Joseph Enterprises Inc v. Real Time Technology Ltd

HCA000195/1986

Commercial law - sale of goods - whether contract for the sale of 60,000 sonic control switches for export to the United States conditional on listing being obtained from Underwriters Laboratories Inc - whether plaintiff relied on defendant's expertise and only obliged to supply contractual specifications - whether plaintiff in part responsible for delays and waived delays on part of defendant - whether plaintiff entitled to cancel contract when samples defective and production delayed - Held: 1. Contract not conditional on obtaining UL listing; 2. Plaintiff relied on defendant's expertise and was only obliged to supply contractual specification; 3. Plaintiff's delays immaterial; 4. Material delays on part of defendant were not waived by plaintiff; 5. Plaintiff entitled to cancel contract; 6. Judgment for plaintiff for loss of profits of US$396,227.68.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

H.C. Action No. 195 of 1986

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BETWEEN

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Coram: Deputy High Court Judge Cruden

Dates of Hearing: 25th to 29th July and 3rd August 1988

Date of Judgment: 17th August 1988

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JUDGMENT

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1. On 1st February 1984 the plaintiff and the defendant entered into an agreement under which the defendant agreed to manufacture for the plaintiff 50,000 Sonic Control Switches. On 2nd May 1984 the parties entered into a similar agreement for a further 9,996 switches and the number under the original agreement was increased to 50,004 switches. By 23rd August 1984 none of the switches had been manufactured or delivered to the

2. Arising from the cancellation of the agreements, the plaintiff in the present action claims loss of profits in the sum of US$399,639.70. The defendant in its defence pleaded that the plaintiff was not entitled to cancel the agreements and counterclaims for various sums being the cost of materials purchased for the switches amouting to HK$169,038, US$20,218 and Japanese Yen 3,660,000.

3. The plaintiff is incorporated in the United States of America and pleaded that it carries on business in San Francisco designing, promoting and marketing electronic gadgets. Mr. Joseph Peddot, the plaintiff's chief executive, stated in evidence that in fact it is not involved in the business of designing but that its principal business is marketing. For some years prior to 1984 the plaintiff has been successfully marketing a sonic control switch called "The Great American Turn-On" ('GATO'). This was a device designed to be fitted to household electric wall sockets it a similar manner to a normal household adapter. The electric plugs of television receivers, stereo players and electric lamps could then be plugged into the switch. Once the sonic control switch was fitted, it was then possible for users to turn the switch controlling the appliance on or off, merely by clapping their hands, without having to approach the switch and manually turn it on or off. The sound created by clapping activated the switch.

4. GATO was apparently manufactured in Canada and the United States by a Canadian company which was the holder of patents in both countries. GATO also represented that it had been listed by Underwriters Laboratories Inc. Underwriters Laboratories Inc. ('UL') is an American independent organisation which tests products to ensure that they meet public safety standards. Where a product is approved by UL it is given a UL Listing. Although not a Government institution, UL's standards are widely recognised in the United States. I accept Mr. Peddot's evidence that the majority of American retailers will only purchase electrical products if they have UL listing.

5. According to Mr. Peddot the manufacturer of GATO stopped manufacturing due to the intervention of the Canadian government. The plaintiff thereupon decided to move from merely marketing to manufacturing a similar sonic control switch. The plaintiff also decided to improve the previous product by malting two design alterations. The first was to add a loading light to the switch to indicate whether the television receiver or other connected appliance was switched on or off. Secondly, it was decided to fit to the exterior of the switch a knob to enable the user to control sound sensitivity. The sound sensitivity of GATO was controlled by a component within the sealed casing assembled in a fixed position. Sound sensitivity could only be altered by unsealing the casing and using a screwdriver to alter the sensitivity component to a different but still fixed position. The plaintiff required a knob to be fitted to the exterior of the new casing, so that the user could alter the switch's sound sensitivity rather similar to the manner in which the tuning or volume knob of a radio is operated.

