In August, Wanaka Community Supporting Our Northlake Neighbours Inc filed a civil court application for a declaratory order in the Invercargill High Court, and an appeal to the Environment Court, over a covenant preventing Northlake residents objecting to development proposals.
The society wanted the court to consider whether the covenant was "invalid and/or unlawful".
However, in a recent email, society president Niamh Shaw said the society's applications for funding were turned down by the Ministry for the Environment's environmental legal assistance fund.
"In the case of the Environment Court appeal, the panel decided the hotel is a local issue and not of regional or national significance," Ms Shaw said.
"In the High Court case, the panel acknowledged the issues could have potential to improve the administration and efficiency of the Resource Management Act and provide some case law around covenant rights, but considered that the outcome of the private interest of the development outweighed any public interest."
Ms Shaw said she was seeking clarification from the fund.
"We could ask the ELA to reconsider ... but I recognise a great big stonewall when I see one."
She said it seemed the society had no option but to pull out of the Environment Court appeal, although a decision on the High Court case was not required immediately.
"I'm absolutely gutted, and so very sorry," Ms Shaw said.
She considered with no-objection clauses in place, the RMA was "insufficient in holding developers accountable for their actions".
The no-objection covenant was a prominent part of discussion around an Environment Court decision earlier this year to grant Northlake consent for a 113-room hotel.
A spokeswoman for the developer noted yesterday the society had withdrawn its appeal against the hotel and the company was "looking forward to moving ahead and starting the construction".
