The Environment Court has released an interim decision after years of clashes, followed by appeals, over Bay of Plenty Regional Council's Plan Change 10.
Judge David Kirkpatrick has ruled in favour of a "sector range approach" to managing nitrogen going into Lake Rotorua from nearby properties, as opposed to a "Land Use Capability approach" favoured by the Rotorua Lakes Council, Central North Island Iwi Land Management Ltd and multiple forestry companies.
Nutrients such as nitrogen and phosphorus can come from animal waste, fertiliser use, geothermal activity, erosion, stormwater run-off, and sewerage leaks in the Lake Rotorua catchment, and decrease water quality.
The court's 104-page decision, out this month, followed a five-day hearing held in March.
It is just the first of two decisions expected - the next is due after another yet to be held hearing.
The capability approach was supported by Central North Island Iwi Land Management Ltd, as well as Ngāti Uenukukōpako Iwi Trust, Rotorua Lakes Council, Te Pumautanga o Te Arawa Trust, Te Maru o Ngāti Rangiwewehi Iwi Authority, Te Komiti Nui o Ngāti Whakaue, Hancock Forest Management (NZ) Limited, PF Olsen Limited and Kaingaroa Timberlands Partnership.
However, the Bay of Plenty Regional Council, as well as Federated Farmers and the Lake Rotorua Primary Producers' Collective, preferred the sector range approach, which Judge Kirkpatrick said was "the most appropriate by a significant margin and on most bases of comparison".
"Even if we were wrong in some of our findings, we do not consider it would affect the overall conclusion," he wrote.
Federated Farmers hailed the decision as a "slam dunk" and "a win for the Rotorua community".
In a media statement, Federated Farmers environment spokesman Chris Allen said the capability approach "would have required nitrogen discharge reductions of 80 per cent by dairy farmers and 40 per cent by dry stock farmers".
"If I was a Rotorua ratepayer, I would feel very aggrieved that I funded a costly alternative proposal that has ... been found wanting".
Rotorua Lakes Council chief executive Geoff Williams told the Rotorua Daily Post the council was "currently considering the direction the court has given".
"In our view, the court has highlighted a number of issues we were concerned about and we are keen to work with the regional council as to how those can be addressed."
Between August 2017 and February this year, the appeals process had cost the Rotorua Lakes Council $437,000, but Williams did not have an updated figure.
Paradise Valley farmer Neil Heather, who is a Federated Farmers member and heads the Rotorua Primary Producers' Collective, told the Rotorua Daily Post Plan Change 10 meant farmers could keep using their land for farming.
In his opinion, "farmers have effectively paid for this [Plan Change 10] three times over".
"Our district council rates funded the land use capability proposal that was found wanting by the Environment Court. We paid for the regional council to participate in the process through our regional rates, and we contributed to Federated Farmers' costs".
Central North Island Iwi Land Management has 3180ha in the Lake Rotorua groundwater catchment.
General manager Alamoti Te Pou could not be reached for comment, but his evidence contained in the decision said iwi did not feel adequately consulted by the regional council.
His evidence said: "There was no representative of Central North Island Iwi Holdings" on the Lake Rotorua Stakeholder Advisory Group, and his organisation was "effectively excluded".
"There was no invitation to attend and no agenda or dates of meetings provided".
The regional council's evidence denied this - it said it offered "many avenues" for participation.
"Between August and September 2015 the regional council contacted all Te Arawa iwi authorities with offers of engagement meetings."
Judge Kirkpatrick's decision said he was "satisfied" with the consultation.
The Bay of Plenty Regional Council said ,in a statement, the interim ruling meant Rotorua was "one step closer to having a cleaner lake".
Chief executive Fiona McTavish said: "It also identified that additional provisions are needed in relation to Treaty settlement land and called for further evidence on some technical matters."
She said other tools being used to reduce nitrogen going into Lake Rotorua included "funding grants, restoration work, gorse conversions, the use of Matauranga Māori, sewerage system upgrades and engineering innovations".
Regional council environmental strategy manager Stephen Lamb told the Rotorua Daily Post the decision reinforced the council "was on the right track" but it would "take a while yet before affected landowners can get complete certainty about the implications".
When asked if the council planned to appeal any parts, he said: "Our initial view is that we are generally comfortable with the direction."
He was not yet able to say what the organisation's appeal costs were.
Te Arawa Lakes Trust said it was not involved in the Environment Court proceedings, so it would not comment on the outcome.
Judge Kirkpatrick emphasised there were "unique circumstances" in the Lake Rotorua catchment.
"Considerable caution should be used before seeking to transfer the findings of this decision to other locations."