This was an appeal from the Supreme Court En Banc (Canada) by Vita Foods Products Inc (Vita) against Unus Shipping Co Ltd (Unus) for a claim for damages in respect of a consignment of herring. The herring was shipped on board the Hurry On (the ship) at Middle Arm, Newfoundland, on 15 January 1935 for carriage to New York.

Due to the negligence of the master, the ship ran aground during the voyage. The herring was unloaded and forwarded on another ship to New York, where it was received by Vita in a damaged condition.

Vita brought an action in Nova Scotia (where the ship was registered). The bills of lading were not in conformity with the provisions of the Newfoundland Carriage of Goods by Sea Act 1932 (the Newfoundland Act) which incorporated the Hague Rules. The Hague Rules provide that any clause or agreement relieving the carrier from the liability for negligence imposed by the rules is void. The bills of lading provided the carrier with an exemption from liability for damage due to the negligence of the shipowners' servants at or after the commencement of the voyage and a further term was: 'This contract shall be governed by English law.' There was a further provision that in the case of a shipment from the United States, the Harter Act 1893 should apply and that save as provided, the bill of lading was subject to the terms of the Canadian Water Carriage Goods Act 1910 which applied to shipments from Canadian ports. General average was to be settled according to the York-Antwerp Rules 1924.

Vita contended that as the Newfoundland Act had not been complied with, these exceptions did not avail Unus, and they were thus subject to the liabilities of common carriers. This contention was rejected by the Supreme Court, which further held that if the bills of lading were illegal, the parties were in pari delicto and the action must fail.

Vita appealed to the Privy Council.

Held: Appeal dismissed.

The Hague Rules are given the force of law by the Newfoundland Act, and are set out in the Schedule to that Act. In the United Kingdom, the Hague Rules are given effect by the Carriage of Goods by Sea Act 1924 (UK). The Hague Rules have been adopted by certain foreign States, including the United States, Australia, Canada, and New Zealand. They confer rights and immunities, and also impose liabilities upon the shipowner. These are liabilities the shipowner cannot escape, because art 3.8 of the Rules avoids any clause or agreement relieving the carrier from the liability for negligence imposed by the rules or lessening that liability. The Hague Rules only apply where a bill of lading is issued, and there is no requirement on the carrier to issue a bill of lading save on demand of the shipper.

Comparing the bills of lading and the Hague Rules, they agree in substance in respect of relevant matters, namely, liability in respect of negligence and unseaworthiness. In some respects the Hague Rules go beyond what is contained in the bills of lading by providing that the carrier is to be released from liability if suit is not brought within one year after delivery has been or should have been made. In other respects, the bills of lading contain provisions which are outside the scope of the Hague Rules. The bills of lading are documents of title which define the contractual voyage and provide for general average and the obligation to deliver the goods. The bills of lading expressly stipulate that the proper law of the contract is English law.

The bills of lading were not illegal and must be accepted as valid documents by the courts of Nova Scotia. Section 1 of the Newfoundland Act provides for the application of the Hague Rules to every bill of lading for the carriage of goods by sea in ships from any port in Newfoundland to any other port. Vita contended that since s 1 only provided that the Hague Rules had effect 'subject to the provisions of this Act', the Hague Rules could not apply to a bill of lading unless the terms of s 3 were complied with. Section 3 provides:

Every bill of lading or similar document of title issued in this Dominion which contains or is evidence of any contract to which the [Hague Rules] apply shall contain an express statement that it is to have effect subject to the provisions of the said rules as expressed in this Act.

This is not how their Lordships construe s 1. The words 'subject to the provisions of this Act' merely mean in this connection that the Hague Rules are to apply, but subject to the modifications contained ss 2, 4, 5 and 6(3) of the Newfoundland Act. To read these word as meaning that the Hague Rules are only to have effect if the requirements of s 3 are complied with, would put an unnecessarily wide interpretation upon them, instead of the narrower meaning which is more natural and obvious.

To hold that the Hague Rules are not made part of the contract unless there is an express clause in the contract stating that they are to apply as provided in s 3, and to hold that the bills of lading were not legal and effective documents without such a clause, would frustrate the purpose of the Hague Rules, which aims at an obligatory unification of bills of lading all over the world, at least so far as particular nations adopt them.

The Newfoundland Act does not in terms provide that the bill of lading is to be deemed illegal and void merely because it contravenes s 3 of the Act, nor does it impose penalties for failure to comply with s 3, nor does it in express terms prohibit failure. There is nothing to prevent a contract of sea carriage in respect of which there is no bill of lading at all.

The inconveniences that would follow from holding bills of lading illegal in such cases as that in question are very serious. A foreign merchant or banker could not be assumed to know or to inquire what the Newfoundland law is, at any rate when the bill of lading is not expressed to be governed by Newfoundland law and still less when it provides that it is governed by English law. It would seriously impair business dealings with bills of lading if they could not be taken at their face value and as expressing the relevant terms of the contract.

The omission of a clause paramount does not make the bills of lading illegal documents in whole or in part. Section 3 is directory; it is not obligatory. The bills of lading are binding according to their terms, and consequently Unus is entitled to succeed in its defence.