The legal battle by police bidding for anonymity during a public inquiry into the 1997 killing of Catholic man Robert Hamill (25) was sent back to the High Court in Belfast today.
Robert Hamill, who was killed in Portadown in April 1997
The ruling by Britain's House of Lords is a setback for Mr Hamill's family who have been campaigning for answers about alleged police inaction as he was beaten to death by a loyalist mob.
The victim, from Portadown, Co Armagh, was beaten to death in the centre of the town when police allegedly watched and failed to intervene.
Twenty retired officers claimed they would be in fear of their lives if identified and have fought a decision by inquiry chairman Sir Edwin Jowitt's panel that they appear unscreened.
RUC members have denied witness claims that four officers in a vehicle saw what happened and failed to act. Hearings have been delayed for almost a year while legal wrangling continues.
Today, speaking for the Law Lords, Lord Carswell ruled that the panel had used the correct test in judging whether officers were put at an increased risk by appearing before the inquiry.
However, he referred a separate dispute over the reasonableness of the decision back to the High Court, the bottom rung in the judicial review tier, and it will take months for the matter to be fought through the lower courts and possibly brought back before the Lords again.
Jane Winter, director of lobby group British/Irish Rights Watch, said the family would be disappointed.
"It means yet more delay for the tribunal because it can't start until this issue is decided," she said. "We are going right back to square one, to decide whether the tribunal has been irrational or not."
Mr Hamill's sister, Diane, said the family were adamant the officers should appear unscreened.
"They need to stand up and answer questions as who they are. They have done it for years, given evidence in person, and not hid themselves," she said. "This is an integral part of it. People need to stand up and answer for their actions and lack of action."
The independent inquiry was recommended by Canadian ex-judge Peter Cory to investigate alleged security force collusion north and south of the Border.
The inquiry panel was set up in December 2004, and members were originally scheduled to begin hearing evidence last September.