Gray v National Crime Authority - [2003] NSWSC 111

No judgment structure available for this case.

CITATION: Gray v National Crime Authority [2003] NSWSC 111

HEARING DATE(S): 22, 23, 24 & 25 October 2002

JUDGMENT DATE:
28 February 2003

JURISDICTION:
Equity

JUDGMENT OF: Austin J

DECISION: See under heading "Conclusion"

CATCHWORDS: EQUITY - equitable estoppel - whether representations were made - whether representations sufficiently clear to ground estoppel - whether representations were relied upon to plaintiffs' detriment - causation of loss - equitable compensation - measure of recovery

LEGISLATION CITED: Director of Public Prosecutions Act 1983 (Cth) s 9(6)
Evidence Act 1995 (NSW) s 32(2)(b)
National Crime Authority Act (State Provisions) 1984 (NSW) s 31
Proceeds of Crime Act 1987 (Cth) s 82(1)
Witness Protection Act 1995 (NSW) s 32

CASES CITED: Alexander v Cambridge Credit Limited (1987) 9 NSWLR 310
Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (No 2) (1999) 96 FCR 491
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Crabtree-Vickers v Australian Direct Mail (1975) 133 CLR 72
Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480
Legione v Hateley (1983) 152 CLR 406
Maguire v Makaronis (1997) 198 CLR 449
March v Stramare (1991) 171 CLR 506
Morley v Morley (1855) 25 Beav 253 [53 ER 633]
O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
R v O'Neill [1972] VR 327
Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Limited (1993) 41 FCR 229
Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466
Target Holdings Limited v Redferns [1996] 1 AC 421
The Commonwealth of Australia v Verwayen (1990) 170 CLR 394
Verwayen in Wykes v Samilk Pty Ltd [1998] NSWCA 192 (19 May 1998)
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
White v Illawarra Building Society [2002] NSWCA 164 (19 July 2002)
Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1971] 1 All ER 665
Youyang v Minter Ellison [2001] NSWCA 198 (8 October 2001)

PARTIES :
Margaret Gray as administrator of the Estate of John Gray (P1)
Margaret Gray (P2)
National Crime Authority (D)

FILE NUMBER(S): SC 2580/98

COUNSEL: M R Aldridge SC with P Livingstone (P)
D Ryan SC with M Dicker (D)

SOLICITORS: Horowitz & Bilinsky (P)
Andrew Adams, Solicitor for National Crime Authority (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

FRIDAY 28 FEBRUARY 2003

2580/98 MARGARET GRAY AS ADMINISTRATOR OF THE ESTATE OF JOHN GRAY V NATIONAL CRIME AUTHORITY

JUDGMENT

HIS HONOUR:

Introduction

1 By a statement of claim filed on 21 May 1998, the plaintiffs have sought equitable compensation from the defendant on the ground that they entered into witness protection arrangements relying on the defendant's representations about their financial security, and subsequently the defendant acted contrary to its representations and in an unconscionable manner. Since the case is essentially about the defendant's alleged failure to do what it promised to do for the plaintiffs, one might have expected it to come forward as a case seeking relief for breach of contract. As I shall explain, however, the case has been put in equitable terms, in reliance on the doctrine of equitable estoppel.

2 On 20 May 1998 Santow J made some orders to the effect that the plaintiffs be known by the pseudonyms, "John Gray" and "Margaret Gray". He also ordered that two persons who were prosecuted as a result of Mr Gray's evidence be known as Mr Brown and Mr Black. The orders were made for the protection of Mr Gray, in view of evidence that his life was in danger. When the hearing of the case commenced on 22 October 2002, I vacated the orders with respect to Mr Brown and Mr Black, who may now be identified by their real names, Ian Saxon and Tamas (Tom) Schneiders. However, the orders requiring that the plaintiffs be identified by pseudonyms remain in place, having regard to the provisions of s 32 of the Witness Protection Act 1995 (NSW).

3 Mr Gray died on 9 April 2000. By an order made on 13 November 2001 the Probate Division of this Court granted special letters of administration in his estate to Mrs Gray, limited to the prosecution of the present proceeding. For convenience, I shall use the words "the plaintiffs" to refer to Mr and Mrs Gray during the period while Mr Gray was alive, and Mrs Gray in her personal capacity and as administrator during the period thereafter (although for clarity I shall sometimes refer to Mrs Gray by name). The grant of administration was limited in time to the earlier of a grant of further representation or the expiration of 12 months from the date of the order, whichever was the sooner. The final hearing of the case took place on 22, 23, 24 and 25 October 2002, and judgment was reserved. I am not aware whether the limited grant of administration was subsequently extended. That point should be clarified when the matter next comes before me.

4 I have decided that the plaintiffs have succeeded in making out a case of equitable estoppel. They have satisfied me, on the balance of probabilities, of the following matters, notwithstanding the trenchant opposition of the defendant:

· that Inspector Small, the senior investigating officer in Project OMO, made representations to them that they would be looked after and they would not be financially disadvantaged, provided that Mr Gray co-operated with the defendant and gave evidence against those accused of narcotics and money-laundering offences;

· that Inspector Small had ostensible authority to make those representations;

· that, although they acted out of fear and (in Mr Gray's case) a very strong desire to secure immunity from prosecution, they also relied on Inspector Small's financial representations;

· that they acted to their substantial detriment in reliance on, inter alia, those representations, by giving up their names and identities, limiting their contacts with their relatives and friends, abandoning their business activities and putting themselves in a position where they were effectively unable to earn income, and selling the hairdressing and beauty business in which Mrs Gray was interested for much less than it had previously been worth.

5 They have succeeded only in respect of part of their claim, relating to the sale at a loss of the hairdressing and beauty business in which Mrs Gray had an interest, their claim that the defendant should meet Mr Gray's liability to pay income tax in respect of the payments and benefits received during the period of witness protection, and compensation for a limited period (which I have assessed as three years) to permit assimilation back into the community after the witness protection arrangements were terminated. They have not succeeded in their claim for indefinite continuing compensation. It is not for me to say whether the outcome is fair in all the circumstances, or whether Mrs Gray, or her daughter, now has a "moral case" for an ex gratia payment in addition to the money Mrs Gray will be entitled to recover under my judgment.

The pleadings

6 It is particularly important in this case to pay close attention to the definition of issues emerging from the pleadings. This is because the defendant complained at the hearing that counsel for the plaintiffs substantially departed from the pleaded case in opening and closing submissions. The defendant submitted that it would be prejudiced if the plaintiffs were allowed to depart from their pleaded case in such a manner, because the defendant's evidence and detailed submissions had been prepared on the basis that the plaintiffs' case was as pleaded and particularised.

7 The statement of claim, which was quite brief, pleaded representations or inducements by the defendant as follows:

PARTICULARS

8 By its defence filed on 11 August 1998, the defendant admitted that Robin Small, J. Clark, D. Shorrocks and Gregory Cusack were officers of or persons attached to it in 1990 and 1991, and that officers of or persons attached to the defendant told Mr Gray that the defendant would take steps to ensure the protection of the plaintiffs if they entered into the witness protection program and complied with all requirements of the program. But the defendant contended that the agreement between the plaintiffs and the defendant was set out in a written memorandum of understanding dated 2 March 1990, and it denied that any representation was made that the plaintiffs would be looked after and would not be financially disadvantaged.

