The Court of Appeal has quashed resource consents granted for a $500 million development in Wellington at Shelly Bay.
The court found the Wellington City Council made an error of law when determining whether or not to grant resource consent.
"As a result of the error, matters such as the environmental effects of the proposed development were not given appropriate consideration and weight by the Council," the judgement said.
The Wellington Company Limited applied for consent in September 2016.
The original proposal at Shelly Bay would have involved the construction of 12 apartment buildings hosting 280 apartments, 58 townhouses and 14 individual homes.
A 50-room boutique hotel, an aged care facility and buildings for commercial and community activities were also planned.
The Court found that in considering the application the Council relied on the purpose of the Housing Accords and Special Housing Areas Act 2013 (HASHAA) - the purpose of which is to enhance housing supply - but did not give "substantive consideration to matters in the RMA [Resource Management Act] such as the preservation of the natural character of the coastal environment and the protection of historic heritage from inappropriate use and development."
Enterprise Miramar Peninsula Inc, which took the case to court is a group representing business owners in Miramar.
The appeal arose after the High Court refused to grant a judicial review into the resource consent process.
The developer behind the project, Ian Cassells, said he appreciated the court's decision, but it was disappointing.
It was too early to say what would happen next, but it was up to the council.
"It's up to the council to determine how it will react to its consent ... really it's in their hands at the moment."
Mr Cassells said it had been a long time that the city had not been moving forward with the project.
He said there would be ways to mitigate and work around the things the Court of Appeal was concerned with, and said he thought the plan as a whole was "pretty good".
For now the project was on hold, he said.
"I'd say the termites are doing what they have been doing for 70 years and they'll keep on going until somebody decides something can happen."
The council has been told it would have to reconsider the application for resource consent afresh and should consider whether to appoint independent commissioners to do that.
Thomas Lynch, who owned a screenprinting business in Shelly Bay, said the court decision was a massive win for 'Nimbyism'.
"For Wellington it could be a bit of a loss, it's going to be developed at some stage, it's going to be best if it's developed with a bit of a vision.
"The Wellington Company, together with the (Port Nicholson Block Settlement Trust) Tenths Trust, they were going to make Shelly Bay a whole new little suburb of Wellington, and they had an idea.
"What will probably eventually happen is it will get parceled off and end up like Oriental Bay, with 30 McMansions out here," Mr Lynch said.
But the chair of Enterprise Miramar, Thomas Wutzler, said the group weren't NIMBYs - they supported development in Shelly Bay.
"We've always been for development - it's not about development it's about the scale and intensity of development and the effects. We don't think enough consideration has been given to the effects."
If the same plan had been lodged for consent under the district plan, rather than in a Special Housing Area, it would not have been approved, Mr Wutzler said.
Despite the win, the group was not celebrating.
"It's not really something to celebrate, there'll be a lot of people affected adversely by this and we're conscious of that, we don't mean undue harm on anyone, but we obviously believed in it, we had the support of a lot of people."
The area was made a Special Housing Area by the city council, meaning the consent for development was granted under legislation created to speed up the process of getting housing developments signed off.
Councillor Andy Foster says the Court of Appeal's decision echoes what he's been saying.
"You need to consider the other values that are there other than just housing, in the case of Shelly Bay special character, heritage and open space, but you need to consider all of those things and weigh those things up against the provision of housing, and that's not what had happened in the decisions that council had made.
Mr Foster said it was not clear if the bay would be considered a special housing area when the consent was looked at again.
He said if it wasn't, the development would not have much chance because of the intensity of the development.