'
Introduction & Background
1. This suit was settled by way of a Mediation Agreement signed by the parties on 26th March, 2024, with the only outstanding issue being costs that has been canvassed by way of written submissions and it is what the Court is being called upon to determine. The Plaintiff submits that it is the successful party in the suit and is therefore entitled to be awarded the costs of both the suit and the mediation proceedings. It avers that it successfully proved its claim for outstanding sums due from the Defendant under the Staff Financing Scheme Agreement as set out and concretized in the Mediation Agreement, which acknowledged a debt of Kshs. 85,710,305.54/= as of 11th March, 2024, and set out a repayment plan.
2. The Plaintiff''s primary argument rests on Section 27 of the Civil Procedure Act and established case law including Rai & 3 others v Rai & 4 others [2014] KESC 31 (KLR) that “costs follow the event”, which principle dictates that the winning party should normally be awarded its costs by the losing party. The Plaintiff contends that there is no good reason for the court to deviate from this rule in this case as this is a commercial dispute, not a matter of public interest litigation, which is a typical exception to the costs rule. That the Defendant''s subsequent agreement to the Mediation Agreement does not exempt it from paying costs.
3. The Plaintiff urges the court to consider the Defendant''s conduct, which necessitated the suit. It states that the Defendant was in default of a significant and growing debt, from Kshs. 25 Million in 2018 to over Kshs. 85 Million in 2024, and despite acknowledging the debt in 2019, the Defendant failed to settle it or provide a concrete payment plan, forcing the Plaintiff to file the suit. As such, the Plaintiff urges the court to exercise its discretion judicially and award it costs of the suit and the mediation and if the parties cannot agree on the amount, the costs should be determined by the court''s Taxing Master.
4. On its part, the Defendant submits that each party should bear its own costs of the suit and the mediation. It contends that the Plaintiff is not entitled to costs for reasons that in a mediation, there is no "winner" or "loser" and that it is a collaborative, voluntary process where both parties compromise to reach a settlement and that awarding costs to one party would undermine the "win-win" and reconciliatory spirit of mediation, which is encouraged under Article 159(2)(c) of the Constitution. The Defendant maintains that the Plaintiff''s suit was fundamentally flawed because no cause of action lay against it and that its role was limited to deducting loan repayments from employees'' salaries upon instruction and that it never acted as a guarantor for the employees'' loans.
5. The Defendant submits that the Plaintiff should have sued the individual defaulting employees, as per the loan agreements, rather than the Defendant and that the Plaintiff''s misjoinder of the Defendant led to unnecessary litigation. The Defendant believes that had the case proceeded to a conventional trial, the Plaintiff''s suit would have been dismissed with costs, making the Defendant the successful party. The Defendant acknowledges that under Section 27 of the Civil Procedure Act, costs are at the court''s discretion and generally "follow the event. “However, it urges the court to exercise this discretion judicially by considering the specific circumstances, including: the conduct of the parties and the Plaintiff''s decision to sue the wrong party, the subject and manner of termination of the litigation by mediation and the need to promote reconciliation and incentivize ADR mechanisms.
6. The Defendant cites various persuasive authorities including Caroline Waithira Ndungu v Simon Ndwiga Kibuchi; Stanbic Bank Kenya (Formerly CfC Stanbic Bank Ltd(Interested Party) [2019] KEHC 6078 (KLR) and Ethaga Anjiru Company Limited v Githendu (Sued as Officials of and on Behalf of Chui Self Help Group) & another [2024] KEELC 321 (KLR) to support its position that when a suit is amicably settled by way of mediation, it is just and fair for each party to bear its own costs. It also references the Nairobi Centre for International Arbitration (Mediation) Rules, which state that unless otherwise ordered, each party should bear its own costs. For these reasons, the Defendant prays that the court directs each party to bear its own costs of the suit.
Analysis and Determination
7. The sole issue for determination is which of the parties ought to bear the costs?
8. The parties agree that the issue of costs is provided for under Section 27 of the Civil Procedure Act which states in part as follows:-
27. Costs
(1) Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incidental to all suits shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid; and the fact that the court or judge has no jurisdiction to try the suit shall be no bar to the exercise of those powers:
Provided that the costs of any action, cause or other matter or issue shall follow the event unless the court or judge shall for good reason otherwise order. (Emphasis mine)
9. The Supreme Court, in Rai(supra) fortified the principle that costs follow the event when it held: -
“So the basic rule on attribution of costs is: costs follow the event. But it is well recognized that this principle is not to be used to penalize the losing party; rather it is for compensating the successful party for the trouble taken in prosecuting or defending the Suit.” (Emphasis mine)
10. The Supreme Court in Rai(supra) further held that: -
[18] It emerges that the award of costs would normally be guided by the principle that “costs follow the event”: the effect being that the party who calls forth the event by instituting suit, will bear the costs if the suit fails; but if this party shows legitimate occasion, by successful suit, then the defendant or respondent will bear the costs. However, the vital factor in setting the preference is the judiciously-exercised discretion of the Court, accommodating the special circumstances of the case, while being guided by ends of justice. The claims of the public interest will be a relevant factor, in the exercise of such discretion, as will also be the motivations and conduct of the parties, prior-to, during, and subsequent-to the actual process of litigation.” (Emphasis mine)
11. Guided by the above, when exercising its discretion, a court must not only look at the outcome of the suit, but also the circumstances of each case. I have considered the submissions of the parties together with the authorities cited. I have also considered the persuasive authorities cited in relation to the question of costs following a mediated settlement see (Caroline Waithira Ndungu(supra), Ethaga Anjiru Company Limited(supra) and Motiga v Victoria Commercial Bank Kenya Limited & 2 others [2022] KEELC 13277 (KLR)).
