But he added, that the decision by the Labour controlled council was not irrational.
And he ruled that the Ratepayers Action Group pay the costs of the High Court hearing, estimated at £100,000.
The group had claimed that the new rule was absurd, illegal and unreasonable.
But the judge said it was not possible to infer that councillors had not had regard to their duty to ratepayers when voting for the rise.
Last night ratepayers' chairman Martin Baxter, 36, said he feared some residents might now take the law into their own hands.
"I am personally worried about what these extremists will do now."
Mr. Baxter, who runs a printing business in Chingford, spoke after council members called for a halt to the hate campaign waged against them.
Councillor Bill Dennis,. deputy leader, said colleagues had received phone calls in the night saying their wives and daughters would be raped.