The Dancing Angels were halted in their movements in the busy commercial district of Causeway Bay on the International Day Against Homophobia and Transphobia (IDAHO).
Police claimed they didnâ€™t have the required permit for the performance, despite being granted permission for the demonstration.
The Court of Appeal clarified that one is required to obtain a licence only if one has control over audience admission, the South China Morning Post reports.
Lawyer Michael Vidler says the court's decision will prevent the police misusing their power to stop people from demonstrating and that their victory was not only relevant to the lgbt community but to all Hong Kong citizens seeking the right to demonstrate.
â€śThe reason why the police had fought to do this is because they had been trying to use a piece of subsidiary legislation to extend their powers to control demonstrations.â€ť