to the Advocates. It is this decision that has now precipitated this reference. The parties relied on their written submissions.

Issues for determination

6. From the reference, deposition and parties’ submissions, the following two issues fall for resolution:

a. Whether the Deputy Registrar correctly appreciated the value of the subject matter in assessing the instruction fee.

b. Whether it was proper and within the jurisdiction of the Deputy Registrar to offset the amount of Kshs. 3,069,250/-in favour of the bank.

Value of the subject matter

7. The Advocates submitted that the Deputy Registrar ignored the expressly pleaded subject matter and value of Kshs. 600 million set out in paragraphs 4L to 4N and 10 of the Amended Amended Plaint dated 28th July 2014. The Advocates stated that in electing to adopt the sale transaction sum of Kshs. 60 million, the Deputy Registrar ignored the fact that the Amended Amended Plaint was filed on 28th July 2014 and relying exclusively on a single paragraph in the Statement of Defence which had been filed much earlier, on 6th April 2013 and that upon the Plaintiff filing the Amended Amended Plaint, the Defence had been overtaken. The Advocates submitted that the sale transaction of Kshs. 60 million had been contracted in 1995 between the Bank and Foursome Development Limitedand that this value was irrelevant in the taxation as the Bank expressly vouched for a value of Kshs. 190 million derived from a sale price between the Bank and Dove Court Limited. The Advocates therefore submitted that this court should set aside the decision of the Deputy Registrar and order a fresh assessment of the instruction fee based on the pleaded sum of Kshs. 600 million. The Advocates added that the voluntary payment of substantial deposit against fees amounting to Kshs. 3,069,250/- leaves no doubt that the Bank recognised the substantial and serious claims it faced in those proceedings.

8. The Bank supported the decision of the Deputy Registrar and urged that the Deputy Registrar did not commit any error in determination of the value of the subject matter. The Bank submitted that while the Plaintiff in the Suit pleaded that the value of the suit properties was Kshs. 600,000,000. 00, this value was not proved in the course of the proceedings and as such the value of the suit properties was incapable of being ascertained. The Bank contended that the Advocates were estopped from relying on the values pleaded by the Plaintiff in that suit as they, in the Statement of Defence prepared on the Bank’s behalf, pleaded that the, “….. alleged valuation is irrelevant and incapable of substantiation”. The Bank maintained that in denying the value of the suit properties, the Advocates cannot and ought not be allowed to turn around and rely on the same value for purposes of taxation of its Bill of Costs.

9. The Bank rejected the Advocates’ contention that the Statement of Defence was completely overtaken as a consequence of the subsequent amended plaint as at all times the Plaintiff in that suit was put to strict proof in so far as the averments made in the said Defence were concerned.

10. I do not think there is any dispute about the approach this court should take in dealing with a reference on assessment of instruction fees. In Kipkorir, Titoo & Kiara Advocates v Deposit Protection Fund BoardNRB CA Civil Appeal No. 220 of 2004 [2005] eKLR the Court of Appeal distilled the principle as follows:

On a 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. In Arthur v Nyeri Electricity Undertaking [1961] EA 497, the predecessor of this Court said at page 492 paragraph I:“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 cases”.

11. The substance of this reference concerns the assessment of instruction fees. The principle to be applied when assessing instruction fees in a suit are well settled. In Joreth Ltd v Kigano & Associates NRB CA Civil Appeal No. 66 of 1999 [2002] eKLR the Court of Appeal outlined the principle as follows:

We would at this stage point out that the value of the subject matter of a suit for the purpose 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 discretionto 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 other relevant circumstances .

12. In Peter Muthoka and Another v Ochieng and 3 OthersNRB CA Civil Appeal No. 328 of 2017 [2019] eKLR, the Court of Appeal expounded further on its decision in the Joreth Case(Supra) as follows:

It is only where the value of the subject matter is neither discernible nor determinable from the pleadings, the judgment or the settlement, as the case may be, that the taxing officer is permitted to use his discretion to assess instructions fees in accordance with what he considers just bearing in mind the various elements contained in the provision we are addressing. He does have discretion as to what he considers just but that discretion kicks in only after he has engaged with the proper basis as expressly and mandatorily provided: either the pleadings, the judgment or the settlement. He has no leeway to disregard the statutorily commanded starting point. And we think, with respect, that the starting point can only be one of the three. It is not open to the taxing officer to choose one or the other or to use them in combination, the provision being expressly disjunctive as opposed to conjunctive. It is also mandatory and not permissive. [Emphasis mine]

13. It is not in dispute that the suit has not been determined by a judgment hence the point of call in ascertaining the value of the subject matter was the pleadings in terms of Schedule 6 paragraph 1 of Order. Pleading is defined in section 2 of the Civil Procedure Act (Chapter 21 of the Law of Kenya) as follows:

“Pleading” includes a petition or summons, and the statement in writing of the claim or demand of any plaintiff and of the defence of any defendant, and of the reply of the plaintiff to any defence or counterclaim of a defendant.

