He was arrested by police but was unable to be interviewed as he was in an "unfit and incoherent state".
Justice Rebecca Ellis has decided the psychiatric patient was not guilty of attempted murder, assault with a weapon and aggravated burglary by reason of insanity.
Psychiatric experts for the Crown and defence lawyer Richard Earwaker agreed the man was acting out of fear from his delusions that he was under surveillance and the police planned to murder him.
But the man's extreme alcohol intake - estimated to be 50 standard drinks before the midnight attack - and methamphetamine abuse clouded the issue of whether he knew what he was doing was wrong.
The alcohol and drug abuse only exacerbated the existing mental illness, according to Dr Ian Goodwin and Dr Krishna Pillai.
Both doctors believed "the dominant cause of [his] delusions (and therefore his unawareness of moral wrong) was his schizophrenia, not his consumption of drugs or alcohol," wrote Justice Ellis.
"His delusional thinking was long-standing and pervasive."
He previously believed the police were trying to frame him for the murder of Marie Jamieson in 2003 and was admitted to the Kauri Unit at the Mason Clinic.
Justice Ellis ordered the man be readmitted to the Mason Clinic, Auckland's secure mental health unit, as a special patient. This means he cannot be released unless authorised by the Health Minister.
The attack happened just five days after the man was released from Te Whetu Tawera, the mental health unit in Auckland Hospital, after being in and out of psychiatric care for years.
In 2008 a patient was released from Te Whetu Tawera and killed someone and several other patients killed themselves.
Matthew Ahlquist was found not guilty of the murder of Colin Moyle in April 2007 by reason of insanity.
He was a patient at Te Whetu Tawera and several reviews, including one by the Health and Disability Commissioner, detailed "evidence of unacceptably poor clinical judgment and practice by some medical and nursing staff".
A number of similarities exist between the care of Ahlquist and the current case. Both had a long history of mental illness and each had been in and out of psychiatric care.
The Ahlquist review detailed a string of errors in his continuity of care, including his admission and discharge from Te Whetu Tawera. It is understood an internal Auckland DHB review of the latest case has uncovered similar problems.
The woman who was attacked, the sister of the psychiatric patient, wrote to Prime Minister John Key and Health Minister Tony Ryall after the assault and asked for urgent action at the mental health clinic.
The identity of the psychiatric patient and his victims remains suppressed until a final decision at the High Court at Auckland today.
In a statement, an ADHB spokesman said it had conducted an internal inquiry into the care of the man and the review had found they could improve on what they were doing but it did not find things were fundamentally wrong with their service.
The recommendations included getting interdisciplinary teams to better connect for service users or patients in these particular circumstances. Also, improving the discharge processes and making more explicit the tasks that the clinical community teams undertake when contacted by a referrer.
The review suggested improvements to the referral and treatment pathways between different parts of the services; provide further training of staff and improved access for beds for detoxification. They are working on the recommendations.
They said the Director of Mental Health and Addiction Services had spoken to the man's family and told them of key recommendations.
