A local council embattled by claims of widespread dysfunction has failed in a court bid to stop the NSW government appointing administrators and holding a public inquiry.
A damning interim report found problems with Liverpool City Council's recruitment processes, procurement irregularities and allegations of a toxic work environment.
The council is located in Sydney's southwest and is one of the largest and fastest-growing areas in the city.
An investigation conducted in May and June received 36 complaints about council conduct as well as concerned correspondence from councillors and a member of parliament.
After an interim report was published on July 11, the state government ordered a public inquiry under commissioner Ross Glover.
It also flagged an intention to place the entire council under the hands of an independent administrator.
A challenge to moves suspending the council and postponing elections was mostly rejected by the Land and Environment Court on Monday afternoon.
Justice John Robson found the interim report had been published without procedural fairness to the council because it had been released without giving anyone named within a chance to respond.
This was admitted by the government which said the report had been removed around the time the lawsuit was filed and an apology sent to those identified in the document.
The judge rejected claims NSW Minister for Local Government Ron Hoenig or deputy secretary of the Office of Local Government Brett Whitworth showed actual or apprehended bias in releasing the report.
"The publication of the interim report was not an act of partiality," he wrote.
The use of the incomplete report was reasonable, even if it was legally invalid, Justice Robson said, because it still raised relevant matters relating to the maladministration of the council.
He dismissed the majority of the case and ordered submissions on costs.
Liverpool City Council acknowledged it had been unsuccessful in its action, saying it respected Justice Robson's decision and "was considering its position."
The council can appeal the decision.
Mr Hoenig said the council had been "largely unsuccessful" in its legal challenge and must now respond to the notice of intention to defer the election and be suspended by September 5.
"Justice Robson's judgement is clear that the advice given to the minister about the serious concerns at council was reasonable," he said in a statement.
Mr Hoenig said he was provided with information by the Office of Local Government concerning "widespread dysfunction and maladministration" within the council.
"These concerns remain and will be addressed in the public inquiry."
