Regal Touch Ltd v. Yasaki International Co Ltd

HCA000250/1987

Contract -sale of goods - written contract for manufacture of boa lined denim jackets - separate written contract for manufacture by two instalments of both ice blue and stone washed denim jeans - whether jackets and second instalment of jeans manufactured with defects - if so whether garments unmerchantable - if only the ice blue jeans of the second instalment defective whether that contract severable -Held :

Rapalli v. K. L. Take Ltd. (1958) 2 Lloyd's Rep. 469 C.A. considered

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Deputy High Court Judge Cruden

Dates of Hearing: 19th, 20th, 21st, 22nd, 23rd October, 3rd, 4th, 6th, 9th, 11th, 13th, 16th and 20th November 1987.

Date of Delivery of Judgment: 28th December 1987.

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JUDGMENT

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1. The plaintiff is a manufacturer in Hong Kong of denim and other clothing while the defendant sells such garments to retailers under the trade name of "Yasaki". On 7th October 1986, the plaintiff agreed to manufacture 1,000 boa-lined denim jackets for the defendant at a price of $92.66 per jacket for a total contract sum of $92,660. Shortly afterwards on 20th October 1986, the plaintiff further agreed to manufacture for the defendant 3,000 denim jean trousers at a price of $40.42 per piece for a total contract sum of $121,250.

2. After the jackets and the jeans were manufactured, disputes arose between the parties over payment. The defendant declined to pay for the jackets on the ground that they were not of merchantable quality and were not manufactured according to the terms of the contract. The dispute in relation to the jeans, was limited to the second instalment of 1,500 jeans under that contract. In fact, in respect of that second instalment only 1,458 pairs of jeans were delivered but they were rejected on the same two-fold grounds of unmerchantable quality and of not being manufactured according to the terms of the contract.

3. The disputes were not resolved and on 22nd December 1986 the plaintiff commenced High Court Action No. 7264/86 (hereinafter called "the jackets action") for payment of the sums alleged to be owing by the defendant in respect of the jackets. Later on 14th January 1987, the plaintiff commenced High Court Action No. 250/87 (hereinafter called "the jeans action") for payment of the sums alleged to be owing by the defendant for the jeans. On 18th February 1987 an order was made pursuant to Order 4 Rule 9, R.S.C., Cap. 4 that the two actions be consolidated. I will now in turn consider the two claims.

The jackets action

4. Although the pleaded contract refers to 1,000 jackets only 960 jackets were made. The plaintiff limited its claim, which was brought in the alternative, to those 960 jackets. In fact, the plaintiff delivered 814 jackets to the defendant and held the balance of 146 jackets in store available for delivery. The plaintiff's first claim totalled $88,953.60 made up of $75,425.24 for the 814 jackets delivered and $13,528.36 for the remaining 146 jackets available for delivery. In the alternative, the plaintiff claimed the sum of $66,715.20, being the original contract price of $88,953.60, less a reduction of 25% alleged to have been subsequently agreed to between the parties.

5. The defendant filed a defence and counterclaim which pleaded that it was an express condition of the contract, that the goods were to be in merchantable condition. I confirm that the defendant asserted that the jackets were not of merchantable quality nor manufactured in terms of the contract. In the counterclaim, the defendant claimed loss of profit of $52,433 together with storage charges of $13,265 to 22nd January 1987 and thereafter at the rate of $379 per day. I record that the loss of profits claim of $52,433 was based on the original contract quantity of 1,000 jackets and not on the lesser number of 960 actually manufactured. Loss of profits calculated on the same basis, but on the lesser quantity, would have amounted to $50,342.40.

6. The plaintiff in its reply and defence to counterclaim, denied that the goods were not of merchantable quality or manufactured in terms of the contract. In particular it denied that 85% of the goods were stained by dye stuff. In the alternative, it pleaded that the defendant ought to have known that there might have been staining during the washing process. The plaintiff further averred that the staining, if any, did not affect the merchantability of the goods.

7. The manufacturing process required the boa lining to be sewn inside the denim shell, before the jacket was garment-washed. If the denim shell were washed before the boa lining was added, the cost of manufacturing would have been much higher. It was common ground between the parties, that under the contract the jackets were to be garment-washed, after the boa lining was added. When the jackets are garment-washed under this method, there is a risk that the dye stuff from the denim may affect the white colour of the boa lining. The issue of merchantability largely arises from the discolouration, caused to the boa lining by the denim dye from the jacket shell, during the washing process.

8. The 1,000 jackets under the contract were to be made in accordance with Style JK-417 comprising 636 ice blue jackets and 364 stone washed jackets. Colour swatches were attached to the written contract dated 7th October 1986. Ice blue is a light blue colour obtained by bleaching the original darker blue denim material. Stone washed denim is an irregular and varying shade of darker blue, obtained by washing the original denim in washing machines which have stones in the washing water.

9. In addition to this particular contract, the plaintiff had manufactured 500 boa lined jackets for the defendant under Style JK-416. There were no complaints about the jackets under that style. The jackets under both Styles JK-416 and JK-417 were designed by the defendant. The main design difference was that an inner denim lapel was added to Style JK-417. According to the plaintiff, the addition of this inner denim lapel created washing difficulties.

10. The major difficulty described to the Court, was that the inner denim lapel, on both sides, was immediately next to the boa lining. This design feature resulted in the inner lapel providing, during the washing process, an immediate source of denim dye which inevitably discoloured the boa lining. The plaintiff asserted that this change in design, was the sole reason why the boa lining in the successful contract for Style JK-416, was not discoloured, while the boa linings under Style JK-417 were discoloured. For comparison purposes ice blue and stone washed samples of Style JK-416 were produced. Exhibit P. 1 was the Style JK-416 pre-production approved ice blue sample. Exhibit P. 2 was a stone wash sample from the bulk production of Style JK-416. The boa linings of both Exhibits P. 1 and P. 2 were clearly white without any apparent discolouration.

11. Under the contract the plaintiff manufactured and tendered to the defendant, pre-production samples of the jacket Style JK-417. The ice blue sample was produced as Exhibit P. 3 and the stone washed sample as Exhibit P. 4. Exhibit P. 3 was sent to the defendant on 10th October 1986 for approval and was later returned. I find that its return without comment or complaint, indicated that it was approved. Exhibit P. 4 still had attached to it a Sample Tag from the plaintiff which had accompanied it when it was sent to the defendant on 25th October 1986. The plaintiff had endorsed on the tag :

"For stone washed washing effect only. Pls confirm if it is acceptable for bulk. Pls sign and return asap."

This sample tag was countersigned by Mr. Joe Wong, the Merchandise Manager of the defendant and also dated by him on 25th October 1986.

