The claims were made on the first day of a High Court hearing in which the local authority is seeking injunctions against three people.
The legal action comes over continued protests against tree felling as part of the council's two BILLION pound Streets Ahead contract with Amey.
The council is seeking permanent injunctions against the defendants and 'persons unknown' at the trial, which is expected to last three days.
It says campaigners are protesting inside safety barriers 'unlawfully' and as a result holding up work - which is costing the taxpayer money.
But some people are determined to stand up for their beliefs.
The local authority's barrister David Fosdick, QC, said: "These proceedings are about bringing an end to a campaign of direct action, not about preventing peaceful protests on the highway.
"From the outset the council must emphasise the essential distinction between peaceful protest and unlawful direct action.
"They (the defendants) say because it is peaceful, it is lawful. That is simply wrong."
He added: "It is a fundamental affront to the rule of law."
John Cooper, QC, for the defendants, said the case was not just about the council's decision to pull down thousands to healthy trees but the burden the local authority had been placed under by entering into a PFI contract with Amey.
Mr Cooper said it was the defendants' case that the council had felled trees as it was the most profitable option under the contract and they had failed to explore other alternatives to chopping them down.
Mr Cooper said: "The position of the defendants here is that they are protesting against the unlawful felling of healthy trees on the basis that the council are acting illegally.
"They dispute that they are committing a disruption, nuisance or have committed any criminal offences.
"Any arrests that have been made have been rescinded and the police have made it clear...that they want nothing to do with this matter on any side."
The lawyer also said the Crown Prosecution Service had formed the view that prosecuting protesters was neither in the public interest nor stood a high enough chance of securing a conviction.
He added: "We strongly refute that criminal offences have occurred.
The council had initially sought injunctions against eight people. The figure is now down to three defendants - Alison Teal, Green Party councillor for Nether Edge and Sharrow, Calvin Payne and Dave Dilner.
Mr Cooper said the five other defendants had now signed undertakings and would not contest the matter in court.
He said they had only agreed to sign the undertakings because of the costs involved in the legal battle, which could potentially be Â£100,000.
Mr Cooper added: "They are anxious to make that clear."
The hearing continues