Michael Howard, the Secretary of State for the Environment at the time, made a flawed decision about Lappel Bank in the Medway estuary in 1993, the Luxembourg-based court judged.
Mr Howard had ruled that virtually the entire estuary on the north Kent coast, 4,681 hectares in all, should be designated a Special Protection Area under the EU's Birds Directive - turning it into a giant nature reserve and giving it a strong measure of protection from damaging development.
But he decided to exclude Lappel Bank, covering just 22 hectares at the estuary's seaward edge, from the protected area. He did so because the Port of Sheerness, the fifth biggest in Britain, wanted to build an extra wharf there.
Mr Howard felt that in an area of high unemployment, the need for jobs and economic development was more pressing than safeguarding one small part of the estuary for birds.
The area is used by tens of thousands of migrating waders and wildfowl for breeding in summer, feeding in winter and as a staging post during spring and autumn migrations.
About 70,000 birds stay there in winter, and there are seven species for which the Medway estuary provides a habitat for a significant part of their global population.
Lappel Bank, now destroyed, was important for shelduck, ringed plover, grey plover, dunlin and redshank.
The Royal Society for the Protection of Birds (RSPB) challenged Mr Howard's decision to exclude the mudflat from the reserve, starting with a judicial review in the High Court and taking it all the way through to the Appeal Court and the House of Lords.
There, the Law Lords decided that the wording of the directive was unclear, and last year they referred the case to the EU's supreme legal body, the European Court of Justice in Luxembourg.
Yesterday 11 of the court's judges unanimously ruled that the Government was not entitled to take economic considerations into account when drawing up the boundaries of the special protection area. It is the area's importance to bird populations alone which counts. Once the area has been designated there is, however, a legal let-out for the Government and developers. If they can show that there are ''imperative reasons of overriding public interest'' for damaging development, then it is allowed - provided that new, compensatory reserves are created for birdlife elsewhere.
Yesterday the Department of the Environment said it would consider creating a new bird habitat near Lappel Bank to compensate for the loss.
The ruling delighted conservation groups, who saw it as an important test case for nature protection laws. It will now be carefully considered by other European governments which have had trouble reconciling wildlife and habitat conservation with economic development.
The chief executive of the RSPB, Barbara Young, said the ruling was excellent news. ''Economics do not determine where wildlife sites are, and should never be a consideration when they are designated.''Reuse content