The 58-year-old said: "I am really pleased. I didn't do it for the money, I just wanted someone to recognise what had happened to me and what is probably happening to a lot of teachers."
Ms Menzies, who taught at Chalgrove primary, in the London borough of Barnet, said she had been left with long-term physical and psychological effects after being victimised by the headteacher.
She has suffered weight loss, anxiety, exhaustion is frightened to go into school. She is unable to visit schools even now, and no longer teaches.
"I'm scared of going into a classroom. I just can't do it. It brings back too many awful memories," said Ms Menzies, who has returned home to New Zealand.
She was signed off sick from January 2001 until her resignation in October that year.
Judge Brian Knight found Barnet council guilty of failing to perform a duty of care towards Ms Menzies. He said her treatment by Valerie Hughes, headteacher, amounted to bullying, harassment and an unacceptable way of discharging her professional duties. "Staff morale was low and Valerie Hughes was unapproachable, unfair in her dealing, and rude, aggressive and intimidatory in her dealings with the claimant, some children and parents," the judge said.
David Burns, the council's primary schools inspector and adviser, did not treat the matter sufficiently seriously, the judge added.
Just a year after Ms Hughes was appointed head in 1997, staff informed the National Union of Teachers of concerns about the way she ran the school.
"We were told not to go to the union in the future, but to raise any problems with the head. But she was the problem," said Ms Menzies. The council failed to take any action.
Ms Menzies's case is one of the first of its type to have been taken to the high court, according to Graham Clayton, the NUT's solicitor.
He said similar cases have been pursued through employment tribunals as claims for unfair constructive dismissal after someone has been forced to resign.
"This case sets a precedent," said Mr Clayton. "The judge has established that in cases of bullying, every employer should anticipate that the victim will be harmed."
Employers are very unlikely now to be able to rely on the defence that injury resulting from stress due to bullying could not be foreseen.
A council spokesman said: "This award relates to events that took place several years ago and the school has been under a new headteacher since 2001. The school recently received an inspection report which commented favourably on the high quality of its leadership and management."