Molly's mum, Susan Hoffmann, and the little girl's dad started civil proceedings against her own mum.
They accused Rev. Hoffman of failing to take reasonable care which left the girl with 'traumatic' head injuries.
The Supreme Court in New South Wales, Australia, heard that Rev. Hoffmann offered to take baby Molly downstairs about 5.30am after she woke up and wouldn't settle.
But she allegedly didn't switch on the staircase light because she didn't want to disturb other family members who were asleep.
She said she walked down the stairs slowly and carefully, but stumbled and fell to the bottom, while still holding Molly.
The Judge, Justice Robert Shallcross Hulme said family members were expected to show a legal duty to exercise reasonable care when handling children.
"Did Reverend Hoffmann exercise such care in this case? In my view she did not," he said.
"I accept that she thought she was being careful. I accept that often babies are attended to in the middle of the night and in order that other members of a household are not disturbed, without lights being turned on.
"Nevertheless, when regard is had to the totality of circumstances including where Reverend Hoffmann walked and the absence of reasonable illumination, I am persuaded that she did not take that reasonable care."
Rev. Hoffman tried to claim the design, construction and installation of the stairs after renovation had contributed to the fall in January 2006.
But the Judge dismissed the claims. A decision is yet to be made on what costs she will have to pay to her daughter and son-in-law.