KWOK TIN CHI t/a PARAMOUNT ADVERTISING AGENCY v. FONG YIU TAO DAVID t/a KUN FAT HONG

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In this action the Plaintiff, who trades under the name of Paramount Advertising Agency, claims the sum of $135,000 against the Defendant in respect of materials supplied and services rendered by the Plaintiff to the Defendant for the purpose of advertising the Defendant's merchandise. The Defendant is an import and export merchant trading under the name of Kun Fat Hong.

2. The Plaintiff also claimed the sum of $650.00 against the Defendant in respect of the construction and supply of an iron display stand for the Defendant. The evidence adduced on behalf of the Plaintiff was, in the event, to the effect that a Mr. Christopher Wu ("Wu"), who was an employee of the Defendant, had ordered the stand in question and made it clear that he would pay for it out of his own pocket. Accordingly counsel for the Plaintiff abandoned this subsidiary claim in the course of his submissions at the end of the trial.

3. The background of the Plaintiff's principal claim is as follows. At the end of 1984 the Defendant, who dealt chiefly in electronic parts at the time, was minded to import a brand of Swiss chocolates called "Chocolats Camille Bloch" which has a logo consisting of a circle enclosing a picture of human lips surrounded by the name of the chocolates. This particular brand of chocolates had not been sold in Hong Kong before. The Defendant had ordered two shipments of the chocolate, the first of which was due to arrive in Hong Kong in January 1985.

4. Wu, a manager of the Defendant's import department, was the head of what the Defendant's pleadings and his sole witness described as the department for the sale of the chocolate. The intention of the Defendant was to market the chocolate during the period leading up to and during Chinese New Year in 1985. In that year Chinese New Year fell on the 20th February. Wu was looking for an advertising agent to assist in the promotion of the new brand of chocolate. He met Mr. Dominic Lui Lap Tak ("Lui") at a social function towards the end of 1984. Lui was the "Creative Manager" of the Plaintiff. The sequel to the meeting of Wu and Lui was the making of the contract which has unhappily resulted in these proceedings.

5. The Plaintiff has pleaded that there was a contract in writing made between the parties on the 10th December 1984, but counsel for both parties accepted at the trial that the contract was partly oral and partly in writing. The agreed bundle of documents included a document dated the 10th December 1984 which was headed "CONTRACT" and was signed by the Plaintiff and the Defendant. This document listed the work that was to be done by the Plaintiff and the prices to be paid by the Defendant for the various items of work, but one item was "Production Cost" for which a charge of $70,264.00 was made, and there was no breakdown of this figure.

6. However it was common ground between the parties that the contract included the following items to be carried out by the Plaintiff to advertise the Defendant's chocolate for a total price of $135,000:

(1)	74 poster ("MTR posters"); described by the parties as "MTR trackside posters" or "Trackside panels", to be posted on trackside panels on the MTR for the three weeks between the 3rd and the 23rd. February 1985.................	Price ($)   54,060.00
(2)	Insertion of a full page, four, colours advertisement in the Hong Kong Grocery Trade Magazine ("the trade magazine") for January 1985 ...................	3,740. 00
(3)	Design and produce:- 74 MTR Posters Trade magazine full page insertion 2,500 promotion posters 1,200' promotion stands 35,000 greeting cards ...................	70,264.00
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		128,064.00
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In addition an agency fee of 12 per cent was payable in respect of the total price for items (1) and (2) above. This fee was $6,936 and made the total contract price $135,000.

7. The substance of the defence to the Plaintiff's claim is that the work done by the Plaintiff was not in accordance with the express or implied terms of the contract and that as a result it was not fit for its purpose. The Defendant contends in his Further Re-Amended Defence and Counterclaim that he is entitled to set-off against the Plaintiff's claim the damages that he has suffered as a result of the Plaintiff's breaches of contract. He also counterclaims for damages in respect of these breaches. In his pleadings he quantifies the special damages at $488,020.00.

8. The first, and crucial issue arising on the pleadings is whether or not, as the Defendant seeks to establish, it was an express term of the contract that the Plaintiff should insert in the advertisements the names of the Defendant's thirteen principal distributors (i.e. retailers) of the Defendant's chocolate. The Plaintiff denies this allegation of fact. Although the Defendant has pleaded that such an express term was agreed between the parties, breaches of the term are only pleaded in respect of the MTR posters and the greeting cards.

