Kangethe & Co. Advocates v Kenya Pipeline Company Ltd [2011] KECA 157 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that when a contract has an arbitration clause, court instruction fees are pegged to the referral application, not the contract value.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the taxing officer was right to base instruction fees on the contract sum of Kshs.914,529,148.45 and the counterclaim of Kshs.228,253,596
- 2.Whether the subject matter of the suit had a monetary value given that the suit sought a reference to arbitration and an injunction
- 3.Whether the correct schedule for taxation was Schedule VI(L) rather than Schedule VI(a) of the Advocates Remuneration Order
- 4.Whether the High Court judge erred in interfering with the taxing officer's decision in the absence of an error of principle
- 5.Whether instruction fees should have been confined to the interlocutory chamber application seeking referral to arbitration
Key legal issues
#Interaction of arbitration agreements with court proceedings and taxation of instruction fees
Where a matter is subject to an enforceable arbitration agreement and is referred to arbitration, the greater portion of costs including instruction fees arises in the arbitration, and court fees must be confined to what was lawfully before the court - the referral application.
Section 6 of the Arbitration Act obliges a court to stay proceedings and refer parties to arbitration absent the specified exceptions; section 10 bars court intervention except as provided in the Act. The referral order ended the suit and gave rise to a cause in the arbitration. Therefore the large figures relating to the contract sum had nothing to do with instruction fees before the court, and filing a defence and counterclaim was a misapprehension of the law.
Interference with a taxing officer's decision by the High Court
The High Court correctly exercised its discretion to reduce the instruction fee from Kshs.13,772,937 to Kshs.1,000,000 because the taxing officer's award rested on a misapprehension of the applicable process and the law.
It was wrong for the taxing master to sanction a fee based on a glaring misapprehension of the law; what was rightfully before the court was the interlocutory application seeking a referral order. The appellate court could not fault the High Court's exercise of discretion and upheld the ruling in its entirety.
Legal principles established
#- Where a valid arbitration agreement exists, instruction fees are properly pegged to the interlocutory application for referral to arbitration, not to the value of the contract in dispute, because the High Court has no jurisdiction to entertain the substantive claim.
- A taxing officer must take into account the substance and nature of the suit and the parties' agreement to arbitrate, failing which parties would pay costs twice over for the same subject matter.
Court orders
#- 1.The ruling of the High Court (Ransley, J.) upheld in its entirety
- 2.The appeal is dismissed
- 3.No order as to costs
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi, Milimani Commercial Courts
- H.C. Misc. Cause No. 598 of 2005
- Jurisdiction invoked
- First appellate jurisdiction over the High Court under the Constitution and the Appellate Jurisdiction Act (appeal from ruling on a taxed bill of costs)
Relief refused
#Restoration or upholding of the taxing officer's instruction fee of Kshs.13,772,937
The instruction fees should have been pegged to the interlocutory referral application, not the contract sum, since the court had no jurisdiction to entertain any claim beyond the reference to arbitration
Costs of the appeal
Both parties came to court contrary to a valid arbitration agreement
Costs
No order as to costs; each party to bear their own costs of the appeal
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
The upshot is that in the circumstances we cannot fault the High Court's exercise of its discretion to award an instruction fee of Kshs.1,000,000 million and we accordingly uphold the ruling in its entirety. The appeal is dismissed. In the circumstances described both parties came to court contrary to a valid arbitration agreement and for this reason we make no order as to costs. It is so ordered.
In law what was rightfully before the court is the interlocutory application seeking a referral order and therefore the instruction fees ought to have been confined to the application.
Except as provided in this Act no court shall intervene in matters governed by this Act.
As at the time the appellants received the instructions they did not have a suit to defend but only had a reference to arbitration application to respond to
Issues in the judgment
#The instruction fee figure is stated inconsistently within the judgment: Kshs.13,772,937.23 in the opening narration versus Kshs.13,702,937 in ground 2 of the grounds of appeal.
The judgment records the fee as 'Kshs.1,000,000 million', an internally inconsistent figure (one million versus one million million).
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kangethe & Co. Advocates v Kenya Pipeline Company Ltd [2011] KECA 157 (KLR)", Case Analysis (2011). Civil Appeal No. 211 of 2006. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2011/157/eng@2011-07-29
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.