Condition 1 of the contract provided:

In terms of that condition, I find that before production of the bulk goods for the contract commenced, Exhibits P. 3 and 4 were the approved samples for their respective colours. At that stage the contract between the parties was for the sale of goods by sample. Sale of goods by sample is governed by Section 17 of the Sale of Goods Ordinance, Cap. 26. The Section implies that the bulk shall correspond with the sample in quality. I was referred to Benjamin's Sale of Goods (3rd Edn.) page 481 et seq. and in particular to paragraphs 839 to 844 which deal with the same principles which arise under Section 15 of the English Sale of Goods Act 1979.

12. The principles in relation to the sale of goods by sample are well settled and I accept the statements set out in Benjamin. If the plaintiff had thereafter been contractually obliged to manufacture the bulk of the jackets under the contract, in accordance with the samples, there could have been little room for dispute and this action may never have eventuated. So far as the ice blue samples are concerned, I would record that the boa lining of Exhibit P. 3 is nearly as white as the boa lining in Exhibit P. 1. However, the boa lining of the stone washed Exhibit P. 4 is not as white as Exhibit P. 2. To the contrary is uniformly light blue in colour.

13. If the evidence had proceeded no further, then the plaintiff would have been obliged to produce the bulk of the ice blue jackets in accordance with Exhibit P. 3 and the bulk of the stone washed jackets in accordance with Exhibit P. 4. This would have meant that the defendant would not have been entitled to insist on white boa lined stone washed jackets but would have been obliged to accept the stone washed jackets, with uniformly light blue boa linings. The difficulties in this case arise, however, from what occurred after the two samples were approved and give rise to the issue whether the contract for the sale of the jackets in accordance with these two samples, was subsequently varied.

14. As to the defendant's approval of the Exhibit P. 3 and Exhibit P. 4 samples, the evidence of Miss Choi, the plaintiff's Sales Director that they were approved, does not stand alone. Mr. Joe Wong the defendant's former Merchandise Manager, who on behalf of the defendant, mainly dealt with the plaintiff in relation to this contract, largely confirms her evidence. He agreed that Exhibit D11, the defendant's copy of Exhibit P. 3 was an approved sample for the ice blue jackets. He further acknowledged that not only was Exhibit P. 4 the approved stone washed sample but that he had, on 25th October 1986, approved that sample unconditionally.

15. Before making these findings I accept that before the approved samples were made, the defendant had forwarded counter or dummy samples, with white boa linings, to the plaintiff, as a basis for the plaintiff's manufacture of the approved samples. I accept too, that the defendant in its pre-production promotion of the jacket had informed retailers that the boa lining would be white. I also accept Mr. Joe Wong's evidence, that he was surprised that the boa lining of Exhibit P. 4 was light blue, before he unconditionally conveyed his approval of that sample to the plaintiff. Mr. Wong's explanation for approving the light blue boa lining, was that time was pressing for the manufacture of the jackets and delivery to retailers who had pre-ordered. This explanation is also consistent with the evidence of the defendant's Local Sales Manager, Mr. H. L. Chiu, who agreed that it was possible that Mr. Wong approved the light blue boa lined sample to secure production by the plaintiff in time to meet those orders.

16. At the time Mr. Wong inspected and approved the Exhibit P. 4 sample, Mr. Chiu was also in his office and pointed out that the colour was too blue. Mr. Wong, nevertheless approved the sample but before returning it he cut out and retained a portion of the light blue boa lining. This explains why that portion was missing in the exhibit produced in Court. Mr. Wong then handed that cut out portion to Mr. Chiu and asked him to show it to his retail customers in order to ascertain their response. One or two days later, Mr. Chiu reported to Mr. Wong that the customers had rejected that colour, as not sufficiently white.

17. Mr. Chiu's report of the customers adverse reaction, obviously placed Mr. Wong in a difficult situation, as he had already unconditionally approved the Exhibit P. 4 sample. Mr. Wong then had a meeting with Mr. Walter Leung, a Sales Executive of the plaintiff. In evidence Mr. Wong agreed that because of the adverse reaction by the defendant's retail customers, he wanted to change the approved colour. As a matter of law, the plaintiff could have refused to vary the contract by changing the colour and have kept the defendant to the written terms of the contract.

18. The evidence in relation to Mr. Wong's attempts to vary the contract is both confusing and contradictory. The plaintiff's Miss Choi stated that between 25th October 1986 and 24th November 1986 there were a number of discussions with Mr. Wong about the discolouration of the boa lining and that he mainly wanted to change his prior written approval in respect of Exhibit P. 4. Mr. Wong's request was "to wash the boa lining whiter. As white as possible." Miss Choi stated that she and her colleagues explained to Mr. Wong that due to the design of the jacket it was impossible to avoid some discolouration. Miss Choi stated that the plaintiff agreed to try to wash the boa lining to a shade whiter than Exhibit P. 4. Under cross-examination she stated that if the resultant whiter shade was also uneven or patchy, its acceptability would depend on the degree of such unevenness.

19. Mr. Leung stated that after Exhibit P. 4 was approved, he was telephoned by Mr. Wong who asked him to make the boa linings whiter. This enquiry culminated in a meeting at the plaintiff's office between Mr. Leung and Mr. Wong. At this meeting Mr. Leung claimed he told Mr. Wong that because of the design of the jacket discolouration on garment washing was inevitable but that a snow white result could be achieved with fabric washing. Mr. Leung also stated that he showed Mr. Wong Exhibit D2, merely as an example of garment washed boa lining which was much whiter because, in the absence of Style JK-417 design problems, it could be adequately folded up before washing to lesson the chance of the denim dye staining the boa lining. However, he pointed out that even with this example, some colour staining would still appear. According to Mr. Leung the meeting ended with Mr. Wong accepting the boa lining could not be washed white but asking the plaintiff to try and wash it whiter.

20. In cross-examination it was put to Mr. Leung that Exhibit D2 was in fact a new sample he had shown to Mr. Wong with the undertaking that the plaintiff could rewash the jackets to that whiter standard. Exhibit D2 was a piece of boa lining attached to a denim base. The boa lining was of a uniform colour which appeared at first glance to be white but on closer inspection had a very faint blue tint. The colour was clearly uniform throughout. Mr. Leung denied that Exhibit D2 was the new approved colour sample and stated that Mr. Wong was told that on a rewashing, the result could not be guaranteed.

21. When Mr. Joe Wong gave evidence he confirmed that after telling Mr. Leung and Miss Choi on the telephone that he required the boa lining to be washed whiter, he attended at the plaintiff's office and discussed the matter with Mr. Leung. He claimed that Mr. Leung showed him Exhibit D2, stating that this sample had just been returned from their China factory and they could rewash the jackets to the shade of white. Mr. Wong stated he approved the whiter shade of boa lining represented by Exhibit D2, subject to the removal of small blue dots which had at that stage appeared in the fabric of Exhibit D2. Mr. Wong also stated that he later showed Exhibit D2 to Mr. Chiu explaining that it was the new sample, replacing as to colour, Exhibit P. 4 and that Mr. Chiu found the colour acceptable. Mr. Chiu confirmed this part of Mr. Wong's evidence. Mr. Wong went on to state that Mr. Leung did not initially agree to remove the blue dots but after further discussion with the plaintiff's Production Director, agreement was reached that all blue dots would be removed from those portions of the boa lining visible after the jacket was buttoned up.