Liability

6. The plaintiff requested Atico International Ltd. ('Atico'), which carries on business in Hong Kong as a purchasing agent, to find a manufacturer in Hong Kong. Atico referred the defendant to the plaintiff as one interested manufacturer. The plaintiff proposed to sell the sonic control switch in the United States during the 1984 Christmas shopping season under the name of "The Clapper." On 31st January 1984 discussions were held between the plaintiff and the defendant in the presence of Mr. John Chan of Atico who took notes of the meeting. On the basis of those discussions Mr. Leslie Chung, a senior officer of Atico, prepared a written agreement which was signed by the parties and also by Atico on 1st February 1984. In the agreement the plaintiff is referred to as the owner, the defendant as the manufacturer and Atico as the agent.

7. When the agreement was executed the plaintiff had already supplied the defendant with a copy of GATO, 2 diagrams by a designer Sidney A Bogus & Associates Inc relating to the new casing and a list of components. No detailed separate specification was delivered. I find that in the absence of a specification, the copy of GATO was to supply the information that would otherwise have been provided by a specification subject to the modifications agreed upon between the parties as set out at pages 4 and 5 of the agreement in Clause 1(a) to (j) (inclusive). The modifications set out in Clause 1 included:

8. In the discussions on 31st January 1984, a timetable for the manufacture of the switch was discussed and this was reflected in the agreement which, commencing on page l, contained these provisions:

Clause 9 stipulated that time for shipment was essential and any late shipment would be air freighted at the manufacturer's expense. Under the agreement the plaintiff agreed to pay a total sum of US$5,000 for molds and UL approval. This sum was paid on 1st February 1984. The plaintiff also agreed to open a Letter of Credit in favour of Atico transferable to the defendant for the initial order of 50,000 units before 10th Nay 1984. This letter of credit was never opened.

9. After the agreement was executed the defendant faced a number of problems both in manufacturing the switch and in obtaining UL listing. At the defendant's request, the plaintiff on 16th March 1984 agreed to the loading indicator being deleted. This was the only design modification agreed to by the plaintiff.

10. The defendant never obtained UL listing. The production problems caused friction between the parties leading the plaintiff on 23rd August 1984 to cancel the agreement pursuant to Clause 8 of the agreement which provided:

11. The plaintiff after cancelling the agreement went to a Taiwan manufacturer who obtained UL listing for the same switch with the loading indicator deleted. The Taiwan manufacturer was not interested in manufacturing the order and the plaintiff then turned to another Hong Kong manufacturer who produced without any apparent difficulty the same switch.

12. The plaintiff contended that it was merely a marketing company and it relied on the defendant's expertise as a manufacturer. Further that the defendant after having a copy of GATO available for stripping and examination thereafter entered into the written agreement on 1st February 1984 on the basis of the information supplied to it by the plaintiff and at that stage never sought any further detailed specifications. The defendant pleaded that it was never supplied with a specification for the fine tuning of the sound sensitivity circuit, that the agreement was conditional upon the approval of the switch first being given by UL and that the stipulations as to time had been waived by the conduct of the plaintiff and Atico.

13. I am satisfied that the defendant had ample opportunity to examine the copy of GATO before it executed the agreement on 1st February 1984. The defendant's manager, Mr. Tony Lee, signed the agreement on behalf of the defendant. Mr. Lee is Cantonese speaking and I am satisfied from his frequent use of English when he gave evidence, that he also apparently has an adequate knowledge of English. I accept Mr. Chung's evidence that he translated and explained the agreement to Mr. Lee in Cantonese before it was signed. Mr. Chung had dealt with Mr. Lee on a number of previous contracts.

14. I find that the plaintiff did rely on the defendant's expertise as a manufacturer. I am satisfied that upon the agreement being signed, the defendant was obliged to manufacture the switch on the basis of the information already supplied and that the plaintiff was not under any obligation to supply further or more detailed specifications or other information. I further hold that the agreement was not conditional upon UL listing being granted. I am not on the facts concerned with any issue relating to impossibility of performance. The undisputed evidence was that GATO had UL listing. Further within a short time of being instructed, the Taiwan manufacturer, who was given the same information as was given to the defendant, quickly obtained UL listing. I also note that the casing of the switch thereafter manufactured with UL listing by the eventual Hong Kong manufacturer, includes all the detailed markings in relation to the sensitivity knob required under the agreement but not included in the defendant's sample.

