Liam Holden was 19 years old when he became the last person in the United Kingdom to be sentenced to hang. After deliberating for just 90 minutes, at the end of a murder trial that had lasted four days, the jury returned a guilty verdict and the judge told him: "You will suffer death in the manner authorised by law."

Holden was led down the steps from the dock at Belfast's City Commission, handcuffed to a prison officer, and escorted along the underground tunnel that led to Crumlin Road jail on the opposite side of the road. There he was taken straight to C wing – to the condemned man's cell.

This was larger than most cells, and airy. Holden was permitted a black and white television and two bottles of beer a day: luxuries no other prisoner was granted. He shared the cell with two-man teams of prison officers who watched him around the clock. One officer – a Roman Catholic, like Holden – delighted in telling him that it wouldn't be long before they broke his neck.

In the event, Holden's neck wasn't broken. His sentence was commuted to life imprisonment, and shortly afterwards capital punishment was abolished in Northern Ireland, bringing it into line with the rest of the UK. It was 1973, the Troubles were at their savage worst, and hanging a man, Willie Whitelaw, the Northern Ireland secretary, later explained, "would only succeed in promoting the mayhem and killings".

But Holden did spend the next 17 years behind bars.

Now, almost four decades later, his murder conviction has been quashed by the court of appeal in Belfast, and exposed as a miscarriage of justice: one that would have been allowed to stand, had the hangman done his work.

In its attempts to establish Holden's innocence, his defence team explored some of the darker aspects of British counter-insurgency operations in the 50s and 60s, and the manner in which troops interrogated their prisoners – including waterboarding. More significantly, the Criminal Cases Review Commission (CCRC) discovered evidence that the army's practice of detaining and questioning suspects at that time was completely unlawful, potentially opening an avenue of appeal for other people convicted of terrorism offences during the early years of the conflict in Northern Ireland.

"Mr Holden and his family are grateful that they are dealing with a quashed conviction," said his solicitor, Patricia Coyle of the Belfast firm HarteCoyleCollins, "and not a posthumous pardon".

Holden had been convicted of the murder of Private Frank Bell, of the Parachute Regiment. One Sunday afternoon in September 1972, Bell and five colleagues from B company of the regiment's 2nd battalion had been on patrol in the mainly nationalist Ballymurphy district of west Belfast; as they rounded the corner of Springhill Crescent from Springhill Avenue, a single round fired by an unseen sniper hit Bell on the left side of the back of his head. A few sympathetic local people emerged from their homes with blankets for the stricken soldier. One produced a large ball of cotton wool. Bell was still conscious when taken to hospital, where he underwent a number of operations and was given 18 pints of blood, but his condition deteriorated and he died the following Wednesday morning.

At their home, members of the dead soldier's family spoke to a reporter from their local paper, the Liverpool Echo. Young Frank had joined the army only because he was unemployed, they said, and had been looking forward to a month's leave before a posting to Malaysia. He had been engaged to marry his childhood sweetheart, Christine. "Wirral man is IRA victim" ran the headline. He was the 100th British soldier to die in Northern Ireland that year.

Four weeks after the shooting, acting on a tip-off from an informant who said Holden had been the sniper, soldiers from the Parachute Regiment's 1st battalion raided the bungalow two streets from the scene of the shooting where he lived with his parents and seven brothers and sisters. It was shortly before 1am, and Holden had returned from a night out a short while before. He and his older brother Patrick were told they were being detained as suspected IRA members, and driven away in a Saracen armoured car.

Their destination, curiously, was not a police station or regular army barracks, but a primary school on the nearby Protestant Springmartin housing estate.

Some months earlier, the army had decided that the Black Mountain Primary school would make a useful base from which to patrol the district. No doubt one consideration was that soldiers inside the grounds were unlikely to attract too much incoming fire from Republican strongholds nearby – at least during the school day.

Successive British army battalions were based at Black Mountain: their commanding officers took over the office of the headteacher, who returned from one holiday to find his playing field had been asphalted over, to prevent armoured cars from getting stuck in the mud. Photographs from that time show young soldiers sharing the school canteen with laughing children; in 2009, workmen repairing the building found a submachine gun in the roof space.

