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The court decided that Guernsey flower grower, Richard McGonnell, was denied a fair hearing when his appeal against a planning decision was heard by the Bailiff - Guernsey's most senior judge and head of the island's legislature and executive.
Article 6 of the European Convention on Human Rights guarantees the right to a fair and impartial hearing by an independent tribunal. McGonnell's lawyer, Ben Emmerson, argued that the Bailiff's two other roles made it impossible for him to be seen as impartial.
The seven judges yesterday decided unanimously that although there was no suggestion of bias, the Bailiff's roles were "capable of casting doubt on his impartiality". McGonnell had thus been denied a fair hearing.
Any direct involvement in the passage of legislation or rules, said the ECHR judges, was likely to mean that a judge could not been seen to be impartial if called to rule on them later.
The ruling has huge implications for the Lord Chancellor, who sits as a judge, a cabinet member and leader of the House of Lords.
Lord Irvine has already limited himself in the cases he sits on, and will not hear human rights challenges. But lawyers and civil liberties groups are questioning whether he should hear any public law cases or cases involving laws passed since Labour came to power.
An LCD spokesman said the McGonnell ruling was limited to the particular role of the Bailiff in the case, and that each case had to be judged on its merits - suggesting the Lord Chancellor plans to hang onto his judge role