The High Court has ruled in favour of Wellington residents who said their city council was wrong to allow a brothel to expand its business in a residential street.
During a judicial review this week, the Mount Victoria Residents' Association argued the decision in 2007 was illegal.
It said Wellington City Council should have notified neighbours about The Lovely Lilly's application to extend its rooms and increase the number of workers from three to five.
Residents said that, under the Prostitution Reform Act, a consultation process was required before consent was granted.
The court ruled the council was in error when it failed to notify residents and grant the consent.
Justice Dobson found no fault on the part of the brothel owner, but ordered the council to reimburse the residents' group for the cost of the proceedings.
The Mount Victoria Residents' Association believes the ruling has implications for the entire country.
The association says the court has confirmed the Prostitution Reform Act requires a consultation process and every territorial authority in the country will now have to consider that when faced with similar applications.