When Taxman and the Decree holder Chase the Same Coin, Who Gets Paid First?
On 1st September 2026, the High Court, Commercial and Tax Court, (Mulwa J.) delivered a ruling in Gopitex Knitwear Mills Limited v Kenya Knitting and Weaving Mills Limited & Another that will interest every litigator prosecuting garnishee proceedings and every bank with a judgment debtor’s account. At the centre of the dispute sat Kshs. 2,435,787.80, a Garnishee Order Absolute for the amount, and a KRA Agency Notice that had been quietly sitting on the account for over a year before anyone mentioned it. The Court had to decide, in effect, who eats first -is it the decree holder or the taxman.
1. The Chase for a Modest Kshs. 2.4 Million
Gopitex held an unsatisfied decree against Kenya Knitting and Weaving Mills Limited, standing at over Kshs. 24.7 million with accrued interest, plus taxed costs of Kshs. 2.87 million. In execution, it garnisheed the Judgment debtor’s account held with Diamond Trust Bank. The Bank duly disclosed that it held Kshs. 2,435,787.80 to the Judgment Debtor’s credit. A Garnishee Order Absolute followed on 29th October 2025 directing payment of that sum to the Decree Holder less the Bank’s costs. The Bank was unable to release the amount due to the existence of a KRA Agency Notice. This prompted the Decree holder to cite the Bank for contempt. The Bank also moved the Court to set aside or vary the order absolute and determine who should be paid between KRA and the decree holder noting the agency notice.
2. Contempt Knocked, But Did Not Get In
Contempt is quasi-criminal in nature, and the standard of proof sits above the ordinary civil balance of probabilities (Gatharia K. Mutikika v Baharini Farm Ltd [1985] KLR 227). An applicant must show that the order was clear, that the alleged contemnor knew of it, that it was breached, and, critically, that the breach was deliberate and wilful.
The Bank did not dispute that it knew of the order or that it had not paid. Its explanation was that it had belatedly discovered a subsisting KRA Agency Notice issued under section 42 of the Tax Procedures Act over the same account for tax arrears. The release of the amount to the decree holder would expose it to personal liability. The Court accepted that this disclosed a genuine conflict of legal obligations rather than deliberate defiance, and declined to cite the Bank for contempt even while describing its failure to disclose the Agency Notice earlier as “blameworthy.”
3. The Court Rehashes: A KRA Agency Notice Takes Precedence Over Garnishee Proceedings
The harder question was whether the Garnishee Order Absolute itself should be reviewed. The Bank’s difficulty was that the Agency Notice had been issued to it on 24th January 2024 squarely within its own institutional knowledge and long before the garnishee proceedings began in October 2025. That is not, strictly, “newly discovered evidence” under Order 45 Rule 1 of the Civil Procedure Rules and due diligence should have surfaced it. The Court agreed, yet found refuge in the rule’s residual limb – review for “any other sufficient reason” – and held that the priority dispute between KRA and the Decree Holder qualified as such.
On the substance, the Court applied I & M Bank Limited v Xplico Insurance Company Limited & 5 others; Munge (Interested Party) [2022] KEHC 12956 (KLR), which held that an Agency Notice issued is a valid statutory demand that takes priority in the settlement of a taxpayer’s debts. Because the Agency Notice pre-dated the Garnishee Order Nisi by more than a year and remained unrevoked, the Court held that it ranked first and proceeded to set aside the Garnishee Order Absolute to the extent of the funds it covered.
4. One Cannot Garnishee an Account Already Subject to a KRA Agency Notice
The upshot is a clean statutory hierarchy: garnishee proceedings can only attach what is left in an account after a subsisting Agency Notice has taken its cut, not before. A decree holder cannot leapfrog KRA merely by being first to court. Instead, it is the date of the Agency Notice, not the date of the garnishee order, that decides priority. The Court was blunt that compelling the Bank to pay the Decree Holder while the Agency Notice remained intact would have left the Bank exposed to two inconsistent legal obligations over the same funds, a result the law does not countenance.
5. Winning the Battle, Losing the Costs
The Bank’s relief was, however, a pyrrhic one. The Court was emphatic that a garnishee owes the Court candid and complete disclosure of anything materially affecting the debt attached, and that this entire dispute could have been avoided had the Bank simply disclosed the Agency Notice the moment it was called upon to state the position of the account. For that inadvertence, the Bank and not the judgment debtor was ordered to bear the costs of both applications, notwithstanding that its application succeeded on merit.
Practical Takeaways for Banks, Decree Holders and Tax Practitioners
- For Garnishee Banks: Disclose everything immediately. A pre-existing Agency Notice, caveat, charge or competing claim must be placed before the Court the moment garnishee proceedings are served. Silence now, however innocent, will cost you later in costs.
- For Decree Holders: a judgment debtor’s account subject of KRA Agency Notice cannot be garnisheed during the subsistence of the notice. Alternative modes of execution should be pursued in the circumstance.
- For Tax and Recovery Practitioners: Section 42 Agency Notices remain a formidable enforcement tool, ranking ahead of garnishee orders issued after they take effect. Time is of essence.
This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary as set out in the article should be held without seeking specific legal advice on the subject matter. If you have any query regarding the same, please do not hesitate to contact the Litigation Department at Wamae & Allen: litigation@wamaeallen.com.
About the author
Preston Ndombi Wawire is an experienced litigator of over 10 years standing and has perfected his art in civil and commercial litigation. He has vast experience in banking and recoveries litigation, insurance and malpractice law, and securities enforcement. Prestone has been involved in some of the most ground breaking litigation in injunctive matters and medical malpractice. Prestone is an active member of the Law Society of Kenya, Environment and Land Court Bar Bench Committee.
His main areas of practice include: Employment and Labour Law, Human Rights Law, Banking and Finance Law Conveyancing and Alternative Dispute Resolution Commercial Law
Academic Qualifications
ATP (Postgraduate Diploma), Kenya School of Law, 2019
LLB (Hons), Moi University, School of Law, 2018
Professional Qualifications
Member, Law Society of Kenya
