A former Southland principal has won another victory over the school commissioner who unjustifiably sacked her, after the appeal court threw out an application to force her to pay legal costs.

Marlene Campbell was stood down as head of Salford School in Invercargill in March 2014 by commissioner Nicole Hornsey amid allegations of an unhealthy environment at the school. But last October Ms Campbell was awarded $158,000 in lost salary, compensation and costs by the Employment Court.

Judge Bruce Corkhill found she had been unjustifiably suspended and unjustifiably dismissed. However, he denied her bid to be reinstated to her role.

The school's commissioner appealed part of the decision - that it should be responsible for the majority of the legal costs. The Court of Appeal's decision was released to the Herald this week.

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The lengthy legal battle started after Ms Campbell was suspended from her role as principal at Salford School in November 2013, and then fired in March 2014. It came amid allegations her treatment of staff had created an unhealthy environment, and in the wake of a damning 2012 Education Review Office report which found a high staff turnover and dissatisfaction.

She took her case to the Employment Relations Authority, which found in favour of Ms Campbell and ordered the commissioner to pay $5000 as compensation.

Previous offers had been made, including an offer of $75,000, in a bid to resolve the issue out of court. This was rejected by Ms Campbell.

A subsequent offer of $100,000 and an agreed public statement was also rejected by the former principal, who wanted to be reinstated and for the commissioner to publicly acknowledge that her dismissal had not been justified.

The case was escalated to the Employment Court, which found the decision to suspend and dismiss Ms Campbell was "not a conclusion which a fair and reasonable employer would have reached in all the circumstances". It was ordered that she be compensated for lost wages, as well as compensation for hurt, humiliation and loss of dignity.

She was awarded $82,538 in lost salary, more than $19,000 towards costs for her ERA challenge, and nearly $57,000 in further legal costs and disbursements.

However a dispute over costs arose, with the commissioners' lawyers saying that because Ms Campbell rejected the original Calderbank offers, she should be responsible for covering most of the legal costs. A Calderbank offer is one which is made to try to settle a dispute, recognising that if it then goes before a court and the outcome is less favourable to the side which rejected the offer, that side is subject to pay more of the costs.

They argued the judge had not taken a strict approach to the Calderbank offers, and Ms Campbell should cover the majority of the legal costs.

However, the appeal court said there was no evidence to say Judge Corkhill had overlooked the relevant issues.

"Having considered the effect of the Calderbank offers, he was of the view that the final offer made by the commissioner would not have achieved the element of vindication that Ms Campbell sought," the decision said.

"He was clearly influenced by the fact that the terms of settlement proposed would remain confidential, and by the absence of any public statement acknowledging her dismissal had been unjustified."

There was "no error of law", it said.

The application for leave to appeal was dismissed, and the commissioner ordered to pay Ms Campbell costs.