Newcastle council chief Jeremy Bath was "plainly wrong" in his reasons for sacking a senior employee over her handling of the city's business levy scheme, a District Court judge has found.
The council's former corporate and community planning manager, Jill Gaynor, won an unfair dismissal case on Friday after she was "summarily dismissed" by Mr Bath in October 2018.
Acting District Court Judge James Curtis' ruling brings into question the council's rationale for reviewing its business improvement associations (BIAs) and kicking Newcastle Now and Hamilton Chamber of Commerce out of the scheme.
Mr Bath cut off money to Newcastle Now, the city's largest BIA, in July 2018, claiming it had not been submitting business plans as required under the terms of its 2011 funding deed.
The council then engaged a consultant, Centium Group, to investigate Newcastle Now's funding, which led to the sacking of Ms Gaynor and economic development facilitator Greg Fenwick.
The council said the Centium report had been "prompted by the discovery that around $7 million has been paid to Newcastle Now without a business plan submitted or approved".
The council then restructured the BIA scheme, excluding Newcastle Now and Hamilton Chamber of Commerce from applying for funding, after another report by consultants AECOM referred to "poor financial disclosure relating to BIAs".
But Judge Curtis said Newcastle Now had submitted business plans from 2012 to 2017.
The documents had been referred to since July 2013 as "operational plans", but these "had the same effect and may fairly be described as business plans".
Newcastle Now had submitted "acquittal reports" which "sufficiently identified particular expenditure".
"It is wrong of Mr Bath to suggest otherwise," Judge Curtis said.
"It is ironic that Mr Bath complains of a failure to provide sufficient particulars in the Acquittals Reports and Summary Reports when those reports identified the expenditure on staff and overheads which he later complained to be excessive."
Mr Bath had also been incorrect in accusing Ms Gaynor of wrongfully approving Newcastle Now money be spent on Nobbys Lighthouse.
"In his affidavit of 26 April 2020 Mr Bath asserts that one of the limitations placed on the granting of funds to BIAs was that the money had to be spent within defined geographical areas from where the levy was raised," Judge Curtis said.
"He claims that Ms Gaynor wrongfully approved NBIA spending money upon Nobbys Lighthouse.
"In this he is plainly wrong."
He said the Local Government Act authorised spending special benefit rate money on facilities or activities which would benefit the land on which the rate was levied.
"It is absurd to suggest that monies spent on promoting Newcastle CBD could only be spent within its geographical area.
"This would effectively limit promotional activities to the placement of billboards within the CBD exhorting people already present to Come Here."
He also took issue with the Centium report, which had found Newcastle Now's financial reporting was in breach of its agreement.
He noted that a report for the council by O'Connor Marsden in 2015 had found the BIAs "demonstrated consistent compliance with the key requirements of the Deed of Agreement".
He ruled that Ms Gaynor was entitled to be paid the final 11 months of her five-year contract, including superannuation and annual leave entitlements. He has not yet ruled on costs.
The Newcastle Herald understands the council is likely to appeal.
Mr Bath and Ms Gaynor's lawyer, Anthony Mina, declined to comment on Monday as the matter was still before the court.
Mr Bath has referred in the past to Newcastle Now's "inappropriate use" of funds and "discrepancies" in how it has accounted for spending.
Newcastle Now chairman Edward Duc said the court judgement vindicated the organisation.
"We were obviously maligned," he said.
"It was made to seem as if we were incompetent, not doing what we were supposed to do and we'd mismanaged the money.
"We're looking forward to working with the document to get justice."
He called on Mr Bath to "consider his position".
The then heads of the Hamilton, Newcastle, New Lambton and Mayfield BIAs asked the Office of Local Government early last year to investigate the lack of "procedural fairness and natural justice" in the council review of the scheme.
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