The State Government was deliberately trying to get around binding transport legislation when it attempted to transfer ownership of Newcastle's rail line last year, a Sydney court has heard.

NSW Transport laws currently prevent a rail infrastructure owner, such as Railcorp, from cutting a rail line without an act of Parliament.

In December, the Supreme Court found in favour of community action group Save Our Rail, who argued the Government did not have the authority to cut the rail line at Wickham, but the Government is fighting that decision.

The NSW Court of Appeal today heard the Government planned to deliberately circumvent transport law by transferring ownership of the railway's physical assets to a state-owned company called the Hunter Development Corporation (HDC) for $10.

HDC would then take ownership of the land, using its powers under compulsory acquisition laws.

Save Our Rail's barrister, Shane Prince, told the court the Government believed the HDC would not be defined as a rail infrastructure owner and therefore could "do something that the Transport Act deliberately outlaws for the Government".

He said getting around the protection of this part of transport legislation was something "the Parliament has deliberately turned its mind to", and that the dispute strikes at the heart of the sovereignty of the state's Parliament.

Yesterday, the court heard the Government believed the closure of two train stations at Newcastle did not technically mean the rail line had been closed.

Mr Prince today ridiculed that argument, saying you could not get a clearer definition of a closed line.

He said the Government was debating the definition to try to avoid a straightforward part of the Transport Act.

The two stations, Civic and Newcastle, have been shut since December 2014, and the State Government has covered the rail line with sealed roadways and pedestrian crossings in several places.

The hearing continues.