The conditions were eventually lifted, but Lindsay is appealing against the decision on principle, arguing the latter should not have been imposed in the first place.
The appeal is being heard in the Wellington District Court before Judge Arthur Tompkins.
Lindsay's lawyer, Fletcher Pilditch, said his client had 40 years of experience in the aviation industry, both civil and military. At the time the conditions were imposed he was flying an Airbus fleet for Cathay Pacific to Hong Kong.
But things went downhill for Lindsay when he spent several years going through an "acrimonious divorce", during which the court imposed and rescinded a protection order against him.
Then, in April 2016, a member of his ex wife's family approached the CAA, saying he was at risk of causing not only his own death, but that of his crew and passengers due to "alleged mental instability".
Pilditch said there was no evidence of any personality disorder or traits and characteristics that supported the allegation Lindsay would commit "some suicidal terrorist act" by deliberately crashing a passenger plane.
He said Lindsay had been "marginalised" over the following years, and that one of the contributing factors to the stricter conditions being imposed was a "fraught" relationship with the doctor assessing his mental health.
The relationship became "mired in conflict", which was used as a "rationale" for the decision, he said.
Lawyer for the CAA Duncan Ferrier said it would become clear during the hearing how complex and difficult the decision was for the Director of the CAA.
He said the director made "no apology" for taking the "conservative approach to risk" and putting greater weight on public interest, rather than Lindsay's interests.
Judge Tompkins had the "luxury" of making his decision with the knowledge "it has absolutely no risk".
But when the Director of the CAA made a decision, "the consequences of the risks eventuating were potentially catastrophic".
"I don't say that to spook the court, that's simply the reality of the facts that the Director has to consider when making decisions on a day-to-day basis."
The hearing is expected to continue into late this week.