LACHOSHIRT GARMENTS LTD v. ARMTEX GARMENT FACTORY LTD

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JUDGMENT

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1. This action concerns two quantities of what are described, somewhat euphemistically, as "ladies' blouses", manufactured by the Plaintiff for the Defendant, and so manufactured in the knowledge that the goods were intended for export.

2. The action came on before my brother Mantell on 4th February this year, when it was struck down by what is frequently described as "the Hong Kong sickness" - a sickness that resembles, in many ways, both malaria and the life of the liver fluke in that, in order to erupt, it has to pass through various bodies (or "hosts') - usually through slackness on the part of solicitors, then through oversights on the part of counsel and, finally, through that grave defect in the Rules of the Supreme Court in Hong Kong, namely, the absence of a proper setting down procedure.

3. The medicine prescribed by Mr. Justice Mantell was simple, sensible end straightforward. Counsel were to agree on the Issues to be determined by the Court when the matter came on again for trial, and the trial should be on those Issues.

4. On 15th of February, the then counsel for the Plaintiff and the then counsel for the Defendant signed a document headed "Issues". The action was called on before me on 20th May. It reminded me of The Hunting of The Snark:-

"There was one who was famed for the number of things. He forgot when he entered the ship:" ⁽¹⁾

(Counsel will recall that that is the gentleman who "would answer to 'Hi!' or to any loud cry ... ⁽²⁾, etecetera.). By the end of the action; I had a Re-amended document entitled Issues; I had a Further Re-amended Defence and Counterclaim; and I had an Amended Reply and Defence to Counterclaim: None of which documents existed at the beginning of the trial, or when the matter was before my brother Mantell.

5. Mr. Wesley Wong accepted that, on the Issues as agreed between the parties, the burden of proof was on the Defendant, and, consequently, he opened.

6. Today is listed as the 9th day of the hearing. It should not, in truth, be so described: On quite a number of those days, we were not able to commence much before noon, and, on one of these days, we had hearing time of only just over an hour and a half. No time has been wasted by counsel in this matter, who proceeded with despatch, and who have very sensibly made concessions throughout the hearing to shorten it, and to avoid unnecessary contention. I will annex to this judgment a list of the agreements and concessions so made to avoid having to recite them now.

7. Issue 1 is now conceded. Issue 2 has ceased to be an issue. Sub-issue (ii) of Issue 3 is no longer in dispute. So I am left, therefore, with 3(i), 3I, 3A, 3B, 4, 5(a), (b), (c) and (d), 6(a) and (b).

8. It is now agreed between the parties that this was an oral contract, partly evidenced in writing; the writing being Bl. It is also agreed between the parties that the Plaintiff would be supplied by the Defendant with all the fabric necessary to manufacture the blouses and all what has been described as "sub-materials", which in fact are normally described as "trimmings". It is agreed between counsel that the thread used was that of the Plaintiff, but apart from that everything belonged to the Defendant. The Plaintiff was to manufacture the blouses in accordance with an "approved sample".

9. A question arose in the course of the hearing before me as to the nature of the contract. Was it a contract for the sale of goods or was it a contract for work and labour? The phrase "C.M.T." is used in two of the documents under the heading of "Method of payment", at B7 and B10.

10. The law relating to the manufacture of garments seems still to be quite obscure. The passage relating to the difference between a contract for the sale of goods and work and labour, which appears in Vol. 41 of the 4th Edition of Halsbury's Laws of England at p. 557, para. 603, is tortuous in the extreme. It goes round and round, and gives the reader no assistance whatever in the determination of whether a contract like this is one for the sole of goods or one for work and labour.

11. I have been referred to two authorities, neither of which is of any assistance. I have to look at it with the yeyes of a common lawyer, and I asked myself this question: If it is for the sale of goods, how can the Defendant be purchasing its own goods? Everything on those shirts, bar the thread, is, and always was, the property of the Defendant. There has been neither evidence, nor even suggestion, that the property in the fabric, or the property in the "sub-materials", ever passed from the Defendant to the Plaintiff. In my judgment, therefore, it is not a contract for the sale of goods. It is a contract for work and labour.

