In Briety Shipping Inc v Trafigura Maritime Logistics Pte Ltd [2026] EWHC 1714 (Comm), the High Court held that a bespoke hire rate formula for an LNG time charterparty did not entitle the owner to additional hire when the relative value of the reference indices inverted as a consequence of the Russia-Ukraine invasion. The decision provides important guidance on the construction of index-linked and formula-based pricing clauses in shipping and commodity contracts, and on the evidential hurdles in rectification claims.

Background
In July 2020, Briety Shipping Inc as owners (“Briety”) and Trafigura Maritime Logistics Pte Ltd as charterers (“Trafigura”) entered into a five-year charterparty (the “TCP”) for an LNG carrier. The TCP was governed by English law and daily hire was determined under clause 10 by a formula linked to what the TCP defined as “the JKM-TTF Spread”, as opposed to a fixed rate. The JKM-TTF Spread was the average difference between the Platts LNG Japan-Korea Marker (the “JKM”) and the Netherlands Title Transfer Facility (the “TTF”) gas price each month. The basic minimum rate of hire was a floor of US$50,000 per day. However, where the JKM-TTF Spread exceeded US$1.3/MMBtu, hire rose incrementally from the floor to a ceiling of US$145,000 per day. The bespoke formula was designed to capture the LNG market phenomenon (known colloquially as “the Arb”) whereby, when the JKM sufficiently exceeded the TTF to outweigh the freight costs of a longer journey to Asia, traders of flexible Atlantic Basin LNG cargoes would be incentivised to divert their trading from Europe to a market further away in the Pacific Basin, such as Asia.

At the time the TCP was entered into, the JKM was usually higher than the TTF, which would normally mean that the JKM minus the TTF across a monthly average resulted in a positive spread and thus a positive number. However, from February 2022, the markers inverted such that the TTF exceeded the JKM. This produced a negative spread on a monthly average, which coincided with the European gas supply disruption following the Russia-Ukraine invasion.

The parties’ arguments
Briety argued that while the JKM-TTF Spread was calculated by deducting TTF from JKM, the resulting figure should be treated as an absolute value, such that a negative spread would trigger an increase in hire above the US$1.3 threshold. Briety justified this premise, in part, on an argument that the word “spread” is expressed as a positive number (i.e. whether the result is +/- US$1.5, the “spread” would be US$1.5 either way). It further contended that clause 10 had a wider purpose than reflecting “the Arb”, arguing that it was also designed to capture a “reverse arbitrage” reflecting a profit-sharing rationale and a proxy for spot freight rates. Briety sought payment by Trafigura of a US$29.3 million hire shortfall and declaratory relief for the charterparty hire calculation. In the alternative, it sought rectification for common or unilateral mistake.

Trafigura agreed that the calculation to perform is to deduct TTF from JKM but argued that, should that deduction result in a negative figure, that does not lead to an increase in price above the floor because a negative figure cannot, by definition, be US$1.3 or indeed any figure above zero. Trafigura contended that there was nothing in the TCP language mandating an unstated “absolute value” conversion. Trafigura argued that clause 10 was designed to reflect “the Arb”, relying on the parties’ knowledge of this phenomenon at the time of the TCP and disputed that any “reverse arbitrage” existed. Trafigura further relied on the fact that Briety’s own brokers had invoiced hire on the floor rate for much of the disputed period. Trafigura sought to rely on this construction, and raised a counterclaim for rectification and estoppel by convention, and pleaded a contractual time bar for unpaid hire fees due as from September 2022.

Decision

The Court found for Trafigura on construction and dismissed Briety’s claim.

In reaching this conclusion, the Court relied on well-established principles of contractual interpretation. Looking firstly at the language of clause 10, the Court found that the clause expressly provided for TTF to be “deducted” from JKM to create “a daily spread”, the “spread” being a definition simply tied to this calculation. The Court therefore concluded that this mechanism for calculating the spread would produce a straightforward result, regardless of whether the result was positive or negative, and there was no contractual requirement for a negative figure to be converted into an absolute one.

