CHINA LIGHT & POWER CO., LTD. v. SEE KONG SILK LTD.

IN THE COURT OF APPEAL

1993, No 94

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J U D G M E N T

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Mortimer, J.A.:

1. This is a defendant's appeal against a decision of Liu J. He found for the plaintiff on its claim against the defendant for electricity consumed but not metered or paid for and gave judgment for $1.5m plus.

2. It is necessary to set out some of the background. The defendant owned the ground floor of the Song Ling Industrial Building between November 1976 and October 1980. On 24th November 1976 it became the registered consumer of electricity with the plaintiff, China Light and Power, and liable to pay for electricity under the contractual provisions in the Supply Rules for the time being in force. The 1st third party was dishonest. He was the manager of the building. On the finding of the judge he began tampering with the meter on 23rd December 1976. On 5th May 1980 that tampering was discovered, and although the meter was replaced, tampering continued on the judge's finding until 8th August 1986. The reasons why it again remained undiscovered for so long after May 1980 are unknown.

3. The defendant failed to change its name as registered consumer and remained liable for the electricity consumed even though it was not occupying the premises and the electricity was used by others. We are told that the defendant has an indemnity against the 1st third party, but this is not relevant to this appeal.

4. There is no dispute that the Supply Rules for the time being in force are terms of the contract for the supply of electricity between the plaintiff and the defendant. The position is that CSL supplies electricity on contractual terms; contained in those Supply Rules. These are the terms on which it is prepared to provide the service. It varies the rules and therefore the terms unilaterally from time to time as will be seen. There is no dispute that it is open to the plaintiff to do this. During the period of the claim there were three sets of rules and they provided, inter alia, for the charging of electricity consumed but not metered after tampering.

5. I turn to the relevant provisions for charging in these circumstances. The 1972 and 1978 Supply Rules have identical provisions in this regard. In both, rule 229.2 provides:

"In the event of any meter found to be recording inaccurately other than that covered under Rule 229.1 or not to be recording, the consumer shall pay for electricity consumed during the period in which the meter ceased to record accurately or at all, on the basis of the average of the units of electricity consumed in the month prior to that period and in the month after the meter has been replaced or repaired, less any charges already made in respect of that period."

6. On 1st January 1985, the 1985 Rules came into force and rule 230.3 - which replaced the earlier rule 229.2 - insofar as it applies to this case, reads:

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

d. Unauthorised tapping of electricity;

e. Disconnection, incorrect connection or non-connection of or any unauthorised interference with the meter or its associated equipment or part thereof; or

f. Any artificial means that causes an alteration of the index to any meter or prevents any meter from duly registering the quantity of electricity supplied, the Company will on the basis of its records, available technical evidence, the consumer's consumption history and other relevant circumstances, make retrospective adjustments to the consumer's account in respect of consumption and demand to such extent and for such period as may be determined by the Company."

7. The judge found that consequent upon rule 102 of the 1985 Rules that after 1st January 1985 the earlier rules had been superseded. Rule 102 reads simply:

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

8. The judge found after that date, the 1985 Rules no longer regulated or were part of the contract even for the charging of electricity supplied before the 1985 Rules came into force. He said:

"The 1985 Supply Rules took the place of and put an end to the 1972 and the 1978 Rules."

He therefore acceded to the plaintiff's submission that rule 230.3 of the 1985 Rules was the appropriate basis upon which to calculate the amount due both before and after 1st January 1985: The judgment was based in part upon that finding.

9. The writ was issued on 22nd September 1989. The defendant pleaded the Limitation Ordinance in respect of sums claimed for consumption before 22nd September 1983 - the applicable 6-year period. The judge rejected that plea; holding that the cause of action did not accrue until the demand was made by presentation of the bill pursuant to rule 230.5 of the 1985 Rules. That rule reads:

"The Company will advise a consumer of any adjustment to his account pursuant to any provision of this Rule by way of an amended or supplementary bill. Additional charges payable by the consumer under such a bill shall be payable upon its presentation. In the event of non-payment of an amended or supplementary bill by a 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."

10. On this point the judge's finding appears on p.11 of the judgment:

"CLP did not seek to rely on s.26 of the Limitation Ordinance in respect to concealed fraud or mistake. CLP relied on a breach of contractual obligation to pay its supplementary bill. The obligation to pay would not arise until a demand was made pursuant to paragraph 230(2) of the 1985 Supply Rules. Thereafter, pursuant to paragraph 230(5) CLP must 'advise a consumer of any adjustment to his account ... by way of a ... supplementary bill'. Under the same paragraph 230(5), the additional charges in the supplementary bill would not become payable by the consumer unless the bill is sought to be presented for payment. See Kong's obligation to pay did not arise before the presentation of the supplementary bill, i.e. on 26th June 1989. CLP's contractual claim admits of no obscurity and cannot be said, by any stretch of imagination, to have been statute-barred."

