Private care homes that look after elderly and vulnerable people on behalf of local authorities are not covered by human rights laws, the House of Lords ruled today.

By a 3-2 majority the law lords rejected the argument that a private home is exercising a public function when it cares for people referred to it by a council, and is therefore bound by the Human Rights Act.

The decision, which could affect up to 300,000 residents throughout the country, came in the case of an 83-year-old Alzheimer’s patient whose lawyers argued that her threatened eviction from a private home would violate her right to family life.

Six months ago, the Court of Appeal rejected the argument, saying it was bound by previous rulings that a private care home could not be classified as a public body and therefore was not covered by the Act.

The patient, identified only as YL, has lived at the home since January last year when she was placed there by her local authority, Birmingham City Council.

The home, which cannot be named for legal reasons, is run by Southern Cross Healthcare, a private sector provider of residential and nursing services, which wants to remove the woman because of disagreements with her relatives.

The central issue in the case was whether the Act should protect residents who have been placed in the care of private sector providers and are funded by local authorities under their statutory duties.

Yogi Amin of solicitors Irwin Mitchell, who represented YL, said: "We are bitterly disappointed by this narrow defeat, and that the three judges in the House of Lords who ruled against us did not accept the arguments supported by the Government that the Human Rights Act was always intended to apply to cases such as this.

“Given the importance of this issue, and the fact that it applies to so many elderly and disabled people in society, we intend to look at all options in continuing in this fight to have the Human Rights Act applied to cover the most vulnerable people in society.”

Liberty, the civil rights group, which was represented in the case, said the law lords’ reasoning “seems to have been largely that private care providers are motivated by profit and governed by contract rather than public service values”.

The group's lawyer, Anna Fairclough, said: “It would seem that judges do not have the monopoly on enhancing human rights protection and Government does not have the monopoly on diminishing it.

“We are very disappointed by today’s majority decision. It is open to Parliament to be the last court of human rights and enact specific care home legislation to prevent local authorities from contracting out of dignity for Britain’s elderly,” she said.

Michael Smyth, a partner at Clifford Chance, described the ruling as "a pity".

The Human Rights Act governs the behaviour of public authorities. Council-owned nursing homes are public authorities, privately-owned ones are not. It could therefore be that a little old lady in number 14 has the benefit of human rights protection in terms of her care while a little old lady in number 16 hasn't. This was a chance for the Law Lords to remove this anomaly," he said.

Baroness Ashton, Minister for Human Rights, said: “I am obviously disappointed that the House of Lords did not accept our arguments on this important issue. We are now carefully considering the implications of this judgment.

Andrew Dismore MP, chairman of the Joint Select Committee on Human Rights, said: “The House of Lords has decided contrary to what Parliament intended when the Human Rights Act was passed.

“The law lords have clearly and absolutely kicked the ball back to the Government and Parliament. Legislation is now the only option to correct this appalling anomaly."

A spokesman for Southern Cross Healthcare said he was “delighted” with the result adding that the decision “does not in any way deflect from our determination to ensure that the privacy, dignity and safety of all our service users is protected at all times”.

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