The Court also rejected all of Briety’s subsidiary arguments, as follows:

1. that the averaging exercise would be “meaningless” without absolute values on the basis that a net average also had its own commercial logic. Specifically, the Court agreed with Trafigura’s argument that it would make sense to average out both positive and negative values in volatile periods where TTF might be greater than JKM and vice versa, to see whether there is an overall positive number which exceeds the US$1.3 trigger;
2. that the starting point of hire rates being zero (as provided by the “Table of Hire Rate” in the TCP) supported an absolute-values only reading. There was no need to state numbers which were below the US$1.3 trigger; and

iii. that the absence of express language that Briety would only benefit where JKM was greater than TTF was a significant factor. The contractual language made clear the parties’ intention and it would not be “commercially improbable” for the underlying benefit to Briety to only be confined to this “one way bet”.

On the TCP itself, the Court found that the factual and expert evidence sufficiently demonstrated that both parties knew at the time of contracting that the purpose of the clause 10 formula was solely to give effect to the Arb as the hire-rate mechanism. The formula specifically contemplated that the JKM would exceed TTF, and therefore there was no “reverse arbitrage” (where TTF exceeded JKM would similarly cause increased freight rates) that would support a “two-way profit-share” reading. The judge concluded that whilst the calculation clause did address the eventuality of TTF exceeding JKM, it simply resulted in a negative figure and hire remained at the floor. In light of the Court’s findings, it did not go on to determine Trafigura’s estoppel by convention counterclaim.

The judge then turned to Briety’s rectification claims, both of which failed. On common mistake, the judge held that the Heads of Agreement drawn up between the parties prior to contract signing was not a binding contract and, even if it were, it did not clearly express an “absolute value” mechanism.

The subsequent negotiation and agreement of the TCP, along with its entire agreement clause, showed the parties intended the TCP to supersede the Heads of Agreement. The judge also rejected the common intention argument, finding that Trafigura had always intended clause 10 to operate only in respect of the open Arb, and that Briety had not demonstrated with convincing evidence a shared common intention to the contrary. On unilateral mistake, the judge found that Briety had not proven its own subjective intention and, in any event, Trafigura’s negotiator did not know of, nor was reckless as to, any such mistake.

Finally, on the time bar, the judge held, obiter, that the twelve-month limitation period in the TCP ran from the date each monthly payment fell due, not from the resolution of any dispute relating to rates, meaning part of Briety’s claim would in any event have been time barred.

Key takeaways
The decision is notable as one of the first reported English judgments to construe a bespoke LNG-linked charter hire formula and provides important guidance for practitioners advising on index or formula linked pricing in shipping and commodity contracts.

1. Formula-based pricing clauses will be construed according to their stated mechanics
   A party cannot, in hindsight, import an unstated mathematical step merely by invoking a general label such as “spread” or “profit share”, particularly where that label is a defined term tied to a specific calculation. The court will interpret the ordinary meaning of the language, and drafters of bespoke pricing formulas should ensure that every intended step in the calculation is expressly stated, leaving no room for a counterparty to argue for additional, implied operations.
2. Pre-contractual negotiations and the factual matrix remain important interpretive tools
   Although pre-contractual negotiations are not generally relied upon to provide meaning of a concluded agreement, evidence of the surrounding circumstances, such as commercial discussions, correspondence and meetings were used to establish the parties’ shared knowledge and therefore the shared “genesis and aim” of a novel pricing mechanism. Parties negotiating bespoke commercial terms should be conscious that courts may use such evidence to determine the boundaries of a formula’s intended operation.
3. Rectification remains a steep climb where a detailed contract supersedes earlier heads of terms
   Where a short, non-binding heads of agreement is followed by extensive further negotiation culminating in a detailed contract containing an entire agreement clause, a claim to rectify the final contract by reference to the earlier document faces high evidential obstacles.

Source: Norton Rose Fulbright by Anna De Freitas