Lord Strathcona Steamship Co v Dominion Coal Co [1926]

Lord Strathcona Steamship Co v Dominion Coal Co [1926] AC 108, also simply referred to as The Strathcona [1926], presented a situation where the court addressed the enforceability of a negative contractual obligation on a third-party purchaser with notice. The subsequent case of Port Line v Ben Line [1958] overruled the principles established in Lord Strathcona Steamship Co.

Dominion Coal Co purchased a ship that was subject to a charterparty. Importantly, Dominion Coal Co had knowledge of the charterparty but chose not to honour its terms. The charterer, Lord Strathcona Steamship Co, sought an injunction against Dominion Coal Co to prevent the latter from using the ship in a manner inconsistent with the obligations set forth in the charterparty.

The Privy Council, in rendering its decision, granted the injunction in favour of Lord Strathcona Steamship Co Lord Shaw, delivering the opinion, articulated the rationale behind the court's decision. Lord Shaw expressed the view that the court could issue an injunction based on a negative covenant, whether explicitly stated or implied in the charterparty. However, specific performance could not be granted in this context.

Lord Shaw's reasoning rested on the principle that if an individual acquires rights in a ship from another party, with notice of specific rights that necessitate the ship's use for a particular purpose and prohibit inconsistent use, then that individual essentially assumes the position of a constructive trustee. As a constructive trustee, equity would not permit the violation of such obligations.

It is important to note that the principles established in Lord Strathcona Steamship Co were later overruled in Port Line v Ben Line. The evolution of legal precedent reflects the dynamic nature of contract law and the ongoing development of doctrines related to third-party rights and obligations.
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