The University of Sussex has won a legal challenge in the High Court, overturning a record £585,000 penalty over alleged free speech violations.
The ruling found England's higher education regulator had demonstrated bias throughout its investigation process.
Mrs Justice Lieven determined on Wednesday the Office for Students had "closed its mind" to any outcome other than finding the university guilty of failing to protect freedom of expression.
The landmark fine, which sent shockwaves across the university sector when issued, stemmed from Sussex's trans and non-binary inclusion policy, which the regulator claimed created a "chilling" effect on academic discourse.
The regulatory investigation was triggered following the departure of Kathleen Stock from her position as professor of philosophy at Sussex, after she faced sustained protests and threats over her views that biological sex held greater significance than gender identity.
Her case became one of the most prominent free speech controversies to engulf a British university in recent years.
The OfS based its penalty on the university's trans and non-binary policy, which required staff to "positively represent trans people" and cautioned against "transphobic propaganda".
Crucially, the High Court proceedings did not examine the circumstances surrounding Ms Stock's exit, focusing instead on whether the regulator followed proper procedures in reaching its decision.
The University of Sussex has won a legal challenge in the High Court
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Wednesday's judgment upheld multiple aspects of Sussex's challenge against the regulator's conduct.
The court agreed with the university's argument that its trans and non-binary policy did not constitute a "governing document" and should not have been afforded the weight the OfS attached to it.
Beyond the biased finding, Mrs Justice Lieven also ruled that the regulator had adopted a flawed methodology when assessing what constituted academic freedom.
The investigation's procedural shortcomings extended to how evidence was gathered.
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The ruling found that England's higher education regulator had demonstrated bias throughout its investigation process
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While the OfS conducted interviews with Ms Stock during its inquiry, the court heard that the regulator declined to meet university representatives in person, despite Sussex making repeated requests to discuss its concerns directly.
Professor Sasha Roseneil, Sussex's Vice-Chancellor and President, welcomed the court's recognition of the university's commitment to academic freedom and free expression.
She said: "It is a devastating indictment of the impartiality and competence of the OfS, implicating its operations, leadership, governance, and strategy.
"It raises important and urgent questions for the Government as it plans to grant ever more powers to the regulator."
A dozen institutions, including Sussex, have amended policies restricting free speech following the investigation
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Josh Fleming, the OfS interim chief executive, described the ruling as "disappointing" and indicated the regulator would "carefully consider the consequences of the judgement before deciding on next steps".
He noted that a dozen institutions, including Sussex, had amended policies restricting free speech following the investigation.
Universities UK, which represents over 100 institutions, said universities want to "work closely with the Office for Students to reset relationships and rebuild trust" in a statement.
They added: "Effective regulation depends not just on enforcement, but on trust, clarity, and a shared understanding of respective roles."