The Appeal Court in London overturned last year’s High Court decision that the current Ipswich manager was entitled to the money as a pay-off when he was sacked in 2001, after City’s fixtures were complete, but not before the full season had come to a close.
With City’s relegation from the Premiership confirmed, the club paid compensation on the basis that Royle was a First Division manager, but the former City forward claimed that, with the season incomplete, he was still a Premiership manager and was therefore entitled to a greater pay-off – his annual Premiership salary of £750,000.
Although he won the first ruling, Lady Justice Smith has now said that, whether the club was about to be or had just been relegated, it was inevitably going to play in the First Division and the manager, but for his dismissal, would have been on a lower rate of pay.
That means City will get back the £423,000 pay-off cash, plus £175,000 from the Inland Revenue. The Blues have also won more than £80,000 of their £150,000 legal fees from Royle, whose legal action was partly funded by the Professional Footballers Association, although he gets to keep the £150,000-plus-car First Division compensation payment he was given.
City's deputy chairman Bryan Bodek told the Manchester Evening News: "We are naturally delighted. Hopefully this will be an end to the matter. It is a victory for common sense."
City's legal team, briefed by Bodek, have consistently argued that Royle's case was based on a technicality. There have been two failed attempts to settle the matter out of court.
Royle added: "I am pleased the behaviour of the club has been criticised. When I was given the money after the earlier case City suggested it go to charity so I assume they will adhere to their own suggestion.
“I don't want to become embroiled in a war of words and the final line is this is going to the House of Lords. I don't have any regrets about the way this has gone because the legal system is there to be used."