22. Mr. Wong, to some extent, qualified his evidence under cross-examination. He agreed that after approving the sample Exhibit P. 4, he later asked the plaintiff to make the boa lining white. At that stage he stated that Mr. Leung agreed to discuss with his factory if it could be done. He agreed that Mr. Leung also informed him that because of the design, the plaintiff could not guarantee an absence of staining. However, Mr. Wong denied that he was informed that there would also be a risk of patching. He also repeated that Exhibit D2 was the new agreed colour sample. He denied that it was merely shown to him in an attempt to explain him that, because of the design difference, the Style JK-417 jackets could not be washed as white as Exhibit D2.

23. Any attempt to resolve the conflict over the status of Exhibit D2 depends on a finding on credibility. I was assisted in making a finding on this issue by a number of peripheral and other matters. For example, there was considerable evidence in relation to Exhibit P. 40. This was a letter from the defendant to the plaintiff dated 26th November 1986 entituled "To whom it may concern." The first paragraph authorised the plaintiff to make the jackets under the Yasaki trade name. The second paragraph went on to contain the following sentence:

"If any of our jackets are not in good merchantable condition we shall be entitled to reject the goods."

24. Mr. Wong explained that he arranged for this letter to be sent to the plaintiff, as it was necessary for them to have such a letter to clear customs, when the jackets were brought from China to Hong Kong. The plaintiff's witnesses stated that they did not require such a letter, never requested it and that when it arrived it came as a surprise. In cross-examination Mr. Wong could not remember if any similar letters were sent to the plaintiff for their other contracts. He also denied that the real reason for sending the letter was that after requesting that the jackets be washed whiter he was concerned, in view of the plaintiff's explanation of the difficulties, about the final quality of the jackets.

25. When they gave evidence in Court, Miss Choi and Mr. Leung were more convincing witnesses than Mr. Wong. I appreciate that Mr. Wong is no longer employed by the defendant and may have had less access to its records. However, on a number of important issues, when cross-examined, he was unable to recollect or gave unconvincing answers. When I review the evidence, I am satisfied that after approving Exhibits P. 3 and 4, he understandably became concerned when Mr. Chiu informed him that the blue boa lining of Exhibit P. 4 was unacceptable to the defendant's retail customers. Mr. Wong then attempted to extricate himself and the defendant, from its then clear contractual position with the plaintiff.

26. I am satisfied that when Mr. Wong later raised the colour issue with the plaintiff's officers, they explained that the inner lapel design feature made the task of producing a whiter boa lining difficult. I accept Mr. Leung's evidence that he merely showed Exhibit D2 to Wong to explain that a much whiter boa lining was possible where a garment did not have an inner denim lapel. I am satisfied and so find, that Mr. Wong reached an agreement with the plaintiff's officers that they would rewash the jackets in an attempt to produce a whiter boa lining. At the same time I accept Mr. Chiu's evidence that Mr. Wong told him that the jackets would be rewashed to the colour represented by Exhibit D2. I infer that Mr. Wong was optimistic that a similar result to Exhibit D2 could be achieved. I further infer that Mr. Wong exaggerated to Mr. Chiu the result of his negotiations with the plaintiff, in order to reassure him and placate the retail customers.

27. Counsel for the defendant submitted that any agreement between the parties to wash the jackets whiter than Exhibit P. 4, was too uncertain to have any contractual effect. He also submitted that the same uncertainty made it more probable than not, that Exhibit D2 was the new colour sample agreed by parties, to be substituted for Exhibit P. 4. There was also evidence before me that usually parties would reach a more precise agreement as to colour. Dealing with the last point first, I am in doubt that so far as the formation of an original contract is concerned, that evidence does accord with the usual factual position in the textile trade. In this case too, that sensible commercial practice was followed, when the parties agreed upon Exhibit P. 2, as the contractual approved sample. However, here I am concerned with a subsequent variation in colour. In those different circumstances that commercial practice may not necessarily be so uniformly followed.

28. In this particular case I find that the parties did agree to vary the colour to a shade whiter than Exhibit P. 4 without any new sample of the varied colour being produced. Undoubtedly it would have been a far more sensible course to have produced an agreed new sample. However, I am mindful of the fact that the defendant was from the beginning concerned about the pressure of time, due to the pre-production orders it had accepted and that production was about to start. I record that I have fully taken into account Counsel's submission, before finding that Exhibit D2 was not an agreed substituted colour sample.

29. I have also considered whether the agreement I have found that was reached between the parties to rewash the jackets whiter than Exhibit P.4, is too uncertain to have any contract effect. I was referred on this point to 1 'Chitty On Contracts' (25th Ed.) page 67, paragraph 117. If a bare alleged contractual term to wash jackets whiter, stood in isolation, I would have no difficulty in holding that such a term would be too uncertain to have any binding contractual effect. However, here the position is factually very different. The parties entered into a written contract under which samples were unconditionally approved. Later the agreement reached to rewash the jackets whiter, was in relation to an agreed darker standard represented by Exhibit P. 4. Therefore, if any dispute arose and it became necessary to determine whether there had been compliance with the new condition, Exhibit P. 4 existed as the unequivocal basis for comparison.

30. In commercial contracts of this kind, particularly where as here the parties have acted on the agreement, Courts are reluctant to strike a contract down on the ground of uncertainty. Hillas & Co. Ltd. v. Arcos Ltd. (1932) 147 LT 503 is an example of that principle.

Applying that principle to the present case, I hold that that the agreement reached to wash the jackets whiter than Exhibit P. 4 was certain and has full contractual effect. I hold that in terms of that agreement, the parties varied the original written contract dated 7th October 1986.

31. The remaining issue relates to whether the rewashed jackets were in merchantable condition in compliance with Clause 1 of the contract. I find that all the jackets were rewashed whiter than Exhibit P. 4. However, a large number, while generally whiter, had blue patches of varying size and colour. Those darker patches tended to be more numerous and noticeable on the collar and outer lapels of the affected jackets. I am satisfied that those patches arose from the rewashing process and are mainly due to denim dye from the inner lapel running and staining the adjoining boa lining.

32. The contractual variation merely placed on the plaintiff, the obligation to wash the jackets whiter than Exhibit P. 4. There was no obligation to wash the jackets as white as Exhibit D2. The reasons for the plaintiff so limiting its obligation, were fully explained by Mr. Leung to Mr. Wong, when the parties agreed to the variation. However, the contractual obligation to make and deliver the jackets in merchantable condition remained.