9. On this issue the Defendant relied on the evidence of Miss Lee Yim Yue ("Mandy Lee") who is the wife of the Defendant. Her card describes her as a "Manager" but she described herself as the "Controller" of her husband's business and said she helped her husband to run the business. She said she was chiefly responsible for purchases and sales, and also for accounting. At the material time, according to her evidence under cross-examination, she did not attend to the chocolate business on a day to day basis, but she was indirectly involved.

10. According to the evidence of Mandy Lee, the first shipment of chocolate comprised 592 cartons containing 7,023 boxes of chocolates. She said that around the 10th December 1984, the Defendant had about 30 to 40 chocolate distributors but they were not well known to the Defendant's firm because chocolate had not previously been one of the Defendant's lines of business. However, she said that by the 10th December 1984 orders had been placed by distributors for about 80 per cent of the expected first shipment of chocolate.

11. When asked in chief by the Defendant's counsel why the Defendant wanted to advertise the remaining 20 per cent of the shipment, Mandy Lee replied that one of the reasons they received so many orders was that they had promised to advertise the chocolates and that the distributors' names would be put on the advertisements. This was never pleaded.

12. Under cross-examination Mandy Lee was asked if the Defendant kept any records of these orders. She replied that they would be roughly put down. She said that she herself took only a very small proportion of the orders, including orders from Daimaru and Yuen Cheong Supermarket. She mentioned that there were two indoor and two outdoor sales representatives. When asked how she knew that 80 per cent of the chocolate had been ordered she replied that she knew because Wu would prepare a list showing approximately the orders placed and that he would let Mr. Fong, the Defendant, see it. No such list was disclosed on discovery and, under re-examination, Mandy Lee said she thought that Fong would have torn it up.

13. Under further cross-examination about these sales, Mandy Lee said the sales representatives would have been told that the chocolate was a new brand, that there would be an advertising campaign and that the distributors could have their names printed on the advertising material if they so required. She added that it would help the sales representatives in effecting sales if they carried out instructions to inform distributors of these matters, and that invariably super-markets would enquire if there was to be an advertising campaign for every new product. She also said that the sales representatives prepared sales reports for the Defendant. No such reports had been disclosed on discovery, and under re-examination Mandy Lee said she thought they would have been thrown away.

14. As to the circumstances under which it was alleged that the parties had agreed that the names of the Defendant's principal distributors should appear on the advertisement material, the Defendant pleaded that this requirement was communicated to "the Plaintiff" in the course of a series of meetings before the contract was entered into. In further and better particulars of this pleading it was alleged that the names of the "main distributors" were supplied to the Plaintiff at the meetings between the Plaintiff and the Defendant, and it was "made known" to the Plaintiff that their names should appear on the advertisements. In her evidence in chief Mandy Lee said there had been two formal meetings between representatives of the parties. In the course of her re-examination she said the first meeting was on Friday the 7th December 1984, the second meeting was on the 10th December 1984 and there were no other formal meetings between the representatives of the parties.

15. Mandy Lee's evidence in chief, when dealing with the proposed lay-out of the Plaintiff's MTR poster which she said was presented at the first meeting, was to the effect that "we" had said that the most important thing to print clearly was the names of the Defendant's distributors. Under cross-examination Mandy Lee said that Fong himself was at this meeting and that he had told the Plaintiff's staff about the need to name the Defendant's distributors. These matters had not been put to the Plaintiff's witnesses when they were cross-examined.

16. When asked, under cross-examination, if any of the Defendant's staff had a list of distributors at this meeting, Mandy Lee replied that there was not a list as such "but we did tell him part of the names". Asked why the alleged term regarding the names of the principal distributors was not mentioned in the Plaintiff's proposals for the work or in the contract, Mandy Lee replied that those documents had been prepared by the Plaintiff. She added that the most important thing in the contract was the price and the items of advertising material.

17. It was put to Mandy Lee under cross-examination that there was mention of the distributors' names at the second meeting only. She replied that the names were mentioned at both meetings. She denied that the idea of printing the names had been dropped after discussion at the second meeting.

18. As regards the alleged breaches of the alleged term concerning the names of the Defendant's principal distributors, Mandy Lee's evidence in chief was that when the chocolates were delivered to the distributors who had given orders for it, they had said that their names did not appear on the MTR posters and greeting cards, and the Defendant had great difficulty in persuading the distributors to take the chocolate. Under cross-examination Mandy Lee went further and said that the distributors had not only said that their names did not appear in the advertisements, but that they had said the Plaintiff was in breach of contract. This had not been pleaded.

