The Strasbourg judges unanimously ruled in favour of a Falklands veteran, Alex Findlay, 36, who held colleagues hostage at gunpoint when suffering post-traumatic stress disorder.
The court martial which ended his Army career breached Article 6 of the European Convention on Human Rights, which guarantees a fair hearing by an independent tribunal.
Mr Findlay, originally from Kilmarnock and now living in Windsor, was a sergeant in the Scots Guards. He went berserk during a tour of duty in Northern Ireland in 1990, holding members of his unit at gunpoint and threatening to kill himself. He fired two shots into a television before giving himself up.
It was subsequently discovered that he was suffering from post-traumatic stress disorder following his experiences in the 1982 Falklands War, where he witnessed the deaths and mutilation of several friends.
In what must be one of the speediest implementations of a Strasbourg ruling, the MoD has taken steps to rectify courts martial in provisions in the 1996 Armed Forces Act which comes into force on 1 April.
But a series of other cases arising from the existing system - effectively trial by superior officer rather than independent adjudicator - are coming up.
The judges pointed out that a "convening officer", a Major-General, had taken the decision to charge Mr Findlay, and was responsible for appointing the prosecuting officer and members of the court martial, all of whom were officers of lower rank and serving in units commanded by him.
Once Mr Findlay had been sentenced to two years' imprisonment, demoted and then dismissed, his appeal went to a "confirming officer" - the same Major-General.
The judges said many of the members of the court martial, including the president, were directly or ultimately under his chain of command. "Furthermore, he also acted as confirming officer. The decision of the court martial was not effective until ratified by him and he had the power to vary the sentence it had imposed. This was contrary to the well-established principle that a tribunal should have the power to make a binding decision, which could not be altered by a non-judicial authority."
Mr Findlay said: "I felt let down. I know I committed offences and I realise I had to be punished, but basically what happened was the medical reports gave a reason why I was in there, but that wasn't taken into consideration."
The court declined to award him compensation because they could not speculate on what the outcome of the court martial would have been had there been no violation. Mr Findlay had claimed more than pounds 440,000 in lost wages and army pension rights. But the judges awarded him costs of pounds 24,000.
t The Court of Human Rights yesterday rejected a claim by David Gregory, 30, from Manchester, who is black and alleged a judge had wrongly failed to discharge a jury which had showed racial bias.Reuse content