12. I say "therefore" in the knowledge that it is now asserted by various authors that that is not the test, but one of the tests. I have not found on it as the conclusive test: I found common sense to be the conclusive test. I say that at this stage, even when it is half of the way, because, in the event, I apprehend it may not be of great significance.

13. It may not be of great significance for this reason. It was argued by Mr. Alexander Wong that, if this were a C.M.T. contract, the Sale of Goods Ordinance would not apply. That may very well be so. Indeed, I think it follows it must be so. But, if the Plaintiff is manufacturing for the Defendant, the common law will imply a term that the goods so manufactured must be of merchantable quality. Thus, in my judgment, it matters not, therefore, whether this be or be not a contract for the sale of goods.

14. The first batch of goods - 670 dozen of these blouses - was delivered on 28th July. And, very shortly thereafter, there was a telephone conversation - it may have been on the same day - between the Defendant and the Plaintiff, with the former allegedly complaining of defects.

15. A letter was written by the Defendant's then solicitors on 22nd August, that is B18 and 19. And there are two paragraphs of B19 which are of considerable importance in this action. The first is this,

"We are instructed that on 28th July 1983 your client purported to deliver 670 dozen of ladies blouses to our client. However upon our client's inspection the said goods were defective. Full particulars of the said defects duly related to your client who in fact sent a number of its workers twice to the factory of our client purporting to make good the said defects. This caused further delay.",

and the second is,

"As a result of the said late delivery of the goods, the purchasers of our client cancelled all their orders and this caused our client to suffer serious damages and loss of profits."

16. I must say at this stage that, by the time the action reached me, all questions of late delivery had been dropped, and no attempt has been made to revive that issue. So that is not a source of complaint before me.

17. When evidence was called from the Plaintiff, he was asked about the first of those two paragraphs. He read it, and said that he had had nothing in writing from the Defendant. After re-examination I, feeling somewhat dissatisfied with that answer, asked whether he had received any oral complaint, and it appears that he did. On my invitation, counsel later asked him further questions relating to that point and arising out of my question.

18. The workers (referred to at B19), who were sent over, however, were neither cutters nor sewers. They were not garment workers of any kind. They were packers, and their job was to repack certain cartons in the Defendant's factory. It would appear, therefore, that although there were certain oral complaints about defects, what was really worrying the Defendant at the time was the method of packing. Those workers were at the Defendant's premises one afternoon and evening and the following morning, doing the repacking.

19. The Defendant avers that it rejected the goods, but the ground for rejection can now be only the defective nature of those goods. It may be that, at the time, only lateness was complained of, and only lateness was relied on for rejection. But, if, at that time, there existed another good, sound ground for rejection, the Defendant is entitled to invoke it in either defence or offence; certainly in support of its "right" to reject. The one thing which the Defendant could not do would be now to raise a ground for rejection which had not existed at the time of rejection.

20. Nearly two years later, and some time after the hearing before Mr. Justice Mantell, the Defendant decided to have the goods inspected. It is not for me to speculate as to why they had not been inspected at a very much earlier stage, and why inspection reports had not been sent to the Plaintiff at a very much earlier stage, and long before the action came on before Mr. Justice Mantell. It is useless to explore that now. I must get on with the substance of what is before me.

21. The Defendant instructed a company in Hong Kong, Labtest (Hong Kong) Ltd., whose documents disclose that it is a "Service Supplier recognized by the Hong Kong Government", a "Laboratory Approved by the International Wool Secretariat", and a Member of the American Society For Testing and Materials, of the British Standards Institute and of the Hong Kong Association of Certification Laboratories.

22. The gentleman who conducted the examination, or inspection, (as it is has been called throughout the hearing), of these goods was called to give evidence before me and that is a Mr. Herman Tang. Apparently he had not been given any instructions as to the standard to apply, and it appears the Defendant relied on the skill and judgment of Labtest to do what was right and proper.

