Shanghai Shenhe Import and Export Co., Ltd v Itochu Commercial Co., Ltd of Japan

Abstract

In March 1996, the Nanjing Office of Itochu Corporation of Japan (hereinafter referred to as Nanjing Office) negotiated with Jiangyin Jiangcheng Chemical Raw Material Company of Jiangsu Province (hereinafter referred to as Jiangcheng Company) for Jiangcheng Company to import styrene from Nanjing Office. Jiangcheng Company entrusted Shanghai Shenhe Trading Company (known as Shanghai Shenhe Import and Export Co., Ltd. after restructuring in 1998, hereinafter referred to as Shenhe Company) with the right to operate the import and export business. On April 2, 1996, Shenhe Company and Nanjing Office signed the JHI9605 purchase and sales contract. According to the contract, Nanjing Office will supply 1500 tons of styrene produced in Japan or South Korea to Shenhe Company; the unit price is US$650 per ton CFR Jiangyin (cost and freight, the port of destination is Jiangyin), and the total payment is US$975,000; payment shall be made by irrevocable usance letter of credit 90 days after the date of bill of lading; specification: polymer 10 ppm max, polymerization inhibitor 15–20 ppm, etc. The goods arrived at Jiangyin Port, China on April 24, 1996. On May 24, 1996, the content of polymerization inhibitor was inspected by the Commodity Inspection Bureau, and the evaluation conclusion was that the content of polymerization inhibitor of the goods did not meet the contract requirements. The Japanese commodity inspection report also made it clear on the quality of styrene supplied by Nanjing Office that “the commodity inspection sample is from shore tank, and the content of polymerisation inhibitor is 12.5 ppm.” In this regard, Jiangcheng Company sent letters to Nanjing Office on 15 May, 21 May, and 24 May of the same year, asking for negotiation. Nanjing Office replied to Jiangcheng Company on 17 May, 24 May, and 28 May, saying that the content of polymerization inhibitor meets the contract requirements and there is no quality problem. On 30 May, Jiangcheng Company added 11.8 kgkg of polymerization inhibitor to the storage tank at the request of Nanjing Office. On July 24, 1996, Shenhe Company paid Nanjing Office US$974,840.10 (equivalent to RMB 8,120,223.06 according to the foreign exchange rate on that day) on behalf of Jiangcheng Company, and paid import tariff and value-added tax of RMB 2,233,233.17. From June to September 1996, Jiangcheng Company and Nanjing Office negotiated on the risk transfer of goods, the quality of goods, and the amount of compensation, but no agreement was reached.