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The High Court has quashed Auckland City Council's brothels bylaw, saying it was too restrictive.

A challenge from the owners of a brothel known as Club 574, which operated from an address in the leafy suburb of Epsom, brought about the decision, released today by Justice Paul Heath.

The council said this afternoon that it was considering its next move following the decision.

Parliament legalised prostitution in June 2003, but it was left to local authorities to makes decisions about the locations at which brothels could operate and the signage they could use.

Auckland's bylaw lists many restrictions on the siting of a brothel, including that they not set up business in a residential area, close to a place of worship, school, or community facility.

Justice Heath found that the bylaw was invalid partly because it prohibited sex workers from plying their lawful trade from small owner-operated brothels, most of which would be likely operate to from residential properties.

"It is scarcely conceivable that Parliament intended virtually no brothels, whether small or large, to operate on the Auckland isthmus," Justice Heath said in his finding.

"To that extent, the bylaw conflicts with and undermines the purposes of the (Prostitution Law Reform) Act."

It was understandable that many ratepayers did not want to live close to a brothel, he said, but the council's bylaws must be made on legal rather than moral grounds.

Justice Heath said the same sort of business had been carried out at the Epsom address for many years, without any real evidence of public nuisance or safety concerns.

Club 574 had applied for a dispensation from the bylaw in February last year, but was turned down by commissioners.

Lawyers for Club 574 maintained that the commissioners did not give enough consideration to the fact that the club was carrying out a lawful activity, that it had been doing so for some time, and that its business was carried out behind high walls and trees and without signage identifying the nature of the business.

Club 574 was awarded costs by Justice Heath.

Councillor Glenda Fryer, chair of the council's Planning and Regulatory Committee, said: "This decision has major ramifications and the council will clearly have to examine the decision carefully and consider all the options available.

"One of those options is to lodge an appeal against this decision, but another option is to draft a new bylaw which takes into account the points raised by Justice Heath."

She said the council acted in good faith when it drafted the bylaw. "The bylaw was developed to take into account the needs and wishes of Auckland City residents and ratepayers along with the business needs of brothel owners.

"We tried to balance those competing interests and thought we had the balance right, but the Judge clearly thought otherwise."