The Holden brothers were taken straight to a portable building in the corner of the playground that was the home of 1 Para's intelligence section. Inside, they recall, were around eight small cubicles without doors. They were taken to separate cubicles for questioning. In the cubicle between them was a tape recorder playing loud music. Patrick Holden was released after an hour, while the soldiers concentrated on Liam. By 5am they were almost finished. A captain from the Royal Army Medical Corps was brought in to examine him – "no injuries … no bruising anywhere" he recorded – and a military police sergeant drove the prisoner to Castlereagh police station in east Belfast. There, Holden agreed to sign a statement admitting shooting Pte Bell.

Six months later, Holden was brought before the Belfast City Commission, as the crown court was then known, to be tried solely on the basis of the confession that he had signed. The judge began by ordering the jury and the defendant out of the court while the Parachute Regiment sergeant who had led the questioning at Black Mountain Primary gave evidence about an interrogation course he had undergone at the Intelligence Corps' headquarters at Ashford, Kent.

Then Holden was called in to give evidence. He told the jury that he had once been a member of the IRA, but that he had left the organisation several months before the shooting of Pte Bell; he was working long hours, six days a week, as a chef at a hotel in Newtownabbey, north of Belfast.

After being led into the cubicle, he told the jury, he had been forced to stand spread-eagled against the wall before being punched in the stomach. Then, he said, the sergeant shouted for a towel and a bucket of water. A reporter from the Belfast Telegraph who was in court recorded what Holden said next: six soldiers held him down, the towel was folded over his face, and water was poured slowly from the bucket and through the towel, on to his face. "It nearly put me unconscious," Holden said. "It nearly drowned me and stopped me from breathing." This is said to have happened five or six times over the next couple of hours.

There were allegations of further mistreatment. At one point, Holden told the jury, he was hooded, taken from the school, and driven to the outskirts of the city, where he was told he was to be shot dead. He finally agreed to admit shooting Pte Bell, and was told that if he didn't sign a statement for the police at Castlereagh he would be brought back to the school for more of the same. The water was mopped up, and he was questioned by a Parachute Regiment captain before being handed over to the police.

When the sergeant who was said to have called for the bucket and towel gave evidence, he denied there had been any mistreatment whatsoever, and insisted that Holden had readily admitted to being a member of the Provisional IRA. Eventually, the sergeant added, Holden also admitted being the sniper who shot Pte Bell. "He then made an admission to me. He said he had shot a soldier – a Para. It was on his conscience. He wanted it off his chest."

Implausible as it may seem that an IRA gunman would so readily admit membership of the organisation, and shooting a soldier because he wanted to get the matter off his chest, the jury was clearly unimpressed by a defendant who complained that he had confessed because water had been splashed over his face. Today, however, in the post 9/11 world, with so much more known about methods that interrogators may bring to bear, Holden's testimony of 1973 appears to have been a classic description of the torture technique known as waterboarding.

Holden refused to appeal at the time, telling his family that he believed the entire investigation and trial had been rigged. It was far from certain that he would hang, however: two weeks earlier Whitelaw had reprieved a Loyalist gunman, Albert Browne, who had been convicted of the capital murder of a police constable, Gordon Harron. Few believed the Northern Ireland secretary would fail to reprieve Holden, too.

Holden spent the next 17 years in jail, however, much of it in the Maze prison. "The first four years there was protest after protest, and riots too. No point in saying I didn't take part. We were denied beds and sheets for a time, and had no visitors for a year. But whether you were innocent or guilty, you were looked after by the others in prison. Whether you were in the IRA or weren't in the IRA made no difference."

Holden was finally released in September 1989. "They put me back in the Crum and said: 'You're getting out in three hours.'" It was a terrifying experience: Belfast city centre was an alien place, his family had aged, and his old friends had all moved away. Policemen would stop him and harass him, he says, and he lived in perpetual fear of being targeted by Loyalist gunmen.

Ten years ago, when Holden first approached the CCRC, the body that examines alleged miscarriages of justice, the fact that he had not appealed against his conviction at the time appeared certain to undermine his claims of innocence.

The CCRC has been receiving increasing numbers of applications from people convicted of terrorism offences during the Troubles. Since the body began its work in 1997, it has referred 33 such cases back to the court of appeal in Belfast: in 26 cases those convictions have been quashed, while three are still waiting to be heard. In just four cases have the convictions been upheld.

Around 65 other people convicted of terrorism offences in Northern Ireland are waiting to have their cases considered by the CCRC, among them 28 who were convicted when they were juveniles.

