Alternative Dispute Resolution

McDermott International Inc. v. Burn Standard Co. Ltd.

(2006) 11 SCC 181

Citation: (2006) 11 SCC 181
Court: Supreme Court of India
Date: 12 May 2006
Bench: S.B. Sinha and P.P. Naolekar, JJ.

Facts

Burn Standard engaged McDermott International for offshore construction work connected with ONGC projects.
The contract covered fabrication, transportation, installation and commissioning of offshore facilities.
Serious disputes arose concerning:
delay;
additional work;
change orders;
prolongation costs;
payment;
interest; and
responsibility for disruption.
Arbitration took place and substantial awards were made in favour of McDermott.
Burn Standard challenged the awards under Section 34.
It argued that:
the tribunal used inappropriate methods to calculate delay damages;
particular claims were barred by the contract;
the evidence was insufficient;
and the court should correct or reduce the awarded amounts.
The dispute reached the Supreme Court.

Issue

What is the role of a Section 34 court?
Whether a court may correct or modify an erroneous award.
Whether the tribunal’s choice of a damages-calculation method may be reconsidered.
When contractual interpretation becomes jurisdictional excess.

Rule

Under Section 34, the court exercises supervisory rather than appellate jurisdiction.
The court may:
set aside an award on a statutory ground; or
adjourn proceedings under Section 34(4) to allow the tribunal to eliminate a curable defect.
It cannot ordinarily:
correct factual findings;
rewrite the reasoning;
calculate a different amount;
or substitute its own award.
The tribunal may select a recognised method for assessing damages where:
exact calculation is difficult;
sufficient evidence exists;
and the method is rationally connected with the loss.
Contract interpretation is primarily for the arbitrator.

Application

The tribunal had considered voluminous technical and financial material concerning the offshore project.
It used accepted industry methodologies to estimate prolongation and delay costs.
Burn Standard argued that a different formula should have been applied.
The Supreme Court held that choosing among recognised methods was an arbitral function.
A court cannot reject an award merely because:
another calculation might be more accurate;
the evidence could be assessed differently;
or the result is substantial.
The tribunal had given reasons and linked the claims with:
additional work;
employer-caused delay;
project records;
and the contract.
The Court therefore refused a general merits reconsideration.
It also gave an influential explanation of Section 34:
the court does not sit in appeal;
judicial intervention is limited;
and an award ordinarily survives unless a statutory defect is proved.
The judgment stated categorically that courts may quash but cannot modify an award.
That statement governed Indian law for many years and was reaffirmed in M. Hakeem.
It has now been qualified by Gayatri Balasamy, which recognises narrow modification powers in specific circumstances.
However, McDermott’s core prohibition remains:
a court cannot reassess the merits and construct a new award of its own.
The Court also adjusted aspects of post-award interest in accordance with the statutory framework and the particular contractual position, while preserving the substantive arbitral determinations.
The decision remains a foundational explanation of minimal judicial intervention.

Conclusion

The Supreme Court substantially upheld the arbitral findings and refused to recalculate the merits.
It held that Section 34 courts supervise legality but do not correct or replace arbitral reasoning.
Its absolute statement against modification is now qualified only by the narrow categories recognised in Gayatri Balasamy.
Use this case for: the supervisory, non-appellate character of Section 34 and the traditional rule against judicial rewriting of awards.