[2022] KEHC 10994 (KLR)

Wasuna & Company Advocates v Kajulu Holdings Limited & 3 others (Miscellaneous Civil Application 123 of 2018) [2022] KEHC 10994 (KLR) (Commercial and Tax) (17 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10994 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Civil Application 123 of 2018

A Mshila, J

June 17, 2022

Between

Wasuna & Company Advocates

Advocate

and

Kajulu Holdings Limited

1st Respondent

Lalji Karsan Rabadia

2nd Respondent

Chandrakant Lalji Rabadia

3rd Respondent

Pravin Jadva Rabadia

4th Respondent

Ruling

Background 1. There are two Applications before the Court. The first Application is a Notice of Motion dated 1st November 2019 brought under Section 51(2) of the Advocates Act and Order 51 Rule 1 of theCivil Procedure Rules for orders that;a.Judgment be entered for the Advocate/Applicant against the Clients/Respondents in the sum of Kshs.46, 146,643. 60 being certified costs as per Certificate of Taxation herein dated 7th February 2019. b.Costs of this Application be provided for.

2. The Application was supported by the sworn Affidavit of Francis Eric Wasuna who stated that the Applicant’s Bill of Costs dated 13th March 2018 was on 7th February 2019 taxed and allowed against the Respondents in the sum of Kshs.46, 146,643. 60 and a Certificate of Taxation duly issued.

3. Even though the Respondents had objected to the taxation, they did not file a reference against the Certificate of Taxation and neither have they settled the amount thereof. The retainer is not disputed.

4. The second Application is a Chamber Summons dated 28th November 2019 brought under paragraph 11(1)(2) and (4) of the Advocates (Remuneration) Order and Section 3A and 63(e) of the Civil Procedure Act for orders that;a.The Court enlarges time within which to file a reference against the decision of the Taxing Officer delivered on 1st February 2019. b.The Reference filed herein be properly filed out of time.c.There be stay of the taxing decision made by Hon. Opande pending the hearing and determination of this reference.d.The decision of the Taxing Officer delivered on 1st February 2019 be reviewed and/or set aside.e.Costs of the reference be provided for.

5. The said Application was supported by the sworn Affidavit of Lalji Karsan Rabadia who stated that when the Bill of Costs was being canvassed, the advocates on record for the Applicants were not aware that the 1st Respondent had been placed under receivership therefore they did not raise a Preliminary Objection at the opportune time.

6. Further, no leave of court was sought by the Advocate before filing the Bill of Costs yet the 1st Respondent is a Company under receivership. The Applicants were also not party to the suit, Hccc No. 732 of 2010 Kajulu Holdings vs Commercial Bank of Africa which culminated to the Bill of Costs under reference.

7. Having been placed in the hands of the receiver manager, the management of the 1st Respondent was removed from the hands of the Applicants. The Applicants cannot therefore be sued in their capacity as directors.

8. The Taxing Officer erred in law and fact in awarding the Respondent Kshs.83, 420 despite the fact that the same had not been supported by any evidence. It is in the interest of justice that this application be allowed as the advocate’s Bill of Costs was taxed at a colossal amount of Kshs.46, 146,643. 60.

Applicant’s Case 9. The Applicant did not object to the prayer seeking extension of time and asked that the same be granted as prayed.

10. The Applicant submitted that the 1st Respondent was not under receivership as of 2nd November 2010 when the Plaint herein was first filed nor was it in receivership as of 24th November 2010 when the Plaint was first amended. The receivership automatically stood lifted when the consent dated 26th May 2016 was filed and recorded on 2nd June 2016 in HCCC No. 109 of 2011 between the bank and the 2nd - 4th Respondents as guarantors of the debt.

11. Once the Receiver Managers were appointed and took over the management of the 1st – 4th Respondents acting individually as directors of the company retained the Advocate to take out proceedings to remove the Receiver Managers and to restore control of the company back to them. These particular instructions including the hearing of the Application for stay of execution of the order removing the Receivers at the Court of Appeal were given by the 2nd – 4th Respondents individually as directors. Their joinder was thus proper.

12. The Respondents have only taken issue with the award of disbursements of Kshs.83, 420. Disbursements are awarded at the discretion of the taxing officer on proof by the drawer of the bill that they were reasonably incurred. Other than this item, the Respondents deliberately did not submit on how or why the certified sum of Kshs.46, 146,643. 60 is excessive in light of the quantum of claim before the court nor the litigation involved.

