Litigation Recent Decisions 13/05/97

Liability of building society for rent unpaid by ex-subsidiary

Gyoury v Northern Rock Building Society (1997)

Ch.D (Carnwath J) 18/4/9Appearances: Robin Hollington instructed by Berrymans for the plaintiff. Richard Sheldon QC instructed by Dickinson Dees, Newcastle upon Tyne, for the defendant.

Summary: Statutory liability of a building society for a subsidiary's debts after the building society has disposed of its shares in the subsidiary and ended its relationship with the subsidiary.

A former subsidiary of the defendant building society rented five properties, each for a term of 12 years, from the plaintiff. On 18 September 1992 the defendant sold all the issued shares in the tenant company. By December 1992 the tenant was in rent arrears under all five leases and went into creditors' liquidation. The liquidator disclaimed the leases and the plaintiff re-entered all the properties. The plaintiff issued proceedings against the defendant claiming it was liable for the rent arrears by virtue of s.22(1) Building Societies Act 1986 (subsequently repealed but preserved in part by art.5 of the Deregulation (Building Societies) Order 1995), which states: "if a body corporate… is a subsidiary of the society, then… the building society is under an obligation by virtue of this section to discharge the liabilities of that associated body in so far as that body is unable to discharge them out of its own assets". It was common ground that the tenant was a subsidiary and an associated body of the building society up to and including 18 September, but not thereafter. The issue was whether, as the defendant contended, the statutory obligation imposed by s.22(1) applied only to liabilities which had become due by 18 September or whether, as the plaintiff contended, it applied to any prospective or existing liabilities identifiable at that date even if they fell to be discharged only after the association between the bodies had ceased.