19. Mandy Lee said that when the advertising materials were received it was found that the names of the distributors did not appear on the back of the greeting cards. She said that Mr. Oliver Wan Lui Ming ("Wan") was in the Defendant's office at the time and she at once complained to him about this, but his reaction was-that nothing could be done at that stage as the work had been done. As to the absence of the names of the Defendant's principal distributors from the MTR posters, Mandy Lee said she did not raise this matter with the Plaintiff, but as far as she knew, Wu did this.

20. On this issue the Plaintiff, in his Reply, denied that he knew that the names of the Defendant's distributors were required to be put on any of the Plaintiff's designs or that this was requested by the Defendant. The Plaintiff admitted in his pleading that he had been informed by the Defendant, prior to the 10th December 1984, that the Defendant's distributors included Wing On Company Limited, Yuen Cheong Supermarket Limited and the Tokyu Department Store.

21. The Plaintiff's witnesses on this issue were Lui and Wan. They had been responsible for the negotiation of the contract after Lui had met Wu, the Defendant's import manager, and become aware that Wu was looking for an advertising agent to advertise the Defendant's chocolate. Lui, being the Plaintiff's Creative Manager, was chiefly concerned with design and artwork. Wan was an Accounts Executive and more concerned with the budget for the proposed advertising scheme.

22. Lui described two meetings. The first meeting was, he said, between him and Wan and representatives of the Defendant, including Wu, Mandy Lee and Mr. Schibli, the representative of the Swiss suppliers of the chocolate. According to Lui, Wan explained their plans for advertising the Defendant's chocolate and Lui explained the campaign presentation, presenting written proposals explaining the theme of the proposed advertising scheme. He said that he also produced layouts for all the advertising material they were proposing. These lay-outs were identified by him in court and related to the proposed MTR posters, trade magazine advertisement, distribution posters, promotional stands and greeting: cards.

23. Lui's evidence was that the Defendant's representatives seemed to approve of the proposals but he and Wan were required to make another presentation for Fong's benefit. According to Lui, he believed that on the following day there was a second meeting at which he and Wan were again present and Fong himself attended, together with Mandy Lee, Wu and other of the Defendant's staff. Lui said that he and Wan had come to this meeting with three alternative budgets for alternative proposals. The three budgets were for prices of $250,000, $200,000 and $150,000. Lui's evidence was that at this meeting he and Wan repeated their presentation of their proposals for Fong, and the proposals were accepted, but on the basis of a reduced budget of $135,000. Lui said that he believed the contract was signed by Fong immediately after that in another room.

24. According to Lui, after the contract had been signed, he and Wan maintained contact with Wu about the details of the artwork and the expected date of arrival of the chocolate. He said that, between the signing of the contract and the delivery of the first batch of advertising matter to the Tokyu Department Store under the contract, he did not see Wu once but spoke to him on the telephone. His evidence was that once the contract was signed he understood the matter was very urgent and that they had to start the work right away. He said that from the beginning of the advertising campaign until the artworks were completed, he dealt with Wu.

25. As to the names of the Defendant's distributors, he said in chief that Wu had told him at a very early stage before the contract that there were thirty distributors, but he understood this was done to give him confidence and not for any other purpose. Under cross-examination he said that at the time Wu had mentioned the Defendant's thirty distributors he named five or six of them and did not actually usethe word confidence. There were, he said, discussions, on a number of occasions, after the signing of the contract, about the Defendant's distributors. His evidence was that on one occasion Wu had told him on the telephone to put the names of the Defendant's distributors on the greeting cards. According to Lui he asked Wu for the names of the distributors, but Wu could only give him five or six names. He said that he waited for Wu to send him the names of the distributors and eventually contacted him and told him it was impossible to put the names on the cards since he had not been given all of them. His evidence was that Wu then told him to include the name of Kun Fat Hong and its telephone number on the greeting cards.

26. Lui said in chief that on another occasion Wu had asked him to include the Defendant's distributors' names on the MTR posters, but Lui had explained that when the layouts were prepared this was not intended and to do it would adversely affect the appearance of the layout. He added that there was then discussion, resulting in Wu agreeing that the name Kun Fat Hong and its telephone number should be included on the MTR posters.