9 At the hearing Mrs Gray abandoned the allegation that the representations were made by four people on behalf of the defendant, and contended instead that the representations were made only by Detective Inspector Small. The principal fact in contest at the final hearing was whether any such representations were ever made.

10 The statement of claim pleaded that the plaintiffs acted to their detriment in reliance upon the alleged representations:

PARTICULARS

11 The defendant did not admit the various matters of conduct pleaded in paragraph 5 (a) to (h), but for the most part there was no challenge to evidence at the hearing that the plaintiffs acted in the various ways alleged, except for the assertion that Mr Gray sold his business and the assertion that the sale of Mrs Gray's business was at a discount to market value, and the assertion (perhaps implied in paragraph 5 (h)) that Mr Gray never traded again in his fields of expertise. The defendant admitted sub-paragraphs 5 (j) (i), (ii), and (v) to (viii). While it formally did not admit sub-paragraphs 5 (j) (iii) and (iv), nothing of significance turned on this point and there was some evidence at the hearing to support the plaintiffs' assertions. Of course, the defendant did not admit that the plaintiffs' conduct was in reliance upon any such representations as alleged by the plaintiffs.

12 The statement of claim pleaded that the defendant acted contrary to its representations and its conduct was in the circumstances unconscionable:

PARTICULARS

13 In its defence the defendant denied paragraph 7 but at the hearing it did not seek to contradict evidence which showed that the plaintiffs' participation in the witness protection program was terminated, by initiative of the defendant, in August 1997 and thereafter the various items of financial assistance for accommodation, electricity, telephone and sustenance were no longer paid.

14 By its defence the defendant purported to answer the plaintiffs' claims by alleging

· the fact that Mr Gray committed offences contrary to s 82 (1) of the Proceeds of Crime Act 1987 (Cth) and the fact that the plaintiffs' agreement to assist the defendant was a direct result of that criminal conduct coming to the attention of the defendant;

· the fact that on 16 October 1990 Mr Gray said in proceedings before the defendant that he would endeavour to refund money paid to him by the defendant if he became able to do so;

· the fact that the plaintiffs did not appeal under the provisions of the Witness Protection Act 1995 (NSW) against the decision to terminate their participation in the witness protection program;

15 In broad summary, the plaintiffs' pleaded case relies on equitable estoppel, while the defendant denies that the facts establish the ingredients of equitable estoppel, and also raises defences based on election and estoppel, and matters relevant to the exercise of the Court's discretion including delay and the plaintiffs' conduct. The evidence includes correspondence between the parties' solicitors with respect to further and better particulars. Nothing in the correspondence suggests that the plaintiffs put their claim in any other fashion. I shall return to the significance of this point.

Facts - before November 1989

16 Mr Gray, who was 66 years old in 1989, had a career in management consultancy, personnel recruitment and finance broking during the 1970s and early 1980s. He married Mrs Gray, who was his second wife, in 1985. She was about 47 years old at that time. He had two children from his first marriage, and Mrs Gray had two children from her first marriage.

17 In 1982 or 1983 he was approached by a person who wanted financial assistance, and that person asked him whether he would be able to move funds from Australia offshore. Mr Gray made inquiries in Hong Kong and in several transactions, he arranged to move some $500,000 to accounts there. The money was delivered in Australian banknotes to Mr Gray's office and once it was received, Mr Gray passed it on to his contacts for transmission to Hong Kong, after taking a commission. He then went to Hong Kong and collected the money in US currency, less expenses, and delivered it to the intended recipient. On some occasions the recipient was Tamas Schneiders. Mr Gray believed the money was "tax avoidance funds" but in evidence he gave to the defendant in 1990, he said he could not recall being told where the money had come from.

18 After these initial transactions, he handled several other money transfer operations in a similar way for the same person during 1984 and 1985, the amounts involved being in each case between $400,000 and $500,000. In April 1984 he established his business operation at a residential unit at 15/181 Clarence Street, Sydney, rented premises in which he lived with Mrs Gray. During 1986 he engaged in money transfer operations for another person, using an account in his name in Singapore. Towards the end of 1986 he made a money transfer through arrangements implemented by a Sydney hotelier who used Banque Nationale de Paris in Sydney. In October 1987 he took delivery of some funds in Auckland, which he deposited with a firm of solicitors acting for the Pacific Islands Church in Auckland.

19 Thus, by November 1989 Mr Gray had had considerable experience in money transfer operations, which he appeared to have undertaken without any significant inquiries as to the origin of the funds, and he had developed contacts who would facilitate such operations. By that time he had known Tamas Schneiders for about seven or eight years.

20 From 1998 Mrs Gray conducted a hairdressing and beauty salon in North Sydney with her daughter, called "The Cutting Bird". The business was jointly owned by her daughter and herself. Mrs Gray was the beautician and her daughter was the hairdresser. Her evidence gave the impression of a successful business but she admitted that it was not a going concern just as a hairdressing salon, nor just as a beauty salon, and that it could not support any employees other than herself and her daughter, and so they both were required to work there to make the business profitable. She alleged that it had been valued at $60,000, but a brief letter from an accountant supporting that allegation was ruled admissible, because it did not take proper form as a valuation report.

21 The 1989 and 1990 financial statements show that the business was substantially indebted to Mr Gray, and that the proprietors' equity was negative. The net loss of the business in 1989 was $2,852.22 after deducting wages of $20,158.50 (presumably paid to Mrs Gray and her daughter), and in 1990 there was a net profit of $2531.64 after deducting wages of $27,901.05.

Facts - November 1989 to January 1990

22 Early in November 1989 Schneiders approached Mr Gray to ascertain the feasibility of some money transfer transactions. Schneiders said someone wished to exchange Australian dollars for US dollars offshore, the amount being in the order of seven figures. They discussed Mr Gray's commission, which was settled at 5.5% inclusive of costs.

23 Mr Gray approached the Sydney hotelier who had helped him with previous similar transactions, and they negotiated that the hotelier's commission would be 2.5%. When Mr Gray reported back to Schneiders, Schneiders told him that the principal was involved with performing artists, rock concerts and the general entertainment industry, and that the funds would be used outside Australia for payments to attract performing artists.

24 A few days later Mr Gray was introduced by Schneiders to Ian Saxon, as the principal in the transaction. Saxon wrote down his instructions as to delivery of the funds, to a bank account in Singapore. The transaction was effectuated by Schneiders delivering over $900,000 in Australian currency in canvas carry bags to Mr Gray, in the carpark at 181 Clarence Street. The hotelier arrived shortly afterwards and took delivery of the carry bags from Mr Gray, after Mr Gray had removed his commission.

25 When that transaction was satisfactorily completed, Schneiders, Mr Gray and the hotelier executed a similar transaction, also for over $900,000, although this time the destination was a bank account in Abu Dhabi. Receipt of the funds was delayed, and Schneiders told Mr Gray to endeavour to provide a much quicker delivery if there were to be further transactions. Mr Gray responded by approaching another of his contacts, emphasising the importance of speedy delivery. The new contact put him in touch with associates of the Pacific Islands Church (registered as a tax-exempt charitable organisation), who agreed to carry out the transaction for 1% commission.

26 When Mr Gray told Schneiders that under the new arrangements the turnaround would be about 48 hours, Schneiders asked him to accept a double delivery. These funds, in excess of $1.8 million, were delivered by Schneiders to Mr Gray in canvas carry bags at the carpark of 181 Clarence Street towards the end of November 1989. The destination was the same Abu Dhabi bank account. After Schneiders delivered the money to Mr Gray, Mr Gray went with his contact to the Bank of Singapore in Sydney, where he was met by the church associates. The money was counted in a back room of the bank, and was converted into US currency and despatched to the Abu Dhabi account via the bank account of the Pacific Islands Church.