15. On the evidence it is undisputed that UL listing was not obtained by the time the agreement was cancelled on 23rd August 1984. As to the contractual shipping dates, the manufacturing problems resulted in Atico submitting revised dates to the plaintiff which were accepted on 12th June 1984. These provided for the switches to be shipped in 4 instalments from 15th August 1984 to 15th October 1984. When the agreement was cancelled on 23rd August 1984 not even the 35,000 units to be shipped on 15th August had been manufactured. At the date of cancellation production had not commenced and I find that it was reasonable for the plaintiff to infer, as at that date, that the remaining instalments would also not have been manufactured in time to be shipped by the final shipping date of 15th October 1984.

16. In terms of the agreement, the defendant was clearly in default on 23rd August 1984 when the plaintiff purported to cancel the agreement. The remaining question is whether, as the defendant alleged, the plaintiff's acts were responsible for those defaults or alternatively the plaintiff waived those defaults. So far as UL listing is concerned, I have already held that the contract was not conditional upon UL listing.

17. The defence, in summary, was that the plaintiff was responsible for a number of delays and these completely upset the contractual timetable. Further, that up to 23rd August 1984, the plaintiff had encouraged the defendant to continue to manufacture the switches. The parties adduced a substantial amount of detailed evidence often of a contradictory nature on these factual issues. The plaintiff's short answer to delay on its part was that any delay was minor and was overlapped by far more substantial delay on the part of the defendant.

18. The defence first referred to the delay caused by the discussions leading to the deletion of the loading indicator. Tooling could not proceed until it was known whether the indicator was to be deleted. The request to delete the indicator was made on 9th March and agreed to on 14th March 1984. Quite apart from the short period involved, the defendant's submission ignored its contractual obligation to manufacture the witch with this component. This obligation is impliedly recognised in the telexes at the time, when the plaintiff was asked whether it would agree to the deletion. The consent of the plaintiff was required to this deletion and the telexes confirm, that consent was sought from and given by the plaintiff. The short time taken by the defendant to obtain that concession from the plaintiff cannot be classified as delay caused by the plaintiff.

19. The second delay alleged by the defendant to have been caused by the plaintiff, related to the defendant's request for patent information. During February 1984, United States sonic switch patent information was forwarded by the plaintiff to help the defendant manufacture "The Clapper." On receipt of this information the defendant considered that the circuit to be manufactured was almost identical to patented circuits and in March 1984 sought assurance that there was no patent infringement. Under the agreement no circuit specification was supplied so in response, the plaintiff had first to ask the defendant to forward details of the circuit it had copied from GATO. After the plaintiff's repeated requests, this was received on 9th April and very soon thereafter on 14th April 1984 the plaintiff telexed that its patent attorney had confirmed that there was no patent infringement.

20. The defence complaint over the alleged delay caused by, the patent query, ignores two factors. First, at page of the agreement the plaintiff, in Clause 4, accepted liability for any patent infringement. I appreciate that Clause 4 only governed the position between the partes and the defendant might still have been liable to third parties in which case he was entitled to be indemnified by the plaintiff. However, possible patent liability was obviously considered by the parties and express provision incorporated in the agreement. Secondly, as a matter of fact, during the period this query was been made and answered, the defendant could have continued with the necessary preliminary steps to secure UL listing. The short time taken to answer the patent query did not materially affect the overall timetable.

21. The third delay which the defendant alleged was caused by the plaintiff, related to the plaintiff's contractual obligation to supply to the defendant the pattern of the casing's texture no later than Is March 1984. The plaintiff contended that it required dummy samples from the defendant before it could supply the texture pattern. On 20th June 1984 the plaint if f was still asking the defendant to supply dummy sample's for this purpose. During the preceding 3 months the plaintiff had been repeatedly telexing Atico expressing its concern over the defendant's delays. Atico replied apologising for the delays. Mr. John Chan had been Atico's employee principally involved in dealing with the defendant but on 30th May 1984 his senior, Mr. Leslie Chung, informed the plaintiff that he had personally taken up the delays with the defendant and that they would recover the programmed time already lost. The lost time was never recovered.

