CHINA LIGHT AND POWER CO LTD v. LAU CHEOK HONG

1988, No.A7695

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In May 1982, Mr Lau Cheok Hong, the defendant in these proceedings, applied to China Light & Power Co Ltd, the plaintiff, for an electricity supply to premises at Flat A, 14th floor, Kwai Wan Industrial Building, 2 Wing Kin Road, Kwai Chung, New Territories. I shall for the sake of brevity refer to the plaintiff as "China Light" and to the defendant as "Mr Lau".

2. Mr Lau made application to China Light by an Application Form which he filled in and signed. Various terms were set out in this form. One of the terms say "The terms on which the Company would supply electricity are subject to the Electricity Supply Ordinance, other relevant regulations and the Company's Supply Rules. A copy of the Supply Rules is available on request".

3. In 1982, the Supply Rules were of 1978 vintage. These rules were published separately in English and Chinese. Both versions were produced to this Court. The relevant parts of the relevant rules are:

4. Rule 108 COMPANY'S RIGHT TO REVISE RULES

5. The Company reserves the right to revise these rules without notice.

6. Rule 201 CONSUMER

    The Consumer appearing as applicant on the Company's supply application form shall be the party recognised by the Company as its consumer. Such registered consumer shall be the sole party liable to the Company and to whom the Company is liable under Government regulations, these rules or the law.

...

7. Rule 211 CONSUMER NOT TO SUPPLY THIRD PARTIES

    Electricity shall be supplied on condition that it shall be used solely by the consumer. The consumer shall not supply any electricity obtained from the Company to any other person or consumer unless with the written consent of the Company.

8. Rule 226 REGISTER OF METERS

    To determine the quantity of electricity used, a meter or meters will be installed by the Company upon the consumer's premises. The register of the meter shall be prima facie evidence of the quantity of electricity consumed.

...

Rule 228 SETTLEMENT OF ACCOUNTS

    The consumer shall pay to the Company by the due date shown on each bill the charges due in respect of that billing period, calculated in accordance with the Company's published tariffs for the time being in force.

    If charges are not paid by the due date, the Company may disconnect the consumer's installation without further notice and without prejudice to its rights to recover all arrears.

        Rule 229 ADJUSTMENT OF CHARGES

            3. Where a consumer has been undercharged or overcharged as a result of incorrect :-

                (a) ...

                (b) ...

(c) application of a meter multiplying constant or for any other reason, then due adjustment will be be made to the account as far back as determinable.

9. The 1978 Supply Rules were amended and republished in January 1985, again in both English and Chinese. The relevant parts of the relevant rules are

10. Rule 102 PREVIOUSLY PUBLISHED SUPPLY RULES

    The Supply Rules supersede all previously published Supply Rules of the Company.

11. Rule 103 COMPLIANCE WITH SUPPLY RULES

1.By virtue of his application for electricity supply or his obtaining electricity from the Company, a consumer is bound by and shall abide by the Supply Rules and other terms and conditions.

2. ...

Rule 104 COMPANY'S RIGHT TO REVISE THE SUPPLY RULES

    The Company reserves the right at any time in its absolute discretion to revise the Supply Rules and other terms and conditions. Notice of any revision shall be conclusively given by publishing such details of the revision as the Company considers appropriate in both an English and Chinese language Hong Kong daily circulation newspaper.

Rule 201 CONSUMER

1. The consumer appearing on the Company's records as registered consumer of an account shall be liable to the Company for all charges, fees or costs payable to the Company in respect of the account. ...

2. ...

3. ...

Rule 217 CONSUMER NOT TO SUPPLY THIRD PARTIES

    Electricity shall be supplied on condition that it shall be used solely by the registered consumer. A consumer shall not supply to or share with any third party electricity obtained from the Company unless with the consent of the Company and under such conditions as the Company may specify.

Rule 227 METERING OF ELECTRICITY

    To determine the amount of electricity consumed and the electricity demanded, a meter or meters will be installed by the Company on or adjacent to the consumer's premises. The register or indicator of the meter shall be prima facie evidence of the amount of electricity consumed and the electricity demanded.

Rule 228 ACCURACY OF METER

    Should the accuracy of a meter be disputed, the consumer may request an accuracy test to be carried out by the Company. A test fee would becharged if the meter is found to be operation within the permissible limits of +2.5% or -3.5%.