27 A few days later another transaction was arranged for an amount in excess of $900,000, again using the Pacific Islands Church connection. In his statement to the defendant dated 2 March 1990, Mr Gray said it was probable that the destination of this transaction was Saxon's bank account in the Channel Islands. About a week later, yet another transaction took place for an amount in excess of $900,000, using the Pacific Islands Church connection, the destination of which was intended to be the Abu Dhabi account. So far there had been one "double" transaction and two "single" transactions for Saxon, arranged by Mr Gray using the church connection, and two "single" transactions for Saxon arranged by Mr Gray through the hotelier.

28 A final pre-Christmas transaction was arranged for the next day, but the church associate telephoned Mr Gray on that day to say that he had problems and would have to abort the arrangements. Mr Gray then approached the Sydney hotelier again, and made arrangements to effectuate the next transaction with him. The amount was, once again, in excess of $900,000.

29 During the week of 11 December 1990 the church associate informed Mr Gray that the funds placed by him with the Bank of Singapore had been frozen and were subject to investigation by the Australian Taxation Office. Mr Gray later discovered that it was the last two transactions arranged through the church connection, for an amount totalling in excess of $1.8 million, that had been frozen. The church associate told Mr Gray to gather evidence to show that the money was a gift or loan to the church, but Mr Gray said that would be impossible to do.

30 In the following week Mr Gray received a notice of assessment in respect of the year ended 30 June 1990, directed to him as agent, for an amount of about $1,899,252.27, payable on 15 January 1990, on a taxable income said to be $3,776,309. The latter figure appears to have been the total of the four amounts despatched through the Pacific Islands Church. Mr Gray and his colleagues sought legal advice during the week commencing 18 December 1989. No positive course of action emerged. A notice of assessment in respect of the year ended 30 June 1988 was issued to Mr Gray as agent on 19 December 1989, in an amount of $1,163,048.05, of which $215,401 was payable on 23 January 1990 and $947,647.05 was payable "as previously advised".

31 From the beginning of December 1989 Schneiders made numerous calls to Mr Gray seeking confirmation of delivery of the funds arranged through the church connection and through the Sydney hotelier. Mr Gray said in his statement to the defendant that he told Schneiders there was a problem with the funds transferred through the church connection, involving the establishment of ownership of the funds for tax purposes. He told Schneiders that he had been informed by the hotelier that the funds arranged through the hotelier had been despatched to their destination, but on several occasions Schneiders said that all checks for the arrival of the funds had proved negative. It appears that the funds in two of the transactions involving the Sydney hotelier had not arrived. In all, therefore, four transactions each involving over $900,000 had not been completed and over $3.6 million had been despatched but not received.

32 During January 1990 Schneiders continued to apply pressure to Mr Gray to chase up the funds which, according to Schneiders, had not been received. On one occasion Mr Gray met with Schneiders and Saxon in the coffee lounge in the Wynyard Building and asked for an extension of time to obtain positive verification of delivery from the Sydney hotelier. Saxon was angry, and very emphatic that time was running out and that there would be unsavoury repercussions unless positive results were achieved quickly.

33 On about 23 January Mr Gray had a meeting with Schneiders, Saxon and a man introduced as "David", said to be a Colombian, at the Forbes Tavern in Sydney. According to Mr Gray's account of the meeting, it was implied that David had come to Sydney specifically for the purpose of collecting the funds. David said to Mr Gray, "Tell me where the money is and I'll go get it anywhere in the world, anywhere in the world." When Mr Gray said that some of the money had been held up because there was a "problem of ownership" which was being sorted out, and he had been informed that the other funds should have reached their destination, Saxon said, "Unless we get results there will be action taken and I have no option but to refer people to you".

34 Thus, by 23 January 1990 Mr Gray was in a serious predicament. He had undertaken to Schneiders and Saxon to transfer large amounts of money offshore for substantial commissions, but over $3.6 million had not reached the destination. He was being held accountable for the money by Schneiders and Saxon and was under threat from them, but fairly powerless to recover it. He was obviously in some degree of danger.

Operation OMO

35 In 1989 the Australian Federal Police were investigating the illegal importation of narcotics into Australia. They called their investigation "Operation Rattle". They were working in conjunction with the defendant, whose investigation focused on alleged money laundering in connection with the trading of narcotics. The defendant's investigation was called "Operation OMO". The defendant suspected that Ian Saxon was a principal in this activity.

36 The defendant had formed a team to conduct the investigation. Robin Small, at that stage a Detective Inspector in the New South Wales Police Service, had been seconded to the defendant and was the investigation case officer (described in the defendant's evidence as "the senior investigator") for Operation OMO. He was the most senior officer conducting investigations "in the field". Several other investigators reported to him, including Senior Investigator Graham Clarke (a detective sergeant on secondment from the South Australian Police Force) and Senior Investigator David Shorrocks (a detective sergeant on secondment from the New South Wales Police Service).

37 Detective Inspector Small reported to Michael Cashman, a lawyer who held the position of "Adviser (Legal)/Team Leader and acting Manager Project Development" in the defendant's Sydney office, and was the team leader for Operation OMO. He also consulted the Deputy Director of Investigations, Detective Chief Superintendent Coughlin, in relation to investigations. Mr Cashman reported to Geoffrey Sage (known as Tim Sage), another lawyer who at that time held the position of "Senior Adviser (Legal)" in the Sydney office of the defendant. The most senior officer of the defendant in the Sydney office was Gregory Cusack QC, who at that time was the Member of the defendant based in Sydney, occupying in that capacity the senior management position in the Sydney office. The Chairman of the defendant was based in Melbourne, and there were three Members of the defendant, based respectively in Melbourne, Sydney (Mr Cusack) and Adelaide.

38 By December 1989 the investigators in Operation OMO had commenced surveillance of various people, including Mr Gray. They suspected that Ian Saxon had received $77 million from the importation of prohibited drugs into Australia in 1989, and that he was endeavouring to launder that money by various methods. Mr Sage or Mr Cashman received a telephone call in December 1989 from the bank manager of the Bank of Singapore in Sydney. The bank manager explained the financial history of the Pacific Islands Church, saying that their bank account was used for only small deposits and from time to time cheques were not met on presentation. He said that uncharacteristically, over a short period of time, large amounts of money, $1 million and $2 million in cash, had been brought into the bank and sent on to Singapore. It appears that Mr Gray was identified as a person involved in this activity.

39 In a letter that he wrote to the defendant on 29 March 1996, Inspector Small described what had happened in the following way:

"On December 7 1989 [Mr Gray] was identified depositing several million dollars in cash for it in turn to be remitted to Singapore. With the assistance of the ATO, this money, then unbeknown to [Mr Gray], was restrained by the ATO. In depth inquiries over succeeding weeks gave some indication that [Mr Gray] may have been remitting the money as an agent of Ian Saxon. It was known that the AFP was interested in Saxon and contact with them did not reveal anything further."

