Well, there's nothing in the Constitution which explicitly stops the Commonwealth from making legislation for the governance of state-based prisons, and likewise, it may well be within its right to do so if the law is established under, for example, a treaty, but this particular hypothetical legislation (which we have to assume has been established under a relevant head of power)
is unconstitutional.
Basically, it orders each prison to create its own code of conduct. Where a challenge is raised to an alleged breach of the code, a tribunal comprised of two prison guards and an inmate nominated by the offender decides if the offence is well-founded according to the code, or if it should be dismissed. Failing that, the matter can then be heard before a Prison Discipline Appeals Court - which also has the final say and the matter can't be heard on appeal in any higher court.
I may be wrong, but I see a lot of constitutional issues here - the Cth is vesting executive powers in the prisons to create their own 'laws', but then also granting the same body some judicial functions, which threatens the integrity of the system. The Court of Appeals is also not a constitutional Court. The Commonwealth is also making laws which 'curtail' the State's capacity to govern its people within its own Constitutional power.
It's actually more complex than I anticipated. It would be easier if the Constitution expressly restricted the Commonwealth from making laws over state prisons, but alas! University can never be that easy.