11. These two findings on the retrospective effect of the Rules and on the limitation point are challenged by the appellant, through Mr Edward Chan QC. He submits that the 1985 Rules did not have retrospective operation so as to form the basis upon which charges were to be calculated under the contract for the period before 1985. that is the period between 23rd December 1976 and 31st December 1984; and that the cause of action accrued at the time of the unmetered consumption. and not when the bill was rendered.

12. Relying on rules 102, 229.2, 230.1, 3 and 5, Mr Huggins QC, for the respondents, contends that the clear meaning is that from 1st January 1985, the 1985 Rules were agreed as the contractual terms which were to regulate the supply of electricity by the plaintiff to the defendant from that date, and that for all purposes thereafter the earlier rules were no longer of any effect. He places particular reliance upon the retrospective provisions which are to be found in rules 230.1 and 230.5. He submits that from 1st January 1985 a new regime - and a fairer one at that - was imposed by the Rules and therefore became terms of the contract between the plaintiff and the defendant; including the charging provisions which were at most mechanics by which charges were to be calculated for previous consumption even before 1985. He says the judge was right therefore to find that the parties were bound by these provisions and that the charges for unrecorded consumption were to be calculated accordingly.

13. For my part, I find this impossible to accept. When new rules were introduced they were new terms upon which the plaintiff was prepared to supply electricity to its customers. Whereas some of those terms are undoubtedly retrospective to a limited extent, obviously interim provisions for continued supply were necessary. But the new Rules are new terms. Whereas the parties to a contract may make a new agreement at any time governing their relations, past, as well as present and future, for one party to unilaterally impose a term which changes an agreement for electricity supplied and consumed long before under different terms applying at the time of that supply and consumption, would, in my judgment, push the principle of freedom of contract to its boundaries and perhaps beyond.

14. The proposition that the terms under which electricity was supplied and consumed in 1983 could be unilaterally varied by one party to the agreement in 1985 only has to be stated for the absurdity to become obvious. Even assuming that this is open to the respondent it could only be achieved in terms which are clear beyond a peradventure.

The reason is obvious. If one party unilaterally varies a contract which retrospectively affects charging for the supply of goods or services already completed and for which payment is due, the terms must be absolutely clear. Here they are not. The supply was made under the 1972/1978 Rules. Those Rules governed the supply at the time of the consumption and these rules are the terms of the agreement and the basis upon which the charge must be made. On those grounds I would allow the appeal on that point.

15. I turn to the limitation point. The issue is whether the cause of action accrued at the time of the supply of the unmetered electricity or when the account was rendered after the relevant calculation had been made. If the former, the claim for supply before 22nd September 1983 is barred. If the latter, the limitation plea fails.

16. Mr Huggins supports the judge's reasoning by reference to the charging provisions. He relies on rule 203.3 and 5, pointing out that until the calculation has been made. neither party knows what is due; and further subrule 5 provides that additional charges payable by the consumer under such a bill shall be payable upon its presentation. Therefore, he submits that the plaintiff could not sue and the defendant could not pay until the amount had been ascertained on presentation of the bill on 26th June 1989 and the cause of action accrued on the breach of contract, which was the failure of the defendant to pay the bill. It is upon that which the plaintiff sues. This argument is not diminished if the relevant charging provision is rule 229.2 of the 1978 Rules as I would find.

17. I believe that the law is clear on this matter. The cause of action for the supply of goods or services arises when the goods or services have been delivered or supplied in the absence of the special terms of the contract for supply or delivery. Procedural provisions for the assessment of payment or demands and the like before payment is due do not affect the situation. On this there is authority which, for my part, I accept. Insofar as it is not binding on this Court, I would follow it. In particular, the recent decision in Swansea City Council v Glass [1992] 1 QB 845. That is a case where the plaintiff carried out repair work to property. It had to serve written demands before bringing an action to recover the cost. The work was completed more than six years before the writ, but the demand was less than six years before the writ. It was held that the demand was merely a procedural step and that the cause of action accrued more than six years before the writ on the completion of the repair work and that therefore the claim was statute-barred. In his judgment Taylor LJ. as he then was, reviews the earlier authorities of Coburn v Colledge [1897] I QB 702 and Central Electricity Board v Halifax Corporation [1963] AC 785. His conclusion was expressed in this way:

"Thus, I conclude that the requirement to serve a demand is a procedural condition precedent to bringing proceedings. It is not part of the cause of action.

