Upward Scale Investments Company Limited & 2 others v Mwangi Keng’ara & Co. Advocates [2022] KEHC 213 (KLR) | Taxation Of Costs | Esheria

Upward Scale Investments Company Limited & 2 others v Mwangi Keng’ara & Co. Advocates [2022] KEHC 213 (KLR)

Full Case Text

Upward Scale Investments Company Limited & 2 others v Mwangi Keng’ara & Co. Advocates (Miscellaneous Application 515 of 2013) [2022] KEHC 213 (KLR) (Commercial and Tax) (18 March 2022) (Ruling)

Neutral citation: [2022] KEHC 213 (KLR)

Republic of Kenya

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

Miscellaneous Application 515 of 2013

A Mshila, J

March 18, 2022

Between

Upward Scale Investments Company Limited

1st Applicant

Linmerx Holdings Limited

2nd Applicant

Richhood Limited

3rd Applicant

and

Mwangi Keng’ara & Co. Advocates

Respondent

Ruling

BACKGROUND 1. There are two Applications before the Court. The 1st Application is a Chamber Summons Application dated 14th January 2020 brought under Paragraph 11(2) of the Advocates Remuneration Order. The Application was supported by the grounds on the face of it and by the sworn Affidavit of MERCY NDUTA MWANGI who sought orders that;a.The Ruling of the Taxing Officer dated 17th December 2019 touching on the assessment of Item No. 1 (Instruction Fees) in the Advocate/Client Bill of Costs dated 5th December 2013 be remitted back for re-taxation.b.The costs of the reference to be awarded to the Advocate/Applicant.

2. The 2nd Application is a Chamber Summons Application dated 10th February 2020 brought under Paragraph 11(2) of the Advocates Remuneration Order; The above mention Application was supported by the grounds on the face of it and the Sworn Affidavit of JOSEPH GITAU MBURU who sought the following orders;a.Leave be granted to file reference out of time.b.The Ruling of the Taxing Master dated 17th December 2019 be set aside and the Bill of Costs dated 5th December 2013 be struck out and/or dismissed with costs.c.In the alternative, the Advocate/Client Bill of Costs dated 5th December 2013 be remitted back for taxation before any other Taxing Officer.d.Costs of this reference to be awarded to the Clients/Applicants.

3. The parties were directed to file and exchange their written submissions; hereunder is a summary of the parties respective rival submissions;

ADVOCATE/APPLICANT’S CASE 4. The Advocate submitted that Item 1 on the Bill of costs outlined that the Advocate was instructed by the Clients to prepare a conditional agreement for acquisition of shares and stocks for purposes of a joint venture for purchase of land and development of block offices whose total cost and revenue per the Quantity Surveyor’s analysis was Kshs.3, 247,540,431.

5. The Advocate went on further to explain what the work entailed and owing to the complexity of the work, the huge financial interests of each investor that needed to be protected and the value of the subject matter, the Advocate sought instruction fees on a scale of 3% of the value of the subject matter. The Taxing master misinterpreted the agreement by narrowing its purpose to merely acquisition of the Shares of the 1st Client and also misconstrued the purpose for outlining the 15 contracts which the Advocate had prepared in the narrative on Item No. 1.

6. The Bill of Costs was drawn under Schedule V Part II of the Advocates Remuneration Order and not Schedule I. The Applicant further states that the Clients were informed that fees for drawing contracts for Joint Venture Agreement would be under Schedule V. The Client gave its approval of the election in its letter dated 16th May 2011.

7. The Advocate complied with paragraph 22(1) of the Advocates Remuneration Order which require an election to proceed with charging fees under Schedule V to be communicated to the Client. This was the position in Mutisya & Co. Advocates -versus- Lazaro Omita Nyagol [2004] eKLR.

8. The notice of election under paragraph 22(1) having been served upon the Client and acknowledged in accordance with the law, the disregard of this by the Taxing Master and proceeding to apply Schedule 1 is an error of principle which invites the court to set aside the taxation.

9. It was the Applicant’s argument that Rule 11(2) of the Advocates Remuneration Order provides the objector 14 days within which to apply to a judge by chamber summons. The Chamber Summons dated 10th February 2020 and filed on 3rd March 2020 was filed out of time as the Client had up to 24th February 2020 to file their reference. The Client was indolent and guilty of laches and failed to give reasons for the late filing of the Chamber Summons. This was the position in the case of Nicholas Kiptoo Arap Korir Salat –versus- IEBC & 7 Others [2014] eKLR.