27. Under cross-examination Lui contradicted himself when, at one stage, he said that from beginning to end Wu had never said he wanted the names of distributors printed on the MTR posters. When the contradiction in his evidence was pointed out to him by counsel for the Defendant he said that his "deepest impression" was that Wu had requested that the distributors' names should be put on the greeting cards and not on the MTR posters.

28. Lui said that he had been instructed at the eleventh hour, after the colour proof had been prepared, to put the Kun Fat Hong name and telephone number on the MTR posters. He made it clear that he was not in favour of putting the names of 30 distributors on the poster and that the main purpose of the poster was to acquaint the public in the supermarkets of the box shapes as part of an image building campaign to inform the public of the chocolate. However he said, when pressed under cross-examination, that if his client had insisted on the 30 names going on to the poster it would not have been for him to disagree. He said that he had told the clients that if they wanted the names he would do it, but eventually the client could not give him the names of the distributors.

29. Wan's evidence regarding the holding of the two meetings preceding the signing of the contract document on the 10th December 1984 was broadly the same as that of Lui. He said the second meeting was held the day after the first meeting and that the second meeting was necessary because they had to prepare a new proposal with a different budget. According to Wan they presented their proposals at the second meeting but had to start afresh when Fong joined the meeting.

30. Wan's evidence differed materially from that of Lui in that he said, in chief, that at the second meeting "they" had suggested putting down the names of the Defendant's distributors on the design of all the advertisement materials. He went on to say that "they" could not give "us" the names of the distributors, and added that if there were so many names on the design it would spoil it. He also said that the budget for the work was reduced after the second meeting to $135,000 and the idea of putting the names of the distributors on the advertising material was called off.

31. According to Wan the contract document was signed on a date subsequent to the second meeting after it had been amended. He said he was not present when the contract was signed by Fong because Mandy Lee took the contract to Fong for his signature.

32. He acknowledged that Lui was the person the Defendant would contact regarding design, but his evidence under cross-examination was that Wu had contacted him frequently by telephone after the contract had been signed. He said the purpose of the calls was to keep Wu informed of the progress of the work and to enable Wan to get to know what was happening to the Defendant's merchandise. There were, he said, no discussions between him and Wu about artwork and design.

33. Wan's evidence was that he had shown the final artwork for the trade magazine to Wu and that he was present when Wu approved the artwork and indicated his approval of it by signing the label at the back of it on the 28th December 1984. Likewise he said that he had showed the colour proof of the MTR poster to Wu for his approval and that Wu had asked for the name of Kun Fat Hong and its telephone number to be put on the poster. Wan's evidence was further to the effect that, after this addition had been made, he took the actual finished MTR poster to Wu who gave it his approval.

34. Wan admitted under cross-examination that Mandy Lee had complained to him, after the first delivery of the finished advertising materials to the Tokyu Department Store, about the absence of the names of the Defendant's distributors on the greeting cards. He said that all along the project had been handled by Yolanda Chan and Wu of the Defendant's firm. He added that when Mandy Lee complained to him about the greeting cards he told her that the cards were too small for so many names, that Wan had previously notified Yolanda Chan and Wu of this and that the names of the distributors had not been supplied.

35. After careful consideration of the evidence reviewed above and of the evidence as a whole concerning the first issue I have no difficulty in preferring the evidence of Lui and Wan, despite its imperfections, to that of Mandy Lee. I find on the balance of probabilities that the parties to the contract never agreed to include an express term that the names of the principal distributors of the Defendant should appear on all or any of the advertisement materials to be prepared or procured by the Plaintiff.

36. If as Mandy Lee claimed, for the first time under cross-examination, the Defendant had contracted with all the distributors who had ordered the Defendant's chocolate, that their names would appear on the advertisements, it is very strange that the Defendant did not insist that an express term to this effect should be inserted in the written contractual document. Furthermore the Defendant himself, Mr. Fong, is alleged by Mandy Lee to have required the names of the distributors to be put on the advertising material, but, for reasons which were never explained, he did not give evidence.

37. Wu, who was the manager allegedly responsible to Fong for the so-called chocolate department of the Defendant and who liaised with Lui and Wan, did not give evidence. He evidently could not be traced by the Defendant. Nevertheless Lui and Wan, whom I believed on these matters, gave evidence about his approval of the trade magazine advertisement, the MTR poster and the greeting cards and about his requirement that the trade name of the Defendant and its telephone number should appear on the MTR poster and the greeting cards. If indeed it was a term of the contract that the names of the principal or any of the Defendant's distributors should appear on these advertisements, it seems very odd that Wu did not insist on the term being complied with. I believed Lui when he said that, if the client had insisted on the names of the distributors appearing on the advertising material, it would not have been for Lui to disagree.

