Joanne Wingate is claiming sexual discrimination
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A senior officer told an employment tribunal he was "delighted" that one of his officers remained in the army after a sex-change operation.
Lieutenant-Colonel Graham Belgum told the tribunal in Bristol that he had been "led to believe" Joanne Wingate, then Joe Rushton, wanted to be medically discharged.
Miss Wingate, 42, from North Somerset, who was the first person to change gender in the army, is claiming sexual discrimination against the Ministry of Defence (MoD).
She says she wanted to continue as Company Sergeant Major, but was discriminated against because of her transexuality.
'Novel situation'
She also claims there was an effort to discharge her and that she was refused access to appropriate medical treatment.
Lt-Col Belgum told the tribunal that senior officers had informed him that she wanted a medical discharge, but she made it clear to him she wanted to carry on.
He claimed he then discussed what was the best role for her during her transition, and thought a job in the employment policy branch was best.
The Lt-Col said the role had "potential" and made the most of her background and experience, and that she could help the MoD learn how to manage transsexuals in the future.
Lt-Col Belgum's commanding officer, Colonel Anthony Anthistle, said he believed the Army had done the very best for Miss Wingate in a "novel" situation.
He claimed that she wanted to be medically discharged and wrote at the time that he "very much hoped" that she would be.
Miss Wingate, who was previously married, joined the army in 1981. She left in May and now works in IT.
The hearing continues.