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Law lords have ruled that human rights legislation does not apply to elderly people whose places in private care homes are funded by local councils.

Campaigners have slammed the controversial ruling, which was published today, claiming that all care home residents should enjoy the protection of the law whether their accommodation is self-funded or financed by the state.

Members of the House of Lords appellate committee ruled by a majority of three to two that the 1998 Human Rights Act did not grant protection to elderly people housed in privately run care homes at the public expense.

The law lords had been considering the case of an 84-year-old woman with Alzheimer's, known only as Mrs YL, who had sought legal redress under the legislation after the private residential home she was living in said they intended to evict her.

As her place at a Southern Cross home was funded by Birmingham city council, Mrs YL's lawyers argued that the Human Rights Act should apply because the local authority had a statutory duty to ensure that she was cared for.

However law lords rejected the claim that private care homes were responsible for exercising a public function when they housed residents referred to them and funded by local authorities.

Summarising the views of the three law lords who backed the ruling, Lord Scott of Foscote declared that "an act (or an omission) of a private person or company that is incompatible with a convention right is not unlawful under the 1998 Act".

Two law lords, Lord Bingham and Baroness Hale, disagreed with their colleagues and said that publicly funded care home residents living in privately run homes should be protected by the law.

But as they were outnumbered the ruling now stands as a precedent for other care home residents.

The human rights groups Liberty and Justice, which backed Mrs YL's case, attacked the decision and said new legislation had to be introduced to ensure that all care home residents were protected under human rights laws.

"Parliament intended the Human Rights Act to protect the most vulnerable in our society," said Justice's director of human rights policy, Eric Metcalfe.

"The courts have failed to honour that intention and now it falls to parliament to correct that mistake," he added.

Similar calls were made by campaign group Help the Aged, which described the law lords ruling as a "sickening blow" to older people.

"The vast majority of vulnerable older people receive their care from the private or voluntary sectors – today they remain without protection from abuses of their most basic human rights," said Kate Jopling, head of public affairs at the charity.