Wetherby YOI had created its own system, dubbed the discipline incident report system (DIRS), in order to deal with minor incidents.
The informal system, which ran alongside formal procedures used across the entire youth secure estate, allowed on-the-spot punishments to be handed out.
Anne-Marie Jolly, solicitor for the Howard League for Penal Reform, which took the legal action, said this caused a number of issues.
The system meant that often the person handing out the punishment would be an officer directly involved in the incident themselves.
Punishments could also be handed out for incidents not worthy of formal punishment, such as failing to make a bed properly or poor timekeeping.
Jolly said: "This system causes tension and flashpoints between officers and young people.
"The judgment means it’s not open to governors to create a punishment system for a prison. They have to use the pre-existing system provided in the rules."
Mr Justice Holman, sitting in the High Court, ruled that punishment can only be imposed on prisoners under rules made by the Secretary of State in accordance with the Prison Act.
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