Rule 229 SETTLEMENT OF CHARGES

1. Bills will be presented periodically on the basis of the Company's published tariffs and the readings obtained from the Company's meters. In the event that it is not possible to read the meter, the Company will bill the consumer for estimated consumption and demand during the billing period, and make any necessary adjustments when a reading is obtained.

2. In the event of tariff revision, the revised tariff shall apply to the consumption and demand the readings of which are taken on or after effective date of revision announced by the Company.

3. Bills relating to certain tariff types may bear a due date and must be settled on or before the due date. A consumer who fails to settle a bill on its due date may be required to pay additional charges. Bills that do not bear a due date are payable upon presentation.

4. In the event of non-payment of outstanding bills by the consumer, the Company may disconnect supply without prejudice to the exercise of its other rights or remedies. A charge shall be paid by the consumer for reconnection of supply.

Rule 230 ADJUSTMENT OF CHARGES

1. ...

2. ...

                3.In the event that the Company suffers a loss of revenue due to:

                6. ...

12. It is China Light's case that on 27th November 1987, whilst inspecting the meter at Mr Lau's premises, one of its employees discovered that there was an incorrect connection of the meter supplying the suit premises in that the secondary circuits (S1 and S2) of the white phase current transformer of the metering installation were reverse connected as a result of which the meter had not been registering accurately the amount of electricity consumed by the defendant since its installation. Tests conducted by China Light's inspection showed that the meter had been registering at an average of only 29.26% of the actual amount of electricity consumed at the premises.

13. Two questions must first be decided

1. Whether the Supply Rules form part of the contract between Mr Lau and China Light.
2. If so, whether the 1985 Supply Rules are applicable and as from when.

14. As to the first question, the Supply Rules were not set out in the application form but were only referred to. The test for incorporation of the Supply Rules in the contract is whether in all the circumstances, the existence of the Supply Rules had been sufficiently drawn to Mr Lau's attention; see, Interfoto Picture Librarv Ltd v. Stiletto Visual Programmes Ltd [1989] 1 QB 433. The application form specifically stated (in both English and Chinese in a box immediately below Mr Lau's signature), that the supply of electricity was subject to the Supply Rules, a copy of which was also stated to be available on request. The Rules were produced to this Court and were in fact printed in both English and Chinese. There is no evidence before me that they were not, as stated in the application form, available on request. Accordingly, I hold that in all the circumstances, the Supply Rules were sufficiently brought to the attention of Mr Lau and they therefore form part of the contract between him and China Light.

15. As to the second question, the 1978 Supply Rules clearly applied in May 1982 when Mr Lau made application to China Light. Rule 108 of the 1978 Supply Rules, however, reserved to China Light the right to revise the rules without notice. It is possible for parties to a contract to agree between themselves that the terms of the contract may be revised by one party without reference to the other. Roberts C.J. in giving the judgment of the Court of Appeal in Lam Yuk Ming and others v. The Attorney General [1980] HKLR 815 at p.830 observed

"It is not unusual for contracts to contain some terms which can be altered at the option of one party only, for example, many leases allow for an increase of rent at the option of the landlord alone. There is thus no objection in principle to a provision in a contract whereby one party can alter some of its conditions without agreement, so long as this overriding provision was within the terms of the main contract which he entered."

The same proposition was approved in earlier English cases, see Yeo v. Stewart [1947] 2 All ER 28 and Page v. Liverpool Victorian Friendly Society [1929] 43 TLR 712. As rule 108 is explicit, I hold that China Light may amend its Supply Rules unilaterally.

16. The 1985 Supply Rules took effect in January 1985, but though rule 102 thereof states that the rules supersede previous rules, they are not expressed to be retrospective. Therefore, I hold

17. Rule 229(3) of the 1978 Supply Rules and rule 230(3) of the 1985 Supply Rules allow China Light to recover lost revenue due to incorrect connection. There is thus no doubt that, subject to proof, China Light has the legal right to demand payment due to undercharging.

18. Before proceeding to the question of proof, however, it will be necessary to deal with the defence filed by Mr Lau's solicitors on his behalf. The solicitors have, however, ceased to act for Mr Lau from about December 1991. The defence, apart from making a series of non-admissions and denials, which in effect put China Light to strict proof of its contractual terms and of its claim, made a plea of estoppel. The particulars of estoppel are pleaded as follows

" (i) The plaintiff in supplying the meter in question to the defendant had represented to the defendant that the meter was a meter capable of registering accurately the amount of electricity consumed by the defendant.

