QUESTION 1 (40 MARKS) Your answers to Question 1 should focus on the sale of goods law and topics of this course. Refer to relevant legal authorities to support your answers. Do not consider misrepresentation, negligence or frustration of contract in your answers. Your answers to Question 1 MUST be structured using the IRAC* method as explained during the course. ( IRAC: Issues, Rules, Application and Conclusion) Mega Toys Limited (MTL) is incorporated in Hong Kong and carries on a toy distribution business, selling toys to retailers in Hong Kong. Simon is a manager of MTL and looks after the day-to-day affairs of MTL. Although Simon was not appointed as a director of MTL, to speed up the ordering process, it was agreed that Simon could place replacement orders for MTL but could not place new orders for MTL. In other words, for existing inventories, Simon can place order to replenish them if the stock level is low. However, for new inventories, director approval was required. One day, Henry from Top Games Limited (TGL), contacted Simon to tell him about a brand new product that will be available in Hong Kong soon. It was a Virtual Reality (VR) headset with which children can play online multi-player adventure games together. Henry said that the toy was a hit in the US and Europe, and will likely be the top selling item in 2022. Since MTL was a major customer of TGL, Henry was willing to accept advance orders from Simon. Henry also asked Simon whether he would like to order more roller skates for children to avoid running low in stock. Simon asked Henry to send two VR headsets and two pairs of roller skates to him for inspection. Henry sent two VR headsets to Simon for checking together with an order form (Special Order) which must be returned within 2 days to receive some of the VR headsets from the first shipment. Henry also sent two pairs of roller skates to Simon together with the standard order form (Normal Order). Simon asked two of his staff to try the VR headsets and roller skates to see if they were suitable for selling. Both staff inspected the roller skates and they appeared to be fine. They then tested the VR headsets by playing online games with them for about an hour. Both staff were excited about the VR headset and believed it would be the next hot item. Simon was happy to hear about this as business had been poor in the past few months, and the VR headsets would likely boost business for MTL. Simon immediately signed the Special Order to order 1,000 sets of the VR headsets (HK$500 each) and returned the form to Henry by fax. Simon also signed the Normal Order to order 100 pairs of roller skates (HK$200 each) and returned the form to Henry by fax. Henry called Simon to acknowledge receipt of the Special Order and the Normal Order from MTL, and said he would arrange delivery as soon as possible. One week later, Henry called Simon to inform him that some of the VR headsets have arrived and they can deliver 100 VR headsets to MTL. He also said that the 100 pairs of roller skates can be delivered as well. Simon asked Henry to arrange to deliver the roller skates to MTL,and to deliver the VR headsets directly to Hot Toys Limited (HTL), a customer of MTL. Henry arranged the deliveries on the same day. Simon submitted the payment applications to pay for the VR headsets and the roller skates. The board of directors questioned why Simon did not seek their approval before placing the new order for the VR headsets. They refused to approve the payment for the VR headsets and insisted Simon return the VR Headsets to TGL since he was not authorized to make new orders. Simon immediately contacted HTL requesting the return of the VR headsets, but HTL informed Simon that they have already received orders from their customers. (a) Explain whether MTL can cancel the Special Order with TGL and whether HTL is required to return the VR headsets to MTL under the Sale of Goods Ordinance (Cap 26) (SOGO). (13 marks) Assume that MTL cannot cancel the Special Order, that HTL was not required to return the VR headsets to MTL, and that TGL subsequently delivered the remaining VR headsets to MTL. MTL received a solicitor's letter sent on behalf of Quantum Technology Limited (QTL), informing MTL that the VR headsets incorporated a patented technology owned by QTL, requesting MTL to cease and desist from selling the VR headsets unless it paid royalties to QTL. Simon immediately called Henry, who insisted that QTL's patent application was not approved until recently. So, there was no problem with the Special Order which was concluded before the patent was granted. (b) Explain whether MTL can reject the VR headsets delivered by TGL under SOGO. (12 marks) A customer complained about the roller skates as the wheels fell off when used by some of the children. Since the roller skates were the newly ordered ones under the Normal Order, Simon called Henry to complain about the problem and demanded a full refund from TGL. Henry admitted that the roller skates were sourced from a new supplier, but he insisted that they were fine at the time of delivery. Henry reminded Simon that he had sent two pairs of roller skates for his inspection before he received the Normal Order from Simon. He insisted that he will not refund the money to MTL. It was subsequently discovered that the roller skates from the new supplier used poor quality materials which may break after continued use. (c) Explain whether MTL can reject the roller skates delivered by TGL under SOGO. (15 marks)