12. The above authorities reason that costs arising out of mediation is fundamentally different from costs arising from litigation. Mediation is a voluntary and collaborative process aimed at finding a mutually acceptable solution, not a contest with a victor and a vanquished. To impose costs on one party after a successful mediation would be to penalize a party for participating in a process that the Constitution and public policy strongly encourage. It would create a disincentive for future litigants to embrace this efficient and reconciliatory form of dispute resolution.
13. In the present case, the parties demonstrated a commendable commitment to resolving their dispute amicably. The Mediation Agreement represents a compromise and a joint effort to “bury the hatchet," and settle this matter to its finality. In such a scenario, it is not always appropriate to designate one party as the successful party to whom costs should automatically follow.
14. Mediation also provides parties with closure. This in itself is a positive outcome. The conclusion of mediation and the closure of the litigation in this case is the event that matters most. It is not always, in every circumstance, appropriate to decide costs on the basis of which party paid what, and to whom, in the settlement. In some cases, such as the present, it may be more appropriate to find that the mediated settlement, is the "event" and therefore that the agreement to settle was a success for both parties.
15. Consequently, and for the above reasons, I find it appropriate for each of the parties to bear its own costs. This reasoning is in line with the commercial and tax divisions policy and the wider policy of the judiciary at large to encourage settlement through multiple doors to access justice, including mediation. In circumstances such as the present one, it would be appropriate to find and hold that the mediated settlement agreement was a shared success, and not a victory for one side.
Disposition
16. Each party shall bear its own costs of this suit and the mediation proceedings.
Dated and delivered virtually via Microsoft Teams this 27 day of November, 2025
ALEEM VISRAM, FCIArb
JUDGE
In the presence of;
Court Assistant: Ivan
………………..……………..............................................................for the Plaintiff
…………………………………………………………….……for the 1st Defendant
………………………………………....................................…for the 2nd Defendant
…………………………………………………………..……..for the 3rd Defendant
'
Introduction & Background
1. This suit was settled by way of a Mediation Agreement signed by the parties on 26th March, 2024, with the only outstanding issue being costs that has been canvassed by way of written submissions and it is what the Court is being called upon to determine. The Plaintiff submits that it is the successful party in the suit and is therefore entitled to be awarded the costs of both the suit and the mediation proceedings. It avers that it successfully proved its claim for outstanding sums due from the Defendant under the Staff Financing Scheme Agreement as set out and concretized in the Mediation Agreement, which acknowledged a debt of Kshs. 85,710,305.54/= as of 11th March, 2024, and set out a repayment plan.
2. The Plaintiff''s primary argument rests on Section 27 of the Civil Procedure Act and established case law including Rai & 3 others v Rai & 4 others [2014] KESC 31 (KLR) that “costs follow the event”, which principle dictates that the winning party should normally be awarded its costs by the losing party. The Plaintiff contends that there is no good reason for the court to deviate from this rule in this case as this is a commercial dispute, not a matter of public interest litigation, which is a typical exception to the costs rule. That the Defendant''s subsequent agreement to the Mediation Agreement does not exempt it from paying costs.
3. The Plaintiff urges the court to consider the Defendant''s conduct, which necessitated the suit. It states that the Defendant was in default of a significant and growing debt, from Kshs. 25 Million in 2018 to over Kshs. 85 Million in 2024, and despite acknowledging the debt in 2019, the Defendant failed to settle it or provide a concrete payment plan, forcing the Plaintiff to file the suit. As such, the Plaintiff urges the court to exercise its discretion judicially and award it costs of the suit and the mediation and if the parties cannot agree on the amount, the costs should be determined by the court''s Taxing Master.
4. On its part, the Defendant submits that each party should bear its own costs of the suit and the mediation. It contends that the Plaintiff is not entitled to costs for reasons that in a mediation, there is no "winner" or "loser" and that it is a collaborative, voluntary process where both parties compromise to reach a settlement and that awarding costs to one party would undermine the "win-win" and reconciliatory spirit of mediation, which is encouraged under Article 159(2)(c) of the Constitution. The Defendant maintains that the Plaintiff''s suit was fundamentally flawed because no cause of action lay against it and that its role was limited to deducting loan repayments from employees'' salaries upon instruction and that it never acted as a guarantor for the employees'' loans.