23. The gentleman who conducted the examination, the same Mr. Tang, was supplied with a number of documents - what he called "the contract" (which is B1), what he described as the "submitted reference sample", and a photo-copy of a job specification, which appears to have been a photo-copy of Exhibit 3. He was, therefore, in possession of knowledge, inter alia, of the price of these blouses for the purposes of the contract between the Plaintiff and the Defendant, namely, $106 per dozen, less a discount of 1%. The quantity is agreed to have been 1,400 dozen and the total price was HK$148,400.

24. Being without instructions, Mr. Tang decided to apply "Military Standard 105D For Sampling Procedures and Tables for Inspection by Attributes" issued by the Department of Defense (sic) of the United States Government on 29th April, 1963. He decided that it was to be a normal inspection of single sampling, that the level was to be Level II and that the Acceptable Quality Level for what are described as "major defectives" was to be 2.5 and for "minor defectives" 4.0.

25. Some criticism was offered of his having chosen "Mil-Std-105D". But Mr. Tang told me that an identical standard is used by another organization, of which his employer is a member, the British Standards Institute, and he shewed me, and counsel saw, British Standards 6001-1972 which, to our eyes, seemed to be almost identical, (even down to the use of bizarre Americanisms), with the one used by Mr. Tang. A photocopy of his standard is Exhibit 6.

26. On the face of each report is a conclusion and I shall read from the first, which is Exhibit 4.

"The inspection results of the workmanship of the above goods fail to meet the specified inspection requirement. Majority of defects are uncut thread, hi-1o pockets, hole, open seam, broken stitch, frayed edge at top of placket (near collar), and loosen button (with sewing thread broken). In addition discrepancies are also found on the styling against the submitted reference sample. Details are stated on the following pages."

27. That inspection was carried out at the premises of the Defendant on 27th February of this year, and it was an inspection in relation to 1,968 blouses. I will return to that in one moment.

28. The Plaintiff manufactured for the Defendant a further quantity of 706 dozen, which was rejected by the defendant and remains in the possession of the Plaintiff.

29. On the same instructions, Mr. Tang inspected 8,472 blouses in the premises of the Plaintiff. That inspection was on 18th March, and he produced a Report on it on 20th March: Exhibit 5. On the face of that Report is the following conclusion.

"The inspection results of the workmanship of the above goods fail to meet the specified inspection requirement. Majority of defects are open seam, incorrect positioning of collar button, stitchline exposed at armhole and broken stitch. In addition, discrepancies are also found on the styling against the submitted reference sample. Details are stated on the following pages.".

30. As I have said, Mr. Tang was criticized for employing the Department of Defense Sampling Procedure. He said that it is one commonly used. He was at pains to explain that he was not looking for the same defects which might render unsuitable ships, aircraft, tanks, missiles or space vehicles - which was somewhat heartening to know, but he did say that this test had been frequently used in relation to textiles being exported to the United States from Hong Kong.

31. What he did was this. He looked at the number of blouses that he was to inspect, and in the first case - that was, as I have said, 1,968 - he then went to Table I on page 9 of Exhibit 6 and he, having himself selected Table II of the General Inspection Levels, by reference there took K as the appropriate level. He then turned to Table IIA on page 10 of Exhibit 6 and taking K, he found that the sample size should be 125. So he selected at random, 125 blouses for inspection.

32. He then applied the test of 2.5 for "major defectives" and 4 for "minor defectives", which meant that, if he found 7 major defects in any blouse, the blouse would be acceptable, and, if he found 8, it would be unacceptable. If, in any blouse he found minor defects - 10 would leave it acceptable, but 11 would render it unacceptable.

