A family fighting to defend their traditional country from mining are suing Environment Minister Sussan Ley after she rejected their heritage protection bid in favour of a controversial Chinese coal project.

Key points: Environment Minister is being sued for rejecting heritage protection in favour of a proposed coal mine

Environment Minister is being sued for rejecting heritage protection in favour of a proposed coal mine Lawyers say it could be an important test case if the decision is found to be unlawful

Lawyers say it could be an important test case if the decision is found to be unlawful Traditional owners fear important sacred sites will be destroyed if the mine goes ahead

Last month, the Gomeroi Traditional Custodians failed in a bid to have sacred sites in north-west New South Wales preserved and protected from development due to cultural importance.

The land near Gunnedah had already been earmarked for the $1.2 billion Shenhua Watermark Coal Mine, which gained conditional federal approval in 2015 and has state development consents.

Ms Ley rejected their application on the grounds that the potential jobs generated from the mine were more important than cultural preservation.

Environment Minister Sussan Ley faces a legal battle. ( ABC News: Marco Catalano )

She acknowledged the project could cause "mental health impacts … a sense of dislocation, displacement and dispossession," among Indigenous people, but determined the social and economic value of the project took priority.

On behalf of the Gomeroi people, traditional owner Dolly Talbott has launched legal action against Ms Ley, with the case due before court for the first time on Wednesday.

She is being represented by the NSW Environmental Defender's Office (EDO), which will argue that the minister's decision was "unlawful" and contravenes the constitutional basis of the heritage protection act.

"If we don't try to save these sites, then we are not fulfilling our obligations to our elders and our ancestors … and our children and grandchildren," Ms Talbott said.

"[The national Indigenous heritage laws] are supposed to be there for the protection of Aboriginal culture and it doesn't seem to be working."

Gomeroi Traditional Custodian Steve Talbott inspects an Aboriginal artefact near Gunnedah. ( ABC News: Matthew Bedford )

The area is scattered with many old Aboriginal stone artefacts, as well as important ceremonial grounds, Gomeroi native title claimant Steve Talbott said.

"There's so much stuff out here that is highly significant to us as Aboriginal people," he said.

EDO principal solicitor Brendan Dobbie said he believed the Minister's decisions were unlawful.

"This challenge is questioning the limit of the Minister's discretion to refuse to issue a declaration to protect cultural heritage," he said.

"We certainly think we can put a very strong argument that these decisions were unlawful."

Mr Dobbie said it could be an important test case.

"This area of law hasn't had a lot of precedent or case law," he said.

"This challenge, which is questioning the limit of the Minister's discretion to refuse to issue a declaration to protect cultural heritage, is something of a test case."

He said if they win it could have significant impacts for other traditional owners around the country.

"If we're successful, or even just the very fact we're running the case, will have a lot of impact for other Indigenous groups who are seeking to protect heritage," he said.

Steve Talbott holds axe heads, an example of Aboriginal artefacts he says can be found at the proposed mining site. ( ABC News: Matthew Bedford )

Benefits of mine outweigh destruction of heritage: Minister

When deciding on the intervention request, Ms Ley acknowledged the mine would result in the "likely destruction of parts of their Indigenous cultural heritage".

"I considered that the expected social and economic benefits of the Shenhua Watermark Coal Mine outweighed the impacts on the applicants [Gomeroi people]," she said in the rejection document seen by the ABC.

She also noted the project could have "mental health impacts and cause a sense of dislocation, displacement and dispossession," among Indigenous people.

She said social mitigation programs from Shenhua could alleviate some of those issues.

Traditional owners Steve Talbott (r) and Nathan Leslies (l) survey the land near the Shenhua mining lease. ( ABC News: Matthew Bedford )

The Minister has the final say on which applications receive protection status, under the National Aboriginal and Torres Strait Islander Heritage Protection Act.

"It made me sick … she has acknowledged that it is important to us as Aboriginal people — and yet she still made a decision based on economic values," Mr Talbott said.

"You know, what values does she put on us, our heritage? To me, there's no value on our culture and heritage."

A spokesperson for Ms Ley said it was not appropriate to comment at this stage given the matter is subject to legal proceedings.

Shenhua promised to adhere to state Indigenous heritage protection guidelines and to relocate two grinding groves which fall within the project's boundaries.

Shenhua has been contacted for comment.

Shenhua development courts controversy

This legal battle is the latest saga in a long-running series of controversies involving the mine.

It sparked vehement protests in recent years, with farmers, environmentalists and Indigenous groups all fiercely opposed to the development.

Traditional owner Dolly Talbott is launching the court action. ( ABC News: Sarah Collard )

They have raised concerns about how the mine will impact groundwater and wildlife and whether it is economically viable.

Nationals MP Barnaby Joyce previously labelled the project "ridiculous" after his own government approved the mine, which falls in his New England electorate.

The NSW Government bought back half of the company's mining exploration license in 2017, at a cost of $262 million, which at the time it said was to protect prime farming land.

Winning this case would mean Gomeroi people can continue to teach their children culture on country, Ms Talbott said.

"The stories of the land that we continue to tell our children today, and hopefully these sites are still there so they can tell their children," he said.

"That's how we as Aboriginal people keep our songlines and our story and all that alive, is by our oral representation of them."