33. Counsel for the plaintiff submitted that when the contract was varied, the defendant also accepted that the risk of rewashing passed by agreement to the defendant. After reviewing the whole of the evidence on this issue, I find that Miss Choi and Mr. Leung fully pointed out to Mr. Wong the difficulty of washing the boa lining white. Because of those difficulties, they honestly explained that some blue staining from the denim dye would remain. However, I am equally satisfied that none of their discussions with Mr. Wong extended to the very different problem - if arising from the same cause- of the whiter colour being patchy. In other words not being uniformly whiter. Miss Choi agreed that if patching did occur, whether such a jacket was merchantable would be a matter of degree. Mr. Wong stated that he never agreed to accept the risk of jackets not being uniformly whiter. I accept that evidence of both Miss Choi and Mr. Wong.

34. In addition to having the opportunity of inspecting all the jackets produced in Court, I also had the advantage of hearing the evidence of experts called by the parties. The plaintiff called Mr. James Lo who is a Bachelor of Commercial Science, Fellow of the British Institute of Management and an Associate of the American Apparel Manufacturers Association. Mr. Lo is currently editor of"Line Apparel" published by his firm Jimmy Consultants Ltd. and has wide experience in fashion design, production techniques and quality control. The defendants called Mr. Peter Wong, a surveyor employed by Wood and Browne Ltd., Cargo Surveyors, who had more than 10 years in surveying textiles and other goods. Mr. Lo and Mr. Wong, while having conflicting opinions in relation to the disputed garments in the jeans action, had no substantial disagreement in respect of the jackets.

35. Mr. Lo stated that the boa lining discolouration was due to the design and washing process but was principally a result of the inner lapel design. Because of this factor he considered some discolouration was inevitable. When shown the whiter boa lining of a "Lawman" brand jacket he pointed out that the retail price of the "Lawman" jacket was $299 while the "Yasaki" jackets were of lesser quality selling at $259 per jacket.

36. In his written report he stated that he examined 11.6% of the jackets and found that the collars and lapels of all those jackets had parts of the boa lining stained by dye stuff from the denim during the washing process. Mr. Lo stated that there was no standard by which to classify the degree of staining and that it depended on the agreement of buyer and seller in each case.

37. The general commercial practice, according to Mr. Lo, was to base the acceptable level of staining on an approved sample. However, he had found many stained boa lined jackets, of other brands, in the market. On that basis, he expressed the opinion that stained boa lined jackets were acceptable on the consumer market. This evidence again emphasises the difficulties the parties have got themselves into, by having no new approved sample. What is clear is that the original sample Exhibit P. 4, which remains important for colour comparison purposes, was uniformly blue and not patchy. Mr. Lo was also careful to limit the merchantability he found the jackets might have - in the absence of any contractual criteria - to the consumer market and not to the market between manufacturer and wholesaler or between wholesaler and retailer.

38. Mr. Peter Wong inspected the 814 jackets delivered by the plaintiff to the defendant. In his opinion the discoloured boa linings resulted from washing. In his report he found that only 25% of the jackets were commercially acceptable. When giving oral evidence, he revised these figures and stated that none were acceptable. However, under cross-examination he revealed that his later 100% rejection was based on the adoption of a higher standard of examination, under which he rejected a garment if it contained any defect. He explained that if the defects were minor the jackets would still be saleable in the market. He repeated, in evidence, that on the market acceptability criterion, he remained of the view that 25% of the jackets were acceptable.

39. I hold that the proper criterion is market acceptability and therefore find that in Mr. Wong's opinion 25% of the jackets were merchantable in terms of Clause 1 of the contract. Under the market acceptability criterion, Mr. Wong rejected a number of jackets which were shown to him, which were also found by Mr. Lo to be below standard, for example Exhibits P. 7, D4 and D23. He recognised that it was impossible to wash the boa linings wholly white. On the other hand, he considered that Exhibit P. 4, originally approved by Mr. Joe Wong, was commercially unacceptable.

40. The remaining independent expert was Mr. C. L. Chung, the proprietor of two washing and dyeing factories who was called by the defendant. Mr. Chung had considerable practical experience in dyeing and I found his evidence most helpful. He pointed out that it was impossible to garment wash denim jackets with boa linings without some of the denim dye discolouring the boa lining. Perhaps to the defendant's surprise, he disagreed that jackets could be washed to the whiteness of the "Physical" boa lined denim jacket produced as Exhibit D22. He pointed out that Exhibit D22 had not been garment washed but that the white boa lining had only been sewn into the jacket after the denim had been washed.

41. However, Mr. Chung considered that if care was taken, he could have washed Exhibit P. 4 to a uniform whiteness comparable to Exhibit D2. He explained that to achieve a similar uniform whiteness, certain rules had to be observed in washing. These included keeping the water temperature below 60 degrees; not washing too many jackets at the same time; limiting the duration of the washing time; limiting the drying period; and replacing the washing water during the washing process. In addition, care had to be taking in ironing the denim lapel to ensure it was not ironed against the boa lining.

42. In the case of garment washed garments, Mr. Chung's definition of white was relatively liberal. For example, he was prepared to classify as white and acceptable Exhibit P. 7, which to the Court appeared to have the appearance of light blue. He stated that Style JK-417, because of its design, even if carefully washed, would have a light blue tint. The washing procedure described by Mr. Chung also largely corresponded with Mr. Lo's description of the desirable method of washing.

43. After reviewing the whole of the evidence, I am satisfied that while it was not necessary for the plaintiff to attain the degree of whiteness represented by Exhibit D2, it was obliged to obtain a reasonable uniformity of whiteness to shade lighter than Exhibit P. 4. Both from the experts evidence and my own inspection of the jackets, I am satisfied that while all of the jackets were whiter than Exhibit P. 4, the majority were not uniformly whiter. I find that the obvious blue patches on the majority of the jackets, resulting in them not being uniformly whiter, also made the jackets unmerchantable. As a consequence I hold that the plaintiff has failed to comply with the merchantability condition contained in Clause 1 of the contract and the defendant was entitled to reject the jackets. The plaintiff's first cause of action therefore fails.

44. The plaintiff's alternative cause of action was that on or about 29th November 1986, after the delivery of the first 814 jackets, the parties agreed that the defendant would accept the jackets but at a price reduction of 25% for the total 960 jackets manufactured. On the evidence I am satisfied that during the discussions on the discolouration, which resulted from the rewashing, Mr. Joe Wong enquired of Miss Choi whether, if the defendant accepted the jackets, the plaintiff would agree to a price reduction of 25%. The difficulty the plaintiff faces is whether the evidence establishes that the parties reach agreement on this proposal.

45. I accept Miss Choi's evidence. that Mr. Wong made that enquiry. I also accept that Miss Choi replied that she would have to consult her superiors. Later, while not accepting the defendant's complaint, in order to settle the dispute, she informed Mr. Wong that the plaintiff would agree to that proposal. Miss Choi stated that when she informed Mr. Wong on the telephone of the Plaintiff's agreement to the proposal he also signified his acceptance. Subsequently, she stated Mr. Wong telephoned her and said that the defendant would not accept the 25% reduction and would instead put the jackets on the market for 10 days to ascertain the buying response.