33. For the second examination, he was presented with 8,472 blouses. He turned to Table I on page 9, and there he found, for General Inspection Level II, he should use letter 'L'. He turned to Table IIA and, using letter 'L', he found he should draw 200 samples, and he did draw 200 samples at random, still taking 2.5 and 4 as the A.Q.L.. The result then would be that 10 major defects would be acceptable, 11 would not; and 14 minor defects would be acceptable, 15 would not. With that in mind, he proceeded to examine the shirts.

34. He was in this unfortunate position, which I shared with him. He never at any time saw the "approved sample", which had been prepared by the Plaintiff for and submitted to the Defendant, and which, after approval by the Defendant, was given back to the Plaintiff to be and was used as a model on which to base their manufacture. Where it is? Nobody appears to know. It certainly was not shewn to Mr. Tang, and it certainly has not been produced before me. He was given what was called a "submitted reference sample". That also is "missing" - or, at least, it was never shewn to, or produced before me.

35. His findings in relation to the examination of 27th February were that: -

36. Why he put that last in is not entirely clear to me because, what he called the "job spec", says, in the 8th line of Chinese characters from the bottom of the middle column on Exhibit 3, "horizontal match on front, pocket, and pocket flap must match plaid of body". Nothing, therefore, was prescribed in the job specification in relation to vertical matches, nothing in relation to check patterns at the front and back panels, and nothing was said that the check patterns of the front and back panel were horizontally to match at the side seams. What was said was there should be horizontal matching on the front. And he did not find any blouse that was without horizontal matching on the front: He found them only to be without horizontal matching at the side seams. That was careless, but I do not regard it as serious.

37. He drew down, as I have said, 125 samples and in 17 shirts he found what he described as "major defective". In three shirts he found what has been described as "hi-lo pocket", which seems to be manufacturers' shorthand for pockets not horizontally matched, or pockets out of true alignment. He found three shirts with a hole, two shirts with a severe puckered pocket seam, one shirt with a fabric rupture at the hem, one with a fabric rupture at the placket, one with a fabric rupture at the pocket, one with an open seam at the armhole, one with an open seam at the cuff, one with a broken stitch at the bottom which he said was 2" in length, one with a broken stitch at the placket which he said was 1 to 1½" in length, one with a sealed pocket, and one with pleated seam at the front collar.

38. Applying Table IIA, he disallowed ten of those and allowed seven, and, therefore, came to the conclusion that the blouses failed to meet the required tolerance.

39. He also found 27 shirts with what he called "minor defectives" - eight shirts with a frayed edge at the top of the placket near the collar, six with an insecure button (with the sewing thread broken), four with "unlevelled horizontal pattern at placket", two with a visible seam at the armhole, two with an extra stitch at the pocket, one with an extra stitch at the armhole, one with a broken stitch at the pocket, one with a frayed edge at the pocket, one with a fabric fault and one with a needle line at the back of collar.

40. In addition, he found 58 shirts with uncut threads, the sort of thing that one finds only too frequently these days and, almost invariably, with cheaper items of wear.

41. He said at one time that he had made a recommendation, but, at a later time, he said he had made no recommendation. And although recommendations are provided for in the Terms and Conditions on the back of the first page of Exhibit 1, none appears on the conclusion on the face of the Report. He certainly did not recommend rejection; he did not offer an opinion; and he left it to the Defendant.

42. I might as well now deal with Exhibit 5 while I am dealing with these inspections. On the "Styling Check", he found the same three matters, to which I have already referred.  In the absence of the sample upon which manufacture was commenced, I do not propose to pay any attention to them, in either Report.

43. He found 16 shirts with "major defectives". They were eight with an open seam at the armhole, two with "hi-lo pocket", two with "open seam at the cuff", one with a fabric rupture at the hem, one with a severe puckered seam at the pocket, one with an open seam at the pocket flap and one with a loose stitch around the armhole.