I am fortified in this view by consideration of what could result if the local authority were right. Upon their argument, the local authority could delay service of a demand indefinitely. Then, having served their demand long after the works were completed, they would have a further six years in which to take proceedings in the High Court or the county court. In Coburn v Colledge [1897] 1 QB 702, 709, Lopes L.J. said:

"There is nothing in the section, so far as I can see, inconsistent with the view that the cause of action arises when the work is completed. It was urged that, if this construction were adopted, a solicitor would have a shorter time during which he may abstain from bringing his action for work done than the rest of Her Majesty's subjects. That may be so; but on the other hand, if the plaintiff's contention is correct, the solicitor may abstain from delivering his bill for twenty years, and then at the end of that time he may deliver it and sue after the expiration of a month from its delivery. It seems to me that that would be a very anomalous and inconvenient result.'"

18. The same reasoning applies to this case. I would find that the cause of action accrued here on the supply and consumption. The result is that this claim is statute-barred from 22nd September 1983. On this point also, in my judgment, the judge was in error.

19. I would allow the appeal on this matter as well.

Godfrey, J.A. :

I also would allow this appeal.

20. The contract between the plaintiff and the defendant was a contract for the supply of electricity by the plaintiff to the defendant's premises. The essence of the contract was the obligation on the part of the defendant to pay for every unit of electricity consumed on these premises. The machinery for the administration of the contract was provided by the plaintiff's Supply Rules in force from time to time.

21. On 22nd September 1983 (I agree with my Lord Mr Justice Mortimer, for the reasons he has given, that the plaintiff's claim cannot go back further than this) the edition of the Supply Rules in force was that published in July 1978. That edition was superseded by Supply Rules published in January 1985. It was in terms provided by the 1985 Supply Rules that they should "supersede" all previously published Supply Rules of the Company : see rule 102.

22. But what does that mean?

23. Does it mean that the Supply Rules supersede in relation to electricity consumed whether before or after 1st January 1985 all previously published Supply Rules of the Company: or does it mean that the Supply Rules supersede in relation to electricity consumed only after 1st January 1985 all previously published Supply Rules of the Company?

24. In my judgment, the latter is the only sensible construction of rule 102. Before holding that the 1985 Supply Rules apply in relation to electricity consumed before as well as after 1st January 1985, I would for my part require most clear and express words to that effect. The plaintiff's customers must surely be entitled to know, when they consume electricity, what are the rules in force in relation to the supply at the time the supply is made.

25. If I am right so far, the defendant is liable to pay for electricity on the basis of the 1978 Rules for the period from 22nd September 1983 down to 1st January 1985, and on the basis of the 1985 Rules thereafter. The point is material; because under the 1978 Rules the basis on which the charge has to be made in the present case is the average of units of electricity consumed in the month prior to, and in the month after, the meter was replaced. Under the 1985 Rules, the charge has to be made on the basis of the plaintiff's records, the consumer's consumption history and other relevant circumstances. Each of these different methods of calculation of the charge seems to me to have its merits and demerits. But that is irrelevant to anything we have to decide. The one question is whether the 1985 Rules should be held to apply to electricity consumed before 1st January 1985. In my judgment they should not. The judge fell into error by assuming that because the 1985 Rules superseded the 1978 Rules, the 1985 Rules "put an end" (the judge's words) to the 1978 Rules for all purposes.

26. As I have said, I too would allow this appeal.

Penlington, J.A.:

27. I also agree that this appeal should be allowed. I have no doubt that here the word "supersede" does not mean that the contractual relations between the parties prior to the coming into force of the new rules had to be calculated in accordance with this new rules. For such contractual liabilities to be so altered would require, in my view, very clear wording and I do not find it in the new 1985 Rules.

28. I am also satisfied on the basis of the authorities cited that the claim is statue-barred in that although the demand was not made until 1986, the liability arose when the unauthorised or unmetered electricity was consumed. The plaintiff cannot claim beyond the period before the 22nd of September 1983. The appeal is therefore allowed.

29. There will be liberty to apply for further rulings if the parties are unable to agree on the terms of the resulting judgment. The appellant is to have the costs of this appeal and there will be liberty to apply for any other ruling as to costs.