(ii) In reliance on the said representation and in reliance on the amount of electricity consumed as registered in the meter and charged by the plaintiff from time to time and not otherwise, the defendant had calculated its budget and priced its services to his customers,

(iii) If the defendant had known about the alleged actual charge payable to the plaintiff for electricity consumed, which is not admitted, the defendant would not have so prepared his budget or so priced his services to his customers.

(iv) Hence by reason of the plaintiff's representation as aforesaid, the defendant has altered his position to his detriment and the plaintiff is not entitled to alleged that the meter had under-registered or under-recorded the amount of electricity consumed by the defendant or to claim from the defendant the alleged sum of HK$945,563.50 or at all."

19. Estoppel is founded on representation but such representation has to be clear and unequivocal to the effect that the plaintiff is not seeking to enforce his strict legal rights, see : Woodhouse Limited v. Nigerian Produce Limited [1972] AC 741 at 757 D-E and para. 212, Chitty on Contracts, Volume 1, 26th Ed. I can, however, find no such representation in the evidence. Although the seals of the meter in question were found to be intact, such fact only showed that the meter had not been tampered with since installation. Rule 226 of the 1978 Supply Rules and rule 227 of the 1985 Supply Rules provided the meter "shall be prima facie evidence" only of the amount of electricity consumed. Further, rule 229 of the 1978 Supply Rules and rule 230 of the 1985 Supply Rules reserve to the China Light the right to recover for undercharging due to incorrect metering among other causes. There is no evidence before the Court that China Light had waived its right under any of these rules and has represented to Mr Lau that it would do so. In the circumstances, I find that China Light had not made any representation that the meter was correct and that it was not insisting on its strict legal rights under the Supply Rules.

20. At the hearing, Mr Lau indicated to the Court that although he did sign the application form, he had done so for his brother-in-law who was the true operator of the laundry in the premises and thus, the true consumer. In other words, he was alleging that he was in fact an agent of an undisclosed principal. At the Court's invitation, he applied to amend his defence to add this allegation as an additional ground of defence. This application was, however, resisted by China Light, on the basis that even if the allegation were proven, China Light, as it was entitled under the law, elected to sue Mr Lau as agent and thereby would forego any cause of action against the now disclosed, but previously undisclosed principal (see Article 86, Bowstead on Agency, 15 Ed:). In the circumstances, the amendment would have been a pointless exercise. I therefore disallowed the amendment applied for.

21. The questions which now remain to be determined are:

A. Whether the meter in question was wrongly connected?

B. When did such wrong connection take place?

C. For what period did the wrong connection exist?

D. Did the wrong connection result in under-recording of electricity spplieud to the premises? and

F. The back charges applicable to such under-recording?

27. To answer these six questions, China Light called eight witnesses to deal with the following four aspects of their case

    1. discovery of the wrong connection;

    2. the accuracy of the meter in question;

    3. expert evidence;

    4. accounting evidence.

Discovery of the wrong connection

28. The wrong connection was discovered by Mr Shum Ho Tin, a meter inspector of China Light on 27th November 1987, when in the course of implementing a policy established since 1986 of testing all three phase transformer service meters, he attended at Mr Lau's premises to inspect the three phase current transformer operated meter bearing the serial no.1010261, manufactured by the General Electric Company of the United Kingdom (which I shall refer to for the sake of brevity as "the Service Meter"). The serial no.1010261 appears as the Service Meter allocated to Mr Lau in the application form that he signed.

29. The Service Meter was located in a meter room within the building where Mr Lau's premises were located. The meter room was at all times unlocked and the Service Meter and ancilliary equipment serving the defendant's premises comprised the following

A. three current transformers which function as a current conversion device;

B. ten lengths of PVC wires connecting the secondary circuits of the current transformers and the potential circuits of the main cables to the Service Meter; and

30. C. the Service Meter itself.

31. Three sets of seals, one attached to the meter cover, another to the terminal box, and the third to the current transformers, ensure that any tampering would be discovered. Mr Shum checked all three sets of seals connected with the Service Meter and found them intact. He then proceeded with various tests, the end result of which indicated that the Service Meter was recording approximately 24.97% of the electricity actually consumed by the electrical appliances in Mr Lau's premises. He traced the cause of this under-recording to a misconnection of the secondary circuit. In fact, he discovered that the white phase of the secondary circuit (S1 and S2) were connected in reverse. As the seals were not tampered with, Mr Shum deduced that the misconnection must have taken place on 20th May 1982 when the Service Meter was first connected. I find this to be a reasonable deduction in the circumstances.