40 The Project OMO team met on 23 January 1990 and decided to obtain a search warrant under s 10 of the Crimes Act 1914 (Cth) for the search of the plaintiffs' Clarence Street apartment. Detective Sergeant Shorrocks gave evidence that his practice in investigating narcotics syndicates was to identify an apparently vulnerable link in the syndicate and concentrate on that link to find out information about other members of the syndicate. He said he regarded Mr Gray as particularly vulnerable because of his age, the fact that he was a businessman who did not have a criminal record, and the likelihood that he would want to avoid going to gaol at all costs.

Facts - 24 January 1990

41 The search warrant was executed early on the morning of 24 January 1990 (a Wednesday) when Detective Inspector Small and other officers of the defendant attended at Mr and Mrs Gray's apartment. Mrs Gray first discovered what was going on when she came out of the bathroom, where she was preparing to go to work, and saw six or seven people in the apartment whom she had not met before. Her husband told her not to be frightened, that they were police who were making some inquiries, and that she should not worry. When she went to leave for work, one of the police officers searched her handbag, and another told her not to tell anyone that they had been there.

42 Inspector Small and Mr Gray had a conversation at the apartment. Mr Gray did not insist on his right to silence. After he explained the nature of the search warrant to Mr Gray, Inspector Small said to Mr Gray: "We have got you. We have been following you around. We know you have been sending dirty money overseas." Mr Gray replied: "I have been sending it for another party." Inspector Small asked Mr Gray to describe that party, and Mr Gray gave a description recognised by Inspector Small as a description of Saxon. He told Mr Gray that in that case, the money was almost certainly drug money. Mr Gray then became "quite ashen", according to Inspector Small. At some stage he said that he had believed the money was "black tax money". Inspector Small said to him, "It is possible or is likely that they will be after you, they will be looking for the missing millions." He then asked Mr Gray whether he was prepared to help the investigation. Mr Gray said, "What will happen to us?" Inspector Small said, "Look, I'd rather not talk here, will you come down to the National Crime Authority offices?" Mr Gray agreed, and about a quarter of an hour later he arrived at the National Crime Authority offices.

43 According to the evidence of Detective Inspector Small, the following conversation then took place:

44 Mr Gray made a telephone call and not long afterwards, a solicitor called Joanne Kelly from Gadens Ridgeway arrived and had a conversation with him. Inspector Small also spoke to her. He explained that it would be necessary to obtain a listening device warrant to permit Mr Gray to wear a listening device at the meeting that evening. It appears that Ms Kelly was concerned from the outset that her client was at risk of criminal prosecution, for the Gadens Ridgeway file relating to Mr Gray contains a file note which says "money laundering 86 Cth C Act".

45 He said to Mr Gray: "First of all I want you to understand you will be put in a position of danger. If, when you talk to them, they pull out a gun and shoot you in the eyes, there is nothing we can do about it even if we have police in the near vicinity. We will not be able to get to you in time. That's a risk you will have to take." Mr Gray replied, "Yes".

46 Detective Inspector Small then made arrangements for other investigators to begin taking statements from Mr Gray. Mr Gray gave a recorded interview in several sessions, beginning at about 1:30pm. Senior Investigator Clarke and Senior Investigator Balaglow were involved in that process. Joanne Kelly and Larry Smith, from Gadens Ridgeway, accompanied him during the interview.

47 Before the interview began, one of the investigators told Mr Gray that the information provided by him would be regarded as induced and would not be used against him in any criminal proceedings, and would be used to support an application for immunity from prosecution, and if necessary all appropriate protection would be provided. Mr Gray agreed to proceed on that basis. Later, after a break in the interview, Mr Gray said that in agreeing to the interview he was attaching "considerable validity to your undertakings given to me this morning of indemnity, immunity protection or what have you as may be necessary or available".

48 At some stage during the interview on 24 January, Senior Inspector Clarke said to Mr Gray:

49 During the second interview session Inspector Small joined the interview. He read some instructions for Mr Gray from a piece of paper, to the effect that before Mr Gray made contact with any principal in the matter or with the intermediary, Schneiders, he was to contact Mr Clarke or Mr Balaglow who were his "handlers", but if they were unavailable he was to contact Inspector Small. Inspector Small asked Mr Gray whether he agreed to carry a listening device to monitor conversation between himself and the principal in the matter under investigation, and Mr Gray replied:

"Yes, as I have stated to you I do agree to that and I am in so agreeing I'm attaching considerable validity to your undertakings given to me this morning of indemnity immunity protection or what have you as may be necessary or available."

50 Inspector Small agreed in cross-examination that nothing was said during the interview to the effect that Mr Gray would be maintained by the defendant for the rest of his life.

51 Inspector Small said that at some time on 24 January, Mr Gray again asked Inspector Small what was going to happen to him, and Inspector Small said, "Well, a lot depends on what unfolds. I don't know a lot about it at this stage but you will have to go on witness protection." Mr Gray said, "Okay". At some time Inspector Small said to Mr Gray, "If this turns out like I think it will, either you or both you and your wife, if you don't go into witness protection, will be found floating face down in Walsh Bay."

52 At yet another time there was a discussion between Inspector Small and Mr Gray about Mrs Gray's hairdressing and beauty salon business. Mr Gray asked, "What is going to become of my wife's business? She has a hairdressing salon that would not function without her." Inspector Small said, "If you go into witness protection she will never set foot in that business again."

53 The evidence points strongly to the conclusion that no representations or undertakings were made to the plaintiffs by any NCA officer other than Inspector Small. What was said by Inspector Small during his conversations with Mr Gray on 24 January, and on the next day, is a matter of crucial importance and there is conflicting evidence about it. Inspector Small also had conversations on 24 and 25 January with Mr Cashman and Mr Cusack, and he claims that they authorised him to make representations to Mr Gray about his future financial security. There is conflicting evidence about the content of these conversations. I shall return to these contentious matters after completing my account of the general facts. What is clear is that Mr Gray agreed to provide statements to the defendant of the kind described as "induced statements" - that is, taken on the basis that they would be used in an application under s 9 (6) of the Director of Public Prosecutions Act 1993 (Cth) to the Commonwealth Director of Public Prosecutions to obtain an undertaking not to prosecute Mr Gray.

54 24 January was a very busy day for Detective Inspector Small and his colleagues. In evidence Inspector Small described it as one of the most hectic he had in the whole of his police service. Mr Cashman and Detective Sergeant Shorrocks approached this Court and obtained a listening device warrant. Inspector Small coached Mr Gray on what he should say at the meeting with Schneiders. He told Mr Gray to try to arrange a meeting with the principal (Saxon), at that stage known to Mr Gray only as "Ian".

55 When Mrs Gray returned from work, her husband was at home alone. He told her that he had been wired up with a listening device and that he was going to a meeting. He told her not to worry and that he would tell her about it when it became necessary.

56 In the evening of 24 January Mr Gray was fitted with a listening device and attended the meeting with Schneiders, which took place at the Forbes Hotel in Sydney. Schneiders raised again the problem of the missing money, and told Mr Gray that he and Ian were becoming increasingly impatient. During the meeting Mr Gray insisted that Schneiders arrange a further meeting with Saxon. Schneiders was reluctant but eventually agreed to do so. It was arranged that the meeting would take place at 5:30pm in the coffee shop of the Menzies Hotel in Sydney.

Facts - 25 January 1990

57 On 25 January another listening device warrant was obtained, for this meeting. Prior to the meeting Inspector Small spelt out to Mr Gray the danger he was in. He said, "You're talking to the principals, you're taking a big risk because there's nothing we can do if they want to kill you on the spur of the moment." Mr Gray said, "I will do it." Inspector Small again coached Mr Gray in preparation for the meeting. They arranged that Mr Gray would blame a third person for the loss of the money. That person was to be an undercover police officer, Detective Sergeant Shorrocks.

