Stephen James Hodges, who lived at Briar Hill Children's Home in Northampton between 1981 and 1983, had his damages claim thrown out at the High Court in July last year because of 'delay'.
Lord Justice Pill, who heard the case with Lord Justice Dyson and Mr Justice Forbes, said a similar mistake had been made in the infamous Bryn Alyn children's home abuse court case.
The judge told the court that Mr Hodges - who is now married with children - alleges Northamptonshire CC and Colin Turner are responsible for the Post Traumatic Stress Disorder he now says he suffered.
The council ran the home and employed Mr Turner as a unit manager, and Mr Hodges says he subjected him to abuse at Briar Hill and on trips to Cumbria, Derbyshire and Snowdonia.
Mr Turner, who has never been convicted of any sexual offence, denies the allegations.
Judge Mayor ruled Mr Hodges, now 38, should have brought his claim within three years of turning 18, which happened in 1984.
He observed that the evidence 'plainly showed' Mr Hodges knew by his 18th birthday that, if his allegations were correct, 'serious' and 'significant' mental injury had occurred.
At the Court of Appeal John Grace, for Mr Hodges, argued that, although Mr Hodges may have been mentally scarred by his 18th birthday, the PTSD didn't emerge until years later.
And, as that was the injury being sued over, the legal 'limitation period' was three years from when Mr Hodges first realised he was suffering from PTSD, the QC argued.
The barrister added that the 'date of knowledge' was 13 July 1997 - the day on which Mr Hodges received expert psychiatric evidence about his condition.
'Mr Hodge s had had a troubled upbringing and could not reasonably be expected to discern that his adult problems were attributable to the events of 1981 to 1983 as opposed to other events in his formative years,' Mr Grace told the court.
And Lord Justice Pill agreed that it wasn't until years after the alleged abuse that Mr Hodges believed he was suffering from PTSD - and Judge Mayor had effectively 'asked the wrong question'.
Ordering the matter be heard again at the High Court, Lord Justice Pill said it should go ahead in front of a different judge.
STRAND NEWS SERVICE