The Crown lawyer acting for the Ministry of Social Development, its former head Brendan Boyle and State Services Commissioner Peter Hughes has slammed Winston Peters' case as scandalous.
Mr Peters brought the case after details of his superannuation payments were leaked to media in 2017 - his pension had been overpaid by nearly $18,000 without his knowledge, and he had already paid it back by the time the story broke.
Former Government minister Anne Tolley and National Party deputy leader Paula Bennett are also being sued by Winston Peters for $450,000 over an alleged breach of his privacy.
"Mr Peters has alleged that the State Services Commissioner, the statutory officer charged with promoting and reinforcing standards of integrity and conduct in the state services and the former chief executive - the longest serving chief executive in the public service - both acted in bad faith," Victoria Casey told the High Court.
"These are extremely serious allegations to be made by anyone, but for them to be made by the Deputy Prime Minister acting in whatever capacity is extraordinary."
She said the allegations are entirely without foundation and Mr Peters has given no evidence that "could possibly support them".
"The allegations are scandalous and improper and should never have been made," she said.
"The issue for the chief executives and their ministers, and the reason for their briefings, wasn't that Mr Peters made a mistake back in 2010.
"It wasn't even that he'd been overpaid superannuation for seven years - in the scheme of things these details were not important.
"The issue for the public service was far more serious than Mr Peters mistake. The issue for the public service was MSD's response to Mr Peters' overpayment."
Earlier, Ms Tolley admitted she told more than one person about Mr Peters' superannuation overpayments, but denies she was responsible for the information getting out to media.
PAULA BENNETT BRIEFED BY STATE SERVICES COMMISSIONER
Ms Bennett told the court she had been told of the overpayment by State Services Commissioner Peter Hughes and his then-deputy Debbie Power on August 1, 2017.
Ms Bennett said it was not uncommon for Mr Hughes to give her briefings on sensitive matters.
"I trusted his judgement on when he should brief me on matters," she said.
Tweets later in August from Newsroom journalist Tim Murphy inferring a scandal was imminent had sparked concern high up within the National Party.
Ms Bennett said Bill English, who was then Prime Minister, contacted her to check on her well-being, as he thought the impending story could be about her.
Ms Bennett said she told Mr English about Winston Peters' pension overpayments and that he had paid the money back.
Ms Bennett had also told Steven Joyce that she thought the impending "scandal" could have been about Mr Peters, but she did not tell him what it could be about.
When asked if she should have asked the State Services Minister if the no surprises briefing he wanted to give her had private information, she disagreed.
"When the most senior public servant is at my office with only one other person, and with the doors shut, and [saying] he needed to disclose something to me under no surprises - I let him speak," Ms Bennett said.
ANNE TOLLEY ADMITS TELLING SEVERAL PEOPLE
Ms Tolley told the court that she had heard of the overpayments from Ministry of Social Development chief Brendan Boyle under the no surprises policy in July 2017.
She said Mr Boyle told her he had sought advice before revealing the information to her, and that she "trusted him to decide when it was appropriate to brief me on matters".
Ms Tolley also told the court that she had then told a member of her staff about the situation in "absolute" confidence, but that she had later learned through the Department of Internal Affairs review that the work had later passed on the information to others.
She had also told her husband while seeking his advice on the matter, saying "I could trust my husband with information, such as this, which needed to be kept absolutely confidential".
Just after the overpayments became public, Ms Tolley had also shared the information with her sister in Queenstown.
"I was walking alone with my sister and she said something glowing about Mr Peters," she told the court.
"I responded with words to the effect that he was not as great as she thought he was, and that he'd been receiving a single superannuation payment when he was living with someone else," Ms Tolley said.
Once the story became public, she referred questions to the MSD because she "had no business discussing anything of Mr Peters' private business".
Ms Tolley told the court that she now wishes Mr Boyle had never briefed her on the overpayments and that she regretted telling her sister, attributing it to being "tired" and "cross".
Mr Peters' lawyer Brian Henry asked Ms Tolley whether she was trustworthy, to which she replied "I wasn't in that circumstance and I regret it".
Ms Tolley insisted that she was not the reason that the media became aware of the overpayments, and said that being accused of leaking it had affected her reputation, also.
She said she was disappointed her office worker had told others about the overpayments, but that she was confident they had not leaked it to media, because media had information on it that the worker did not.