44. He found 32 with "minor defectives". Seven with "incorrect positioning of the collar button sewn".  [ For the reader of Exhibit 5, I should say that the word "seam" was said by Mr. Tang, and accepted, to be a mistyping for "sewn"]. He found six with an exposed stitch-line at the armhole, three with a frayed edge at the top of placket near the collar, three with an uncut thread, three with a loose button (with sewing thread broken), three with a broken stitch at the pocket flap, one with an improper seam (sic) at the hem, one with "dirt mark", one with a needle cut at back of the neck band, one with an exposed stitchline at the collar, one with a broken stitch at the cuff, one with excess fabric at the armhole, and one with a broken stitch at the pocket.

45. Applying his tables, he disallowed six of the major defects and allowed ten. That took him to the limit in Table IIA which he had set for himself.

46. And in the minor defects, he found 32, disallowed 18, allowed 14, and that took him to the limit in Table IIA which he has set for himself. He concluded in his findings that the sample batch failed to meet the required tolerance.

47. The first matter I have to decide therefore is if the blouses were defective. I do not believe that I can do that by use of the Military Standard for this simple reason: Mr. Tang seemed totally unable to explain why he had chosen 2.5 or 4; he told me that-if it were silk it would be 1, and he had chosen 2.5 and 4.

48. There are other tests that he could have applied, other acceptable quality levels, other percentages of defects, and he was unable to say whether the two he had chosen were the two accepted by manufacturers end exporters in Hong Kong, or even by importers in the United States, for goods of this description and of this price. They, by any standards, are cheap blouses designed for ordinary good folk going about their business and who not wish to spend large sums of money on things that look like table-cloths.

49. What I propose to do, is to decide this on what the Mr. Tang actually found; found as compared with the "submitted reference sample", which I have never seen. But, bearing in mind that, not only have I never seen this "submitted reference sample"; I have not even seen the blouses alleged to be defective.

50. There was a great deal of cross-examination on these defects, whether in fact they were defects, or whether Mr. Tang's was an accurate description of the condition of the blouses, and there was considerable discussion as to the meaning of "fabric rupture", none of which matters was I able to solve, because not a single one of the 325 blouses randomly drawn for inspection was produced to me. I am not complaining; I am stating a fact. In a civil action, a judge decides on what the parties put before him, and on nothing else. In a civil action a judge cannot go off on his own, making enquiries, calling for evidence etc.  He decides on what the parties before him, in their wisdom, have decided should be the evidence upon which to found the judgment.

51. Now there is a number of ways of looking at this. If I accept what he has described as "major defectives" as being major defects, then 13.6% of the drawn samples on the first inspection contained a major defect, 21.6% contained a minor defect, if I aggregate them and take the total number of defects found in the drawn sample of 125, it comes to 35.2%.

52. To do the same exercise in relation to the second inspection, 8% contained what alleged to be major defects, 16% minor; a total of 24%.

53. The sample drawn down on the first inspection was 6.35% of the total. Nobody has told me whether or not that is an acceptable percentage sampling.  I shall have to apply my own judgment to it.

54. In the second inspection, the sample was 2.36%, and, again, I am in the same position.

55. Quite clearly, when an inspection is carried out of a large number of goods, the percentages examined must be reasonable, otherwise the time taken in the inspection, and the cost thereof, will become preposterous.

56. There were, in the first batch, 7,440; Mr. Tang found but 1,968 of those blouses. It is not a very large number. I myself would have been content, I apprehend, with something in the region of 10%, and without any guidance from anybody, and applying common sense, I believe that 13.6% sampling is a quite acceptable percentage.

57. The second batch was 8,472 blouses, and 200 were examined. 847 blouses is rather a lot to examine, applying my 10%, and I would have thought, for a shipment of that size, something in the region of 400 blouses should have been examined, and in my judgment 2.36% is too low. But, even if I were wrong, and that percentage was correct, I must look at the defects that were found and to see whether they were such as would entitle the Defendant to reject the blouses in toto.

58. That, as I say, is extremely difficult in the absence of seeing the goods themselves, but the sort of thing that has been described and has been shown to me - three blouses have been shewn to me - the "hi-lo pocket" on a blouse of that design, as demonstrated to me, would not, in my judgment, be sufficient to warrant rejection.

