Papua New Guinea did not have a legal framework for refugees nor had it fully committed to the UN refugee convention when Australia approved Manus Island for offshore processing, the High Court has been told.
An Iranian man is fighting his detention on Manus Island, arguing the government has no power to send asylum seekers to PNG.
If his case is successful it could end processing on Manus Island - the site of recent violence including the murder of detainee Reza Berati - and throw the government's offshore processing policy into disarray.
Lawyers for the man behind the legal challenge on Friday argued against his detention on several grounds, one being that Manus Island was illegally designated as a processing centre by then-immigration minister Chris Bowen.
Lawyer Mark Robinson told the court that advice from the United Nations High Commission for Refugees should have been considered before the minister designated Manus Island and before it was passed by parliament.
That advice raised concerns about PNG for offshore processing, detailing "several crucial challenges" which rendered the country "not fully appropriate".
It also said PNG had no legal framework to address refuge issues and its government had reservations regarding seven sections of the UN refugee convention which impact social, economic and political rights of refuges.
Mr Bowen had asked for the UNHCR advice, a document the Iranian man's lawyers argue is a mandatory requirement in designating an offshore country, six days before he made the designation in October 2012.
It was tabled in parliament after the designation was passed, the High Court was told on Friday.
"Parliament never saw this," Mr Robinson told the court.
Mr Robinson also argues power attributed under the constitution does not extend past the arrival and deportation of a person.
Offshore processing goes "far beyond" those powers, Mr Robinson told the court.
The former Labor government opened the Manus detention centre in late 2012.
Several inquiries have been launched following recent riots, one of which claimed the life of 23-year-old Barati.
Australian Greens senator Sarah Hanson-Young said regardless of the court's ruling, processing on Manus Island is untenable.
"The Manus Island camp is cruel, costly and extremely dangerous and needs to be shut down sooner rather than later," she said on Friday.
The hearing will continue in the High Court on May 13.
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