58 On the same day, Ms Kelly and Teresa Pilkington from Gadens Ridgeway had a conference with Mr LM Morris QC. Mr Gray was also present. Mr Morris explained to Mr Gray that he was in a difficult position, as the information he had already given to the defendant could be used against him to found a prosecution. He noted that Mr Gray could be charged with any of a number of charges, the most likely of which was conspiracy. Mr Morris indicated to Mr Gray that in any proceedings, it was likely that the judge looking at the case would tend to the view that, in light of the large sums of money concerned, it was unlikely that the money was procured "as a result of efforts behind the microphone", and might tend to the view that the money was a result of some illicit activity other than mere tax avoidance. It must have been obvious to Mr Gray after the conference, if not before, that there was a strong prospect that he would be prosecuted for serious criminal offences and that he would be in the weak position to defend himself.

59 On the same day, after the conference and on the advice of counsel, Ms Kelly wrote to Inspector Small. The letter was hand delivered. The purpose of the letter was to clarify whether an indemnity would be provided to Mr Gray. The letter said that Mr Gray had indicated, in a meeting with Inspector Small on 24 January attended by Ms Kelly, that he was prepared to co-operate on the understanding that

· information he provided was induced information and would not be used in evidence against him;

· Inspector Small would use his best endeavours to secure an appropriate indemnity from prosecution from the Director of Public Prosecutions; and

· all necessary and appropriate protection would be given to Mr Gray as required.

60 When Mrs Gray returned from work at about 7.00 or 7:30pm on 25 January, there were two police officers in the apartment, talking to her husband. She said the one of them was Ian Balaglow and the other was Scott Fraser. They drew the curtains. Many telephone calls were made and received. When she went to take out the garbage, one of the police officers insisted on going with her. She made dinner and when the police officers sat down to eat, one of them removed his jacket and she noticed that he was carrying a gun. Detective Balaglow told her that her husband was helping them catch some criminals, and had been threatened, and that both his and her lives were in danger. He said it would be necessary to move them from their apartment for their own protection. He explained that the curtains had been drawn to cover the windows in case somebody tried to take a potshot. Mrs Gray's evidence was that she still did not understand what was going on, and she was very frightened. Her evidence was to the effect that her husband generally kept his affairs private and did not discuss them with her.

61 Mr Gray's meeting with Schneiders and Saxon took place on Thursday 25 January, as arranged. Mr Gray carried a concealed listening device. He told Saxon there was a "tax verification problem" with the money. He explained that his own function was to be merely a "passer on", and he made an offer that on the following Monday he would put Saxon in touch with the man whose function was to "do the job". Saxon expressed his anger and frustration, saying that "they" would not be enthusiastic after so much time had passed, and he said:

"I gotta know where things went, where they’re held up, who’s holding them up, I can't go away on the vague promise of being offered someone to talk to on Monday. … I need some kind of documentation or I need to be able to say it went there on such and such a day, is being held up in this place here by this person. I need answers or they're gonna, they're gonna bypass me you know. I can't fend these people off, they're gonna come straight to you and ask you the things that they want me to tell them."

62 Saxon said the position was unacceptable, and I infer from the transcript that he was becoming increasingly agitated. As the conversation continued along the same lines, Saxon demanded the names of Mr Gray's contacts and made increasingly ominous threats. In his evidence Inspector Small described the threats as "chilling". One of the main issues in this case is whether Mr Gray's co-operation was caused by financial inducements or by his fear that he and his wife might be physically harmed and his desire to avoid prosecution. It is important, for the purpose of determining that issue, to set out Saxon's threats in some detail. The following are extracts from the tape-recording of the meeting:

· "The next people that you talk to are not going to be anywhere as near as pleasant as me, I can tell you, you know."

· "Yours will be a very unpleasant weekend I can assure you."

· "Well, I mean what are you going to say to people who invade your home? You know, Jesus, what’ya gonna say to these kind of monsters when they’re turned loose on you, this is not me I play no part in this. Wadda you gonna do then, you gonna tell them the same story, they're not going to accept this."

· "You know rather than have thugs invade your house, do it to me, do it to me before monstrosities occur."

· "… we have run out of time, you know these guys know where you live, they know when your wife goes out, they know what you do, they’ve got you wired now, they know everything that you do I can tell you."

· "Because I have no time to stay on top of this, other people will be talking to you now, and they'll be talking to you every day, all day, you gonna get calls at all kinds of hours now, expect not to sleep, you'll be getting calls from strange countries at strange hours, you know it's out of my hands, you leave me no choice. You can't give me a story, so other people will talk to you and ask questions. You are about to enter a very disturbing world that I've been living with the last couple of weeks while all this bullshit’s been going on. I get all these calls. Now it's you. It's not fun, let me tell you."

· "When people come around to your house, invade your privacy and break your fucking bones, what are you gonna do?"

· "… the people that come and see you next are not gonna talk to you. [John], one bit of bullshit like this, every time you tell that they are going to break a finger you know."

· "For Christ's sake give me the fucking names now, not tomorrow, not next week, you have run out of time, you understand this you silly old cunt, give them to me now or you’re going to suffer, you know, your wife's going to suffer, people around you are going to suffer. These guys are fucking mad, crazy, crazy, they don't care, they have no respect for human beings, the sanctity of anybody's home or lifestyle or anything you know. You don't seem to understand that there's a whole other world out there beyond yours."

· "I can't walk away you know, I gotta give ’em something or hand you directly over. If I hand you directly over they're not gonna wanna talk to you [John], talking’s been done, they’ll come in and break a few things first, then have a chat to you. Why, why go through it?"

· "People will be moving in with you as from tonight. There is no more time."

· "I hope you got the space in your apartment, because a coupla guys are about to move in with ya. And they're fairly large. They do take up a bit of room."

· [After Mr Gray asked for an hour to arrange contacts with a person he named as "Norman Clark"] "… they haven't got an hour. They’ll come round and drag you out of here kicking and squealing. If I walk out on the street there it's my bones, you know. Can you give me something or can you give me nothing?"

· "What Tom's failed to convey to you here [John] is that the people we are dealing with are a bunch of fuckin’ animals, who have no respect for anything, the guy that you met briefly unfortunately the other night is probably one of the more sane of the bunch …"

· "They'll kill you [John], they'll kill me, they'll kill him, they don't give a fuck about any of us."

· "Their mentality is such they've almost reached the conclusion now. … That its gone, that they're not gonna be paid, they want to come in here with guns straightaway and start, er, executing people. We on the other hand, would like to retain some little faith that it still could happen."

63 Mr Gray persuaded Saxon and Schneiders to come with him to the foyer of his apartment building, and wait there for 15 minutes while he made some phone calls. Once in his apartment, he called Inspector Small. After speaking to Inspector Small, Mr Gray returned to Saxon and Schneiders and gave them the name of Norman Clark, saying he had confirmed that Mr Clark was in Sydney and there was a possibility of a meeting later that night. He said he did not know where to find Clark but that Clark was being found for him. After further very aggressive demands and general threats from Saxon, the meeting ended on the basis that Mr Gray would page Schneiders as soon as he had a contact number for Norman Clark.

