Lord Hanningfield, 72, sued for compensation over events in September 2011 – days after his release from prison on a tag after serving nine weeks of a nine-month sentence for false accounting.
The police, who denied that his arrest, detention and the search of his home near Chelmsford were unlawful, were conducting an investigation into expenses from when the peer was leader of Essex County Council.
It was later discontinued without any charges being brought.
Lord Hanningfield, who was not at London’s High Court for yesterday’s ruling, claimed officers did not have reasonable grounds for believing that his arrest was “necessary” within the terms of the Police and Criminal Evidence Act 1984.
Mr Justice Eady concluded that the requirement of “necessity” as laid down by Parliament had not, on any realistic interpretation of the word, been met.
The judge said that, in the light of his findings, the amount of damages had been agreed.
Giving evidence, Lord Hanningfield said he was surprised and upset when he heard about the Essex investigation and thought the allegation against him was “ridiculous”, adding: “I did not take it that seriously because I knew there was nothing in it.”
He claimed recent events had left him on the verge of a nervous breakdown and in need of anti-depressants, saying: “It’s been like a tsunami overwhelming me.”
On the morning of the raid, he was woken by the barking of his Pyrenean mountain dog, which had slept on the floor of his bedroom since the onset of his nervous problems.
“When I wake up, having been in prison, I still sometimes have a job realising exactly where I am. I looked out of the window and saw several cars and a policeman with what I assumed was a warrant.
“I had been out of prison a few days, I was on a tag, I was still in a state of trauma and shock.”
Lord Hanningfield said he did not invite the police in but did not stop them: “I just let them in.”
He felt he was being hurried and was worried about keeping a medical appointment that day and leaving the dog.
After the decision, Lord Hanningfield said: “I am delighted with the outcome.
“This case was never about winning money but was to prove a point that the officers were wrong to simply assume I would not co-operate with them when I co-operated fully with the previous inquiry.
“I hope that further council tax is not wasted by them taking this matter further.”
Mark Spragg, his solicitor, said: “This was an important case. Lord Hanningfield is not above the law but neither does he fall beneath it because of his conviction. I
“t can only be hoped that Essex Police can now accept the decision of the court in this matter and save Essex further expense.”