Yesterday, the court heard the Council allowed the wastewater scheme's cost to explode from $35m to $63.5m without consulting ratepayers.
Matthew Palmer QC, who was representing the Association, told the court yesterday "there is an egregious series of secret and unlawful decisions by the Kaipara District Council over a long period of time".
Today, Kaipara District Council's lawyer David Goddard QC, agreed the council had acted wrongfully when it entered into the wastewater agreement.
"The reason we are here is that there were very significant failures in the governance of the Council... over which the wastewater scheme was developed.
"It is likely that different decisions would of been made... if people had not been asleep at the wheel.
"The Association has been rightfully critical of the historical actions taken of this Council."
As the rates revolt ensued, commissioners had replaced the Council, and the Attorney-General mounted an enquiry.
"The commissioners have been appointed as a consequence of these deficiencies," Mr Goddard said.
"Their responsibility is to sort out the mess and that's what they are trying to do."
However, he said despite the council's previous wrong-doings, under the Local Government Act 2002, the debt could be expected to be paid by ratepayers.
Mr Goddard said the legislation rendered previous decisions made by the Council, "irrelevant".
He said the Council could not just "throw its hands up in despair and let creditors act".
The Council now needed to take steps to discharge its debt under the Local Government Act.
By implementing a new rating plans, the council would see a "discharge" of the liability.
The Council could also sell its assets, for example libraries, or could lease its reserves.
However the sum owing was large and Council did not necessarily have assets that would foot the bill.
"How you do it is up for grabs - not whether you do it. You consult about the how, not about the whether."
Yesterday, Mr Palmer said even before the costs blowout, the Council committed to spending $30m before public consultation.
He said the wastewater plant, which was intended to benefit some 2000 properties, was not funded and built in a "transparent and democratically acceptable manner".
Mr Palmer said a previous High Court decision featured "unusually frank language" peppered with terms such as "incomprehensible and blindingly obvious" when referring to the Council's failure to consult ratepayers.
"We have here a history of an incompetently-run process."
Dozens of people from Kaipara travelled to the court in Wellington today, and to Auckland, where the hearing was broadcast via videolink to that city's Court of Appeal hearing room.
In March 2013 the Association filed judicial review proceedings against the Council about issues including the decision-making process around construction of the scheme.
The judicial review also discussed rating irregularities.
Nine months later Parliament passed a law validating irregularities in how Kaipara District Council set and assessed rates from the 2006-07 financial year to 2011-12.
The hearing before Justices Harrison, Cooper and Miller is expected to last two days.