64 Mr Gray met with Inspector Small after the meeting. Inspector Small gave evidence that Mr Gray was "absolutely totally shaken". Mr Gray later provided Schneiders with a mobile telephone number which he said was the contact number for Norman Clark. It was in fact Detective Sergeant Shorrocks' telephone. Detective Sergeant Shorrocks received a telephone call from Schneiders and he arranged to meet with Saxon at 11pm. Detective Sergeant Shorrocks was fitted with listening devices. The meeting took place, and Saxon made similar threats to the ones he had made to Mr Gray. Sergeant Shorrocks, posing as Norman Clark, explained that the Australian Taxation Office had frozen the relevant bank account. He provided Saxon with a copy of some papers from the Taxation Office and asked for more time to investigate. There was a heated discussion. Inspector Small gave evidence that the tone and manner of Saxon's conversation with Detective Sergeant Shorrocks indicated to him that "they would go to any lengths to wipe Mr Gray off, take him out of the equation." He said that at that stage the decision was made immediately to "uplift" Mr and Mrs Gray and put them into witness protection.

Facts - 26 January to 2 March 1990

65 Mr and Mrs Gray spent the whole of Friday 26 January 1990 at the offices of the defendant. Mrs Gray was not interviewed but Mr Gray was extensively interviewed. Senior Investigators Clarke and Balaglow were in attendance, as was Ms Kelly from Gadens Ridgeway. Once again the information was treated as induced information that could not be used against Mr Gray in criminal proceedings. Mr Gray said that he was providing the information to assist in the investigation, and "on the basis of the undertaking given to me by Inspector Small this morning that in providing such information the best endeavours will be used to obtain an indemnity for prosecution to secure such indemnity on my behalf".

66 It appears from the Gadens Ridgeway file that Mr Gray and a Gadens solicitor had a conference with Mr P. Byrne of counsel is the l. The file contains a file note which says:

"Byrne: Protection Witness Protection Program is good. Effective. Ability to protect you use pretty effective."

67 The evidence obtained by Mr Gray's tape recording of his conversation with Saxon and Schneiders was of great significance to Operation OMO. Inspector Small later said, in his letter to the defendant dated 29 March 1996, that this evidence established that Saxon was the owner of an amount of about $4 million that had been remitted from Australia by Mr Gray, and that Schneiders was actively assisting Saxon, and was the "accountant" of the Saxon enterprise.

68 Search warrants were obtained for both Saxon's and Schneider's residences, and these warrants were executed on 26 January 1990. In Saxon's premises were found several hundred thousand dollars in cash, several kilograms of black hashish and a host of documentary evidence which linked Saxon to a 10 tonne importation of hashish. A floor safe was opened, which contained more money and a receipt in relation to a storage garage. On the same day the Australian Federal Police, as a result of evidence obtained from Saxon's house, obtained a search warrant for the house of his brother, Lloyd Saxon, and seized money and other evidence. The storage garage was searched and found to contain about $4.5 million in Australian currency, as well as gold and other currency. According to Inspector Small's letter of 29 March 1996, it was later accepted by courts that these funds were proceeds of narcotics sales.

69 Saxon and Schneiders were arrested on 26 January 1990, and charged with various offences in relation to narcotics. Inspector Small later said, in his letter of 29 March 1996:

"There is no doubt, even with the benefit of hindsight, that without [Mr Gray]'s active co-operation on 24 and 25 January 1990 the arrest of Ian Saxon could not have occurred at that time. There is no doubt whatsoever that [Mr Gray]'s contribution on those days directly resulted in the arrest of the principals in an alleged drug importation network and the seizure of the $4.5 million. Subsequent to the arrest of Saxon a confiscation of profits order in the sum of seventy plus million dollars has been made against him by the courts."

70 The defendant's evidence was, for the most part, consistent with that assessment of the significance of Mr Gray's co-operation. Only Mr Sage regarded Mr Gray's contribution as less significant, and since his assessment was out of line with the rest of the evidence (including, in particular, Mr Cusack's evidence) I reject it.

71 The plaintiffs did not return to their apartment on the evening of 25 January and they vacated their residence then or on the following day. For several weeks they resided in motel accommodation under the supervision of officers of the defendant, and they were instructed not to leave their room and to order meals to be brought into them. They had almost daily contact with Inspector Small, and reported in daily to either Senior Investigator Clark or Senior Investigator Balaglow. Inspector Small said that Mrs Gray was "very, very upset about what was happening", and that "she just couldn't see through a brick wall that had suddenly been erected in front of her".

72 Mr Gray gave another recorded interview on Sunday 28 January 1990, at which Senior Investigator Clarke and Ms Kelly were present. Mr Gray repeated his understanding that Inspector Small had informed him that the information he would supply would be taken into account for the purposes of an application for indemnity. Senior Investigator Clarke said he was not aware of any such undertaking and had not personally had any such discussions.

73 Mr Gray and Ms Kelly attended a conference with Mr Byrne of counsel on 27 January 1990. Another Gadens solicitor was in attendance and made a file note. The file note recorded that Mr Gray said that Inspector Small had promised that he would be assisted in relocation, and that if he took the appropriate steps to recover the money he would be a good way towards buying a complete indemnity. It appears that Mr Byrne warned Mr Gray that he could be implicated in the entire money-laundering operation. Mr Byrne also advised Mr Gray that in his experience the Witness Protection Program worked efficiently. It seems that the focus of attention during the conference was Mr Gray's exposure to prosecution rather than his financial security. The Gadens Ridgeway file contains file notes of other conferences and telephone attendances in February and March 1990 in which, once again, the focus of attention is immunity from prosecution and nothing is said about representations concerning financial security.

74 Senior Investigator Clarke gave evidence that he had numerous discussions with Mr Gray either by himself or in the presence of Senior Investigator Balaglow or Inspector Small, during the period from 28 January 1990 until his period of secondment to the defendant ended in January 1991. He said that at no stage was any request made by Mr or Mrs Gray or their solicitor for a reward or other financial compensation outside the benefits provided under the memorandum of understanding referred to below. He said he could recall no complaints from Mr Gray about the manner in which he was treated or in relation to the financial support he received. He recalled a conversation with Mr Gray in which Mr Gray said his wife was having problems selling her salon, but he said he had no recollection of Mr Gray saying that he would be looking to the defendant to compensate him or his wife in relation to that matter.

75 Senior Investigator Clarke's evidence was not challenged by the plaintiffs. Instead, they relied on the evidence of Inspector Small that he did not tell Sergeant Clarke and his other colleagues about the financial undertakings he had given, on the basis that they did not need to know about them.

76 It was not feasible for the defendant to retain direct responsibility for the protection of the plaintiffs for any substantial period of time. Mr Cashman prepared a minute for Mr Cusack on 31 January 1990, recommending that Mr and Mrs Gray, who were still under the protection of the defendant's investigators, be placed with the Witness Protection Unit of the New South Wales Police Service. The minute set out a "very rudimentary costing". It recommended the immediate placing of the plaintiffs under the New South Wales Program. Mr Cusack endorsed his approval by hand on the minute on 1 February 1990. At about that time Mr Cusack had a telephone conversation with the Chairman of the defendant to arrange for a "reference" to authorise placing the plaintiffs in witness protection.

