The falling out resulted in Mr Naughton installing eight cameras monitored from a television screen in his lounge, three of which were pointed in the direction of Mr Armfield's home, the tribunal heard.
Mr Armfield and Ms Halls believed the cameras were recording their and their children's activities - the eldest of whom was aged 3.
Mr Naughton denied the cameras were pointing at the neighbouring property, and refused to show the footage "without a search warrant".
Mr Armfield and Ms Halls sent a lawyer's letter advising they believed the cameras were a breach of the Privacy Act and to move them and delete any information collected about them and their family.
When he failed to respond, Mr Armfield, while standing on his own property, redirected two of the cameras away with a long pole, the decision said.
Mr Naughton then served Mr Armfield with a trespass notice and repositioned the cameras, prompting Mr Armfield to lodge a complaint with the Privacy Commissioner, who redirected proceedings to the tribunal.
Tribunal chairman Rodger Haines QC said Mr Armfield and Ms Halls had acted rationally from the time the cameras were installed.
But he said Mr Naughton's credibility had been "affected by his determination to ensure that right or wrong, he remains free to operate his surveillance system not as the law requires, but as he wishes."
The tribunal ordered Mr Naughton's surveillance system to be reset, for him to erase any footage of his neighbours and to reposition his cameras so they pointed away from their property.
Mr Naughton was also ordered to pay them compensation of $7000.
Mr Naughton told APNZ that he believed he suffered from not engaging a lawyer to act for him at the tribunal.
"What I read in the decision is like, man, that's so far from the real story I'm flabbergasted.
"For me $7000 feels like $6999 too much."
Mr Armfield and Ms Halls had moved out of neighbourhood 10 months ago, Mr Naughton said.
The couple could not be reached for comment.