5. The Defendant submits that the Plaintiff should have sued the individual defaulting employees, as per the loan agreements, rather than the Defendant and that the Plaintiff''s misjoinder of the Defendant led to unnecessary litigation. The Defendant believes that had the case proceeded to a conventional trial, the Plaintiff''s suit would have been dismissed with costs, making the Defendant the successful party. The Defendant acknowledges that under Section 27 of the Civil Procedure Act, costs are at the court''s discretion and generally "follow the event. “However, it urges the court to exercise this discretion judicially by considering the specific circumstances, including: the conduct of the parties and the Plaintiff''s decision to sue the wrong party, the subject and manner of termination of the litigation by mediation and the need to promote reconciliation and incentivize ADR mechanisms.
6. The Defendant cites various persuasive authorities including Caroline Waithira Ndungu v Simon Ndwiga Kibuchi; Stanbic Bank Kenya (Formerly CfC Stanbic Bank Ltd(Interested Party) [2019] KEHC 6078 (KLR) and Ethaga Anjiru Company Limited v Githendu (Sued as Officials of and on Behalf of Chui Self Help Group) & another [2024] KEELC 321 (KLR) to support its position that when a suit is amicably settled by way of mediation, it is just and fair for each party to bear its own costs. It also references the Nairobi Centre for International Arbitration (Mediation) Rules, which state that unless otherwise ordered, each party should bear its own costs. For these reasons, the Defendant prays that the court directs each party to bear its own costs of the suit.
Analysis and Determination
7. The sole issue for determination is which of the parties ought to bear the costs?
8. The parties agree that the issue of costs is provided for under Section 27 of the Civil Procedure Act which states in part as follows:-
27. Costs
(1) Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incidental to all suits shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid; and the fact that the court or judge has no jurisdiction to try the suit shall be no bar to the exercise of those powers:
Provided that the costs of any action, cause or other matter or issue shall follow the event unless the court or judge shall for good reason otherwise order. (Emphasis mine)
9. The Supreme Court, in Rai(supra) fortified the principle that costs follow the event when it held: -
“So the basic rule on attribution of costs is: costs follow the event. But it is well recognized that this principle is not to be used to penalize the losing party; rather it is for compensating the successful party for the trouble taken in prosecuting or defending the Suit.” (Emphasis mine)
10. The Supreme Court in Rai(supra) further held that: -
[18] It emerges that the award of costs would normally be guided by the principle that “costs follow the event”: the effect being that the party who calls forth the event by instituting suit, will bear the costs if the suit fails; but if this party shows legitimate occasion, by successful suit, then the defendant or respondent will bear the costs. However, the vital factor in setting the preference is the judiciously-exercised discretion of the Court, accommodating the special circumstances of the case, while being guided by ends of justice. The claims of the public interest will be a relevant factor, in the exercise of such discretion, as will also be the motivations and conduct of the parties, prior-to, during, and subsequent-to the actual process of litigation.” (Emphasis mine)
11. Guided by the above, when exercising its discretion, a court must not only look at the outcome of the suit, but also the circumstances of each case. I have considered the submissions of the parties together with the authorities cited. I have also considered the persuasive authorities cited in relation to the question of costs following a mediated settlement see (Caroline Waithira Ndungu(supra), Ethaga Anjiru Company Limited(supra) and Motiga v Victoria Commercial Bank Kenya Limited & 2 others [2022] KEELC 13277 (KLR)).
12. The above authorities reason that costs arising out of mediation is fundamentally different from costs arising from litigation. Mediation is a voluntary and collaborative process aimed at finding a mutually acceptable solution, not a contest with a victor and a vanquished. To impose costs on one party after a successful mediation would be to penalize a party for participating in a process that the Constitution and public policy strongly encourage. It would create a disincentive for future litigants to embrace this efficient and reconciliatory form of dispute resolution.
13. In the present case, the parties demonstrated a commendable commitment to resolving their dispute amicably. The Mediation Agreement represents a compromise and a joint effort to “bury the hatchet," and settle this matter to its finality. In such a scenario, it is not always appropriate to designate one party as the successful party to whom costs should automatically follow.
14. Mediation also provides parties with closure. This in itself is a positive outcome. The conclusion of mediation and the closure of the litigation in this case is the event that matters most. It is not always, in every circumstance, appropriate to decide costs on the basis of which party paid what, and to whom, in the settlement. In some cases, such as the present, it may be more appropriate to find that the mediated settlement, is the "event" and therefore that the agreement to settle was a success for both parties.
15. Consequently, and for the above reasons, I find it appropriate for each of the parties to bear its own costs. This reasoning is in line with the commercial and tax divisions policy and the wider policy of the judiciary at large to encourage settlement through multiple doors to access justice, including mediation. In circumstances such as the present one, it would be appropriate to find and hold that the mediated settlement agreement was a shared success, and not a victory for one side.
Disposition
16. Each party shall bear its own costs of this suit and the mediation proceedings.
Dated and delivered virtually via Microsoft Teams this 27 day of November, 2025
ALEEM VISRAM, FCIArb
JUDGE
In the presence of;
Court Assistant: Ivan
………………..……………..............................................................for the Plaintiff
…………………………………………………………….……for the 1st Defendant
………………………………………....................................…for the 2nd Defendant
…………………………………………………………..……..for the 3rd Defendant
'