The Giggle for Girls app founder Sall Grover had attempted to appeal a 2024 decision which found Roxanne Tickle suffered indirect discrimination and ordered Ms Grover to pay $10,000 in compensation and legal costs.
It was the first time the Federal Court had weighed into gender identity discrimination.
In a decision handed down by the full bench on Friday, Justice Melissa Perry told the court Giggle and Ms Grover excluded Ms Tickle from the Giggle app on the basis of her gender-related appearance by reference to her selfie.
"This amounted to direct discrimination by reference to a characteristic that pertains to people of Ms Tickle's gender identity," Justice Perry told the court.
The judges also ruled to reassess damages awarded by the court, increasing the amount to be paid to Ms Tickle to $20,000.
Ms Tickle was blocked from the Giggle app in September 2021 on the basis of her gender, despite a birth certificate listing her as female, the court was told during a series of often-heated hearings in April 2024.
Giggle's barrister Bridie Nolan claimed Ms Tickle was a man so it was lawful to exclude her from the app because of provisions in the Sex Discrimination Act.
But Ms Tickle had undergone gender-affirming surgery and hormone treatments, identified as a woman with her family, friends and at work, and used women's change rooms and shops in women's clothing departments, her lawyer Georgina Costello said.
She had sought $200,000 in compensation, half of which was based on aggravated damages after an online campaign waged by Ms Grover.
The court was told Ms Grover had persistently misgendered Ms Tickle in media interviews and across hundreds of posts about the case made to her 93,000 online followers.
This resulted in an "enormous" amount of hate directed to Ms Tickle, Ms Costello said.
During an appeal hearing in August, lawyers for the app argued it was a "special measure" exempt from discrimination law because it sought to achieve substantial equality between men and women.
Its intention was to create a "safe space" for women, Ms Grover's lawyers said.
But this was challenged by lawyers from the Sex Discrimination Commissioner, who argued "invidious discrimination" could be permitted to take place under the guise of a special measure.
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