Justice James Spence said in a ruling Friday that a city bylaw banning shark fins and foods such as the Chinese dish shark fin soup fell beyond the city's jurisdiction.
Council overwhelmingly passed the bylaw last year after a heated debate which saw members of the Chinese community call the ban discriminatory.
Shark fin use has become highly controversial because of the way the fins are harvested, with advocates warning overfishing is putting shark species at risk of extinction.
Councillors cited environmental issues and inhumane treatment of sharks as reasons for supporting the move
The Canadian branch of animal rights group Humane Society International says the judge's ruling runs counter to the views of councillors and many Torontonians.
"The court's decision nullifies the will of many residents in Toronto, including prominent Chinese Canadians, who want to make sure that their city does not contribute to the shark fin trade," campaigner Gabriel Wildgen said in a release.
Coun. Kristyn Wong-Tam, who co-introduced the bylaw, said an appeal of the ruling is being considered, according to a release by the advocacy group.
A handful of Canadian cities also have bans in place, while Vancouver and Calgary are both debating their own bylaws on shark fins.
(The Canadian Press, CFRB)