Surveys over the years showed the presence of copper, lead, zinc, DDT and associated compound commonly used in such maintenance work exceeded national guidelines.
The company had been issued with an abatement notice in April 2014, requiring it to cease unlawful discharge of blasting materials and paint.
Watson's defence lawyer Matthew Phelps said his client was remorseful for his actions. In running Napier Slip Way, he had been "really providing an amenity rather than necessarily running a business for profit".
The council's lawyer, Jonathan Krebs, acknowledged the business was a "break-even service for locals".
Judge Thomson said while "no specific environmental effects can be seen as resulting from that particular discharge," the contaminated boat had been launched with a "lack of care and due attention".
Watson had sold the business, which was operating under other ownership.
Pollution levels in the inner harbour concern the regional council.
"Pollutants are an issue in the inner harbour and the slip way was a contributing factor," said the council's manager of resource use, Wayne Wright.
"However, the new owners [of the slipway] have a more positive attitude and are taking more precautions to protect the environment."
The council monitored five sites in the inner harbour every two to three years, testing for potential environmental impact of contaminants in the sediments. Concentration levels of many contaminants were elevated at sites adjacent to boat-maintenance areas, Mr Wright said.