38. Finally, as counsel for the Plaintiff pointed out in his submissions, there was no evidence that the Defendant or his staff had at any time, before or after the signing of the contract document dated the 10th December 1984, provided the Plaintiff or his staff with the names of the principal distributors of the Defendant which, if Mandy Lee's evidence were to be accepted, the Defendant had contracted, with his distributors, would appear on the advertisements. Moreover no evidence was given by Yolanda Chan (who was actually called but never appeared in court), by any other staff of the Defendant or by any of the distributors of the Defendant to support the tenuous evidence of Mandy Lee.

39. Accordingly I concluded that on the balance of probabilities the Defendant had not established that it was an express term of the contract that the names of the principal or any of the distributors of the Defendant should be named in any of the advertisement material to be produced or procured by the Plaintiff.

40. The next question for decision is what, if any, terms or conditions are to be implied in the contract that was made between the parties. The Defendant has pleaded in his defence that the Plaintiff knew inter alia the purpose of the proposed advertisements and that the Defendant relied on the skill and experience of the Plaintiff in designing the advertisements. In those premises the Defendant pleads that it was an implied condition of the contract that the advertisements designed and produced by the Plaintiff should be reasonably suitable for the purpose of promotion of the sale of chocolates in Hong Kong. The Defendant pleads further, or in the alternative, that it was an implied condition of the contract that the advertisements designed and produced by the Plaintiff should be of a quality conducive to the sales of the chocolates.

41. Counsel for the Defendant sought to support these pleadings by contending that anyone performing contractual work should perform it with reasonable care and skill by the standards of his profession or trade. He submitted, as was the fact, that Lui and Wan had been in the advertising field for some years and the work undertaken by the Plaintiff could not be performed by novices in the advertising trade. He pointed to the reliance which Lui had said in evidence was placed by Wu on Lui in relation to the artwork involved in the contract. He dwelt on the fact that lips were the main feature of the advertising campaign and contended that no competent advertisement agent, exercising reasonable care and skill would allow uneven teeth to appear in a chocolate advertisement, as had been the case in the trade magazine advertisement in this case.

42. Counsel contended that, with or without the approval of the client, an advertising agent should not allow such teeth to appear in a chocolate advertisement, because the agent should predict to some extent the reaction of the public to such an advertisement. Counsel also contended that even if there was no express term in the contract for the inclusion in the advertisements of the names of the Defendant's principal distributors, there was an implied term that the advertisements should be reasonably suitable for the' purpose of the contract and that the Defendant should therefore have inserted the names of the distributors, because without the names the advertisements would not have been "reasonable" for the promotion of the sale of the chocolates.

43. In my judgment these pleadings and arguments are not sound in relation to the contract now under consideration. It was clear from the evidence before me that Lui and Wan presented written proposals for a scheme or campaign of advertising which was to be implemented by advertising material to be produced in accordance with layouts which were submitted to and approved by the Defendant and his representatives before the contract was made. Once the contract was made it was the duty of the Plaintiff to produce the posters and other advertisement materials strictly in accordance with the layouts approved by the Defendant subject only to any variations approved by or on behalf of the Defendant. I accept the argument of counsel for the Plaintiff that in a contract of this character there is no room for any implied warranty as to the fitness of the design of the advertisements to promote the sale of the Defendant's chocolates.

44. There was nothing in the written contractual document and there was no evidence before me to justify such an implied warranty or condition. I agree with counsel for the Plaintiff that the strict obligation of the Plaintiff to adhere to the layouts approved by the Defendant leaves no room for the implication of a condition that the Plaintiff had warranted that the advertising material produced in compliance with contract would result in enhanced sales of the Defendant's chocolate. I also agree that the principles applied (in different factual circumstances) in Lynch v. Thorne [1956] 1 WLR 303 (C.A.) are applicable to this case.

45. There clearly must be an implied term that the artwork, by which the design of the advertisements was to be implemented, should be carried out with reasonable skill and with reasonable care having regard to the object of the contract: Aerial Advertising Co. v. Batchelors Peas [1938] 2 All E.R. 788 at page 792. The artwork must therefore be carried out with the degree of skill and care required to ensure that it will be suitable for the purposes of the contract. However I accept counsel for the Plaintiff's submission that this does not apply to the design of the artwork which is required under the contract to be carried out in accordance with a specification agreed between the parties.