59. The holes that were shown to me were the holes the size of a pin, which it took careful examination by three of us, with a magnifying glass, to find. To anyone who cares to read this judgment later, I would say that Exhibits 1 and 2 and Exhibit 7 have such holes as may be found ringed in red, by the use of a felt ripped pen.

60. The severe puckered pocket seam is unfortunate; it would certainly put off the beholder if there were a better blouse to be had nearby: But it is a matter, I am told, that could be resolved by ironing - that does not appear seriously to have been challenged. And, in the absence of seeing what is alleged to be a "severe puckered pocket seam", and being told, unchallenged, that it could be cured by ironing, I would not regard it as a major defect.

61. The fabric rupture, if we only knew what it was, I would be able to decide. Mr. Lam, called by the plaintiff, said that he thought it meant a "frayed edge". If there were frayed edges at the hem, the placket and the pocket, they certainly would be unacceptable, that is, if it were visible to the purchaser, he would be put off, also if it were visible to anyone beholding the purchaser when the wore it.

62. The open seam at the armhole, and the open seam at the cuff did not mean what they say; it means a slightly exposed seam, which could be seen with a magnifying glass, certainly would not put off the reasonable purchaser. I doubt if it would even be seen.

63. The broken stitch at the bottom, of two inches in length was the subject of challenge. It has not been produced before me, but a two-inch broken stitch at the bottom would mean that the hem eventually would fall down. Equally with the one-and-a-half-inch broken stitch at the placket means that, after a little wear, the placket will start coming away from the front of the blouse. I would regard those as major defects.

64. The sealed pocket I would regard as a major defect: It would annoy the purchaser, and a blouse so manufactured certainly would not be in accordance with the sample anyway: Such a defect would render the garment unsuitable.

65. Of the pleated seam at the front collar, I really do not take much notice.

66. Very few of those are regarded by me in this judgment as capable of constituting major defects.

67. So I pass to, and add in, the minor defects.

68. The frayed edge at the top of the placket near the collar: I have not been shewn that - it has been described to me; but, if it is what it says, in this type of blouse, it would be almost meaningless, and I would agree with Mr. Tang in describing it as minor.

69. The insecure button is another matter because, and this Mr. Tang seems to have overlooked, it was a requirement of the contract that loose buttons should be fixed: That is to be found in the third line from the bottom of the centre column of Exhibit 3.  Exhibit 3A, when first put before me, was wrong and I asked that the translater who did the original translation to look at it again, and he did, and he re-translated it as "fixing loose buttons". Nobody has taken any objection to that, and it is accepted by both parties that that means "affixing loose buttons". In other words loose buttons were a requirement of the contract. However Mr. Tang said that the sewing thread was broken, but, as has been pointed out to me in the course of the evidence, the button would not come off unless all the sewing threads were broken.

70. So far as the visible seams and the extra stitch are concerned, one only needs to look at those that have been shewn to me to see that they would really have no bearing on any reasonable purchaser of these blouses for this price.

71. So what am I left with? Three blouses out of 125, or possibly five out of 125. In my judgment, that is not sufficient to warrant rejection of the first consignment, and I hold, in relation to those, that the 670 dozen were not so defective as to entitle the Plaintiff to reject them. Defects there undoubtedly were but defects in a garment of this kind, of this quality, of this price, have to be more severe to justify rejection than in a high quality product - high quality blouse of high quality material to be sold at a high price. That goes without saying, and has not been challenged in the course of the evidence or submissions before me. And, in this case, the defects came nowhere near a standard for rejection.

72. I come now to the inspection at the Plaintiff's premises. Eight with an open seam at the armhole, (I am still not sure what that means), but it appears to be on the evidence, if one can gather anything from it, to be an exposed seam. I do not consider that to be a major defect.