22. In an effort to overcome the delays Mr. Chung and Mr. Lee travelled to San Francisco on 21st June 1984 taking with them samples of the switch in order to obtain the texture pattern and to satisfy UL requirements. During the same visit the texture pattern information was supplied to Atico who handed it on to the defendant. This information was confirmed in writing on 25th June 1984. The major delay in sending the sample was caused by the defendant.

23. The defendant asserted that the texture pattern could have been supplied by the plaintiff on a drawing and there was need for the plaintiff to wait for a sample and in any event the defendant was under no contractual obligation to supply a sample for this purpose. I record that at the material time both parties proceeded on the assumption that a sample for this purpose was necessary and I find that was a reasonable requirement accepted by the defendant. I reject the submission that the plaintiff could satisfactorily have supplied the information without first examining a sample. Here again I am satisfied that the material delay was caused by the defendant and not by the plaintiff.

24. The defendant further claimed that it was not responsible for the delay caused by the modifications that were necessary towards obtaining UL listing. This claim ignores the fact that from the inception of the project, the defendant repeatedly delayed taking steps to meet contractual time limits. For example under the contract, samples were to be made for submission to UL for approval before 1st March 1984. On 1st February 1984 the plaintiff discharged its contractual financial obligation in relation to UL listing by paying the defendant the sum of US$2,000 towards the UL application fees. However, application for UL listing was not made by the defendant until 16th June 1984.

25. Some of the delay was caused by the failure of the defendant to pay bills owing to UL for earlier applications. On this particular application and on earlier applications, the defendant had appointed Electro-Service Corporation ('ESC') San Mateo, California as its agent to assist in obtaining UL listing. As early as March 1984, ESC was writing to the defendant referring to earlier applications and advising that UL had withdrawn or suspended all files until payment was made. On 17th May 1984, ESC was reminding the defendant that it did not advance funds to pay deposit fees on UL applications and requested immediate payment to prevent delays. The plaintiff had put the defendant in funds for this application on 1st February 1984.

26. By 18th May 1984 the plaintiff had clearly become aware of this fee problem for it wrote to Atico stating that it learned from ESC that the samples for UL had not arrived and that the payment made by the plaintiff to the defendant on 1st February 1984 had still not been received by ESC. Atico replied that tooling was now estimated to be completed by the first week in June; suggested revised shipping dates from 15th August to 15th October 1984; stated those dates were subject to the plaintiff supplying artwork by 20th June 1984; and advised that Atico was opening a Letter of Credit in accordance with the revised shipping dates.

27. On 15th June 1984, Atico telexed ESC recording that while the defendant had stated that UL tests would be available by 20th July, the plaintiff claimed that ESC had informed it that they would not be available until 15th August 1984. This was another example of where the defendant's representations were wrong and the plaintiff's information was correct. For the times supplied by ESC on 19th June 1984 showed that at the earliest, UL results would not be available until August. Atico by telex accepted that the delays to that date entitled the plaintiff to lose confidence in the defendant and Atico. It was at this stage that Mr. Leslie C hung, in an attempt to deal with a rapidly deteriorating position, persuaded Mr. Lee to fly with him to San Francisco, taking samples with them, to meet Mr. Peddot on 21st June 1984 and thereafter ESC.

28. Any hopes that the San Francisco meeting had solved outstanding problems were soon destroyed. For on 25th July 1984 Atico informed the plaintiff that a major problem had arisen in relation to the sensitivity knob. The contractual position in relation to this component was clearly set out in Clause l (c) at page 3 of the agreement. Under that provision the casing next to the knob, was to be marked with an '+' to indicate the high level of sensitivity and a '-' to indicate the lower sensitivity level. In addition Clause 2(c) provided that a black dot marked on the middle of the sensitivity knob would indicate an effective sensitivity distance of 12 to 15 feet.

29. Atico's 25th July 1984 telex conveyed to the plaintiff the information that while on the samples the higher sensitivity point could be obtained by adjusting the knob, it did not relate to the plus and minus signs marked on the casing. The plaintiff replied on the same day pointing out the contrary contractual requirement concluding with the comment that the new samples could not be used for sales calls, if they worked as badly as the original samples.

