Theresa May has won a first legal challenge against paying £224m compensation for a cancelled contract to US defence company Raytheon, after a judge found that the initial ruling had been undermined by “serious irregularities”.

The decision will prolong eight years of delay and argument over the troubled £750m “eBorders” programme, which had been designed to track the movement of passengers in and out of Britain.

The home secretary was ordered to make the award to Raytheon last summer, when an arbitration tribunal decided that her department had unlawfully terminated its contract with the Massachusetts-based company. However, Ms May launched an appeal against the compensation and Mr Justice Akenhead ruled on Tuesday that the case brought by Raytheon should be reheard.

The judge found that the tribunal had failed to take into account evidence regarding the responsibility for the delay and the impact of this on the damages awarded. The Home Office now has leave to launch a formal appeal against the tribunal judgment.

The nine-year contract with Raytheon was first signed in 2007, under the last Labour government, but cancelled soon after the coalition came to power in 2010. Ministers complained that the was running a year behind schedule, and said they had lost confidence in its ability to deliver the database which underpins the system.

But last year’s ruling that the Home Office should pay nearly a quarter of a billion pounds in compensation — £50m in damages for ending the contract, £126m for IT systems delivered by Raytheon, £10m to settle complaints over contract changes and £38m in interest payments — strengthened previous criticisms that the deal had been mishandled.

The Home Office said on Tuesday that it was “pleased with the judgment handed down”, and that since the legal process was ongoing, it would be “inappropriate” to make further comment.

Raytheon said it would challenge the ruling in the Court of Appeal.

“It is a fundamental principle of international business that awards of [arbitration] tribunals are respected and enforced by national courts,” a spokesman for the company said.

“We believe that the [Arbitration] Tribunal considered and decided all relevant issues before it. [Raytheon] is determined to pursue an appeal of this decision, to enforce the tribunal’s award and to recover the sums due to [Raytheon] for wrongful termination of the e-Borders contract.”

Keith Vaz, a Labour MP and chair of the Commons’ home affairs committee, said he was determined to “get to the bottom” of what the legal process was costing the government.

“At the end of the day, the issue is the amount that’s being spent on litigation versus the amount that should be spent on keeping our border secured,” Mr Vaz told the Financial Times. “This judgment doesn’t help the public because the public still doesn’t have an e-borders system”.

In his judgment, Mr Justice Akenhead ordered Raytheon to pay the Home Office £146,000 of the department’s £364,978 legal costs for the appeal. He also admitted that the case was becoming increasingly long and complex, with the parties having provided over 3,400 pages of documentation, 42 legal authorities, and over 60 witnesses to the initial tribunal.

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