The appellants, based in New York, purchased consignments of herrings from the respondents, a Nova Scotia corporation.
The herrings were shipped from Newfoundland to New York under bills of lading issued by the respondents.
The bills of lading contained a general exemption clause for loss or damage due to the negligence of the shipowners' servants.
They did not incorporate the Hague Rules as mandated by the Newfoundland Carriage of Goods by Sea Act, 1932.
Clause 7 of the bills of lading stated that the contract would be governed by English law.
During the voyage, the ship encountered bad weather, ran ashore, and eventually the herrings were unloaded at Guysboro and forwarded to New York in a damaged condition.
It was admitted that the damage was due to the captain's negligent navigation.
Legal Arguments:
The respondents contended they were exempt from liability due to the exemption clause in the bills of lading or under the Carriage of Goods by Sea Act, 1932.
The appellants argued that the non-compliance with the Act rendered the bills of lading illegal, and thus, the respondents should bear the liabilities of a common carrier.
The Supreme Court of Nova Scotia en Banc's decided in favour of respondent.
The present appeal before the House of Lords is against the judgment of the Supreme Court of Nova Scotia.
ISSUE
Whether the omission to incorporate the Hague Rules as required by the Newfoundland Carriage of Goods by Sea Act, 1932, made the bills of lading illegal and non-binding.
Whether the contract should be governed by English law as specified in the bills of lading, despite the Newfoundland statute.
RULE
The intention expressed by the parties determined the proper law of contract and generally superseded every presumption, especially if application of the foreign law was not contrary to public policy; and the choice was bona fide and legal.
HELD
The Court held that section 3 of the Newfoundland Carriage of Goods by Sea Act, 1932, which required the incorporation of the Hague Rules in bills of lading, was directory and not mandatory.
The failure to comply with this section did not render the bills of lading illegal within or outside Newfoundland.
The bills of lading were considered binding according to their terms, including the exemption clause for negligence.
The respondents were, therefore, entitled to rely on these terms to exempt themselves from liability.
The Court found no sufficient reason to disregard the express intention of the parties that English law should govern the contract.
The proper or substantive law of the contract was determined to be English law.
The Supreme Court of Nova Scotia en Banc's decision was affirmed, holding that the respondents were not liable for the damages to the appellants' herrings.
COMMENTARIES NOTE
[75.083] Express choice of the proper lawWhere the parties at the time of making a contract have expressly stipulated that the contract is to be governed by a particular law, that law is the proper law of the contract. The selection must be bona fide and legal and there must be no reason for avoiding the choice on the grounds of public policy. Where a law is expressly chosen to evade the provisions of the legal system with which the contract, objectively, is connected, that choice will still probably be effective. Even if the parties have expressly selected as the proper law a legal system with which the contract has no real connection, effect will probably be given to their choice.
However, if the express choice of law clause is meaningless, then the court will disregard it and determine the proper law according to the inferred or implied intentions of the parties.
Where the parties choose the applicable law of arbitration under a contract, but not the seat, it may be inferred that the arbitration is to be conducted in the country of the applicable law.