46. Mr. Joe Wong stated that he enquired whether the plaintiff would reduce its price by 25%, as a preliminary step to passing that proposal on to his superior, for approval. He stated that his superior did not approve of settling the dispute on that basis and he therefore suggested that an attempt be made to sound the market out by placing the jackets on sale for a 10 day trial period. In fact, within 1 or 2 days the defendant purported to reject all the jackets, so the 10 day selling period never eventuated. The defendant's conduct at this stage is not a matter for commendation.

47. There is also some documentary evidence relevant to the 25% price reduction proposal. On 29th November 1986 Mr. Joe Wong sent a telex to the plaintiff - Exhibit P. 42 - confirming Miss Choi's acceptance of the 25% price reduction proposal. The telex continued that "after consideration" the defendant would promote the sale of the jackets for 10 days after which it would either accept the 25% reduction or return the jackets. Miss Choi on 2nd December 1986 replied by telex - Exhibit P. 45 - in these terms:

"This is to confirm that we accepted 25% discount on our selling price to you as compensation for washing defects. As for returning shpmt to us w/ special terms, this has to be reviewed and discussed before we can accept any of yr terms."

48. The contents of the telexes, taken together with the oral evidence, satisfies me that the parties never reached agreement on the 25% reduction. There were negotiations to settle the dispute on that basis but they never reached the stage were a binding agreement was made between the parties. The plaintiff's alternative cause of action must also fail.

49. The defendant counterclaimed for loss of profit of $52,433 based on 1,000 jackets and storage charges of $13,265 to 22nd January 1987 and thereafter at the rate of $379 per day. Counsel agreed that in the event of the defendant succeeding on its counterclaim, the total storage charges should be $4,170.32.

50. I am satisfied that the defendant has established a claim for loss of profits. The jackets were scheduled to be available for sale during the autumn of 1986, which was the high season for this type of garment. There were pre-production orders for more than 500 jackets; the defendant is a substantial wholesaler; it has a large number of established retail customers. The defendant established that the loss of profit on each jacket was $52.43.

51. The plaintiff did not strongly contest the loss of profit claim per jacket but submitted that in the claim, the jackets in issue were limited to 960. It was the plaintiff's view that loss of profits on the counterclaim should also be limited to the same 960 jackets. I note that the written contract was for 1,000 jackets. There was no provision in the contract, which at times appears in similar contracts, allowing the manufacturer a tolerance in relation to the contractual quantity. There is no oral evidence of any such tolerance.

52. The defendant's claim for loss of profits is calculated on the full contractual quantity of 1,000 jackets and I am unable to find any reason why it is not entitled to loss of profits on the full contractual quantity. The plaintiff's objection is therefore dismissed. In the result, in the jackets action, there shall be judgment for the defendant for $56,603.32 made up as follows:

Jeans action

53. I confirm that on 20th October 1986 the parties entered into a written contract, produced as Exhibit P. 62, under which the plaintiff agreed to manufacture 3,000 pairs of jeans at a contract price of $121,250. The jeans were to be delivered to the defendant in what were described as two shipments of 1,500 pairs each. The first shipment was to be made not later than 25th November 1986 and the second shipment no later than the 15th day of December 1986. Each shipment was to comprise 600 stone washed and 900 ice blue coloured jeans. When the second shipment was delivered it, in fact, comprised 1,458 pairs of jeans of which 575 were stone washed and 883 were ice blue. Attached to the written contract were two colour swatches for these colours.

54. The plaintiff in its amended statement of claim pleaded that delivery of the first shipment was made and paid for by the defendant but while delivery was also made of the second shipment, payment has not been made and the sum of $58,927.50 is still due and owing. The defendant in its defence pleaded that 1,462 pairs of jeans were delivered under the first shipment but were found to be defective. It avers that first shipment was accepted only after the plaintiff had agreed to pay compensation of $4,736.80. The defendant further pleaded that the second shipment was not of merchantable quality nor manufactured according to the terms of the contracts and on those grounds the defendant had rejected the second shipment. The defendant counterclaims for $44,960 loss of profit, $1,197 incurred for leather labels and storage charges to be assessed.

55. The defendant's principal complaints related to alleged wrong waist measurements, defective shading, and wrong thread colours. There were also complaints about packaging and the manual printing of waist cards. The plaintiff denied that the second shipment suffered from these defects. In summary the plaintiff's allegations were that the second shipment was comparable to the first accepted shipment and that non-payment for the jeans was a tactic employed by the defendant to exert pressure on the plaintiff in relation to the jackets. The plaintiff agreed that it granted the defendant a 20% discount on the price of the first shipment but denied that was because of any defects in that shipment. The reason given by the plaintiff for the discount was that the defendant was also refusing to pay a sum of about $40,000 for a third undisputed jacket contract. The plaintiff contended that to obtain payment of that other contract, it agreed to give the 20% discount. At the same time, it decided not to enter into any further contracts with the defendant.

56. The alleged defect which occupied the most time at the trial, related to the waist measurements of the jeans. Exhibit P. 66 was the annexure to the contract which set out the size specification for the jeans. This document and all other documents which referred to waist measurements, described the 9 different waist measurements as "Waist (Top Blade of W/B, Circ." Miss Choi indicated that this specification required the waist to be measured around the circumference of the top blade of the waist. Mr. Leung and Mr. James Lo agreed. The defendant's witnesses agreed that Exhibit P. 66 set out the measurements of the circumference of the top blade of the waist but disagreed on the proper method of ascertaining that measurement.

57. Mr. Peter Wong measured a sample of 194 jeans. He stated that he measured the waist by buttoning up the jeans and then placing them flat on a table after tugging the waist to ensure it was fully extended. He then measured the width of the upper front half of the waist and multiplied that figure by 2 to obtain the total waist measurement. This method, according to Mr. Wong, was widely used by quantity controllers and others in the trade. The result of his findings appeared at page 111 of his written report on the jeans. Mr. Wong's measurement of the jeans by this method, showed major waist measurement discrepancies. The ice blue jean samples with 30 inch waist cards varied from 29 inches to 28 inches; the 29 inch jeans varied from 27 inches to 29 inches; the 28 inch jeans varied from 26.5 inches to 28 inches; the 32 inch jeans from 28 inches to 31 inches; the 34 inch jeans measured 32.5 inches. The stone washed samples showed similar major variations.

