In a decision on Monday that prompted the closure Justice Sandra Duggan accepted the quarry could indefinitely and permanently close if forced to comply with conditions under a 1991 approval.

But allowing Martins Creek Quarry owner Daracon to continue operating under broader conditions for the next 12 months was not in the public interest despite the loss of 13 jobs, after it lost a 2018 court case against the unlawful operations, Justice Duggan said.

Daracon argued the extension was necessary to give it more time to complete a fresh development application to the NSW Government.

But Dungog Shire Council, which won its case against Daracon over the unlawful operations, said Daracon had extracted up to 900,000 tonnes of material per year for many years, or more than three times the 300,000 tonnes allowed under formal approvals.

The unlawful extraction had left the small shire struggling to maintain roads for years, with no approval conditions to accommodate the movement of hundreds of trucks through villages including Paterson. Under an interim approval after the council won its case Daracon was required to pay a per tonne fee to the council for roadworks, and the quarry was limited to 90 laden truck movements per day.

In September, 2016 Daracon applied to the NSW Government to extract up to 1.5 million tonnes of material from the quarry but the application was delayed while Dungog Council's case against Daracon was determined in the Land and Environment Court.

On September 17 and 18 Daracon argued against the start of conditions restricting extractions to material for use as railway ballast, with only 30 per cent of material to be transported from the site by road.

The restrictions are in line with the original 1991 approval when the quarry was owned by the NSW Government and extracted material was taken by rail from the site to be used as railway ballast.

Daracon representative Adam Kelly told the court on September 18 that the significant reduction in extracted material while the company's fresh development application is assessed would make the quarry unviable.

The quarry is already operating at a likely loss after reducing extraction to a cap of 125,000 tonnes every three months, Mr Kelly told the court.

In her decision on Monday Justice Duggan rejected Daracon's proposal for the current interim conditions to stay in place for another 12 months, saying they were unlawful.

Daracon applied to the Land and Environment Court after Dungog Shire councillors unanimously voted against the extension beyond a court-ordered deadline of September 20 at an extraordinary meeting on July 31.

While Justice Duggan did not accept the council's view that Daracon could have progressed its fresh development application while the Land and Environment case about whether the quarry was operating lawfully was underway, she backed the council's rejection of a further extension of current conditions.

Justice Duggan said she had to weigh the impacts of closure against "the public interest in the proper administration of justice; the interests of the public in having developments properly assessed... and the potential consequences of permitting the use... for a further period of 12 months".

"I have sympathy for the third parties that will suffer the consequences of the closure of the quarry.

"However, I have determined that notwithstanding these significant impacts, that the interests of the community in the enforcement of its environmental and planning laws... in the circumstances of this case are of greater weight."

Justice Duggan said Daracon could reduce the impacts of a quarry closure by "continuing to advance" the fresh development application.

Daracon directors told staff and customers about the closure on Tuesday morning.

In a statement on Monday Daracon said it was "very disappointed with this outcome but our immediate focus will be on working with affected staff and seeking continuity of supply for our customers".

"In the first instance, we will seek to provide staff with alternative employment opportunities within the Daracon network."

The company was in June ordered to pay Dungog Council's court costs after it lost an appeal against the original 2018 decision it had operated unlawfully for years.

Land and and Environment Court Justice Simon Molesworth found Martins Creek Quarry was mined significantly beyond a five-hectare footprint approved in 1991.

That approval pre-dated its "transformation" from a railway ballast quarry into an unlawful general quarry and asphalt manufacturing business, which occurred while it was in NSW Government hands.

Daracon bought the site in 2012. Justice Molestown said operations went "well beyond allowed limits" while in government hands but noted Daracon "decided to push the bounds of what was possible".

Daracon said it would "continue to pursue clarity for potential future operations through a new development application".

Following August's decision against offering a longer stay of orders, Dungog mayor Tracy Norman said the council had intended only to make sure the business ran within its approved parameters.

"It has never been the intention of council to close the quarry," she said in August.

"Dungog Shire Council encourages and welcomes business operations in the shire. However, the community rightly expects council within its remit to ensure that all businesses operate in accordance with relevant legislation and regulations."

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