Watson has always maintained his innocence, despite a dismissed Court of Appeal bid in 2000, a denied application to the Privy Council in 2003 and a turned-down appeal for mercy to the then Governor-General in 2013.
The prosecution's case relied on Watson's behaviour on the night the pair disappeared as well as in the following days, evidence relating to the description of the man last seen with the pair at Furneaux Lodge and hairs, thought to be Olivia Hope's, found on a blanket on Watson's yacht.
In 2020, then Governor-General Dame Patsy Reddy referred Watson's case back to the Court of Appeal after reports from a forensic scientist cast doubt on the reliability of the hair evidence.
In particular, the reports cast doubt on the standards relating to the collection, handling, and forensic examination of the hairs, the reliability of the results obtained from testing and the fairness and accuracy of the evidence given at trial about the DNA testing and the results obtained from it.
Dame Patsy asked the court to question Watson's convictions by considering these new reports and to determine whether a miscarriage of justice may have occurred.
Watson's lawyer Nicholas Chisnall told the court the appeal should go ahead on grounds wider than just that of the hair evidence.
"This court's chief objective, of course is to ensure that justice is not only seen to be done, but that it is done and in my respectful submission, the only way that that can be achieved is if this court enables Mr Watson to squarely address why he says that a miscarriage of justice ensued."
Kerry Cook, also acting for Watson, said a photo montage put together by police and used by a key witness to identify Watson as the man last seen with Smart and Hope had been criticised by the Independent Police Conduct Authority in 2010 and should be included.
"The concerns that were articulated on the IPCA reports are what sustain the arguments why [the] identification of Mr Watson using [the photo montage] should not have been admitted in trial," Cook said.
"It's clear that this is a circumstantial case whereupon the hair evidence was used to corroborate other aspects of the circumstantial case so in one way or another the court is going to be dealing with this ... and the cleanest way and the most upfront way is to deal with it as a ground of appeal upfront."
But Crown lawyer Madeleine Laracy asked the court for a narrow appeal scope, sticking only to the grounds on which the Governor-General had based her referral on.
Watson had already benefited from a robust appeals system, she said.
"In New Zealand all appellants have a right to an appeal against sentence on very broad grounds ... Secondly, they have a right to seek leave for a second appeal and Mr Watson had the benefit of both of those safeguards."
The admissibility of the photo montage had already been addressed prior to the 1999 trial and the judge decided the photos were appropriate, she said. She added the photo montage had not formed part of Watson's first appeal.
The court reserved its decision, with Justice Kos thanking both sides for talking through this "fascinating and difficult point".
Watson's appeal will be heard by the court later this year.
