The Serious Fraud Office has been ordered to pay the legal costs of the Iranian-born Jewish property entrepreneurs who were pursued in a botched fraud investigation.

The SFO launched an investigation into Vincent and Robert Tchenguiz in March 2011 as part of its probe into the collapse of Icelandic banking giant Kaupthing.

But after nearly a year the SFO admitted to "very regrettable errors" and they were cleared of potential charges. The brothers launched a civil claim at a judicial review and judges have now found that the anti-fraud agency is liable for 80 per cent of the legal costs incurred by Robert Tchenguiz during the investigation, and for all those of his brother.

The decision is yet another blow to the agency, which has been heavily criticised in the wake of its pursuit of the brothers. The businessmen, whose vast business portfolios included at one time holdings in Sainsbury's, and stakes in restaurant and pub groups Slug & Lettuce and Mitchells & Butlers, had been arrested in a high-profile dawn raid.

"This is only the first financial manifestation of the folly of the former

director of the SFO," said Vincent Tchenguiz. "His reckless, publicity driven, pursuit of me has caused very substantial damage to my life, family, reputation and commercial interests. That damage has yet to be accounted for."