46. It remains to consider, in the light of the above decisions on the first two issues, the breaches of the contract alleged by the Defendant.

47. The Defendant claims that the omission of the names of the principal distributors from the MTR posters was a breach of the contract. This claim must fail in view of the finding above that there was no express or implied term of the contract requiring the names to appear on the posters. Furthermore I accepted the evidence of Wan that Wu had approved the final version of the MTR poster.

48. The Defendant pleads that the quality of the printing of the full page insertion in the January 1985 issue of the trade magazine was poor and unattractive and that the mouth depicted was ill designed and the teeth depicted were uneven and ugly looking. On this matter the Defendant relied on the evidence of Mandy Lee who claimed that her criticism of this advertisement represented the consolidated views of the Defendant's distributors and staff. No distributor and no staff of the Defendant other than Mandy Lee was called to support this allegation. Mandy Lee's evidence was that the printing of the advertisement was vague and she objected to the design and shape of the mouth and teeth depicted on the advertisement. She claimed that the advertisement gave the impression that eating the Defendant's chocolate chipped the teeth.

49. In my judgment there is no substance in this claim. The design of the advertisement was in accordance with the layout submitted to and approved by the Defendant and his staff before the contract was made. Furthermore the final artwork for the trade magazine was approved by Wu on behalf of the Defendant, and he clearly was held out to the Plaintiff as having authority to give such approval on behalf of the Defendant. As regards the printing of the advertisement, this was not the responsibility of the Plaintiff whose duty it was under the contract to procure the insertion of the advertisement in the trade magazine. There was no evidence to show that the Plaintiff had in any way contributed to any alleged inferiority of the printing.

50. Then it was pleaded by the Defendant that the design of the promotion stands (small cardboard advertisement stands) was unattractive and that the quality of the printing was poor, the shape of the lips ill-shaped and their colour unnatural and appearing in some cases to be bluisn or purplish. The only evidence in support of this allegation was that of Mandy Lee to the effect that the lips shown on the stands were in her view very ugly and gave her a pecking feeling. In my judgment such evidence was wholly inadequate to establish the Defendant's allegations in the pleading regarding the quality of the printing and the colouring of the lips.

51. As regards the remaining criticism of the appearance of the lips and the alleged pecking feeling they were alleged by Mandy Lee to cause to her, I accepted the evidence of Lui that the addition of the lips to the stand was a variation of the original approved layout, but that Wu had approved the variation in the course of a telephone conversation.

52. Finally the Defendant alleged that the greeting cards were defective. It was claimed that the names of the Defendant's principal distributors were omitted in breach of the contract. In view of the findings on the first two issues above this claim must fail. Moreover I accepted the evidence of Lui to the effect that Wu had told Lui to put the Defendant's trade name and telephone number on the greeting cards after failing to give Lui the names of the distributors.

53. It was pleaded by the Defendant and alleged in the evidence of Mandy Lee that the Chinese wording on the greeting cards only bore the brand name of the chocolates and that the word "chocolates" did not appear in Chinese characters. Miss Lee's evidence was that Chinese potential customers who did not read English would think the card was an advertisement for lipstick. It was also pleaded that the card showed the name of the Defendant in Chinese but no reference to the fact that the Defendant was the sole agent for the chocolates. On these matters I accepted the evidence of Lui that he had put the trade name and telephone number of the Defendant on the cards on the instructions of Wu. This was the only departure from the layout of the greeting cards in the finished product and so I conclude that the Plaintiff was not in breach of contract regarding the design of the greeting cards.

54. The Defendant further pleaded that the quality of the printing and colouration of the lips depicted on the greeting cards were deficient. The pleading made the same allegations in relation to the cards as are mentioned above in relation to the promotion stands. The alleged ill-shaped lips is a matter of design and does not advance the Defendant's case because there was no departure from the layout in respect of the lips.

55. Mandy Lee gave evidence about the inconsistent colouration of the lips and the Defendant produced 4 specimen cards to demonstrate the manifest absence of consistency in the colouring. The result in the case of the exhibited cards was clearly unsatisfactory. Lui admitted in evidence that the Defendant had complained about the colouration of the lips on the cards after the delivery of the first batch of the advertisement materials to the Tokyu Department Store.

