But Crown lawyers have been trying to get Smith's complaint thrown out before it gets to a court, saying it was an abuse of process, there was no reasonable case to argue and that Smith lacked the status required to actually bring the case.
But the High Court at Auckland today rejected their application to have the case thrown out before a substantial hearing.
"(Smith is) sufficiently affected by, and connected to, the decision at issue to have personal standing to bring his claim," Justice Matthew Palmer said in his decision.
"Even if he did not, there is sufficient public interest in whether the temporary release scheme was lawful that there would be public interest in standing too."
The Crown was also ordered to pay "reasonable disbursements" to Smith.
Smith was on a 74-hour temporary release from Spring Hill prison when he managed to board a flight to South America in November, 2014, sparking an international manhunt, before being arrested and sent back to New Zealand.
He was jailed in 1996 for at least 13 years for murdering the father of a 12-year-old Wellington boy he had been molesting, while on bail on the child molestation charges.
Temporary release is granted for some low-risk prisoners to reintegrate them into the community, but was temporarily revoked on November 11, 2014, after Smith's escape, as a precaution. The interim system remained in force until October 19, 2015.
The number of prisoners released to outside work programmes was reduced from 443 to 264, according to an affidavit by the chief custodial officer of corrections. The report stated it had a significantly adverse effect on prisoner morale and was restrictive and had impacts for not only prisoners but their families, community groups and employers.