30. Atico replied on 26th July 1984, recording the information it had obtained from a long meeting with the defendant's Mr. Lee. The reply confirmed the earlier telex that the sensitivity knob could not be adjusted by consumers in accordance with the plus and minus signs. The telex continued that the only way sensitivity at 15 feet could be ensured, was to fix that point before the switch was assembled. The knob would not control sensitivity but would merely be a dummy or gimmick. The plaintiff replied on 27th July, after speaking to Mr. Harris of ESC, who expressed the opinion that if GATO's circuitry had been followed, the knob should have worked and he queried whether inferior components had been used. The plaintiff forwarded various remedies suggested by ESC and also pointed out that packaging and television commercials had been completed representing that the sensitivity of the switch could be adjusted in accordance with the plus and minus signs.

31. There were allegations that when the agreement was signed the defendant pointed out that sensitivity could not be adjusted by an outside knob but that the plaintiff insisted that it be fitted. Whatever may have been said orally the clear contractual obligation when the agreement was signed, was to construct the switch with such a sensitivity control. The contract corresponds with Mr. Peddot's understanding of the agreement reached. On the evidence I find that contractual condition was never varied or waived. The plaintiff's consistent position in affirming the agreement's Provisions was summed up in its telex of 27th July 1984 which included these sentences :

"All that we agreed upon was taking the adjusting wheel which is inside the case of Turn-On and put wheel on outs de of Clapper and let consumer adjust for himself. Why is this difficult. We cannot agree to have wheel as gimmick. Packing is completed and we tell consumer to adjust switch. "

32. The position between the parties had obviously now reached a critical stage and Mr. Chung and Mr. Chan arranged to fly to meet Mr. Peddot and Mr. Hirsch at 13th August 1984. Mr. Chung and Mr Chan took with them several of the new samples. On arrival in Chicago they met Mr. Peddot and Mr. Hirsch and tested the samples. Some of the samples did not work at all. Even those that did function failed to react in accordance with the plus and minus signs. When the samples were examined, Mr. Chung and Mr. Chan expressed the opinion that they suffered from soldering faults. After returning to Hong Kong, Mr. Chung advised the plaintiff on 22nd August l984, that the fault was due to circuitry construction and that the defendant might have difficulty in improving construction. Atico further stated that it was attempting to obtain the services of another manufacturer.

33. I accept Mr. Chung's evidence that on 23rd August 1984 the defendant was not in a position to meet the revised shipping dates. On that date Mr. Chung had a meeting with the defendant's Mr. Lee and repeated to him that when tested the samples failed. Mr. Chung asked him when he expected to receive UL listing and Mr. Lee replied "at anytime." Mr. Chung told Mr. Lee that because of its past performance, he had lost confidence in Mr. Lee and the defendant. After discussing the position Mr. Chung informed Mr. Lee that the defendant could not perform its contractual obligations and the only alternative was for the plaintiff to cancel the agreement under Clause 8. Mr. Chung stated that Mr. Lee agreed to cancellation but pointed out that as he had purchased components he would look to the plaintiff to reimburse the defendant for their cost. Mr. Chung stated that he would convey that request to the plaintiff.

34. On 23rd August 1984 Atico also wrote to the plaintiff confirming that the agreement had been cancelled. In that letter Atico informed the plaintiff that the defendant had indicated that it was claiming for components and other material and stated that the amount claimed was US$248,750.64. Atico also asserted that the failure of "The Clapper" was primarily due to the design details supplied by the plaintiff. When Mr. Chung, who wrote that letter on behalf of Atico gave evidence, he stated that he made that assertion in anticipation of a claim by the plaintiff against Atico. Mr. Chung candidly admitted he made that assertion to assist Atico in what he described as "further negotiation." Mr. Chung told the Court that the assertion that the plaintiff was primarily responsible did not reflect his true opinion.