56. Accordingly it seems to me that the Defendant is entitled to a measure of damages in respect of the inconsistency and corresponding unattractiveness of the colouring of the lips on the cards. The assessment of such damages is not made easier by the failure of the Defendant to adduce evidence quantifying the number of the cards which were defective. Bearing in mind the admission by Lui of the complaint from the Defendant regarding the defective colouring of the cards I conclude that the complaint was probably prompted by defects in a substantial number of the cards.

57. In assessing the damages sustained by the Defendant under this head I consider that the Defendant is entitled to some reduction of the contract price in respect of defective cards and also to a measure of damages in respect of loss of potential sales by reason of the diminution in the efficiency of the cards of advertising material for the Defendant's chocolates. However, as far as the second item of damages is concerned, the court can only do its best and must be careful to avoid assessing too high a figure of damages: see Aerial Advertising Co. v. Batchelors Peas (Supra) at p. 796G.

58. The Defendant has pleaded, what amounts, in view of the above findings in relation to most of the alleged breaches of contract, to an inflated claim for damages and I do not derive any reliable assistance from the evidence of Mandy Lee seeking to support the Defendant's claim for damages which includes a figure of $488,020.00 special damages. The somewhat haphazard nature of this claim is evidenced by the fact that the Defendant's pleading claims $108,000 in respect of the cost of setting up and operating the Defendant's chocolate sale department and $16,000.00 in respect of the cost of retrieving unsold chocolates from distributors, whereas Mandy Lee put these items at around $40,000 and $60,000 respectively.

59. The parties were not able to agree on the actual quantity of chocolates physically returned to the Defendant by the distributors after Chinese New Year but the evidence of Mandy Lee was that the cost price of the chocolate returned to the Defendant was $200,000. Counsel for the Defendant drew my attention, in the course of his submissions, to the invoice for the first shipment of chocolate. This was an agreed document indicating the cost of the shipment to the Defendant was 138,367 Swiss Francs, which counsel said was the equivalent of about (HK) $440,000. On this footing, more than half the Defendant's chocolate must have been sold by the distributors.

60. Although there were 35,000 greeting cards supplied to the Defendant their role in the advertising campaign was clearly a minor one and the appearance and size of the cards indicate that the charge in respect of them must have been a modest part of the $64,864.00 (not the figure of $70,264.00 mentioned in the contract document) which the Plaintiff charged by its invoice dated the 4th February 1985 in respect of all the advertising materials. The 74 MTR posters measured about 10 feet by 4 feet and they and the trade magazine full page insertion, the 2500 promotion posters and 1200 promotion stands must have given rise to most of the production cost.

61. The Plaintiff's witnesses were unable to give any breakdown of the $64,864.00 charge. Doing the best I can in these circumstances conclude that a reduction of $2,500 in the production cost would be a reasonable amount to award in respect of the deficiency in the colouring of the cards. As regards the probable loss by the Defendant of prospective sales as a result of the diminution in the efficiency of the cards as advertising material, I consider, doing the best I can, that a figure of $2,000 would be a reasonable award of damages. This means that the Defendant is entitled to set off the sum of $4,500 against the Plaintiff's claim of $135,000. Accordingly there will be judgment for the Plaintiff for the sum of $130,500.

62. This is a case where the Defendant's allegations of breaches of contract arise in connection with the same subject matter as the Plaintiff's claim and where the amount of the damages claimed by the Defendant are the subject of a cross demand in his defence by way of set-off of part of the damages claimed and also of a cross demand by way of counterclaim for the residue of those damages that may be recovered in excess of the Plaintiff's claim after that has been eliminated by the amount of the set-off. In the event the amount of damages awarded to the Defendant has proved to be sufficient only to establish a partial set-off against the Plaintiff's claim. Accordingly the Defendant's Counterclaim fails and is dismissed.

63. The Plaintiff has claimed interest on the sum recovered by him. It seems to me that, in the light of the guidelines: laid down by the Court of Appeal in Komala Deccof & Co. S.A. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 and in the light of the prevailing minimum lending rate between the 4th March 1985 and the 31st March 1986, the Plaintiff is entitled to interest on the amount of the judgment from the 4th March 1985 (when payment became due on the invoice dated the 4th February 1985) to judgment at the rate of 9 per cent per annum. However the Defendant's counsel has not yet been heard on the question of interest and I will therefore leave the question of interest open until the delivery of this judgment which I will hand down in open court. I will deal with the question of costs at the same time.