32. Mr Shum then informed his supervisor, one Mr K.C. Tong, of his findings. Mr Tong advised Mr Shum to contact Mr Lau and advise him as to the under recording which Mr Shum duly did. Mr Shum also advised Mr Lau that his account would be adjusted accordingly.

The accuracy of the Service Meter

33. On 4th December 1987, Mr Shum accompanied by Mr K.M. Lee, an assistant metering inspection engineer of China Light, again visited Mr Lau's premises and carried out further tests on the Service Meter. They confirmed that it was not functioning properly and for the same cause as before discovered. In the presence of Mr Lau, Mr Lee and Mr Shum installed a new meter No.1020194 (for the purpose of brevity I shall refer to this meter as "the New Meter") in addition to the Service Meter. The Service Meter remained connected in situ until some time in March 1988 and during the period between 4th December 1987 and 4th March 1988, readings were taken from both the New Meter and the Service Meter and these were compared.

34. Tests conducted by Mr K.M. Lee on 4th December 1987 showed that the Service Meter was recording approximately 24.97% of the actual consumption of electricity in Mr Lau's premises. Readings taken by various members of the staff between 4th December 1987 to 4th March 1988 showed that the Service Meter was recording between 27.05% to 30.90% of the consumption recorded by the new meter, namely an average of 29.26%. The staff who made these readings were called to give evidence which I have no hesitation in accepting.

35. After it was disconnected some time in March 1988, the Service Meter was tested by Mr Chan Cheung Lam, a meter tester of China Light on one of the company's test benches. Mr Chan, who gave evidence before this Court, found the Service Meter to be accurate within permissible limits, namely, it was accurate to between +.0% to +.7%. The permissible limits under rule 227 of the 1978 Supply Rules and rule 228 of the 1985 Supply Rules were +2.5% to -3.5%. 1 accept Mr Chan's evidence. The factual inference I am asked to draw, and do draw, from this test is that the under-recording was due solely to the reverse connection of the white phase in the Service Meter.

36. The consumption recorded by the Service Meter from the time it was connected to 4th January 1988 had been stored on micro-film and in computers installed at China Light. The computer and micro-film printouts were produced by China Light by way of a hearsay notice dated 19th August 1991 and filed on 29th August 1991 with a certificate by Mr Paul Ng Kwok Kee, consumer accountant, certifying that appropriate measures had been taken to prevent unlawful interference and improper operation. I therefore admit these records into evidence. From these records, a profile of the monthly readings of the Service Meter was constructed. This profile was produced by Mr Shum Ho Tin as part of his evidence which I have no hesitation in accepting. The profile showed that during the period between May 1982 and December 1987 (inclusive), the Service Meter readings recorded from 6,600 units to 15,686 units for every billing cycle of one calendar month, or an average daily consumption varying from 227.59 to 522.67 units. Compared against the consumption recorded by the New Meter for the month ended 5th February 1988, the Service Meter only recorded slightly over 33.3% in only one month, i.e., the month of 25th February 1983 during the whole period between May 1982 to December 1987.

37. Recapitulating, the factual evidence so far showed:

        1. That the Service Meter was under-recording.

2. That the sole cause of the under-recording was due to the reverse connection of the   white phase which occurred from the time the Service Meter was installed, i.e. 20th May 1982.

3. The comparison between 4th December 1987 to 4th March 1988 showed that the Service Meter was recording on average 29.26% of the consumption recorded by the New Meter during the same period.

38. The problem which both China Light and the Court face is whether the comparative readings between 4th December 1987 to 4th March 1988 constituted a sufficient guide to estimating the true consumption of electricity in Mr Lau's premises from May 1982 to December 1988. In this respect the court derived valuable assistance from the evidence of Professor Leung Wai Keung.

Expert evidence

39. Professor Leung Wai Keung is Head of the Electrical and Electronic Engineering Department of the University of Hong Kong. He holds, among other degrees, a Doctorate in Electrical Engineering from the University of Leeds, he is a chartered engineer and a fellow of the Hong Kong Institution of Electrical Engineers. He has been teaching at Hong Kong University since 1960. With such impressive credentials, there cannot be any question as to his qualification as an expert witness.