35. I found Mr. Chung to be an honest and reliable witness and accept his evidence that he did not consider the plaintiff was primarily responsible and merely made that assertion in an endeavour to protect Atico's position. I would also record that the plaintiff made a claim against Atico which was settled on 9th November 1984 by payment by Atico to the plaintiff of US$60,000 made without any admission of liability. I was referred to the written terms of settlement but record that the settlement is not relevant to any of the issues before this Court. I accordingly draw no inferences against the defendant in respect of that settlement.

36. The remaining issue on which the defendant placed considerable reliance was the plaintiff's failure to open a Letter of Credit. Under the agreement, at page 3, Clause 4 provided that a letter of Credit was to be opened in favour of Atico transferable to the defendant, before 10th May 1984. The plaintiff's response to this allegation was that the 10th of May 1984 date formed part of the overall timetable discussed at the 31st January 1984 meeting, as recorded in Mr. John Chan's notes and finally incorporated in the agreement executed on 1st February 1984.

37. In those discussions it was estimated that UL listing would take about 6 weeks and be available by 1st May 1984. The timetable, it was submitted, was fixed on the assumption that the defendant would have met its prior deadlines and obtained UL listing by 10th May 1984 when the Letter of Credit would be opened to facilitate the defendant commencing full production by 1st July 1984. Mr. Chung, who drafted the agreement, stated that there would have been no sense in the plaintiff opening the Letter of Credit before the defendant had produced satisfactory samples.

38. I find that the defendant failed to meet those prior dates. UL listing was certainly not obtained by 1st May 1984. Indeed, even after the agreement was cancelled, UL was still writing on 20th September 1984 requesting further modifications and extending its own investigation date to 26th October 1984. The defendant also alleged that it made repeated requests to the plaintiff to open a Letter of Credit but this is not supported by the evidence.

39. The initial financial obligation of the plaintiff was to pay the defendant US$5,000 on 1st February 1984. The plaintiff made that payment on that date. The first documentary reference to the Letter of Credit occurred in a telex from Atico to the plaintiff on 25th May 1984 when delayed shipping dates were put forward and in the light of the then delays it was suggested that the Letter of Credit be in the defendant's hands by 30th May 1984. Atico informed the plaintiff that it was going to open a domestic Letter of Credit in favour of the defendant in accordance with those new shipping dates and asked for the plaintiff's approval of the new dates. Atico in fact opened that Letter of Credit but as the switches were never manufactured, it would not have been negotiated. During the next few months Atico gave the defendant other financial assistance including payment of US$25,000 on 30th May 1984 to assist in the purchase of components.

40. On 1st June 1984 Atico requested the plaintiff to open a Letter of Credit in favour of Atico. On 12th June 1984 the plaintiff sent to Atico the draft conditions for the Letter of Credit. On 14th June 1984 Atico replied seeking variations to the draft and in particular objecting to a condition that the final 9,996 units be shipped by 15th October 1984. This was the final shipment date earlier proposed by Atico on 25th May 1984 but had only then been suggested as a "tentative" date. Atico still hoped that final shipment would be made by 30th September 1984 and wanted that date inserted, to expedite negotiation of the Letter of Credit if the earlier date was met. Atico also objected to some other conditions in the draft and asked that it be in the less stringent terms of its Letter of Credit already opened in favour of the defendant. During the correspondence on the draft Letter of Credit, Atico made the following observation to the plaintiff :

".....I could understand the kind of problems created which downgraded your trust or confidence at both Realtime and Atico. However more restrictions you are going to put in L/C it will cause delay of shipment at our part and late receipt of goods at tour part in future. "

Mr. Lee of the defendant also alleged that at the San Francisco meeting held on 21st June 1984, he requested that the Letter of Credit be opened but Mr. Peddot and Mr. Hirsch have no recollection of that issue being raised. I note that in the informal note of the meeting prepared by Mr. Chung for Mr. Lee, there is no mention of the Letter of Credit.

41. I accept that it is possible that the question of the Letter of Credit was mentioned during the San Francisco meeting. However, I am satisfied that the major matters discussed related to production delays, defective samples and the necessity to expedite UL listing. After the San Francisco meeting there does not appear to be any further mention of the Letter of Credit in the, correspondence between Atico and the plaintiff nor are there any recorded requests from the defendant for the Letter of Credit. The correspondence is dominated by the plaintiff's concern over delay and Atico's explanations and apologies for delays and defective samples. Many of Atico's telexes merely convey to the plaintiff answers the defendant had given to its queries. Towards the end of July the communications between the parties mainly reflect the plaintiff's adverse reaction to the disclosure by the defendant, that it could not manufacture the sensitivity knob.

