The NSW government tried to have a child sex abuse damages case thrown out by arguing it could not find witnesses when it already had.
The sex abuse royal commission has heard that children as young as two were beaten and raped at the Bethcar foster home for Aboriginal children at Brewarrina in remote NSW between 1969 and 1989.
It has also heard the NSW government denied liability, even though it licenced and funded the home, and subsequently used every technical and legal strategy to avoid paying compensation to former residents who came forward.
One state strategy in 2012 was an attempt to have the case struck out.
It was argued the state would not get a fair hearing because witnesses could not be found after the lengthy time lapse.
On Tuesday, senior counsel Michael Cashion was asked to explain how he came to argue that position when in fact an investigator hired by the NSW Crown Solicitors Office had located a number of witnesses.
Mr Cashion said he was briefed just before the February 2012 district court hearing and could not now recall if he knew witnesses had been found.
The application for dismissal was based on affidavits from an investigator who had been asked to find evidence.
He only listed those he could not find for the court, not the number he found.
The commission also heard when plaintiffs sought a subpoena to produce the investigator's documents, the state claimed legal privilege to privacy.
The CSO acting for the Department of Community Services (DoCS) wanted survivors to prove they were abused even though one of the men involved, Colin Gibson, had already been jailed with sentences totalling 30 years.
The civil case ran for more than five years and cost the state $3.7 million, including more than $2 million in legal fees.
Earlier on Tuesday Evangelos Manollaras, the solicitor who managed the civil action for the state, told the inquiry he did not recommend mediation.
"The department had an issue on the question of liability - on the supervisory aspect of Bethcar, and it was not likely to approve funds until that issue was resolved," he said.
Mr Manollaras, who is now retired, also said when he was asked to handle the case by the CSO he expressed reservations because he had no experience handling child sex abuse allegations.
On Tuesday he admitted that his approach was wrong and he could not now think of a reason why he took some decisions.
He had queried whether witnesses were exaggerating the abuse, and asked them for information about when they were committed to care and whether they had ever run away.
He also looked for psychiatric reports.
The hearing continues on Wednesday with Mr Cashion continuing his evidence.
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