Former Deer Park Secondary College teacher Milan Tomasevic was forced to leave the school in 2000 over "serious misconduct", which included sexual harassment claims.

But the allegations were never proven and only raised after he reported another teacher for using school money to buy scuba equipment for a private business.

The principal did not respond to Mr Tomasevic's letters denying the claims.

Instead, the principal wrote to a psychiatrist and claimed the teacher "seemed to be having delusions that the school was fabricating facts to divert attention from his allegations".

The school claimed he was "mentally unfit" and Mr Tomasevic was forced out.

"Mr Tomasevic began a quest for justice which has at times dominated and consumed his life," Justice Andrew Keogh found.

The school's then-principal preferred to punish the whistleblower rather than deal with a criminal, the teacher said.

"This was why he could not give up, go home and move on because it was crystal clear this was wrong, and he had to sacrifice everything to prove that and to clear his name, and also because it was in the public interest," the judge wrote.

The negligence of the state government caused Mr Tomasevic's major depressive disorder, anxiety, panic attacks and compulsive behaviour.

The teacher was awarded $1,093,000 in damages.

Australian Associated Press