The CCRC referred Holden's case back to the court of appeal three years ago, saying it had unearthed new evidence that cast doubt upon "the admissibility and reliability" of the confession that led to him being convicted of murder and possession of a firearm. There was a real possibility, the body added, "that the court will conclude that they are unsafe and quash them".

At the insistence of the Ministry of Defence, however, key passages of the CCRC's file were concealed from Holden and his lawyers. Even when the Public Prosecution Service in Belfast said that it was planning to oppose the appeal, the MoD refused Holden all permission to see the bulk of the contents of the secret file that supported his claims of innocence.

There followed a further 18 months of legal wrangling, during which time his lawyers considered whether they should agree to resort to the use of a security-vetted special advocate and the controversial "closed material procedure" that lies at the heart of the coalition government's controversial new secret justice bill, published last month.

When Patricia Coyle finally won permission to see the contents of the closed CCRC file, the reason why the MoD did not want it to see the light of day was immediately apparent.

Within the file were a series of documents which showed that by the second half of 1972 British soldiers had been warned that they could not lawfully detain any suspect for longer than four hours. Furthermore, in July that year, government lawyers had warned the MoD that the practice of questioning prisoners at length at army posts – "which has apparently grown up without the authority of Whitehall" – was completely unlawful: prisoners must be handed over to the police at the earliest opportunity, must not be taken to army posts under any circumstances, and must not be questioned by soldiers once detained. All this was incorporated into a simple written order, known as the Blue Card, which was issued to every British soldier serving in Northern Ireland.

Holden's counsel, Barry McDonald QC, told the appeal court that these instructions, "issued from on high", had been explained to all of the army's company commanders and senior NCOs in Northern Ireland.

So Holden had "confessed" to the shooting while being unlawfully detained. And any other individual who was convicted of terrorist offences on the basis of a confession made while being detained and questioned by the army at that time may now have grounds to appeal.

"The rules were absolutely crystal clear," said Coyle. "There is no doubt that the illegality of arrests by the British army must impact upon a significant number of other cases."

For several months, even when the contents of the secret file became known, the Public Prosecution Service insisted that it was going to oppose Holden's appeal. The MoD, meanwhile, insisted that it had never used waterboarding when giving resistance-to-interrogation training to servicemen.

Last month, Holden's lawyers submitted a statement detailing the British military's use of waterboarding during counter-insurgency operations in Cyprus in the 50s and during the training of some of its own personnel during the following decade. This appears to have been the final straw: the prosecution indicated that it was no longer planning to oppose the appeal.

Holden was hugged by members of his family as he left court: a once condemned man, cleared after four decades.

How the evidence was built up



Liam Holden and I first met more than two years ago, very briefly, not long after I reported on his case.

A reticent, slightly withdrawn man, he is now aged 58, and a widower with two grown-up children. Until his conviction was quashed he remained a lifer out on licence, a fact that has impeded his attempts to find steady employment. And he remains bitter about what happened. "I have lived with the torture for these last 40 years. I have lived with the time in jail, because you've got no choice. But does it get to me? Yes it does." And he loathes the term waterboarding. "It wasn't waterboarding. It was torture."

Holden's lawyers knew that I was writing a book, Cruel Britannia, tracing the UK's involvement in rendition and torture, and that I had researched the dark history of the interrogation techniques that were developed by the British army since 1945. Asked to submit a statement to help the court learn more about these matters, I explained that while there was no evidence that UK forces had commonly employed waterboarding, it could not be said to have been alien to them; that there was evidence to support allegations of its occasional use during counter-insurgency operations; and that the International Committee of the Red Cross had been particularly concerned by its use by British forces during the fight against Eoka guerrillas in Cyprus in the 50s.

Moreover, while the MoD maintained that waterboarding played no part of its resistance-to-interrogation training, a number of men who served in the military in the 60s – including two who went on to serve as Conservative government ministers – have assured me that it played a role in their own training.

Facing this evidence, the prosecution announced that it would no longer be opposing the appeal, paving the way for Thursday's court decision. "The court of trial was ... deprived of relevant material that might have led to a different outcome," a spokesman said.

The sergeant who interrogated Holden served in the Parachute Regiment for many years before returning to civilian life. Eventually he moved to Spain. The man who commanded 1 Para's intelligence section retired to the West Country, and has no wish to discuss Holden's appeal.

Meanwhile, Pte Bell's younger brother and sister both still live on the Wirral, not far from the family home. They said they did not wish to comment on the case.

Ian Cobain