Public exposure of SAS soldier Willie Apiata, who was given the Victoria Cross, adversely impacted his "operational capabilities" when he was redeployed to Afghanistan, the Operation Burnham inquiry has heard.
The hearing in Wellington had focused on how to deal with classified information and confidential sources when the inquiry itself begins.
In submitting for the NZDF, lawyer Paul Radich QC spoke of the need to protect the interests of soldiers in the SAS, who were highly specialised and carried out covert and clandestine operations.
He was asked what impact winning the Victoria Cross in 2007 had had on Willie Apiata - and responded it was negative.
The inquiry was launched by the government following allegations in the book Hit & Run by journalists Nicky Hager and Jon Stephenson that six people were killed and 15 injured in an SAS raid in Afghanistan in 2010.
The authors, media organisations, and villagers affected by Operation Burnham want the inquiry to be held in public.
Earlier today, Mr Stephenson's lawyer Davey Salmon said while the words "military secrecy" sounded glamorous, the battle happened eight years ago.
"These issues are publicly important, but not actually of great sensitivity in the large part. The points that are sensitive can be dealt with case by case."
He said when necessary the public and lawyers could be excluded, for example if a witness needed to be protected, but dividing the inquiry into public hearings and private hearings would be a distraction.
Crown lawyer Aaron Martin said the most efficient way for the inquiry to proceed was for material to be looked at by the panel, and decisions made on how it would be treated.
Mr Martin said revealing too much could endanger New Zealand's security.
Foreign partnerships were important in allowing the country to fulfil its role in the world, particularly concerning security.
He said for every report New Zealand made available to another foreign agency, it got 70 in return, gaining significant value from such arrangements.
On Wednesday, the first day of the hearing, a lawyer for villagers argued the inquiry needed to look at whether the Defence Force had breached international laws. Legal action brought by the villagers had been discontinued once the inquiry was announced, lawyer Deborah Manning said.
But Mr Martin said it was not part of the inquiry's terms of reference to look into whether the human right to life had been breached.
Civil or criminal action could come out of the inquiry depending on what was found, he said, however the inquiry's investigation itself was not that kind of proceeding.
Sir Geoffrey Palmer, who along with former Supreme Court judge Sir Terence Arnold is heading the inquiry, responded that the investigation would have to look at whether the law of armed conflict was followed.
Mr Martin agreed complex law would be covered during the inquiry.
The Defence Force will have relevant material to the inquiry by the end of February, its lawyer Paul Radich QC said.
Concerns had been raised during the hearing into how classified information would be dealt with during the inquiry, and that of the 17,000 documents identified by NZDF as being relevant, the inquiry had only received 324.
Mr Radich said the documents already sent through were the most important.
Responding to further concerns that the Defence Force was deciding what to reveal to the inquiry, Mr Radich said taking into account security interests and the like, nothing relevant would be withheld.
Care needed to be taken when it came to protecting members of the SAS, people who had highly specialised capability, and whose tactics differed from conventional forces, and included covert and clandestine operations, he said.
"The importance of the anonymity of them underlies the essence of the service itself."
Mr Radich said SAS numbers were small, and redeploying people, if they were involved in a more open inquiry, would be difficult. It was important to protect their safety and wellness, and that of their family.
The lawyer representing media organisations NZME, Stuff, TVNZ, Mediaworks, RNZ and Bauer Media, said the media acted as a conduit between court proceedings, and the public.
Alan Ringwood said few people would be able to get to the hearings of the inquiry.
He said the payback from having an open inquiry was that there would be public confidence in the process.
If the public was losing confidence in the Defence Force and allegations were affecting its reputation, it was important there was public confidence in the inquiry, and that's what open justice would allow.
In closing the hearing, Sir Terence Arnold said he hoped a ruling would be made before Christmas, but as there was a lot of ground to cover it might not be possible to do so.