58. If I were able to accept Mr. Wong's measurements, I would have found the jeans were defective on that ground. However, Miss Choi, Mr. Leung and Mr. Lo all stated that because of the particular terms of waist specification, Mr. Wong's method of measurement was wrong. According to them, the specification required the whole of the circumference to be continuously measured. They rejected Mr. Wong's method of merely measuring the front half of the waist and multiplying the result by two Mr. Lo pointed out that apart from not complying with the contract specification, that method of measurement tended to be inaccurate. Among the reasons he advanced was that under Mr. Wong's method the folded edges of the waist are not measured by the measuring tape, so the measurer has to make a subjective allowance for that part of the waist. If he fails to make an allowance, he will tend to under measure the actual waist size; if he makes an allowance it will vary from person to person. I do note that where Mr. Wong's measurements varied from the waist card size, they were generally under those waist card measurements.

59. Mr. Wong stated that he followed his normal measuring method and had not considered whether it complied with the contractual specification. In any event, he considered his method was accurate. But he accepted that Mr. Lo had more extensive expertise in relation to textiles and quality control. I appreciate that Mr. Wong's method is much faster and is widely used by quality controllers in the normal course of their trade, where there are no contrary contractual requirements. However, I hold that the measurement of the full circumference by the method adopted by Miss Choi, Mr. Leung and Mr. Lo was, in terms of this contract, the proper as well as the more accurate method. I reject the measurements obtained by Mr. Wong under his alternative method.

60. Under the full circumference method Mr. Lo measured 883 pairs of jeans. In his report, Exhibit P. 125, he stated that in the trade the general level of tolerance was plus or minus one-half of an inch but for garment washed jeans, an acceptable tolerance was plus or minus three-quarters of an inch. On the basis of this wider tolerance, he found that 5% of the waist measurements were outside that tolerance. In his opinion that low percentage was commercially acceptable. At one stage the proper tolerance that should reasonably have been allowed, seemed likely to become an important issue. Mr. Peter Wong considered that the one-half inch tolerance he allowed applied to garment washed jeans as well as to higher fashion garments. The plaintiff's Miss Choi and Mr. Leung also agreed that a one-half inch tolerance was commonly allowed.

61. However, it soon became evident during the hearing that garment measurement, at least of jeans, under either method, is at most an inexact science. Mr. Wong rightly observed that it was not comparable with a labouratory test. Apart from the necessity for the measurer consistently to hold the tape measure in relation to the waist band in the same manner, other factors intrude. I accept that the size of the jeans is affected by the climate particularly humidity levels. Long storage is another factor. Under both methods the jeans are pulled out before measuring. The flexibility of the jean material at the waist, means that immediately afterwards measurements will be affected, depending upon the degree of strength used, in pulling the jeans out to their full width.

62. These were among the factors which resulted in relatively large measurement differences appearing during the trial in the same pair of jeans, depending when they were measured and by whom. For example, defence Counsel in cross-examination measured Exhibits D12, D13 and D14 all of which had waist card measurements of 30 inches. Counsel then put to Mr. Lo that the actual measurements were 28½ inches, 29¼ inches and 29 inches respectively. Mr. Lo then measured the same jeans in the witness box and came up with measurements of 29 1/4, 30 1/8 and 30 1/8 inches respectively. On the defence measurements, two of the jeans were outside the three quarters of an inch tolerance and one just complied. All were outside a one-half tolerance. But Mr. Lo's measurements, observed by all parties in Court, resulted in two of the jeans being well within a one-half inch tolerance and one pair complying with the three-quarters of an inch tolerance.

63. When I take all these variable measuring factors into account, whether a one-half or three-quarters of an inch tolerance is proper, becomes of less significance. After reviewing all the evidence, I am satisfied that even adopting the more stringent one-half inch tolerance, the percentage of defective jeans would still not be materially greater than the 5% found by Mr. Lo. I am not satisfied that those differences in waist measurements, were a sufficient defect to entitle the defendants to reject the second shipment of jeans.

64. The defendant also alleged that the jeans were defective because non-specified thread colours were used. I accept Miss Choi's evidence, supported by the documentary evidence, that the defendant chose and approved blue and yellow thread for sewing both the ice blue and stone washed jeans. Mr. Peter Wong in his report, found that the yellow threads were acceptable but that violet was used instead of blue. Mr. Wong did not quantify the number of jeans he considered affected. Mr. Lo stated that he had no samples to enable him to make a thread comparison. In his opinion, if there was any difference, it could have been due to industrial washing and in any event did not affect the jeans merchantability.

65. I accept Miss Choi's evidence that the approved threads were used. I further accept her evidence that the discolouration occurred during the garment washing, which was carried out in accordance with the contract specifications. I am satisfied that the washing process is liable to change the blue coloured threads to a shade closer to violet. The minimal change to the thread colour caused by washing was inevitable and did not affect the merchantability of the second shipment.

66. Mr. Peter Wong also gave evidence in support of the defendant's allegation that the jeans were defective, due to hanging threads, yarn ends of the shell fabric appearing at the join of the backriser, and the use of new unwashed thread to reinforce broken stitches. Mr. Lo found 9.4% of jeans had yarn ends and 6.8% had hanging threads. However, he pointed out that jeans are not high fashion garments and that hanging threads and some yarn ends normally appear in denim clothing. I accept the evidence that "Yasaki" jeans, both as to quality and price, occupy a middle position in the jean market. When inspecting the jeans in Court, Mr. Peter Wong as well as Mr. Lo, often had difficulty in finding either hanging threads or yarn ends. This was indicative of the minor nature of both these defects.

67. Compared with the other defects I have so far considered, Mr. Lo gave these defects higher percentages of 9.4% and 6.8%. In considering the effect of that quantification I have also taken into account the lower quality nature of jean garments and the position of Yasaki jeans in the middle range of that lower quality type of garment. I have been referred by the defence and fully considered, the English Court of Appeal judgment in Rapalli v. K. L. Take Ltd. (1958) 2 Lloyd's Rep. 469. It is true that in that case, it was held that the de minimis principle, could not be applied to imported onions where 6% to 7% were undersized and 5% to 6% were sprouting. In the present case, I am considering garments with defects of a very different kind. These jean problems also have an equally different relationship to the merchantability of the jeans compared with the far more serious nature of the defects in the onion shipment. Each case depends on its own facts. However, in finding that the hanging thread and yarn defects did not render the second shipment unmerchantable, my conclusion is not inconsistent with any of the principles enunciated in Rapalli v. K. L. Take Ltd.

K. L. Take Ltd.

68. The complaint about the restitching, arose from the fact that in those few cases where some restitching was necessary, the thread was of a different shade to the other thread already used in the jeans. In fact, I find that the approved colour threads were used in all the restitching. However, as the restitching thread was used after the jeans had been garment washed, the shade of that thread had not been affected by the washing. I accept that the thread used in restitching is therefore of a brighter yellow and blue shade, than the other thread. I further accept Mr. Lo's evidence that only about 2% of the jeans were so affected. Further only small areas of even that 2% of jeans, were so affected. I hold that those jeans were not by reason of that different shaded thread unmerchantable.