73. I have already dealt with the "hi-lo" pockets; with the open seam at the cuff; with "fabric rupture" at the hem; with the severe puckered seam at the pocket; with the open seam at the flap; and with a loose stitch around the armhole: Only one of those would, in my judgment, be considered, even if Mr. Tang had taken a correct percentage sample, to be a major defect.

74. Now I pass to and add in the minor ones.

75. Seven blouses with the incorrect positioning of the collar button sewn. I myself would not regard that as a minor defect. I regard that as a major defect, in those blouses. However the evidence prepared by the Defendant is it is a minor defect and I must, accordingly, accept that it is minor.

76. "Exposed a stitch line at the armhole" and "frayed edge at top of placket near collar", I have dealt with; uncut threads, ever a nuisance: But you find them in almost every type of cheap garment. (If my personal experience anything to go by, you find them in Hong Kong in exceedingly expensive agarments as well, that is neither here nor there).

77. "Broken stitch at pocket flap" could be a major defect; dirt mark - unforgiveable; needle cuts at the back of the neck-band - nobody would spot them. Exposed stitch line at the collar; well,: there was one of those shewn to me; one can see it if one tries hard, but, if someone is wearing it, on-one would observe it. I cannot, for myself, find that it is of any importance. Broken stitch at the cuff, yes. Excess fabric at the armhole - that excess fabric at the armhole, I would have considered to be a major defect: However the Defendant's case is it is a minor defect, and I must accept that for the purposes of this action.

78. If I add all that up even if 2.36% is the correct sampling, I find that, although there were defects, the goods were not so defective as to justify the Defendant in rejection the 706 dozen blouses: So the answer to 3(i) is No, and to 4 is Yes.

79. Assuming that I am wrong on all of that, I am asked to decide whether these goods were not of merchantable quality.

80. The first batch is still in the possession of the Defendant: The Defendant has made no effort whatever to try and dispose of them either in the United States or in Hong Kong. There is, therefore, no evidence before me that they are not of merchantable quality - unless I apply my own test, and I really am not in a position to decide whether they are or they are not. If I apply the test that was referred to in Canada Atlantic Grain Export Co. (Inc.) v. Eilers & Ors. (1929) 35 L1.L.R. 206, I would find myself quite unable to hold that these were not of merchantable quality.

81. If I just apply an ordinary test, looking at them, and, in the absence of seeing the sample, I would come, as a matter of fact to the conclusion that they were of merchantable quality. The answer to 3I, therefore, is No.

82. Say I were wrong on that, I have to decide whether there is an estoppel, the estoppel arising out of the retention of possession. I hold that that cannot, in this case, amount to an estoppel, because the Defendant made it clear that it was rejecting them at the outset, and retaining possession thereafter until a dispute is resolved between the parties, cannot in the circumstances of this case, in my judgment, amount to an estoppel. The answers to 3A and 3B are the same - No.

83. The answer to Question 5, therefore, is: Yes; and the answer to Question 6 is: No; and I am not required to deal with 6(a).

84. If I were wholly wrong, in my findings, I would not grant a declaration of indemnity at this stage for this reason, (and it is accepted by both parties that the course I would propose would be acceptable to them): If I were to find in favour of the Defendant, I would have adjourned sine die the question of the indemnity, because, on the evidence before me, the American buyers have rejected solely on the ground of late delivery, a point which is no longer in issue between the parties, and has not been pursued by the Defendant. I would adjourn that sine die, with liberty to restore, if any allegation of defective condition or unmerchantability were made against the Defendant by its customers; and I would then require evidence to shew that there was a genuine, bona fide allegation by the customer, and not what has been described as a bogus, or put-up, claim. I cannot, therefore, answer 6(b) to-day.

85. The parties have agreed most of the figures, subject to liability, save for the question of quota which, happily, no longer falls to me to determine.

86. There will, therefore, be judgment for the plaintiff, and the counterclaim is dismissed.

(1) Fit the first; v. 6.

(2) 1 bid.