Lord Strathcona Steamship Co v Dominion Coal Co [1926]

Court: Privy Council

Facts: Dominion Coal Co purchased a ship subject to a charterparty, of which they had knowledge but chose not to honor. The charterer, Lord Strathcona Steamship Co, sought an injunction to prevent Dominion Coal Co from using the ship in a way that was inconsistent with the charterparty's terms.

Issue: Whether a negative contractual obligation in a charterparty can be enforced against a third-party purchaser with notice through an injunction.

Held: The Privy Council granted the injunction in favor of Lord Strathcona Steamship Co. It was held that even though specific performance could not be granted, an injunction could be issued to enforce the negative covenant in the charterparty against Dominion Coal Co.

Key Judicial Statement - Lord Shaw: The court can issue an injunction based on a negative covenant in a contract, even if it applies to a third party who has notice of the contract. A purchaser with knowledge of the charterparty's terms assumes the role of a constructive trustee and is bound by those obligations. Equity will not allow the purchaser to violate the terms of the charterparty.

💡 Leveluplaw: This case demonstrates how equity can enforce negative contractual obligations against third-party purchasers who have notice of existing contracts. It highlights the role of constructive trust principles in contract law. However, it's important to note that this case was later overruled by Port Line Ltd v Ben Line Steamers Ltd [1958], which altered the approach to enforcing such obligations against third parties. This evolution reflects the dynamic nature of contract law and underscores the need for careful consideration of contractual rights and obligations, especially when dealing with third-party purchasers