69. The next complaint relates to accessories supplied by the defendant. Each of the jeans were to have a "Yasaki" waist card indicating waist size. The plaintiff was responsible for endorsing on each card in the space provided the particular waist size of each pair of jeans. The contract did not specify whether the waist cards were to be printed, chopped or handwritten. The majority waist sizes were chopped on "Yasaki" waist cards. However, some of the cards were handwritten. I accept Miss Choi's evidence and the evidence of Miss Marie Wong, another employee of the plaintiff who was involving in pressing the defendant to make delivery of the cards, that the absence of printed waist cards was due to the defendant's failure to supply them on time. Before coming to this conclusion, I have also considered the telexes on the delay issue, produced as Exhibits P. 94 and 95. I also accept Mr. Lo's evidence that in any event only 3.3% of the jeans he inspected had handwritten waist cards.

70. There was also a complaint that some of the jeans were packed in plain poly bags. The contract required that the bags should be marked with the "Yasaki City" name and sealed with "Yasaki City" stickers. Mr. Lo found 29% of bags, during a 10% random sampling , without "Yasaki City" printing. This was a packaging matter peripheral to the main issue and did not affect the merchantability of the jeans. I hold that the defendant was not entitled to reject the goods on this ground. There were also complaints that the leather ''Yasaki" labels on some of the jeans were stained blue. The contract provided for the jeans, after the labels were attached, to be garment washed. I hold that some blue staining was inevitable and did not render the jeans unmerchantable.

71. I turn now to consider the defendant's complaint that the ice blue coloured jeans were defective, as they consisted of a range of 4 to 5 different shades. It is common ground that the colour within each pair of jeans was uniform. The complaint is that the 883 ice blue jeans, delivered under the second shipment, included a range of shades which could be divided into 4 or 5 distinct lots. A copy of the contract was produced as Exhibit P. 62 and the original contract was produced as Exhibit D62. The contract contains a bare entry "Colour swatches" under which samples of stone washed and ice blue denim are affixed. I hold that those were the colour shades the parties agreed upon, when the contract was executed on 20th October 1986.

72. Mr. Peter Wong, both in his report and oral evidence, asserted that there were 4 or 5 different shares of ice blue jeans in the second shipment. He was referred to Mr. Peter Lo's report which, in considering shading, adopted a United States colour rating scale issued by the American Association of Textile Chemists and Colourists (AATCC). Mr. Wong was not familiar with that rating scale. Mr. Lo stated that if the colour shade was below Grade 3 on the AATCC scale it was an unacceptable variation. He found 26% of the jeans below Grade 3.

73. Under cross-examination Miss Choi was asked to compare 3 ice blue pairs of jeans selected from the second shipment, namely Exhibits D6, 7 and 9. She was also shown a stone washed pair of jeans being Exhibit D8. She agreed there was a marked difference in the shades of the 3 ice blue jeans Exhibits D6, 7 and 9. From my own inspection of those exhibits I also find that D6 and D9, while of different shades, were closer to the contract swatch in Exhibit D62, than D7. In fact, the ice blue Exhibit D7, surprisingly, was closer to both the stone washed color swatch and to Exhibit D8, the stone washed jeans. All Miss Choi could say was that, notwithstanding these obvious differences in shades, there was no variation of shading within each jean.

74. During Mr. Chui's evidence he referred to 4 other pairs of ice blue jeans, selected from another carton, being Exhibits D32, 33, 34, 35. I accept his evidence as to the major variation in colour of these jeans. Compared to the ice blue colour swatch, Exhibit D32 is considerably lighter; Exhibit D33 is reasonably close to the colour swatch; Exhibit D34 is a little darker. However, Exhibit D35 is very much darker and in fact is far closer to the colour of the stone washed colour swatch. After reviewing all the evidence, I find that the 883 ice blue jeans were made up of at least 4 distinct shades of ice blue and only two of those shades, were reasonably close to the contractual colour ice blue swatch.

75. Unfortunately, Mr. Peter Wong so concentrated on the measurement issue, that he never quantified the percentage of jeans which, in his opinion, did not correspond with the contractual sample. Mr. Lo in his report, stated that in his opinion 26% of the jeans did not comply with the AATCC colour rating scale. However, he did not expressly distinguish between ice blue and stone washed jeans. The defendant' s complaint was solely in relation to ice blue jeans. Mr. Peter Wong's report, the contents of which were used as the basis of Mr. Lo's comparative opinion, also limits this complaint to ice blue jeans. From that evidence and from my own inspection of the jeans, I am satisfied that at least 26% of the ice blue jeans did not comply with the colour swatch contractual standard. In addition, putting the ice blue colour swatch to one side and merely considering the shades of the ice blue jeans produced in Court, I am satisfied that at least 26% are noticeably dissimilar to the remaining ice blue jeans.

76. The question remaining, is whether these clear differences in the ice blue shades, affecting a substantial part of that order, result in either the whole of the second jean shipment or the ice blue portion thereof, being unmerchantable. The plaintiff submitted that they did not render the jeans unmerchantable and sought to support that submission on two main grounds. First, that as there was no variation in ice blue shading, within each pair of jeans, the lack of uniformity throughout the order would not affect consumer merchantability. Secondly, that a similar variation of shades also existed within the first shipment of jeans which the defendant had accepted.

77. The first ground mainly relied on Mr. Lo's evidence. Mr. Lo stated that the colour variations were due to washing and if they were to be avoided a dyeing and not a washing machine should be used. In evidence-in-chief he further stated that technically 4 different shades of ice blue existed but he considered the variations would be commercially acceptable, if there was no contrary contractual requirement. The AATCC scale, he explained, is appropriate as between manufacturer and wholesaler and wholesaler and retailer. On the other hand, so far as the consumer is concerned, the jeans would be acceptable as the consumer is not concerned with any difference between the shades of different jeans but is only sensitive to the shading of the pair he wishes to purchase. From the consumer's viewpoint, there were no colour defects, because the colour within each jean was uniform without any shading variation. However, he conceded that if they had been high quality garments and not jeans, he would have considered the different shades to have rendered the garments overall defective.

78. Under cross-examination Mr. Lo agreed that colour shading was governed by any contractual provisions between the parties. The AATCC scale, he stated, is used to assist in determining whether any variation is tolerable. He pointed out that everyone knows that different colour shading occurs after garment washing. However, he agreed that where the contract calls for a particular colour and not a colour range, then if the colours extend over such a range, the jeans would not comply with the contract. He also agreed that colour shading defects are a manufacturing defect. As between manufacturer and wholesaler, he expressed the opinion that the wholesaler could, in such circumstances, reject the jeans. On the other hand, he repeated that the jeans would, so far as a consumer was concerned, be acceptable provided there were no variations of shading within each pair of jeans.

