Chief Justice Christopher Hinkson dismissed the city's application to have CP Rail stop work along the popular greenspace.
This ruling comes after months of sparring between the City of Vancouver and CP Rail.
The battle began last May when CP announced it planned to reactivate the track along the Arbutus corridor after more than a decade of not being used by the company.
The rail line had become an urban greenspace that is popular with gardeners and cyclists. After serving notice, CP began bulldozing sheds and gardens in August.
The city tried to stop that work with a court injunction, but on Tuesday, a judge ruled the city has no claim to the corridor.
"We applaud the decision," said Martin Sej, a spokesperson for CP. "We're now going to take the next few weeks to assess our plans."
Vancouver Mayor Gregor Robertson called the decision disappointing.
"There are still avenues for the city to pursue. With the Canadian Transportation agency, we have an opportunity to take next steps."
The judge also ruled gardeners, cyclists and others have no right to use the corridor. Meanwhile CP says it doesn't plan to begin work immediately.