Allied Supplies Limited ("Allied") specializes in the design and manufacture of protective clothing. In particular, it has developed a range of oversuits, "Safewear", specifically designed for use in scientific laboratories. Six months ago, Allied entered into a contract with Cover Ltd ("Cover") forthe supply of 500 Safewear suits at a price of HK$250,000.Of this, HK$50,000 was payable in advance with the remainder due in instalments following each delivery by Allied. The contract provided for the goods to be supplied in batches of 50 Safewear suits every month over a ten-month period.

So far five batches of Safewear suits have been delivered and paid for as agreed. The sixth batch was destroyed when the lorry carrying the Safewear suits from Allied to Cover caught fire.

Cover now claims that one of its staff in its research laboratory has developed a skin rash as a result of wearing the Safewear suits. Cover intends to cancel the remaining deliveries and return the unused suits. They are refusing to pay for the sixth batch of Safewear suits and are demanding a full refund of monies paid as well as compensation for the staff member who has developed the rash.

Allied have never had any other complaints about the Safewear suits, which were thoroughly tested during the development process.

Advise the parties of their rights and obligations.