LNG charterparty hire formula: Meaning of JKM–TTF pricing spread

In Briety Shipping Inc v Trafigura Maritime Logistics PTE Ltd [2026] EWHC 1714 (Comm) the Commercial Court dismissed a USD 29m claim for unpaid hire under an index-linked time charterparty, holding that a pricing formula based on the “spread” between two LNG indices (JKM and TTF) operated in one direction only.  Although the issue turns on the specific words of the contract, it is a significant decision for the LNG and commodities shipping markets with implications for drafting charterparties that are index-linked.

Facts

The claimant, Briety Shipping Inc (“Briety”), owns the LNG carrier “TENERGY,” which was chartered to the defendant, Trafigura Maritime Logistics Pte Ltd (“Trafigura”), under a five-year time charterparty dated 21 July 2020 (the “TCP”).  The vessel was delivered on 12 January 2022.

Clause 10 of the TCP set the daily hire rate by reference to the spread between two LNG price indices: the Platts Japan-Korea Marker (“JKM”, the Far East spot price) and the Netherlands Title Transfer Facility (“TTF”, the European spot price).  Under the formula, a minimum ‘floor’ rate of USD 50,000 per day applied, which increased once the ‘JKM–TTF spread’ reached USD 1.3/MMBtu or more, up to a ‘ceiling’ of USD 145,000 per day.

In relevant part, Clause 10 said: 

“C) JKM minus TTF Rate

The Hire Rate shall always be subject to a minimum Floor of US$ 50,000 (US$ fifty thousand) ("the Floor") and a maximum Ceiling of US$ 145,000 (US$ one hundred and forty five thousand) ("the Ceiling").The Hire Rate for month M shall be calculated in accordance with this clause and as set out in the table below, always subject to the Floor and Ceiling as applicable (inclusive). It is based on the monthly average of the daily differences in the spread between JKM and TTF as defined in Clause D below ("the JKM-TTF Spread"):

i. If the JKM-TTF Spread is equal to or less than $1.300 per mmBTU then the Hire Rate shall be US$ the Floor.

ii. For every full 0.010 increase in the JKM-TTF Spread above $1.300 per mmBtu and up to $5.300 per mmBTU, the Hire Rate shall be increased by US$ 242.5 (US$ two hundred forty two and fifty cents). The full table of applicable hire rates can be found in Appendix J.

iii. If the JKM-TTF Spread is equal to or more than $5.300 per mmBTU then hire Rate shall be the Ceiling.

D) [B] JKM — TTF Spread

The JKM — TTF Spread for any calendar month M, where M is the month for which hire is due shall be calculated as follows:

(1) Calculate JKM as per Step 1 below for each applicable Pricing Day;

(2) Calculate TTF as per Step 2 below for each applicable Pricing Day;

(3) Calculate the difference between JKM and TTF values as per Step 3 below for each applicable Pricing Day;

(4) Calculate the arithmetic average of all the values in (3) above as per Step 4

Below All intermediate calculations shall not be rounded and the final daily JKM-TTF Spread calculation shall be rounded to four (4) decimal places.

Pricing Day; is every day during the Assessment Period on which both the quotations of Month M are published by the Intercontinental Exchange at http://data.theice.com and

JKM is published in Platts LNG Daily.

Step 1: Calculation of JKM

…..

Step 2: Calculation of TTF

.….

Step 3: Calculate the difference between JKM and TTF For Each day where both JKM and TTF have a quote/publication the TTF quote shall be deducted from the JKM publication creating a spread "daily spread"

Step 4: Calculate the arithmetic average

…..”

In addition, the “Claim Validity Period” Clause said:

“Any claim for breach of the speed or performance warranties must be brought within six (6) months of the end of the relevant Performance Period. Any other claims arising under this charter must be brought within the earlier of;

...12 months of the event that gives rise to such claim, or

...6 months of the termination of the charter period, excluding always indemnities arising under or in connection with Bills of Lading issued under the Charter.”