13. It was the Applicant’ position that the taxing officer carefully considered and appreciated the value of the subject matter of the suit and delved into the question of determining the instruction fee and other costs as detailed in the ruling dated 1st February 2019 and cannot be faulted. The Reference by the Respondents is without merit and should be dismissed with costs.

Respondents’ Case 14. The Respondents argued that without the Advocate having obtained leave to begin an action against the 1st Respondent then the Bill of Costs and the Application dated 1st November 2019 seeking judgment against the Respondents are non-starters. They relied on the provision of Section 560(1) of the Insolvency Act.

15. In addition, the 1st Respondent having been placed under receivership, the management of the 1st respondent was removed from the hands of the 2nd -4th Respondents. They therefore cannot be sued in their individual capacities as directors for acts committed by or against the 1st Respondent.

16. The directors could not sue in their own name in a company under receivership and they cannot be sued in their individual capacities. The 2nd – 4th Respondents were not parties in the original suit and should therefore not be enjoined in the Bill of costs by the advocate.

17. The decision by the Taxing Officer is based on an error of principle and the fee awarded was manifestly excessive and the same should be set aside and/or stayed.

Issues for Determination 18. After considering the Applications, Responses and the written submissions by the parties herein; the court finds that the following issues are for determination:a.Whether the decision of the Taxing Officer delivered on 1st February 2019 be set aside?b.Whether judgment should be entered for the Advocate/Applicant against the Clients/Respondents as per Certificate of Taxation herein dated 7th February 2019?

Analysis Whether the decision of the Taxing Officer delivered on 1st February 2019 be set aside; Whether judgment should be entered for the Advocate/Applicant against the Clients/Respondents as per Certificate of Taxation herein dated 7th February 2019; 19. The reference is premised on Paragraphs 11 Rule (1) and (2) of the Advocates Remuneration Order in which it is provided: -“(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.(2)The taxing officer shall forthwith record and forward to the objector the reasons for his decision on those items and the objector may within fourteen days from the receipt of the reasons apply to a Judge by chamber summons which shall be served on all the parties concerned, setting out the grounds of this objection.”

20. It was the Applicant’s case that the decision by the Taxing Officer is based on an error of principle and the fee awarded was manifestly excessive and the same should be set aside and/or stayed.

21. In First American Bank Ltd v Shah & another [2002] 1 EA 64, Ringera J, (as he then was), expressed himself thus;“This court cannot interfere with the taxing officer’s decision on taxation unless it is shown that either the decision was based on an error of principle, or the fee awarded was so manifestly excessive as to justify an inference that it was based on an error of principle… it would be an error of principle to take into account irrelevant factors or to omit to take into account relevant factors… some of the relevant factors include the nature and importance of the cause or matter, the amount or value of this subject matter involved, the interest of the parties, the general conduct of proceedings and any direction by the trial judge…not all the above factors may exist in any given case and it is therefore open to the taxing officer to consider only such factors as may exist in the actual case before him…”

22. The question that arises is whether there was an error of principle in the Taxing Officer’s decision to warrant the interference of this Court?

23. It was the Respondent/Applicant’s case that the Taxing Officer erred in law and fact in awarding the Respondent disbursements of Kshs.83, 420 despite the fact that the same had not been supported by any evidence. On the other hand, the Applicant argued that disbursements are awarded at the discretion of the taxing officer on proof by the drawer of the bill that they were reasonably incurred.

24. To this extent, the Court agrees with the Applicant that disbursements are awarded at the discretion of the Taxing Officer as provided under Paragraph 74 of the Advocates Remuneration Order which provides;“Vouchers to be producedSubject to paragraph 74A, receipts or vouchers for all disbursements charged in a bill of costs shall be produced on taxation if required by the taxing officer.”

25. However, it is imperative to note that the Respondent/Applicant in its submissions to the Bill of Costs had contended that items 50, 51, 52 and 53 relating to disbursements to which no receipts have been furnished should be taxed off.

26. The Court observed that the Taxing Officer in his ruling dated 1st February 2019 did not take into consideration the Respondent’s objection to the taxing of the disbursements. Neither did the Taxing Officer explain how he arrived at the said figure for the disbursements. The Taxing Officer simply concluded that the “the unopposed items shall be taxed as drawn”.

27. It is the Court’s considered view that the Taxing Master should have required proof of items under disbursement in consideration of the objection that was raised by the Respondent concerning the items under disbursement.

