A legal battle with wide ranging implications for local authorities anxious to hive off unprofitable residential care responsibilities to the private sector is now to be considered by the Law Lords.

In June the Court of Appeal ruled that the Department of Health was wrong when it told councils they could not opt out completely from providing residential care for the elderly and others in need.

Instead the appeal judges, Lords Justices Nourse, Simon Brown and Swinton Thomas, held that the London Borough Council of Wandsworth, at the centre of the test case fight, was entitled to make whatever privatisation arrangements it liked over residential homes, under the provisions of the Community Care (Residential Accommodation) Act 1992.

That over-turned an earlier High Court decision in which residents and staff at George Potter House, Battersea, led by 76-year-old resident William Beckwith won a ruling that Wandsworth's approach to its obligations was mistaken and was obliged to keep at least one home under its own management. Wandsworth wants to sell George Potter House to the private sector.

Now, however, the Appeal Court finding is to be challenged before the Law Lords. It has given the legally aided group, headed by Beckwith, leave to appeal against it.

The appeal, for which no date has yet been fixed, will probe interpretation of the intention of Parliament's newest community care laws relating to the privatisation of residential homes.

The appeal judges branded the challenge to Wandsworth's stance as a "fundamental misconception" of Parliament's intentions and said that councils were free to hive off all their residential homes to the private sector.

The case is being watched by all local authorities many of which are anxious to see the privatisation of such homes.