Three tuckeroo trees have stood between hotel mogul Jerry Schwartz and his plan to install a carousel on the grounds of Rydges at Honeysuckle.
Dr Schwartz lost his appeal in the NSW Land and Environment Court on Wednesday.
The court did not find the proposed carousel's visual, heritage or design impacts alone were enough to warrant refusal.
Instead, acting commissioner Clare Swan was unable to conclude whether landscaping works proposed to screen the carousel could damage three tuckeroo trees on public land and dismissed Dr Schwartz's appeal.
The legal battle follows an unsuccessful court-ordered attempt to mediate a solution with the City of Newcastle.
In her decision, Acting Commissioner Swan said a well-coordinated development application (DA) could have been a remedy to the issue, in that the landscape, architectural and arborist report should be "co-ordinated and consistent".
"The DA in this instance has failed to demonstrate its suitability, based predominantly on the identified inconsistencies in the DA documentation," she said.
Acting Commissioner Swan said the impact of the proposal on the tuckeroo trees was "insufficiently addressed" in the documentation.
Court documents reveal Dr Phillip Pollard, an architect and urban designer engaged by the council, argued the visual impact of the carousel would be unacceptable even if proposed hedging was successful or the size and the colour scheme of the carousel were changed.
Council experts argued the carousel was a highly visible structure that would catch the eye, expressing on a number of occasions that the faux nature of the carousel was "not of its place" and is "garish".
In response, town planner Scott Barwick, who had been engaged by Dr Schwartz, argued the carousel would merely be another item observed along the foreshore.
Mr Barwick said the carousel would become part of a "pastiche of sound" experienced by foreshore users and part of the "menu of things" happening on the waterfront.
Dr Schwartz said the carousel was modest in size and was not the "thin edge of the wedge" towards an amusement park on the hotel's grounds.
The hotelier said design excellence contentions raised by the council were "pernickety" and grossly overstated effects on the public domain.
Acting Commissioner Swan accepted Mr Barwick's evidence but said the acceptability of the carousel's visual impact would depend on certainty that the three Tuckeroo trees could be retained.
"Newcastle CBD is a living, breathing CBD, or said without personification, is dynamic and evolving," Acting Commissioner Swan said.
"I accept Schwartz's position on the modest size and proportions of the carousel having a negligible, almost imperceivable impact on the reading of and experience of the Heritage Conservation Area and its significance," she said.
Despite siding with Dr Schwartz on a number of issues, Acting Commissioner Swan ultimately dismissed his appeal because of the tuckeroo trees and the development application was refused.
Dr Schwartz has also locked horns with the council over an unauthorised slide at the property, which was installed without a DA about three years ago.
He told the Newcastle Herald last week that he was prepared to take legal action to keep the slippery dip if City of Newcastle refused his development application.