14. It follows that in ascertaining the value of the subject matter from the pleadings, the court is required to consider and take into account all the pleadings, that is the Plaint, Defence and any subsequent pleadings filed through amendments. In this respect, I fault the Deputy Registrar for plucking a figure from the Defence without explaining how this sum constitutes the value of the subject matter or explaining why the sum in the statement of defence was preferred. Without giving reasons, this court cannot conclude that discretion was properly exercised.

15. In Republic v Commissioner of Domestic Taxes ex. p Ukwala Supermarkets Ltd and Others NRB HC Misc. Appl. No. 319 of 2015 [2018] eKLR, the court noted that, “ the Taxing Officer ought to disclose what informed the decision to tax the costs in one way as opposed to another.” Likewise, in Republic v Minister for Agriculture and 2 Others ex parte W’Njuguna and 6 OthersNRB HC Misc. Appl. No. 621 of 2000 [2006] eKLR the court emphasised the necessity to give reasons for arriving at a conclusion as follows:

It is necessary to ascertain how she arrived at that figure; for although the judicial review applicant’s firm position is that it was an exercise of lawful discretion which therefore, this court should uphold, the correct perception of the discretion donated by law, I believe, is that such a discretion is only duly exercised when it is guided by transparent, regular, reliable and just criteria… and

[I]t was necessary to specify clearly and candidly how she exercised her discretion… it is not enough to set by attributing to oneself discretion originating from legal provision and thereafter merely cite wonted rubrics under which that discretion may be exercised, as if these by themselves could permit assignment of mystical figures of taxed costs …

16. The Advocates’ argument that the subject matter is determined from the Plaint alone cannot be sustained in light of the duty of the Deputy Registrar to consider the pleadings on record bearing in mind that a plaintiff may plead an exaggerated figure which probably have no basis in fact. The Deputy Registrar’s duty to ascertain the value of the subject matter is not a perfunctory exercise but involves examination of the material before the court. After all, the exercise of taxation is supposed to result in fair compensation for services rendered by the Advocate.

17. Even if the value of the subject matter cannot be ascertained from the pleadings, taxing officer is permitted to use his discretion to assess instructions fee in accordance with what he considers just bearing in mind the various elements provided under the Order(see Republic v Minister for Agriculture and 2 Others ex parte W’njuguna and 6 Others (Supra)). In this case, the Deputy Registrar would be entitled to look at not only the pleadings but also the applications, depositions and course of the proceedings. I therefore find that the Deputy Registrar failed to exercise her discretion properly in assessing the value of subject matter.

Whether the Respondent was entitled to credit for Kshs. 3,069,250. 00 paid to the Bank.

18. The Advocates did not dispute the fact that the Bank paid it a deposit of Kshs. 3,069,250. 00 but that the Deputy Registrar erred in offsetting the deposit from the taxed amount without jurisdiction. The Advocates submitted that the credit to the Bank was made in a vacuum and that the appropriate stage for rendering of accounts for deposits made to the Advocate is when the Advocate seeks to enforce the certified costs through an application for judgment.

19. The Bank supported the decision of the Deputy Registrar on the ground that the Advocates did not dispute the credited amount and had indeed acknowledged the deposit of Kshs. 3,069,250. 00. The Bank submitted that it is a principle in taxation that regularity in the taxation of costs cannot be achieved without upholding fairness as between the parties and the Deputy Registrar was bound to avoid a possibility of unjust enrichment of any party and ought to refuse any claim that tends to be usurious. The Bank added that the Advocates should not to be allowed to raise the issue of taking and settlement of accounts at this stage as they had the opportunity to do so but failed to present their case before the Deputy Registrar.

20. As the Court of Appeal held in Joreth Ltd v Kigano & Associates (Supra), the list of factors a Deputy Registrar ought to consider in assessing and determining a Bill of Costs is not exhaustive and in my view, taking into account fees already paid is one of them. Moreover, the purpose of the exercise of taxation is to ascertain the amount due to the Advocate for services rendered to the client. Determination of that amount must, of necessity, include the amount already paid by the client. I therefore find that the Deputy Registrar did not err by giving the Bank credit for Kshs. 3,069,250/- already paid to the Advocates.

Disposition

21. For the reasons I have set out above, I allow the Chamber Summons dated 11thJune 2020. It succeeds to the extent that the decision of the Deputy Registrar dated 27th May 2020 in respect of the instruction fee is hereby set aside. The Bill of Costs dated 24th June 2019 is hereby remitted for taxation before any other Deputy Registrar other than Hon. Claire Wanyama for determination of the instruction fees and consequential items in line with this decision.

22. The Respondent shall bear half the costs of this reference.

DATED andDELIVERED at NAIROBIthis 4thday of DECEMBER2020.

D.S. MAJANJA

JUDGE

Court Assistant: Mr M. Onyango

Mr Kiura instructed by Riunga Raiji and Company Advocates for the Advocates/Applicants.

Ms Matunda instructed by Moronge and Company Advocates for the Client/Respondent.