79. Mr. Chiu's evidence was that the variation in shading was unacceptable to Yasaki's retail customers. The defendant also called Miss M. F. Chong, the Sales Manager of one of the retail shops from which Mr. Lo had purchased "Yasaki" jeans from the first shipment and other jeans for comparison purposes. Her evidence was that the colour variation in the first shipment of jeans made them hard to sell. Her evidence was open to the inference that retailers prefer all the jeans within the same colour also to be within the same shade.

80. After reviewing the whole of the evidence on this issue, I remind myself that the present disputed contract is between manufacturer and wholesaler. I am satisfied that for the ice blue jeans to be merchantable under such a contract, they must be of the same shade as the colour swatch or reasonably similar to that colour. I accept that a consumer will not normally be concerned with differences between jeans provided the shading within each pair is uniform. However, I am concerned with merchantability between manufacturer and wholesaler. The reaction and standards of the consumer are of some relevance but are not decisive of that issue. Mr. Lo in effect agreed, even after taking into account the lower quality criteria in respect of jeans, that while the jeans would be acceptable to consumers, 26% of them did not comply with the normal commercial standards, as between manufacturer and wholesaler. After listening to the evidence and inspecting the jeans, I have arrived at the same conclusion.

81. When all the commercial practicalities are considered, it is not surprising that requirements between these different parties, in these different contracting stages, are also different. For example, while a consumer may only be concerned with the uniformity of the colour of the single pair of jeans he selects to buy, the position of the retailer is quite different. The retailer exercises his market skills by selecting a particular colour for which he anticipates a demand.

82. In the merchandising, assortment and display of jeans of that colour, it is obviously important to him that he receives jeans uniformly of the selected colour and certainly without the at least 4 major variations in shading, the ice blue jeans in the second shipment, contained. I hold that the plaintiff has failed to prove that, even if the jeans may have been acceptable to consumers, they therefore also satisfied the condition as to merchantability, in the present contract, between the plaintiff and the defendant.

83. I now go on to consider the plaintiff's second submission, that a similar variation in shading, existed within the first shipment of jeans, which the defendant accepted. I find that the specifications for the second shipment of jeans were the same as for the first shipment. I also note that on the face of the defendant's production report for the first shipment produced as Exhibit P. 85, no major defects were noted, although there is a critical comment on the thread colour of the stone washed jeans.

84. The plaintiff submitted that the first shipment was merchantable as to quality and accepted in terms of the contract by the defendant. In the event the plaintiff granted a 20% discount on the contract price for the first shipment. Miss Choi explained that this discount was not related to any defects in the first shipment. According to her, the defendant's at the time the discount was granted, owed the plaintiff the sum of $40,000 in respect of a third undisputed jacket contract. The defendant, Miss Choi alleged, withheld payment of that sum for the purpose of applying pressure on the plaintiff to reduce the price of the first jeans shipment. At the time, Miss Choi continued, the plaintiff decided to grant the discount, obtain payment of the $40,000 and resolved not enter into any further contracts with the defendant.

85. There is evidence coming from the defendant's witnesses that there were complaints in respect of the first shipment but at most these were minor and remain relatively undocumented. I am prepared to find that the 20% discount was granted without any admission of liability for defects on the part of the plaintiff.

86. I accept that in the defendant's telex produced as Exhibit P. 96 dated 10th December 1986, informed the plaintiff of a number of details relevant to the second shipment which were not particularised in the contract. This included the specification that the shell fabric of the ice blue jeans were to be the same colour as in the first shipment.

87. Counsel for the plaintiff submitted that before Mr. Peter Wong or any other witness, could offer an opinion whether the shading variation in the second shipment constituted a defect, they had to examine the ice blue jeans of the first shipment. No such comparative examination had been carried out. The difficulty which faces the plaintiff in this submission is at least twofold. The Exhibit P. 96 telex is confirmatory of a prior oral communication and does not expressly authorise a variety of shades. Further, the telex is limited to the appearance of the finished jeans which contractually are to be made in accordance with the colour swatches. I am satisfied that the contents of the telex do not vary but merely supplement, the written contractual requirements.

88. Apart from Miss Choi's general statement that the second shipment was manufactured to the same standard as the first shipment, there is no evidence on the detailed appearance of the jeans in the first shipment. I certainly am unable on the evidence to find that the first shipment shared the same ice blue shading variations, of the second shipment. Nor if I were able to reach that conclusion, would I necessarily have held that the ice blue jeans in the second shipment were merchantable, in terms of the contractual position which existed between the parties for the second shipment. I also hold that this second submission by the plaintiff fails.

89. From these findings I hold that the defendant was entitled to reject delivery of the ice blue jeans under the second shipment. I further record that any defects I have already found in relation to the stone washed jeans, neither separately or cumulatively, entitle the defendant, on those grounds, to reject the stone washed jeans. I have paused to consider whether the defects in the ice blue jeans, giving rise to a right of rejection, also entitled the defendant to reject all the jeans under the contract including the non-defective stone washed jeans.

90. After considering the provisions of the contract, I am satisfied that the ice blue jeans are separate and distinct goods to the stone washed jeans. The defendant's own evidence is that at the time of delivery there was a continuing demand, from its retail customers, for both types of jeans, which it was unable to satisfy. In relation to the parties contractual position, I hold that the sale of the ice blue jeans is divisible and severable from the sale of the stone washed jeans. I further hold, that the defendant's right to reject the ice blue jeans, due to the plaintiff's breach, does not entitle it to reject the non-defective stone washed jeans. The defendant was entitled to reject the ice blue jeans but was obliged to accept the stone washed jeans.

91. Accordingly the plaintiff is entitled to judgment for the 575 stone washed jeans delivered to the defendant at the contract price of $40.42 amounting to a total sum of $23,241.50. The defendant is entitled to judgment for loss of profit on the ice blue jeans. Loss of profit is claimed at the rate of $30 per pair of jeans. I consider on the evidence that sum is reasonable. For similar reasons to those given in relation to the jackets action, I am satisfied that the defendant is entitled to loss of profit on the full contractual quantity of 900 ice blue jeans. This amounts to $27,000.

92. The counterclaim of $1,197 for jean labels can also only be allowed in respect of the 900 ice blue jeans. The average unit price for the labels was 36 cents. Adopting a broad approach on minimal evidence, I will allow the label counterclaim, on the reduced basis of 900 labels at 36 cents each, producing damages of $324 for this item.

93. The remaining claim relates to storage charges. The parties agreed that the total storage charges for the jeans were $1,648.92. I was not informed how that sum was calculated. In view of my finding that the defendant was only entitled to reject the ice blue jeans, it may only obtain judgment for storage charges for those jeans. This may require the sum of $1,648.92 to be apportioned. Liberty to apply is reserved to the parties on this issue of storage charges and also in respect of costs and any other consequential matters.

Representation:

Mr. Allman Brown instructed by Fred Kan & Co. for the plaintiff

Mr. Sammy Lee instructed by Fok & Johnson for the defendant