42. I am satisfied that the settling and opening of the Letter of Credit was simply overtaken by events. The major production problems the defendant faced and could not resolve, meant that acceptable samples were never produced and production of the order was not commenced. In those circumstances I am satisfied that the defendant's prior default, entitled the plaintiff to defer opening the Letter of Credit until those defaults were remedied. Those defaults were never remedied.

43. Finally, in the light of the whole of the evidence, I have considered whether, as the defendant alleged, the plaintiff's conduct encouraged the defendant to continue with the manufacture of the switches. To the contrary the plaintiff's conduct evidenced by the correspondence, telexes and other documents, supports the plaintiff's employees oral evidence, that throughout the plaintiff was seriously concerned at the defendant's delays and failure to perform its obligations under the agreement. The plaintiff repeatedly and in detail conveyed that concern to the defendant. In assessing the evidence I have taken into account that from time to time the plaintiff agreed to some contract dates being deferred and shipping dates being revised. I have also given full weight to the fact that at the request of the defendant, the plaintiff on several occasions supplied further technical data.

44. However, that evidence falls far short of establishing that the plaintiff blew hot and cold. In fact the plaintiff consistently pressed the defendant to meet its obligations and where possible supplied the defendant with information to assist it in meeting its contractual obligations. There is simply no unequivocal evidence on which the defendant can seriously assert, that the plaintiff indicated it would not enforce its strict contractual rights. I hold that the defendant's plea of waiver fails. The defendant on 23rd August 1984 was in breach of contract and the plaintiff was entitled to cancel the agreement pursuant to the powers contained in Clause 8. The plaintiff having duly exercised those powers, there is consequently no factual basis to the defendant's counterclaim. The counterclaim is accordingly dismissed.

Quantum

45. The Re-Amended Statement of Claim particularised the loss of profit claim of US$399,639.70. Mr. Peddot explained the formula on which loss of profit was calculated. The unit price of US$14.21 was the retai1 price the plaintiff would have obtained for the sale of 60,000 Clappers based on the actual retail price subsequently achieved. Various manufacturing costs and other deductions were then made to the gross income of US$852,600,to arrive at the loss of profit claimed. I accept that the manufacturing costs of US$247,200, advertising expenses of US$170,400, shipping costs of US$17,052 and warehousing costs of US$187.50 were accurate estimates. None of those amounts were attacked by the defendant.

46. The only difficulty in the assessment of loss of profit arises from the other expenses incurred in relation to the project. The higher the expenses, the lower the profit and the lesser sum the plaintiff would be entitled to recover. The plaintiff pleaded expenses of US$18,120.80. When Mr. Peddot gave evidence he produced accounts for a higher sum of US$21,577.29. If that evidence was accepted it would have reduced the plaintiff's claim to US$396,183.21. Curiously, Mr. Peddot was cross-examined on these expenses on the basis that some of them did not relate to the project. Mr. Peddot agreed that three items totalling US$44.47 were personal expenses not connected with the project. In view of the formula adopted to calculate loss of profits, this concession necessarily had the effect of increasing the plaintiff's claim. I accept that evidence which reduces the proven expenses from US$21,577.29 to US$21,532.82. I find that the proven figure for expenses is US$21,532.82 and not the pleaded US$18,120. This slightly reduces loss of profit to US$396,227.68.

47. The plaintiff is entitled to judgment for loss of profit in the lesser sum of US$396,227.68. There will also be an order nisi pursuant to Order 42 Rule 5B(6) R.S.C. that the defendant pay the plaintiff's costs to be taxed if not agreed; the order to become absolute if no application to the contrary is made within 14 days. Liberty to apply is reserved on any other consequential matters.

Representation:

Mr. Allman-Brown instructed by Johnson Stokes & Master for the plaintiff

Mr. S. K. Wong instructed by W. S. Lo & Co for the defendant