10. The purported filing of the reference dated 10th February 2020 after the lapse of the prescribed time and without leave for extension of time renders the said Chamber Summons a nullity ab initio and the same ought to be dismissed.

11. Rule 5 of the Advocates Remuneration Order also provides for a special fee for exceptional importance based on the nature of the pecuniary or other interest involved in the matter, the labour and the responsibility entailed.

12. The subject matter valued at Kshs.3, 247, 540, 431 presents an exceptional circumstance and signifies the importance of the matter as provided in Rule 5. Given that diverse interests were represented and the pecuniary interest involved a charge of 3% of the value of the subject matter, it was modest and appropriate. Therefore, the Taxing master misdirected herself as to the value of the subject matter and the applicable scale and thereby arrived at an erroneous decision.

13. It was the Advocate’s submission that legal services and costs are vatable as per the Third Schedule of the VAT Act.

14. There was therefore an error in principle in the taxation consisting of the wrong determination of the subject matter, disregard to the Advocates election under Rule 22(1) and a failure to award a fee to cover all the parties to the contract.

15. The Clients contention was that the Taxing master allowed fees for meetings that took place on 29/11/2020, 6/1/2015 and 5/2/2011 without proof of minutes. The Clients failed to object to the items before the Taxing master, the same were not in issue and raising the said issues at this state is an afterthought and brought in bad faith. The Advocate relied on the case of Otieno Ragot & Company Advocates versus National Bank of Kenya Limited [2020] eKLR where the court stated that allowing new evidence at the appellate stage was not only prejudicial to the opposing party but also against public policy and the law.

CLIENTS/RESPONDENTS’ CASE 16. The Clients submitted that the Taxing master correctly indicated that the Bill related to Conditional Agreement for acquisition of shares and stocks for purposes of joint venture. The said agreement is explicit in its title that the value of the subject matter is Kshs.426, 000, 000 which document was not executed by the parties. In applying the value provided in the agreement in question, the Taxing Officer did not err in principle.

17. The Agreement drafted by the Advocate was explicit under paragraph 19 thereof on issue of fees of which the Taxing master cited. The Advocate cannot now allege that the content of the said document is not applicable for determination as done by the Taxing master.

18. The Advocate faulted the Taxing Officer for not taxing and awarding costs for vendor and purchaser yet no such application was outlined in the Bill of Costs or made before the Taxing Officer. Therefore, the Court cannot give orders in vacuo.

19. Further, the Clients submitted that the Taxing Officer taxed instruction fees at Kshs.4, 897,000 and although she did not err in determining the value of the subject matter, she erred in principle in calculating the instruction fees.

20. The Clients contention is that the Advocate was entitled to Kshs.1, 278,000 being 0. 03% of Kshs.426, 000, 000. The Taxing Officer erred in awarding unjust and exorbitant instruction fees which was an error of principle.

21. It was the Clients’ case that after seeking reasons for the Ruling of the Taxing Officer, the said letter was never served upon the Clients as required and the same coincided with vacation period between 21st December and 15th January.

22. The above mentioned letter dated 20th December 2019 was collected on 3rd March 2020 and the reference filed immediately. The Application is therefore not filed out of time as alleged. Time started running when the reasons were received.

23. On whether two or more references can be filed at the same time, the Clients submitted that any party is entitled to a reference regardless of whether the other has already filed one.

24. The Clients submitted that the application of VAT be reassessed on the correct instruction fees and removed from the items that the advocate was seeking reimbursement. See: Ngatia and Associates Advocates vs Interactive Gaming & Loteeries Limited [2017] eKLR.

25. Under Rule 13 and 13 A of the Remuneration Order, an Applicant is supposed to provide evidence in support of the Bill of Costs. The allegation that an issue was not raised with regard to the two meetings of 29/11/2010. 6/1/2011 and 5/2/2011 by the Clients in the taxation is false and should have been verified.

ISSUES FOR DETERMINATION 26. The Court has taken into consideration the Applications, the Responses and the submissions filed by the respective parties and has framed the following are the issues for determination;a.Whether the Clients’ be granted leave to file the Reference out of time;b.Whether the Bill of Costs dated 17th December 2013 should be set aside and/or remitted back for re-taxation;c.Whether the Taxing Officer erred in principle with regard to the instruction fees;

ANALYSISWhether the Clients’ be granted leave to file the Reference out of time; 27. The Client has by its application sought leave to file a reference out of time. The main grounds upon which the Client seeks that leave is that: -after seeking reasons for the Ruling of the Taxing Officer, the said letter was never served upon the Clients as required and the same coincided with the court recess period between 21st December and 15th January.

