The court found that a planning inspector's decision to approve the scheme was "legally impeccable" in the light of Chichester District Council's failure to have in place a five-year supply of deliverable housing sites.
Developer Beechcroft Land was initially refused planning permission by the council to build 34 new homes off Breach Avenue, on the edge of the village of Southbourne.
Following an appeal against the refusal and a public inquiry, however, a planning inspector granted consent for the development in November last year despite fierce local objections.
The inspector acknowledged that the project conflicted with key local plan policies and the aims of the Southbourne Parish Neighbourhood Plan regarding the location of new housing.
However, he found that the proposals did not conflict with any specific policies in the neighbourhood plan and would cause no harm to the objective of restricting development to the north of a railway line, so as to avoid further congestion at a level crossing.
In the absence of a five-year supply of housing land, he applied the tilted balance in favour of the development, finding that it was sustainable, in that its adverse impacts did not significantly or demonstrably outweigh its benefits.
The council's challenge to that decision was rejected by a judge in September last year, but the council challenged that ruling before the Court of Appeal.
Chichester's central argument was that the inspector had misapplied or misunderstood the National Planning Police Framework, which provides that applications in conflict with neighbourhood plans "should not normally be granted".
In his judgment, Lord Justice Lindblom said the inspector "recognized that the proposal did not comply with the aims of the neighbourhood plan for the location of new housing".
However, in dismissing the appeal, Lindblom noted that the neighbourhood plan contains no direct presumption against development outside settlement boundaries.
Target housing numbers given in the local plan were also "indicative" and "not maximums", said the judge who was sitting with Lord Justice Baker and Sir Bernard Rix.
The inspector also gave appropriate weight to the fact that the development was at odds with the aims of the neighbourhood plan.
Against that, however, the scale of the development was "unobjectionable" and council had accepted that the site was "sustainably located".
Having performed a lawful balancing exercise, the decision to grant permission was open to the inspector as a matter of planning judgment.
The judge concluded: "None of the inspector's conclusions betrays any misinterpretation or misapplication of the development plan policies in play.
"There is nothing unlawful, or indeed surprising, about them. They represent a series of reasonable planning judgments in the application of the relevant policies, with which the Court will not interfere.
"To describe any of the inspector's conclusions as irrational is, in my view, impossible."
The full judgment can be found here.
Chichester District Council v Secretary of State for Housing, Communities and Local Government & Anr. Case Number: C1/2018/2373