Pharos Offshore Group Limited v Keynvor Morlift Limited

Finality generally prevents a judgment being reopened to correct an alleged error arising from a party’s failure to present its case properly, even where the error is material and readily correctable. VAT payable under a contract forms part of the qualifying debt for statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998, including where the contract defines its price as VAT-exclusive. An adjournment caused by counsel’s medical emergency does not ordinarily constitute conduct justifying remission of statutory interest. Under CPR 36.17, the sum of money awarded includes VAT. Enhanced interest on costs requires a fact-sensitive assessment of the litigation and the parties’ conduct.

This was a consequential judgment following the trial judgment, [2025] EWHC 1764 (TCC). The court had awarded Pharos £608,883.31 inclusive of VAT, subject to KML’s counterclaim of £113,214.63, leaving a net balance of £495,668.68 inclusive of VAT and interest.

The parties disputed whether the principal award should be corrected, whether statutory and Part 36 interest ran on VAT, the date to which interest should run, the consequences of a Part 36 offer, and the allocation of costs before the relevant Part 36 period expired.

1. Correction of judgment. The court refused to deduct credits said to have been overlooked in relation to additional equipment. KML’s pleaded case admitted an entitlement substantially exceeding the sum awarded and did not identify the credits later relied upon. The award was therefore not an accidental slip or omission under CPR 40.12. Nor was it appropriate to reopen the judgment under the inherent jurisdiction. The principle of finality applied, particularly where the alleged error arose from the way KML had advanced its case.
2. VAT and statutory interest. Interest under the Late Payment of Commercial Debts (Interest) Act 1998 ran on the VAT element. A contract price would ordinarily include VAT unless expressly excluded. Here, the purchase orders expressly required applicable VAT to be charged and created a reciprocal contractual obligation to pay it. VAT therefore formed part of the qualifying debt under sections 3(1) and 4(1), notwithstanding the contractual definition of “Contract Price” as VAT-exclusive.
3. Interest and adjournment. The trial adjournment caused by Pharos’ counsel’s medical emergency was an exigency of litigation, not conduct of the kind contemplated by section 5. In any event, the interests of justice did not require remission. The hypothetical earlier judgment date was also irrelevant to Part 36 consequences.
4. Part 36. The judgment was at least as advantageous as Pharos’ offer. The “sum of money awarded” under CPR 36.17(4)(a) included VAT. Pharos was entitled to indemnity costs from expiry of the relevant period and interest on those costs under CPR 36.17(4)(c), but the appropriate enhancement was 5% above base rate. Relevant factors included the timing of the offer, the reasonableness of continuing the litigation, and the disruption caused to the claimant.
5. Costs. There was no order as to costs relating to the adjournment. Otherwise, costs followed the event. Pharos recovered 100% of its reasonable costs on the standard basis up to the end of the relevant period.

Not an appeal. The judgment determined consequential matters following the trial judgment in [2025] EWHC 1764 (TCC).