Chief Justice Paul Crampton dismissed an application by the project's opponents, the Save Halkett Bay Marine Park Society, to overturn an Environment Canada permit allowing the sinking of the former HMCS Annapolis on Gambier Island.
The group claimed paint on the ship's hull contained toxic chemicals, mainly dibutyltin dischloride and tributyltin chloride, known as TBTs, and it argued the federal agency should not have given the reef society a permit to sink it.
But Crampton said the toxins were common ingredients in an anti-fouling paint and were not in an active state and the ship was last painted two decades ago. The amount of TBTs in paint samples allegedly collected from the hull was between 0.0004 per cent and 0.0008 per cent of what would be expected in fresh anti-fouling paint, he added.
The judge also said the application was filed two months too late.
Bryan Hicks, lawyer for the Artificial Reef Society of B.C., said his clients hope to complete the project soon.
"There are no legal barriers preventing that from happening," he said. "This court decision has cleared the way for that."
Gary MacDonald of the Save Halkett Bay Marine Park Society said in an email that his group won't appeal, though it is still concerned about the paint.
He said an expert found the levels of TBTs on the ship were 33 to 200 times higher than what has been shown to affect the food chain.
"We're puzzled about why the court wouldn't have ruled conservatively in favour of human and environmental health," the email said.
"Certainly, no one who uses Halkett should be eating shellfish, crab or prawns from the bay until the (Artificial Reef Society) proves through independent research that the TBT isn't entering the food chain."
In his ruling, Crampton not only dismissed the marine society's application, but he also awarded the reef society and government court costs and lifted an order that prohibited the ship from being moved or sunk.
Because of the legal delays, Environment Canada must revise the permit's timeline before his clients can sink the ship, said Hicks.
"The artificial reef society is an environmental organization above all else, and the court decision really recognizes the work done by the reef society over the past several years to meticulously clean the Annapolis of any potentially harmful substances," he said.
"Once the Annapolis is sunk as an artificial reef, it will help to restore the ecosystem at Halkett Bay by providing habitat for various marine life.
The Annapolis served in the Canadian Navy from 1964 to 1996, was decommissioned in 1998 and was sold to the artificial reef society March 11, 2008.
Crampton's ruling said the reef society selected Halkett Bay because it wanted to "repair and restore" habitat that had been damaged by log booms over several decades.