The action brought by the Department of Trade and Industry against four businessmen from the collapsed arms company Astra was denounced yesterday as "a debacle".
While in opposition, Michael Meacher, the environment minister, wrote to the then President of the Board of Trade, Michael Heseltine, calling the case a "vendetta", and an "example of the use of an administrative procedure for the purposes of political victimisation".
Yet since the last election the prosecution has been vigorously pursued by DTI officials. Yesterday it collapsed in court after Margaret Beckett, now President of the Board of Trade, formally agreed to drop proceedings. Costs were awarded against the DTI, although the judge praised Mrs Beckett for intervening to drop the case.
But the fact that the case was continued for nearly a year after Labour came to power will raise further questions about the relationship between ministers and their officials.
The DTI had sought to disqualify Gerald James, John Anderson, Christopher Gumbley and James Miller as company directors. All had worked for the arms company Astra.
The Government was aware that the Meacher letter, a copy of which has been obtained by The Independent, would be produced as defence evidence.
It has also emerged that DTI officials handling the case tried to withhold a letter written on behalf of the department's own inspectors, recommending that no prosecution be brought against Mr James and two of the directors.
The document was finally disclosed to the defence in November. Mrs Beckett decided to drop the case last month after the judge asked DTI lawyers for assurances that she had personally considered the case.
The DTI's case against the Astra directors began in 1994 and followed the collapse of the company two years earlier after its decision to purchase PRB, an ailing Belgian munitions firm.
The directors later argued that the acquisition of PRB had been at the behest of the British government, which was seeking to frustrate the Iraqi supergun project, to which the Belgian company was supplying propellant. It was later revealed that Stephan Kock, a member of the Astra board, was working for the British intelligence services.
Astra was also found to have been supplying arms to Iran in contravention of a government arms embargo. The former Tory minister, Jonathan Aitken, had been a non-executive director of the company and a backbench MP at the time. He denied knowledge of the deals.
Mr Meacher said in his letter that Astra has collapsed because "the MoD and the security services in particular were anxious to remove all trace of their involvement [in illegal arms deals]".
He said it was "patently capricious to hound the Astra directors" when there had been no DTI inquiries into other financial disasters such as the Maxwell scandal and the Lloyds insurance collapse.
Kevin Robinson, Mr James's solicitor, said yesterday: "If, as we suspect, Mr Meacher has intervened he should be praised. However, questions must be asked as to whether Mrs Beckett was fully briefed by her officials on proceedings that were brought in her own name."