The judge is a liberal and was a gay rights champion before taking a seat on the bench. The reason the judge refuse to approve the adoption? The couple is closeted:

While they have been partners for a decade, one of the prospective fathers is not out of the closet. The two men, who live separately to hide their relationship, were only identified in court as CJD and HN. Judge Ronel Tolmay declined the agreement saying the closeted relationship could harm the child’s psychological well being. “I can see a little toddler excitedly running towards his father in public, shouting out: ‘daddy’. Would the father pretend not to be the parent? How will this impact on the child?” she said in the decision. “No one can judge a gay person who, because of persisting public prejudice, is reluctant to reveal his sexual orientation. However, the court must always place the rights of the child first. “If HN in future finds it less daunting to be open about his sexual orientation, he can still approach the court and may obtain parental rights.”

Gotta side with the judge here—dating a closet case is hard, parenting with one would be impossible*. And it wouldn't be fair to ask a kid to join you in the closet. (*Parenting with a closeted partner as a same-sex couple, I mean. Lots of people were successfully parented by sad closet cases married to sadly duped opposite-sex partners.)