Historically, JKM typically exceeded TTF (the pricing data showed that TTF exceeded JKM on only 3.7% of pricing days between 2015 and 2021).  This reflects an established phenomenon in the LNG market referred to as “the Arb”— where owners of flexible Atlantic Basin LNG cargoes, that is to say cargoes of LNG from the USA not earmarked for one particular destination only, would be incentivised to divert their trading from the closest available major import market (namely Europe), to a major import market much further away in the Pacific Basin (Asia, and predominantly Far East destinations), when JKM sufficiently exceeded TTF to outweigh the additional freight costs of the much longer (round) trip to Asia. It was known by traders in the LNG market that when the Arb was open, it typically caused upwards pressure on spot freight rates.  This is because there would be a reduced supply of LNG carriers available to hire, because more of them would be tied up on longer voyages, both to discharge their cargoes and then to return in ballast to the US to collect the next cargo.  In this way, there would be a correlation between an increased price margin as between JKM and TTF on the one hand, and increased freight rates on the other.

The central dispute between the parties was what the term “the JKM-TTF Spread” meant.  The parties agreed that TTF should be subtracted from JKM but disagreed whether a negative number could trigger the hire rate increase in circumstances where TTF exceeded JKM.  In short:

1. Briety argued that “JKM–TTF” should be read as an absolute value: whenever the spread in either direction reached USD 1.3 or more, the increased hire rate was triggered—including where TTF exceeded JKM.  In this regard emphasis is placed on the use of the word “spread” in Clause 10.
2. Conversely, Trafigura argued that only a positive JKM-minus-TTF figure of USD 1.3 or more triggered the increase; should that deduction result in a minus figure, that does not lead to an increase in price above the floor because a minus figure, cannot, by definition be USD 1.3 or indeed any figure at or above zero.

Due to an unprecedented period in which TTF exceeded JKM—driven principally by the impact of the Ukraine war on European gas markets from January 2022 to February 2023, and briefly in late 2023—Briety claimed a hire shortfall of approximately USD 29.3m.  Trafigura had paid only the floor rate during those periods, consistent with its own construction (and, notably, consistent with the basis on which Briety’s own invoices had been calculated at the time).

In addition to the foregoing the following issues arose: 

1. Rectification: In the alternative, Briety advanced rectification claims (common and unilateral mistake), contending the TCP should be rectified to give effect to a two-way/absolute-value formula. 
2. Time Bar and estoppel: Trafigura raised a 12-month contractual time-bar defence and estoppel by convention.

Decision

Contractual interpretation

The Commercial Court adopted Trafigura’s construction that Clause 10 of the TPC produced a negative number, such that the adjustment should be zero. 

Applying the established principles summarised by Popplewell J in The Ocean Neptune [2018] EWHC 163 (Comm) (drawing on Investors Compensation Scheme, Chartbrook, Rainy Sky, Arnold v Britton and Wood v Capita Insurance Services [2017] UKSC 24), the Commercial Court found:

(1) Language: The formula involved a simple deduction exercise (JKM minus TTF).  Step 3 expressly required “the TTF quote shall be deducted from the JKM publication creating a spread ‘daily spread’”.  There was no basis for converting a negative result into an absolute value.  The word “spread” was a defined, context-specific term tied to that deduction and did not necessarily imply a bidirectional concept.

(2) Factual matrix: Admissible background confirmed that both parties knew of, and intended Clause 10 to give effect to, “the Arb”— the one-way arbitrage phenomenon in which JKM exceeds TTF—rather than a broader “reverse arbitrage,” profit-share, or freight-rate proxy purpose alleged by Briety.

(3) The USD 1.3 trigger: The threshold was derived from Briety’s “voyage calculator” comparing shipping costs, which was admissible as part of the factual matrix available to both parties.  The calculation was based on the shipping cost of Europe to Japan which cost could also have been calculated by comparing the cost of a US-Europe voyage, with a Europe-Japan voyage.  That was inconsistent with Briety’s case as to a two way spread.

(4) Headings: Clause 47 (b) of the TCP provided that headings are included for convenience of reference and should in no way affect its construction.  Notwithstanding, a heading could be used simply to corroborate the interpretation of the provision to which it relates.  That was the case here where the heading “JKM minus TTF Rate” was consistent with Step 3 above.  

(5) Pre-contractual negotiations: The Commercial Court confirmed that pre-contractual negotiations are inadmissible to interpret the concluded contract (Chartbrook; Merthyr (South Wales) Ltd v Merthyr Tydfil CBC [2019] EWCA Civ 526, per Leggatt LJ), save for limited purposes such as establishing facts known to both parties and to elucidate the general object of the contract.  Here there was relevant evidence that elucidated the object of the contract.

