The Court of Appeal absolved Dame Shirley and her former deputy, John Weeks, of gerrymandering, and quashed the pounds 27m surcharge that they had been ordered to pay.
Dame Shirley's victory was as epic as it was unexpected. The Tesco heiress kissed her barrister exultantly outside court and declared: "I have great faith in British justice."
The appeal judges' ruling was the latest development in a saga that dates back to the 1980s, when Dame Shirley was leader of the flagship Conservative council.
In 1987, she and Mr Weeks hatched a plan to sell off council houses in marginal Westminster wards, in the hope that Conservative voters would buy them. Existing tenants were offered grants of up to pounds 15,000 to encourage them to move.
The two appealed against a 1997 decision by the High Court to uphold the findings of John Magill, the district auditor who investigated the affair for seven years and found them guilty of "wilful misconduct" and "disgraceful and improper gerrymandering".
The Court of Appeal's ruling that their policy was lawful was welcomed by Dame Shirley's political allies. Lord Tebbit, the Conservative peer, hailed it as "wonderful news".
It may not, however, be the last word on the subject. Mr Magill was yesterday given leave to appeal to the House of Lords and said in a statement issued through his company, Deloitte & Touche, that he was confident of success.
His barrister, John Howell, QC, told the Court of Appeal yesterday that its ruling was "a charter for councillors to pursue improper objects".
In yesterday's two-to-one majority judgement, Lord Justices Kennedy and Schiemann said some of Mr Magill's submissions implied that "any councillor who allows the possibility of electoral advantage even to cross his mind before he decides upon a course of action is guilty of misconduct". They said it was "simply not possible" to find that wilful misconduct had been proved.
"In local, as in national politics, many if not most decisions carry an electoral price tag, and all politicians are aware of it," they said. The number of properties designated for sale had not been excessive, and proper criteria had been used to select them.
In his dissenting judgment, Lord Justice Robert Walker said he would have reduced the surcharge to pounds 7m, but he believed that the two former councillors had lied to the High Court."The overall impression ... is that ... Dame Shirley and Mr Weeks had electoral advantage as the overriding objective in formulating their housing policy," he said.
Dame Shirley, who divides her time between homes in Israel and California, said in a statement: "I am pleased that the Court of Appeal listened to the facts and agreed that I did nothing wrong. I always followed advice. There was no gerrymandering in Westminster."
She referred to the late Michael Dutt, vice-chairman of the council's housing committee, who shot himself, she said, "under pressure from the auditor's investigation".
Dame Shirley attacked the huge costs of the affair - pounds 3m for Mr Magill's investigation and pounds 4m in legal costs - and said: "I hope the Audit Commission will now draw a line under this 10-year-long case and not waste further millions of local taxpayers' money to finance this political vendetta."Reuse content