77 Mr Cusack wrote to the Commissioner of Police of New South Wales on 2 February 1990, making a request that Mr Gray be placed into the New South Wales Witness Protection Scheme as a matter of urgency. Arrangements were made for the placement, which took effect on 7 February 1990. On 14 February 1990 Mr Cusack approved a payment by the defendant to the New South Wales Police Witness Protection Unit of $5000 to cover initial expenses of the placement. Grahame Bateman of the Witness Security Unit of the New South Wales Police Service ("Witsec") was assigned to the plaintiffs and he assisted them to find residential accommodation. Eventually they moved into leased premises in Terrigal.

78 By the time they moved into that accommodation, the plaintiffs had adopted new names and new identities. They remained in Terrigal until 1999, although they changed their accommodation once during that time. Their contact with relatives and friends was restricted under the Witness Protection Program, and they were not able to maintain business contracts in their former names. Mr Gray was not able to continue in the salon business and her evidence, not challenged by the defendant, was that she was unable to establish any other business. There is some evidence of business activity by Mr Gray, but his own evidence was that he was unable to conduct any business or otherwise earn income while he was on the Witness Protection Program. At the very least, his income-earning activities were substantially curtailed.

79 On 28 February 1990 Mr Sage replied, on behalf of the defendant, to Ms Kelly's letter of 25 January 1990 about indemnity and protection. He confirmed that an induced statement was obtained from Mr Gray on 24 January 1990. He asserted that in the opinion of the Director of Public Prosecutions, there was ample evidence to charge Mr Gray with offences under either s 82 of the Proceeds of Crime Act 1987 (Cth) or s 86 (1) (b) of the Crimes Act 1914 (Cth). Mr Sage said that the defendant had no control over the grant of an indemnity from prosecution. The granting of any such undertaking was a matter for the discretion of the Commonwealth Director of Public Prosecutions pursuant to s 9 (6) of the Director of Public Prosecutions Act 1983 (Cth). The defendant was empowered to make an application for such undertaking, but it had decided that Mr Gray be charged with the offences referred to. As to the question of protection, Mr Sage said that the defendant had provided short-term protection and was conscious of Mr Gray's position, and would continue to take appropriate and necessary steps to protect him.

80 A "memorandum of understanding" was prepared by the New South Wales Police for signature by Inspector Small and the plaintiffs, as well as by an officer of the New South Wales Police Service. Mr Cusack authorised its signature on behalf of the defendant. It is necessary to consider that document in some detail.

The memorandum of understanding

81 The memorandum of understanding was signed by Mr Gray on about 2 March 1990. He did not receive legal advice before signing it. The document was also signed by Mrs Gray, but it is unclear whether she signed it in March 1990 (as she said in her affidavit) or later.

82 The document appears to be a standard form, in which the names and other information relevant to the instant case have been typed in. It records a request by Mr Gray ("referred to as "the witness") to the New South Wales Police Service to provide protection in terms of the New South Wales Police Service Witness Protection Program, and contains an acknowledgement by Detective Inspector Small on behalf of the defendant (referred to as the "Approved Body") that Mr Gray had made such a request. The instrument declares that all expenses and remuneration incurred in providing protection, except police base wages, are to be borne by the Approved Body.

83 The instrument was poorly drafted. During part of it, the drafter addressed the witness in the second person, and in other parts the provisions were expressed as statements in the first person by the witness. In some clauses the New South Wales Police Service was referred to by that name, while in other clauses references were made to "the agency", which I take to be the New South Wales Police Service.

84 Clause 2 declares

NOT

85 The distinction between a "contract" and an instrument recording the consensual agreement of the witness, the Approved Body and the New South Wales Police Service as to the conditions upon which protection would be given, is not explained. It is arguably non-existent. Part of the instrument is clearly intended to have contractual effect. Clause 30 is a technically drafted release and indemnity clause, purporting to protect the New South Wales Police Service and the Approved Body, amongst others, from and in respect of any claim by the witness in relation to liability for negligence. The instrument records a number of promises by the parties to it, in exchange for, and evidently in reliance upon, promises by other parties. The bargain reflected in the instrument is of such a nature that, arguably, the memorandum as a whole should be treated as an instrument intended to have, and having, contractual effect.

86 However, it is clear from the pleadings and particulars that the case has not been pleaded as a case in contract. The plaintiffs' brief written submissions appear to contend for a contract partly reflected in the memorandum of understanding, containing other warranties as well, but that contention was not developed in oral submissions. In the circumstances, I take the view that it is not necessary or relevant for me to determine whether the memorandum of understanding, as a whole or in respect of any particular clause, is or is not a contract.

87 By clause 4, Mr Gray acknowledged that he was the client of the witness protection program from 9 February 1990. By clause 11, he acknowledged that it was necessary for him to vacate his premises, and cancel his telephone and electricity, by 26 February 1990. That clause appears to be otiose, since these things were done before 26 February. There were various provisions restricting Mr Gray's activities and requiring him to consult with his case officer. He was required to live in premises decided by the case officer, to use the name provided by the case officer, not to talk about or reveal information about the program, and to obtain the case officer's permission to telephone or write a letter or otherwise communicate with anyone who might jeopardise the security of the matter. By clause 25 he agreed to abide by a number of "special restrictions", which were inserted in typescript:

88 Clause 26 provided, inter alia, that "during the period you are in the program you may be given limited financial and other assistance as deemed necessary by your Case Officer, and it continued:

89 Sub-paragraphs (a) to (d) were inserted in typescript. No reference was made to the taxation consequences of the payments.

90 As a general proposition, periodical financial assistance received by a taxpayer forms part of the taxpayer's assessable income. Therefore a promise to provide periodical financial assistance of the kind set out in clause 26 would not be construed as a promise to provide those benefits net of tax, unless there were specific grounds for adopting such a construction. Whether the defendant encouraged an assumption that tax would be paid, independently of the memorandum of understanding, is another matter, which I shall consider later.

91 Clause 28 stated that the witness understood that should his status under the program alter for any reason, all parties would be required to enter into a new memorandum of understanding. By clause 29, the witness said he understood that protection may be terminated by the Commander, State Investigative Group, by notice in writing served on the witness.

92 During the hearing some attention was given to clause 3. It said:

"I understand that any representations or promises previously made to me by persons in authority regarding my participation in this program are null and void, except those that are set out in this Memorandum of Understanding."

93 Clause 10 is also relevant. It said

NOT

94 Mr Gray gave evidence about the circumstances of signing the memorandum of understanding. He said that the document was given to him by Inspector Small, prior to his signing it at Witsec's offices. He said that the following conversation occurred:

Sale of the hairdressing and beauty salon

95 Mrs Gray did not return to the business after 26 January 1990. She cancelled the appointments she had on Saturday 27 January. Her daughter, who had been on vacation, came into work on that day, and thereafter her daughter attempted to run the business by herself and sell it (with the assistance of Mr Gray) as a going concern. The beauty salon part of the business stopped immediately because Mrs Gray's daughter was not qualified otherwise than as a hairdresser.

96 Attempts were made by Mrs Gray's daughter, and Mr Gray, to sell the business, and advertising costs of $1000 were incurred. Mr Gray gave instructions to a business broker for sale at $40,000, in his capacity as a director of Contec Development Pty Ltd, a creditor of the business. An offer to purchase the business for $25,000 was made in July 1990, but it was not possible to secure an extension or renewal of the lease of the premises, and the sale did not proceed. Eventually, in December 1990, the business was sold for the price of the fixtures and fittings, for $8000. Some debts had to be paid out of this amount, leaving a surplus of somewhere between $5000 and $6000. The surplus was paid to Mrs Gray's daughter.

