Contractual Uncertainty Amidst Global Unrest – English Court Reinforces Principles of Contractual Interpretation

Introduction

In the case of Briety Shipping Inc v Trafigura Maritime Logistics Pte Ltd [2026] EWHC 1714 (Comm), the English Commercial Court considered the proper interpretation of a clause in a charterparty agreement that determined the hire rate. The interpretation had financially acute consequences as the clause was linked to certain indices, and the respective values had been significantly affected by global events – in this case, the Russia-Ukraine invasion.

In reaching its decision, the Court reinforced the principles of contractual interpretation, applying them to the witness testimony and available factual evidence. The decision highlights the importance of clarity in contractual drafting, particularly in matters of international trade, against the relative uncertainty of global instability.

This Update provides a summary of the decision and highlights the key implications for contracting parties.

Brief Facts

The claimant, Briety Shipping Inc (“Briety“) (as Owners), and the defendant, Trafigura Maritime Logistics Pte Ltd (“Trafigura“) (as Charterers), had entered into a five-year liquefied natural gas (“LNG“) time charterparty (“TCP“). The TCP contained a hire clause (“Hire Clause“) that was the subject of the dispute.

Under the Hire Clause, the hire rate was to be calculated by reference to the formula “JKM-TTF”, and on the basis that the basic minimum rate payable by Trafigura to Briety (or “Floor“) would be US$50,000 per day; but hire payable would rachet up once the “JKM-TTF” is US$1.3 or more, with a maximum amount payable (or “Ceiling“) of US$145,000 per day. This floating Hire Clause was designed as a “trader minded profit sharing deal” based on peculiarities of the LNG market.

The reference to “JKM” was a reference to the Japan-Korea Marker, a spot price in Far East markets for LNG, whereas the reference to “TTF” was a reference to the Netherlands Title Transfer Facility, a spot price for LNG in European markets for LNG. Historically, the JKM would exceed the TTF so that when the TTF is deducted from the JKM (ie. JKM-TTF), the formula would yield a positive figure. This pattern reflected the LNG market arbitrage (“Arb“), where higher Asian LNG prices incentivised longer voyages and supported freight rates. However, for a part of the charter period, following Russia’s invasion of Ukraine in 2022, the TTF exceeded the JKM so that when the TTF was deducted from the JKM, a negative figure was yielded.

Trafigura argued that where the formula yielded a negative figure, charter hire was payable to Briety at the Floor rate. Briety contended that after applying the formula, whether the end result is a positive or negative number, so long as the difference (or spread) is an absolute figure in excess of US$1.3, an increased rate of hire should be payable by Trafigura to Briety. Trafigura disputed Briety’s construction of the Hire Clause and only arranged payment of hire on the basis of the Floor rate for the affected period.

Briety commenced proceedings against Trafigura before the English Commercial Court to recover allegedly outstanding hire payments and declaratory relief as to the claimed correct hire rate calculation basis. Alternatively, if Briety was wrong about its interpretation of the Hire Clause, Briety sought rectification of the TCP on the basis of common, alternatively, unilateral mistake.

The key dispute was whether the term “JKM-TTF Spread” operated in both directions, such that an increase in hire was triggered whenever the difference between JKM and TTF exceeded the contractual threshold regardless of which index was higher, or whether the formula operated only where JKM exceeded TTF. The Court accepted Trafigura’s interpretation, holding that the formula required TTF to be deducted from JKM. 

Decision of the English Commercial Court 

Construction of Hire Clause 

The Court dismissed Briety’s claim, preferring Trafigura’s interpretation of the Hire Clause. In coming to this decision, the Court applied principles of English law on the interpretation of contractual interpretation. Specifically, the court considered factual witness testimony from Briety and Trafigura on parties’ pre-contractual negotiations to establish facts known to both parties at the time the TCP was concluded.

In this regard, the Court gave close consideration to the commercial rationale behind the floating hire rate mechanism in the Hire Clause. In addition to considering factual witness testimony, the Court also heard from industry expert witnesses on various aspects of the LNG market operations and practice.

One important consideration was the impact of the Arb on freight costs. The Court found that it was well known to traders in the industry that the Arb tends to operate (i.e. is “open”) in the winter months when Asian demand for LNG rises significantly, causing prices payable in that region for the LNG to rise. So, when the Arb was open, there would be a general upwards pressure on spot freight rates. The “JKM-TTF” formula in the Hire Clause would reflect the operation of the Arb on spot freight rates – prior to the Russian invasion of Ukraine in February 2022, any reasonable owner and charterer would know that typically JKM prices would exceed TTF prices when the Arb was open, and even when it was not, TTF prices did not exceed JKM prices for sustained periods of time.

Against this backdrop, the Court preferred Trafigura’s reading of the Hire Clause, rejecting Briety’s construction which asked the Court to disregard negative values or to convert negative values into positive ones when applying the “JKM-TTF” formula. 

Rectification 

In the alternative, Briety sought rectification of the Hire Clause on grounds of common, or alternatively, unilateral mistake, so that the hire payable under the Hire Clause would be calculated based on the absolute value of the difference between the applicable JKM and TTF prices. The Court rejected both arguments. 

On the issue of common mistake, Briety argued that the parties’ objective common intention could be found objectively from the earlier Heads of Agreement (“HOA“) which was concluded between parties prior to the execution of the TCP. This argument was rejected by the Court which found that the HOA was not binding as the terms of the HOA contemplated a formal charterparty and left key pricing terms to be agreed. The Court also found that the factual witness testimony was consistent with contemporaneous documents which showed that parties intended for the Hire Clause to increase the hire when the Arb was sufficiently open and in no other circumstances. 

As to the claim on grounds of unilateral mistake, the Court found that Briety had not provided convincing proof or cogent evidence that it had the required subjective intention that the difference between JKM and TTF (whichever was greater) was to be seen as an absolute value so that hire would increase “both ways”. Amongst others, Briety could not point to a single document which contained or made reference to a positive intention based on absolute value, and the Court did not consider references to profit sharing were sufficient to give rise to such an intention. The requisite intention was also not established based on Briety’s factual witness evidence.

Conclusion

In view of growing global uncertainties, it is important not to take historical pricing information for granted especially when relying on such information to negotiate long-term contracts. A conservative approach which considers all scenarios, including the most unlikely ones, would be prudent. As is apparent from this decision, English law places great emphasis on the language used in contracts, and any party seeking assistance from the English court to apply a gloss in the interpretation of contractual provisions – especially where a bespoke pricing mechanism has yielded unexpected results – will find itself embroiled in an uphill battle. It is thus of utmost importance to ensure that contractual provisions are not only clearly drafted but also thoroughly considered.

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