That court found the relevant 1970s law, which was repealed in 1984, applied only to men abusing boys.

The four former students launched civil proceedings against the NSW government seeking compensation and were paid $2.5 million in settlements.

The state, which has recognized its own breach of duty towards these men, is now seeking legal action against Lam, aiming for court orders to make her accountable for a substantial financial portion of the damages.

She disputes that any sexual encounters took place, but contends that even if they did, the societal norms of the ’70s did not prohibit her from participating in such activities with students.

On Wednesday, the state’s barrister David Lloyd SC told the NSW Supreme Court that despite changing views, teachers sleeping with children was still seen as indecent in the 1970s.

“She did owe that duty and plainly that duty was breached,” he told Justice Ian Harrison.

Lloyd argued abuse of the four students had occurred, saying direct evidence corroborated the allegations.

“How on earth it is said, on Mrs Lam’s case, that all of this is made up … is entirely unclear,” he said.

The men, under cross-examination, all denied colluding with each other or making up the allegations for a financial payout or to help explain infidelities in their own marriages, Lloyd said.

Lam was accused of multiple acts of abuse in 1978 and 1979, including sex with students in a staffroom, in classrooms, at her unit and backstage during a school production of Zorro.

She allegedly flirted with the students at school, making inappropriate comments about their genitalia and sexual activities.

One of the students said he was told to climb out a window and down a drainpipe after his then-girlfriend barged into a classroom where he was having sex with Lam.

The teacher threatened to get the girl expelled the following day and started laughing when she remembered how her underwear had been on the floor as she was arguing with the female student, according to court documents.

Another student who was allegedly sexually abused said he was bullied in the playground by a boy who told him to stop spreading rumours about Lam.

The court could make an inference the bullying was ordered by the then-teacher, Lloyd said.

When another teacher at the school spotted someone who looked like Lam embracing a boy on her lap in the staffroom, the other teacher made a complaint to the principal.

However, the complaint went nowhere, Lloyd told the court.

“His response, according to her, was dismissive,” he said.

The state failed to conduct a proper investigation into the allegation which could have uncovered further abuse and resulted in Lam being dismissed before she caused additional harm, Lloyd said.

No report of that complaint or any investigation by the school of any allegations had been uncovered, the court was told.

Lam has denied she has to pay any of the $2.5 million settlement and has called into question the reasonableness of the amounts paid by the government.

Lloyd argued Lam should hand over more than half of the total settlement given she committed a “graver departure” from the standards owed by sexually abusing the boys.

The hearing continues on Thursday.

Support is available at 1800 RESPECT (1800 737 732) and National Sexual Abuse and Redress Support Service 1800 211 028.