Vita Food Products Inc. v. Unus Shipping Company Ltd. ((1939) 2AC 277)

Facts of the Case

The case involved a dispute over damaged cargo and hinged on whether the parties' express choice of English law was valid despite a mandatory local statute.

• Parties: Appellants (Vita Food Products, New York buyers) and Respondents (Unus Shipping Company, Nova Scotia carriers).

• Voyage and Contract: Herrings were shipped from Newfoundland to New York. The bills of lading contained two key provisions:

  1. An exemption clause relieving the shipowner from liability for loss due to the negligence of their servants.

  2. Clause 7, which stated the contract would be governed by English law.

• Statutory Requirement: The Newfoundland Carriage of Goods by Sea Act, 1932, required the Hague Rules to be incorporated into every bill of lading issued from a Newfoundland port. The bills in question failed to incorporate these rules.

• Damage: The ship ran ashore due to the captain's negligent navigation, damaging the herrings.

• Legal Argument: The appellants argued the failure to incorporate the Hague Rules made the bills of lading illegal and non-binding, thus nullifying the negligence exemption clause.

The appeal was heard before the House of Lords (sitting as the Privy Council).

Issue

1. Whether the failure to incorporate the Hague Rules, as required by the Newfoundland Carriage of Goods by Sea Act, 1932, rendered the bills of lading illegal and non-binding.

2. Whether the contract should be governed by English law, as expressly chosen by the parties, despite the contract's closest objective connection being to Newfoundland.

Rule

Party Autonomy in Choice of Law: The law governing a contract (the Proper Law of the Contract) is determined by the express intention of the parties, provided that the selection is bona fide and legal. The express choice of law will generally be effective, even if the selected law has no objective connection to the contract, unless its application would be contrary to the public policy of the forum state.

Held

The Privy Council affirmed the decision in favor of the respondents (Unus Shipping Company).

• Legality of Bills of Lading (Issue 1): The Court held that Section 3 of the Newfoundland Carriage of Goods by Sea Act, 1932, was directory and not mandatory. The omission to incorporate the Hague Rules, while non-compliant with the Act, did not automatically render the bills of lading illegal or void (null ab initio) within or outside Newfoundland. The bills of lading were therefore binding according to their terms.

• Express Choice of English Law (Issue 2): The Court found no sufficient reason to disregard the express intention of the parties as stated in Clause 7.

  • The choice of English law was upheld as bona fide and legal.

  • The application of English law (which, at the time, would give effect to the negligence exemption clause) was not contrary to public policy.

• Conclusion: Since English law governed the contract, and English law permitted the negligence exemption clause, the respondents were entitled to rely on the exemption clause to relieve themselves of liability for the captain's negligence.

Commentary

The Vita Food Principle of Party Autonomy

The Vita Food case is a landmark authority in the conflict of laws, strongly establishing the principle of Party Autonomy in the choice of contract law. It stands for the proposition that the express choice of a governing law will be upheld, even if that law has no factual connection to the transaction, provided two conditions are met:

1. Bona Fides and Legality: The choice must be genuine and not made merely to evade law (though evasion of a non-mandatory law might be permitted).

2. No Violation of Public Policy: The chosen law's application must not violate the fundamental public policy of the forum court.

Directory vs. Mandatory Statutes

The case hinged critically on the classification of the Newfoundland statute as directory rather than mandatory. If the statute had been mandatory (imposing a severe penalty or explicitly voiding any non-conforming bill of lading), the outcome might have been different, as the illegality might have violated the public policy of the forum and negated the parties' choice of law.

This case provides a historical contrast to later legislation, such as the UK's Carriage of Goods by Sea Act, which typically makes the application of the Hague-Visby Rules mandatory and non-derogable, thus restricting the scope of party autonomy in certain shipping contracts.