A Catholic diocese has successfully forced a Christian Brothers order to share the cost of compensating more than 170 victims of alleged physical and sexual abuse who attended a Yorkshire children's home.

The landmark decision in the supreme court confirms advances in the legal doctrine of "vicarious liability" under which religious bodies are deemed responsible for the criminal actions of their priests.

Churches have repeatedly attempted to evade liability by claiming that the relationship between a priest or monk and their diocese or religious order is not that of employee and employer.

The supreme court decision related to St William's residential school in Market Weighton, east Yorkshire. It involved a dispute between the diocese of Middlesbrough and the De La Salle order of Christian Brothers over who should pay compensation.

In their unanimous judgment, the judges declared: "There was a very close connection between the brother teachers' employment in the school and the sexual abuse that they committed, or must for present purposes be assumed to have committed.

"It is fair, just and reasonable for the [Christian Brothers] to share with the Middlesbrough [diocese] vicarious liability for sexual abuse committed by the brothers."

Around 170 men are seeking damages after alleging they were abused as children at the school. A former head has been convicted of numerous serious sexual offences.

St William's was founded in 1865 by Catholic benefactors and run locally as a "reformatory school" for boys.

In 1933, the school became an approved institution for boys convicted of custodial offences and in 1973 an assisted community home for children in local authority care. St William's had been managed by the Middlesbrough Diocesan Rescue Society until 1982 then by the Catholic Child Welfare Society (diocese of Middlesbrough).

Members of the Institute of the Brothers of the Christian Schools, founded in 1680, had taught at the school alongside lay teachers – and a brother always acted as headmaster, judges heard. They had resisted liability.

In 1990, the then head was expelled from the brotherhood after it was discovered that he was "guilty of systematic sexual abuse of boys in his care". He had been convicted of "numerous counts of serious sexual offences" against boys over a 20-year period and St William's had closed in the early 1990s.

In its judgment, the supreme court noted: "It is possible for two or more different defendants each to be vicariously liable for a single wrongful act.

"The relationship between the [De La Salle Christian Brothers] institute and the teaching brothers at the school had all of the essential elements of that between employer and employee.

"The teaching activity was undertaken because the brothers were so directed by the institute; it was in furtherance of the mission of the institute and the manner in which the brother teachers were obliged to conduct themselves was dictated by the institute's rules.

"The fact that they were bound to the institute by their vows rather than contract, and transferred all their earnings to the institute, did not make a material difference."

Keith Porteous Wood, executive director of the National Secular Society, said: "This case lays bare the shameless and continuing evasion by the hierarchy of the Catholic church of paying compensation for the horrendous abuse for which those acting in its name have been responsible, and compounds the abuse suffered by victims.

"This case has taken so long to resolve that some victims have died, relieving the church of paying them compensation. Even for those remaining, it goes nowhere near repairing the lives ruined by this brutal abuse carried out on an industrial scale by clerics on youngsters supposedly in their care.

"I am told by a Yorkshire solicitor acting for many of these victims that in every case the church has fought, and continues to fight, tooth and nail, to evade every penny of compensation. This case is essentially a battle between two departments of the Catholic church.

"The church has demonstrated by its actions that it does not care one iota for the victims, nor for being seen to have acted with compassion, far less decently. Otherwise it would have resolved the case many years ago by paying the compensation centrally from the church's vast wealth and deciding in Rome how the cost was to be apportioned."