28. Further to the above, the said letter dated 20th December 2019 was collected on 3rd March 2020 and the reference filed immediately. The Application is therefore not filed out of time as alleged. Time started running when the reasons were received.

29. The starting point is Rule 11(1) (2) and (4) of the Advocates Remuneration Order. The same provides: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”.11(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 for his objection.11 (4) The High Court shall have power in its discretion by order to enlarge the time fixed by subparagraph (1) or subparagraph (2) for the taking of any step; application for such an order may be made by chamber summons upon giving to every other interested party not less than three clear days’ notice in writing or as the Court may direct, and may be so made notwithstanding that the time sought to be enlarged may have already expired.””

30. The case of Salat v Independent Electoral & Boundaries Commission & 7 others [2014] eKLR sets out the under-lying principles that a court should consider while exercising the discretion to extend time as follows:i.Extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party.ii.A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the Court.iii.Whether the Court ought to exercise discretion to extend time, is a consideration to be made on a case to case basis.iv.Whether there is a reasonable reason for the delay, which ought to be explained to the satisfaction of the Court.v.Whether there would be any prejudice suffered, the respondent if the extension was granted.vi.Whether, the application had been brought without undue delay and,vii.Whether in certain cases, like election petitions, public interest ought to be a consideration for extending time.”

31. The Client did request for reasons to the decision of the taxing master within 14 days as provided under paragraph 11, to enable it file its reference objecting to the taxed costs. However due to Court recess period the letter containing the reasons was never served upon the Client. As a result, the reference was filed out of time.

32. The delay has been explained, a Notice of Objection dated 17th December 2019 has also been filed. Therefore, the Court is satisfied that the 2nd Respondent has made out a case for enlargement of time to file a reference against the decision of the Taxing Officer made on 17th December 2019.

Whether the Taxing Officer erred in applying wrong principles of law with regard to the instruction fees; 33. In the case of Kipkorir, Tito & Kiara Advocates Vs Deposit Protection Fund Board [2005] eKLR the Court observed;“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.”

34. The Client objected to the Taxing Officer’s award on instruction fees on the following grounds;a.The Taxing Officer used the wrong scale to arrive at the instruction fees.b.The Taxing Officer allowed VAT at unjust and exorbitant instructions fees.c.The Taxing Officer allowed fees for meetings that were not proved.

35. Further, the Clients argued that the Taxing master taxed instruction fees at Kshs.4, 897,000 and although she did not err in determining the value of the subject matter, she erred in principle in calculating the instruction fees.

36. On the other hand, the Advocate also objected to the award on instruction fees and asked the court for the Bill of Costs to be remitted back for re-taxation. The Advocate argued that the Taxing master erred in principle and in law in holding that the total consideration for the joint venture agreement was Kshs.426, 000,000 being the value of the shares and thereby failed to evaluate the whole joint venture agreement and to adopt the value of the entire project which the agreement sought to protect. The Taxing master was required by law to award separate instruction fees as against the Vendor and the Purchasers which she failed to do so.

37. The Taxing officer’s ruling dated 17th December 2019 page 5 indicates that the value of the subject matter is provided under paragraph 21 of the Advocates Remuneration Order 1962 while the instruction fees was calculated under Schedule 1. It is the Court’s view that the Taxing Officer erred in principle by taxing the Bill of Costs under the wrong Schedule and finds that the Schedule 1 used by the Taxing Officer is not the same Schedule as the one found in the Advocates Remuneration Order 2006.

Whether the Bill of Costs dated 5th December 2013 should be set aside and/or remitted back for taxation; 38. In light of the above, this court is satisfied that this is a suitable case for remitting back to a different Taxing Master for re-taxation.

FINDINGS AND DETERMINATION 39. For those reasons this court makes the following findings and determination;(i)The applications are found to be partially meritorious;(ii)This court finds that the Taxing Master applied wrong principles of law in taxing the Bill of Costs under the wrong Schedule;(iii)The Ruling of the Taxing Officer dated 17th December 2019 touching on the assessment of item No. 1 (Instruction Fees) in the Advocate/Client Bill of Costs dated 5th December 2013 is hereby set aside;(iv)The Advocate/Client Bill of Costs be and is hereby remitted back for re-taxation only on Item No.1 before a different taxing master;(v)The Client/Respondent is at liberty to file a Reference after the re-taxation.(vi)Each party to bear their own costs.

Orders Accordingly.DATED SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 18THDAY OF MARCH, 2022. HON. A. MSHILAJUDGEIn the presence of;Mwangi for the Advocate/ApplicantMirie holding brief for Kingara for the RespondentLucy-------------------------Court Assistant