Change of circumstance argument

Notwithstanding there was a change of circumstances in that the usual spread was inverted, it was not a circumstance where the law would intervene.  The fact that there was an unexpected and unforeseen position arising in 2022 where for some of that year, TTF exceeded JKM (so that the hire payable under Clause 10 remained at the Floor) and yet spot rates were higher than the Floor, was irrelevant.  That is because the formula was limited to giving effect of the Arb and the Arb alone.

That is different to situations such as Standard Chartered v Guaranty [2024] EWHC 2605 (Comm) where LIBOR ceasing to be published in a long-term contract which “… support an approach which, when a contract is required to be performed in (non-frustrating) circumstances which the parties did not foresee and for which they did not provide” and the court “seeks to ascertain the purpose or structure of the relevant aspects of the parties’ bargain, and to adopt an interpretation which best serves or is most consistent with that purpose in the changed circumstances: in effect, a form of contractual cy-près..” through the use of an implied term. 

The approach in Standard Chartered, as well as cohering with the intentions of reasonable parties to long-term contracts, gives effect to an important policy of English contract law which is reluctant to contemplate the failure of partly executed contracts merely because they do not address a particular circumstance or eventuality which has come to pass.  However, there was no risk of contractual failure here. 

Rectification

Having lost on construction, Briety’s alternative rectification claims were considered and dismissed. 

Time-bar

Although academic given the dismissal of the substantive claims, the Commercial Court decided that a 12-month contractual time-bar would in principle have applied to bar part of Briety’s claim (reducing recoverable sums to approximately USD 14.8m).  Briety argued first that the claims governed by the 12-month limitation period were confined to damages claims, on the basis that claims for breach of speed or performance warranties would also be damages claims.  However, there was nothing in that point.  The words “Any other claims arising under this charter” were entirely unqualified.  Moreover, if Briety was correct here, there would be no applicable limitation period for unpaid hire claims which would be commercially absurd.

Comment

The Commercial Court decision is lengthy and covers substantial ground.  Notwithstanding, there are some potentially useful learning points:

1. Formula or text: It is sometimes possible to express pricing by way of a formula with more limited use of text.  The advantage of mathematical formulae is that they are governed by ‘hard edged’ rules.  On the other hand, extensive text explaining calculations is prone to leave the reader with the ‘intolerable wrestle with words and meaning’;
2. Expect the unexpected: It seems likely that neither party to the contract in this case had anticipated TTF exceeding JKM (certainly for any period of length).  In the context of prior history, that would have been a reasonable expectation.  However, contractual payment formulae (and other clauses) are tested in unexpected as well as expected scenarios.  It is often in the latter case that disputes arise.  In this context:
   1. The law will generally only intervene in limited circumstances, such as to save the contract where it has ceased to operate (such as in Standard Chartered).   
   2. If possible, stress testing provisions against the full range of possible outcomes prior to execution mitigates risk;     
3. Time-bars: Contractual time bars are regularly included in energy industry contracts.  In shipping and commodity sales contracts, those time-bars can be short.  As a result, it can be necessary to raise a claim quickly.  That said the issue often arises as to whether a failure to raise a claim in the specified time (i) is an ordinary breach of contract sounding in damages or (ii) amounts to a failure to meet a condition precedent to bringing a claim acting as a time bar (i.e. the consequences of failure are clear as barring a claim).  Although it does not seem to be raised in this case, careful thought should be given to this point in drafting. 

Arguably the more complex element of this case is getting to the right answer.  These was a significant amount of evidence and submission, and the impression is of a case that could have gone either way.  For example:

1. On the natural and ordinary meaning of the words, the Commercial Court placed no weight on the fact that in one place in the contract there was a reference to ‘TTF-JKM’ spread (the reverse of the expression elsewhere) – which seems inconsistent with the result reached by the Commercial Court.
2. Interestingly, there was limited reasoning, in comparison to the remainder of the decision, on the meaning of ‘spread’ in the context of commodity markets which seems to be central to the issue in hand.  Although ‘JKM-TTF Spread’ was a defined term the agreement also used ‘spread’ in lower case at some important points.
3. In addition, there is a significant amount of discussion and evidence related to ‘the Arb’.  The true relevance of evidence relating to ‘the Arb’ to outcome is not entirely clear.  However, the LNG sector is diverse and it would be wrong to treat it as a single industry, with a common ‘lingua-LNG.’

None of the above is to say the decision is wrong, but it was not straightforward.  That simply places emphasis on the benefits of the points made above.

Judges: Waksman J