In a landmark judgment, which underscored the right to freedom of expression, five law lords said it would be wrong for organisations, such as the Government, to use the law in the same way as individuals or companies would.
'It is of the highest public importance that a democratically elected governmental body, or indeed any governmental body, should be open to uninhibited public criticism,' Lord Keith said in the leading judgment. But critics would be stifled if they faced legal action as a result of their attacks on the Government.
His words were seized upon by campaigners who said they brought England and Wales into line with other European countries that have constitutional guarantees of a free press.
Frances D'Souza, director of Article 19, which campaigns against censorship, said: 'We particularly welcome the assertion that there is, in UK law, a right to freedom of speech. Governments are elected by the people and should be criticised by the people.'
The unanimous ruling came in a case brought by Derbyshire County Council over articles in the Sunday Times in September 1989, alleging that the local authority had struck a series of deals with the media tycoon, Owen Oyston.
Lawyers representing the council said it had been brought into 'public scandal, odium and contempt'.
But Lord Keith dismissed their arguments, citing a United States Supreme Court judgment which said: 'A despotic or corrupt government can more easily stifle opposition by a series of civil actions than by criminal prosecutions. It follows, therefore, that every citizen has a right to criticise an inefficient or corrupt government without fear of civil as well as criminal prosecution.'
Lord Keith said: 'While these decisions were related most directly to . . . the American constitution . . . the public interest considerations which underlaid them are no less valid in this country. What has been described as the 'chilling effect' induced by the threat of civil actions for libel is very important.'
He went on to say that Derbyshire County Council could not itself claim to have a reputation that had been damaged. 'Reputation in the eyes of the public is more likely to attach itself to the controlling political party.'
Any politician or civil servant who was defamed had recourse to the law, while the ruling party could 'defend itself by public utterances and debate in the council chamber'.
However, it was 'contrary to the public interest' that either central or local government bodies should be able to sue for libel, Lord Keith said. 'To admit such actions would place an undesirable fetter on freedom of speech.'
In an earlier judgment dismissing the council's claim, the Court of Appeal had relied upon the Article 10 of the European Convention on Human Rights, which guarantees freedom of expression. But Lord Keith said English common law already enshrined this principle. The council faces legal bills of more than pounds 100,000.
Law report, page 26