Maurice and Audrey Balchin, who are in their 60s, said the judgment in the High Court opened the way to a damages and injuries claim in excess of pounds 1m and ended 12 years of "absolute torture".
They had successfully chal-lenged a ruling by the Parlia-mentary Ombudsman that the then Secretary of State for Transport, John MacGregor, had not been guilty of mal-administration over the treatment of the Balchins' plight.
The judge's finding concerning the riverside home set in two acres of landscaped garden at Swans Harbour, in Wroxham, Norfolk is the first time in legal history that a challenge to the findings of the ombudsman has succeeded.
Estate agents deemed that the home - built by the couple and once valued at pounds 435,000 - was worthless after Norfolk County Council said the new road would run through the garden of the house next door, which once was owned by comedian George Formby.
Ironically, the court was told, planning permission for the road had now been revoked and the scheme would not go ahead.
But the news, in June this year, came far too late for the Balchins, whose home had been used as security for bank loans, which they struggled to repay after all attempts to sell the property failed. Mr Balchin lost his building business and is now on income support. His wife's health was ruined and they now live in a tiny cottage in Diss.
After yesterday's ruling, Mr Balchin described what the struggle had meant to him and his wife. "I have lost a schoolboy dream. These things are gone. All the money in the world cannot give us those things back. That is the sad thing about it."
The home is now neglected and unoccupied "just standing there".
"We have only been back once. There are too many painful memories."
Mr Balchin described how the couple reached the "lowest point of all" in their 12-year battle about seven years ago.
"In the morning, my wife looked so ill and dejected I went to Norfolk County Council and grovelled. "I said to a solicitor in their legal department: `Please give us some help. I am desperate for my wife.' It was exactly 20 minutes to one and I broke down," said Mr Balchin.
But the solicitor turned and looked at his watch, said it was his lunch hour and showed him to the door. "I will never forget him," said Mr Balchin.
Mr Balchin's lawyer, Peter Sparkes, stressed that the ruling was only the first hurdle cleared in the battle for compensation.
The ombudsman must now think again over his decision. Depending on the outcome, the Balchins can then make a claim for loss of value of the house, stress and inconvenience, and loss of earnings.
Mr Balchin said: "I shall be seeking damages and compensation for my loss to the maximum to safeguard my wife and family in the future."
Michael Lord, the Balchins' MP, made the complaint to the ombudsman that Mr MacGregor had confirmed the Wroxham/Hoveton bypass without telling the council about new legislation that enabled it to buy the property. The council had refused to grant compensation until after the road had been completed.
A public inquiry was held in 1990 and the inspector reported that the bypass would run 10 metres from Swans Harbour, would be 3.8 metres high and would have a "somewhat overpowering effect".
Mr Justice Sedley said: "Nobody disputes that Mr and Mrs Balchin have been innocent victims of the road scheme."
The judge said that he had concluded that the ombudsman had failed to consider the fact that Norfolk County Council had refused to buy the property and whether the Depart- ment of Transport ought to have drawn the attention of the council to its powers to buy blighted homes.
"The commissioner omitted a potentially decisive element from his consideration of whether the Department of Transport had caused injustice to the Balchins by maladministration in its dealings with the county council," said the judge.
Labour's transport spokesman, Andrew Smith, said: "Wrecking this couple's dream shows yet again how Tory incompetence in transport damages people's lives, just as it damages the environment."
The Department of Transport said in a statement: "We are considering the judgment. It is clearly a complex case. We will respond in due course."Reuse content