40. Professor Leung approached the matter from three perspectives :

          1. the accuracy of the Service Meter and the New Meter;

        2. the theoretical perspective.

3. the appropriate methodology for estimation of the under-consumption between May 1982 and December 1987.

41. As to the accuracy of the Service Meter, China Light was unable to provide Professor Leung with the actual meter as by the time Professor Leung was engaged, the Service Meter had been dismantled. The Court, however, has Mr Chan Cheung Lam's evidence that the Service Meter tested out with a variance of between +0.3% and +0.7% which was well within the permissible limits of +2.5% and -3.5%. Professor Leung was, however, provided with a GEC Meter identical to the Service Meter and this he found to be accurate within an error of less than -1%. He also tested the New Meter and found that too to be recording at an error of less than -1%.

42. From the theoretical perspective, he informed the Court that a meter recording a three phase electricity supply should, when correctly connected, record the sum of the consumption in each of the three phases. However, if one of the phases were connected in reverse, the current in that phase is reversed and the consumption by the reverse connected phase is deducted from the total consumption resulting in under recording of the total consumption by the meter. As consumption is the product of three factors, namely phase voltage, phase current and phase power factor, it follows that if these three factors are the same in each phase, only 1/3 of the total electricity consumed is recorded.

43. The first stage of his estimation methodology therefore lay in determining whether the factors in the three phases were balanced. If so, exactly 1/3 of the actual consumption would have been recorded by the Service Meter. In this connection, he used the results of the tests conducted by Mr Shum Ho Tin and K.M. Lee on the Service Meter on 27th November 1987 and 4th December 1987 respectively. He found that whilst the voltage and power factor on all three phases were approximately equal, the current in each of the phases were different, the highest being in the white phase. This explained why tests conducted by China Light's staff all showed that the Service Meter was recording less than 1/3 of the actual consumption.

44. The second stage of his estimation methodolgy lay in trying to find any evidence in the consumption history of Mr Lau's premises to show that the ratio of the electricity consumed at the white phase to the total electricity consumed was different to the ratios suggested by Mr Ho's and Mr Lee's test results. He found no such evidence. In the circumstances, he concluded that the comparative readings between the Service Meter and the new meter for the period 4th December 1987 and 4th March 1988 should form a reasonable basis for the estimation of under-recording of consumption in Mr Lau's premises for the entired historical period of between May 1982 and December 1987.

45. I am satisfied that Professor Leung has come to his conclusion reasonably and therefore have no hesitation in accepting the whole of his evidence.

Accounting evidence

46. The accounting evidence was given by Mr Wong Fai Ming, Senior Accounting Officer and Mr Yim Cheuk Kit, Consumer Service Project Engineer of China Light. The relevant charge rates for electricity supply to Mr Lau for the period May 1982 to January 1988 were also produced to the Court.

47. On the basis of the comparative readings between the Service Meter and the New Meter for 4th December 1987 to 4th March 1988, China Light estimated that for the period 20th May 1982 to 4th December 1987 (the last billing date based on the Service Meter), Mr Lau was only charged 29.26%, or was undercharged by 70.74% of the electricity actually consumed. The calculation came to a total of 1,653,591 kwh units of electricity. Applying the relevant basic and fuel charges over the same period, this came to $945,563.50.

48. I accept the evidence of Mr Wong and Mr Yim and on the basis of all the evidence given before me by China Light's witnesses, I assess the sum due and owing by Mr Lau, from 28th April 1988, when a supplementary bill was issued by China Light, to be $945,563.50. 1 therefore enter judgment in favour of China Light in this sum, together with interest at the best lending rate of the Hong Kong and Shanghai Banking Corporation (which should be the rate which a large corporation such as China Light should at least be able to command in the commercial market), from 28th April 1988 to the date of judgment and thereafter, at the judgment interest rate.

49. I further make an order nisi that the defendant pays the plaintiff's costs, to be taxed if not agreed, such order to become absolute after 14 days from the date of delivery of judgment if neither party applies for a hearing.

50. Finally, I would like to thank Mr Joseph Fok, of counsel, who has ably assisted this Court, and would like to record that he acted at all times fairly in the best traditions of the Bar despite the fact that Mr Lau was unrepresented.