The High Court has dismissed the Environment Agency (EA)'s case against Waste4Fuel.
The EA was seeking contempt charges against the recycling company, former company director Bryan Hughes, new company director Shelley Hurst and site manager Jonathan Beckson.
The charges were in relation to Waste4Fuel not complying with an undertaking to install appropriate fire breaks and separate areas for new waste at the site.
Meanwhile, in November last year, the EA acquired a High Court order requiring all combustible waste to be removed from the St Paul's Cray site by May 1, but Waste4Fuel failed to comply.
Dennis Clark, 64, whose house in Cornwall Drive is next to the site, said: "I absolutely cannot believe it. I don't know how this has happened - it doesn't make sense.
"The law doesn't seem to protect people like us.
"Why doesn't the judge come down here and see what it's like for himself.
"I think parliament need to get involved - the Prime Minister - they are the only people that can help us."
An Environment Agency spokesman said: "We will consider the judge’s ruling when he provides detail for his decision today.
"Until we receive it, it would be inappropriate for us to comment on the ruling.
"In the meantime, we are assessing our options with regards to the terms of the final order to see whether further proceedings should be brought for a breach of its terms.
"We will continue to do everything within our power to bring the site back into compliance."
The fumes caused by repeated fires at the site have caused significant stress among local residents over the last two years.
Some claim they haven't opened a window in that time, while others say the continuous stench has made them physically sick.
A petition has been set up calling for the closure of the Waste4Fuel site, and can be found here.