The defeat is being cheered by the licensed trade as a blow to what they say are blanket objections by residents' groups to all late-night licence applications.
The fight concerned an application by the Denim restaurant and bar on St Martin's Lane, WC1. The Covent Garden Community Association opposed it on the grounds that it did not comply with the relevant legislative requirements, but Westminster magistrates said the association was acting beyond its powers.
The court forced the association to contribute to Denim's legal costs by paying a nominal £165.
David Coffer, chairman of the leisure agent Davis Coffer Lyons, said many residential associations were making "purely blanket objections" to licences. He said: "Many applications are not deserving of such a degree of opposition, manifested by well organised bodies not fully representative. Hopefully, this decision is a step in the right direction."