The seven judges of the High Court of Australia were unanimous in their decision that two Sri Lankan Tamil men who arrived by boat in October 2009 were denied "procedural fairness."
"Because these inquiries prolonged the detention of the plaintiffs, there was a direct impact on the rights and interests of the plaintiffs to freedom from detention at the behest of the executive," the judgment said.
The men claimed refugee status because they said they fear persecution from the Sri Lankan army, government agents and paramilitary groups. They allegedly supported the outlawed Liberation Tamil Tigers of Eelam, a separatist group that for decades, until a recent peace process, had been fighting a bloody war with the government.
The Australian court found the government had erred in not regarding the asylum seekers as being bound by the Migration Act and decisions of Australian courts and they were denied the right of appeal against their deportation orders.
"The implications of this decision are very significant," said David Manne, a lawyer for the two men, known only as M61 and M69. The decision means asylum seekers will be able to challenge unfavorable decisions in Australian courts, he said.
The country has been struggling in the past decade with increasing numbers of boat people -- more than 5,000 this year -- from Asia, mostly Sri Lanka but also Indonesia, Iraq and Afghanistan, arriving in Australian waters in unseaworthy vessels. The vast majority pay extreme amounts of money to notoriously ruthless middlemen and people smugglers for passage and promises of asylum in Australia.
Australian marine patrol authorities intercept the boats, often just before they sink. The people are sent to what is now an overcrowded detention center on Christmas Island, a remote Australian territory 1,600 miles northwest of Australia to await a decision on their status.
The result of the so-called "off-shore processing" or "non-statutory refugee status assessment" that has been operating for a decade is either deportation or official refugee status.
However, the High Court ruling has thrown into doubt the use of off-shore processing as a way of circumventing the Migration Act. It means that refugees arriving by boat might have to be processed on the mainland and automatically granted more freedom of movement, as already happens with people arriving by plane and who claim asylum.
The judges were concerned that the decisions about the plaintiff's refugee status were being made by outside assessment contractors hired by the government. The court said the government couldn't subcontract its own responsibility.
Australian Attorney General Robert McClelland said the judgment could force a change to laws and policies and it would need to be examined carefully.
The Conservative Party opposition wants much tougher laws and said the win by M61 and M69 would clog the legal system with appeal cases for years.
The government also was ordered to pay the plaintiffs' costs.
The High Court decision comes as the recently elected Labor government of Prime Minister Julia Gillard announced plans to build more detention camps for asylum seekers on the mainland to handle the overflow from Christmas Island.
Gillard said last month she expects "significant numbers" of minors and their families -- so-called vulnerable asylum-seekers -- especially those with children would be relocated into community-based accommodations as part of a more "humane" approach to housing the refugees.
Families living in a community will have to live according to strict rules, such as tight curfews and frequent checks by immigration officials. Also, children living in the community will have to attend a local school, she said.
"This is especially important for children, for whom protracted detention can have negative impacts on their development and mental health," Gillard said. "I don't think it is the Australian way to have kids behind razor wire in the hope that that is a deterrent."
But the move won't take place until the middle of next year.