The Law Lords have ruled that UK human rights laws do apply to a civilian who died in British custody in Iraq.
Baha Mousa was among the group of men abused by Cpl Payne
They upheld part of an appeal by relatives of Baha Mousa, who died while he was in British army custody in Basra in 2003.
The judgement could lead to an independent public inquiry.
But appeals in the cases of five other Iraqi civilians, who were shot in the streets of Basra while Britain was the occupying power there, were dismissed.
Lawyers for the five said they would now take their cases to the European Court of Human Rights in Strasbourg.
All six deaths happened while the UK was an occupying power under international law. The UK returned power to the Iraqi government in 2004.
The Law Lords, sitting in the House of Lords as the highest court in the land, agreed by a majority of 4-1 that the UK's Human Rights Act applied to Mr Mousa because he had been detained by UK forces in Iraq.
Defence Secretary Des Browne said the ruling provided "helpful clarification" as to the legal framework applied to British forces overseas.
In a statement, he said: "We have never argued that the treatment of Baha Mousa was acceptable or that his death should not have been investigated."
But, he said, this ruling did not mean there would now be a public inquiry into Mr Mousa's death. That decision, he said, had been referred to the Divisional Court.
Phil Shiner, the solicitor acting for Baha Mousa's father Colonel Daoud Mousa, and for other Iraqis alleging they were abused and tortured by UK troops, said: "This is a massive breakthrough in my clients' efforts to secure accountability for deaths and torture in detention."
Shami Chakrabarti of Liberty, one of the human rights groups which helped to bring the cases to court, said: "There could now never be a British Guantanamo. The British will never be able to build a prison anywhere in the world and say it is a legal black hole."
She said: "The significance of this decision is that individual soldiers cannot be left as scapegoats and left to carry the can for the failures of our government and our military high command...the Human Rights Act protects anyone detained by British authorities anywhere in the world."
Ms Chakrabarti said she expected a full independent inquiry to examine the legal advice given to the military about how they could treat prisoners and the training and resources given to military personnel.
Convicted war criminal
The government was appealing to the Law Lords against a Court of Appeal ruling in December 2005 that the UK authorities had "extra-territorial jurisdiction" towards Mr Mousa, a 26-year-old hotel worker.
The government argued in that Court of Appeal hearing that the UK Human Rights Act did not apply because UK forces did not have full control of Iraq and the country as a whole was not part of its jurisdiction.
The relatives of the five civilians shot dead in the streets, were appealing against the finding that UK human rights laws did not apply in their cases.
The five Iraqi civilians shot dead by members of UK armed forces in the course of "patrol" operations were:
Hazim Jum'aa Gatteh Al-Skeini, 23, shot in the streetMuhammad Abdul Ridha Salim, a teacher, 45, shot at his brother-in-law's houseHannan Mahaibas Sadde Shmailawi, 33, shot during an exchange involving a British military patrolWaleed Sayay Muzban, 43, shot by a military patrol while he was driving a mini-busRaid Hadi Sabir Al Musawi, a 29-year-old police commissioner shot in the street by a British military patrol
Baha Mousa, a hotel receptionist, died after he was allegedly tortured over a period of 36 hours by British troops.
Cpl Donald Payne, 36, was jailed for a year and dismissed from the army after he pleaded guilty to inhumanely treating civilian detainees, including Mr Mousa, in Basra in 2003.
His admission resulted in him being Britain's first convicted war criminal.
Six other soldiers were cleared of allegedly abusing Mr Mousa.