28. Further, in the case of Ngatia & Associates Advocates vs. Interactive Gaming & Lotteries Limited [2017] eKLR, the court held that disbursements must be proved by way of receipts. In AM Kimani & Co. Advocates vs. Trident Insurance Company Limited[2016] eKLR, the court observed that:“In respect to the disbursements, the advocate readily admitted that she did not file any receipt to confirm any of the sums claimed.30. In Muthoga Gaturu & Co. Advocates vs. Naciti Engineers Limited Misc. Case No. 51 of 2001, Mwera J. (as he then was) held as follows;“That paragraph (74 of the Remuneration Order) reads;“74. Subject to paragraph 74A, receipts or vouchers for all disbursements charged in a bill of costs shall be produced on taxation if required by the taxing officer.”In this matter it is not shown that the taxing officer required the advocate to produce vouchers and receipts for the items of disbursements referred to above. Accordingly, the taxing officer would have done well to allow those items which totalled Kshs. 1,200/- only.”31. I do not understand the learned Judge to have been laying down a general rule, that if the taxing officer failed to ask the advocate to produce receipts and vouchers, the sums claimed as disbursements should be allowed.32. In order to get a better appreciation of paragraph 74, it is necessary to compare it to paragraph 74A, which states as follows;“1) The taxing officer shall allow reasonable charges and expenses of witnesses who have given evidence and shall take into account all circumstances and without prejudice to the generality of the foregoing, the following factors ...”33. Thus, pursuant to paragraph 74A, there is no requirement for receipts and vouchers. The factors to be taken into account include;“a)the loss of time of the witness;b)if the witness is a party, the time spent giving evidence;c)the loss of wages or salary to the witness or his employer while attending court;34. By specifying that the taxing officer shall allow reasonable charges and witness expenses subject to the factors specified, plus any other relevant factors, the paragraph 74A of the Remuneration Order must be taken to have created an exception to the general rule of evidence, which requires the person who makes an allegation, to prove it.35. Mwera J. appears to have been saying that if the sums claimed in respect of disbursements were not substantial, the taxing officer may consider allowing such sums and that too, if the taxing officer had not required the claimant to produce vouchers or receipts to prove the claims.36. In this case, the advocate has submitted as follows;“The taxing officer further erred in law and fact by failing to award us costs for disbursements for failure to produce receipts where in our submissions we had explained why we could not produce receipts and when it is clear that some expenses had been incurred by virtue of the services that we had rendered to the client.37. In effect, the advocate had no receipts which she could have produced even if the taxing officer had asked her to produce them. Therefore, whether or not the advocate had been asked to produce receipts or vouchers to prove the disbursements incurred, the taxing officer would not have been given anything more. It is not the failure by the taxing officer which was the cause for the advocate’s failure to make available the requisite proof. The inability to produce proof rests completely at the advocate’s door, as she did not have evidence to support the disbursements claimed.”

29. In consideration of the above, this Court is satisfied that it was an error in principle for the Taxing Officer to award the said items for disbursements in the absence of any supporting receipts when an objection had been raised by the Respondent; it was therefore incumbent that the receipts be produced before such an award be made.

30. The decision of the Taxing Officer delivered on 1st February 2019 is thus set aside only on the issue of disbursements. It therefore follows that judgment cannot be entered for the Advocate/Applicant against the Clients/Respondents as per Certificate of Taxation herein dated 7th February 2019. But this court has jurisdiction to alter the amount in the Certificate of Taxation and the amount shall be altered by deducting the amount of Kshs. 83, 420/- for disbursements which then brings the total to Kshs.46,063,223/60. .

Findings and Determination 31. In the light of the foregoing this court makes the following findings and determinations;i.The Application dated 1st November, 2019 is found to be partially meritorious;ii.The Application dated 28th November, 2019 is found to be partially meritorious; the decision of the Taxing Officer delivered on 1st February 2019 on the amount for disbursements is hereby set aside.iii.The Certificate of Taxation dated 7th February, 2019 in the sum of Kshs.46,146,643/60 is hereby altered to read KShs. 46,063,223/60. And is hereby adopted as a Judgment of this court.iv.There shall be no order as to interest.v.Each party to bear its/their own costs on the two applications.Orders Accordingly.

DATED, SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 17TH DAY OF JUNE, 2022. HON. A. MSHILAJUDGEIn the presence of;Mr. Mungla for the Applicant/AdvocateNo appearance for the Respondents/ClientsLucy -----------------------Court Assistant