97 Detective Sergeant Shorrocks recalled a conversation with Mr Gray (placed, apparently wrongly, in February 1990) in which Mr Gray told him that his wife had had to sell the business at a considerable loss. Sergeant Shorrocks said he told Mr Gray that he had caused his wife's grief and he should not expect the defendant to cover the loss.

Cancellation of Mrs Gray's financial plan

98 In 1988 Mrs Gray subscribed to a Capita Personal Wealth Plan comprising three investment policies issued by Capita Financial Group, under which she was to pay about $340 per month over a period of 10 years. She expected to receive approximately $100,000 on the maturity of her investment. For a time after January 1990 she continued to make payments from her and Mr Gray's savings, but after a while she could no longer afford to pay the full amount of the instalments and she reduced them in October 1990. By June 1991 she was paying a monthly contribution of $130, reflected in a significantly diminished investment outcome at the end of the term.

99 Eventually financial pressures meant that she did not have enough money to make any payments and she cancelled her membership of the plan and drew out a sum of approximately $15,000. She thereby lost the potential benefit she would have received if she had remained a member for the full term of the investment.

Facts - after 2 March 1990

100 The plaintiffs were settled into the Witness Protection Program and remained in the program until 1997. During that period they received the payments provided for in the memorandum of understanding, for accommodation, electricity accounts, telephone accounts and sustenance. The cost of providing these benefits, borne by the defendant, was approximately $45,000 per annum.

101 Mr Gray co-operated with the defendant by providing statements and giving evidence. Officers of the defendant have assessed his co-operation favourably, describing his evidence as being of a high standard and saying that he was a model witness. Mr Gray signed detailed witness statements for the purposes of criminal proceedings against various people including Saxon and Schneiders. One was an undated statement called a "statement of general criminality", another was a statement dated 2 March 1990, and the third was dated 10 May 1990. Gadens Ridgway wrote to Senior Investigator Clarke on 1 March 1990 proposing that a statement by Mr Gray be annexed to the witness statements, saying that the statement was given as a result of discussions between Mr Gray and Inspector Small in which Inspector Small undertook to use his best endeavours to obtain indemnity from prosecution.

102 Senior Investigator Clarke was the main NCA officer involved in obtaining those statements. Senior Investigator Shorrocks also had substantial contact with Mr Gray during 1990 and later. Both of them gave evidence that at no stage did they say to Mr or Mrs Gray that they would not be financially disadvantaged on entering into the witness protection program or that they would be looked after for life . Detective Sergeant Shorrocks said that late in January and in February 1990 he had a number of discussions with Mr Gray in which he said, "If you enter into the program I will do my best to look after you". As I have said, at the hearing the plaintiff relied on statements by Inspector Small rather than any statements by Senior Investigator Shorrocks or Senior Investigator Clarke.

103 The evidence makes it clear, in my view, that Mr Gray imposed a condition on his co-operation, accepted by the defendant, that the defendant would do its best to obtain immunity from prosecution for him. There is no evidence that he imposed, or attempted to impose, any equivalent condition with respect to compensation for financial loss.

104 There was some debate amongst officers of the defendant as to whether to advise the Director of Public Prosecutions that Mr Gray should be prosecuted for money-laundering offences. Eventually Mr Cusack decided to recommend that criminal proceedings be instituted. On 11 May 1990 three summonses were taken out against Mr Gray for money-laundering offences contrary to the provisions of s 82 (1) of the Proceeds of Crime Act 1987 (Cth). By a document dated 24 May 1990, the Commonwealth Director of Public Prosecutions gave an undertaking to Mr Gray pursuant to s 9 (6) of the Director of Public Prosecutions Act 1983 (Cth), to the general effect that information supplied by Mr Gray with respect to the proceedings against Saxon, Schneiders and others would not be used in evidence against him. The proceedings were adjourned in July and August 1990, and in September 1990 Mr Gray was discharged on all three matters after no evidence was offered by the Crown. The outcome was that Mr Gray had effectively been immunised from criminal prosecution for his money transfer activities with Schneiders and Saxon, admittedly by a circuitous route.

105 The defendant decided to conduct a hearing, to take place September 1990. Mr Gray wished to have legal assistance for the hearing. His solicitors asked for $10,500 on account before they briefed counsel, as well as for payment of their outstanding fees. On 18 September 1990 Mr Gray telephoned Senior Inspector Clarke, seeking to make arrangements that the solicitors be paid. It is not clear from the evidence whether any assistance was given, but Mr Gray duly gave evidence in an NCA hearing chaired by Mr Cusack, first convened for 19 September but adjourned to 16 October 1990. At the conclusion of his evidence on the latter day Mr Gray said:

"The matter of compensation was raised, the moneys that were paid to me by the National Crime Authority were raised and it is on record, as far as I am concerned, that those moneys are being used by me for sustenance at the moment. At the appropriate time if I am able I propose to refund those moneys."

106 There is some evidence, in a report prepared by Senior Investigator Clarke dated 18 September 1990, that before September 1990 Mr Gray had in his possession a sum of $100,000, being his commission for the Schneiders/Saxon money transactions and another $20,000 in cash given to him by Schneiders for safekeeping. He gave the money to a person called Alan Chapman in trust, without documentation, and subsequently drew on that money for legal and living expenses, so that there was an outstanding balance of $65,000. In September 1990 Mr Gray sought to recover the remaining $65,000 from Chapman, so as to repay a debt of $45,000 he owed to a close family friend, who had given him that amount to look after during a marital breakup. Senior Investigator Clarke prepared a draft statement to be signed by Mr Gray in relation to these matters, but evidently it was never signed. The evidence does not indicate whether Mr Gray recovered the $65,000, although it appears from the plaintiffs' evidence that if he did, it was spent before his participation in the Witness Protection Program ended in 1997.

107 In late 1990 or early 1991 Mr Gray wished to go to London for business purposes for a few days. He asked Mr Bateman whether there would be any objection and Mr Bateman said there was not, from Witsec's point of view. He then went to see Inspector Small to seek the defendant's consent to his travel. Inspector Small said he saw no problem with the trip but that he would have to get it cleared by the "top brass". Later, Inspector Small rang Mr Gray to say that the defendant would not consent to the travel. He said, "Cashman, Cusack and the NCA will not agree to your travelling because you're too valuable to them." Mr Gray did not take the trip. At around that time Mr Gray had discussions with Inspector Small about his prospects of obtaining work. Inspector Small said that it would be difficult, because Mr Gray was not permitted to use his contacts because he was too valuable a witness for the defendant to take any risk. This evidence shows that Mr Gray was continuing to co-operate with the defendant in late 1990/early 1991, and that his attempts to re-establish a business and earn an income were seriously impeded by his status as a protected witness.

108 Mr Gray gave evidence at committal hearings for Schneiders and Saxon. Special security precautions were taken. Schneiders was committed for trial on 5 September 1991, and part of his bail conditions was to report to police. He failed to report to police on 2 March 1993, and by 1997 his current whereabouts was unknown, although he was presumed to be residing overseas. Saxon was committed for trial, the trial being set down for March 1996. He escaped from gaol before the trial, and the New South Wales Government posted a $250,000 award for his re-arrest. He was eventually located in California in 1994 or 1995, and extradited back to Australia. In late 1995 or early 1996 he entered a guilty plea, and subsequently he was sentenced to 18 years' imprisonment.

109 The plaintiffs continued in the witness protection program, receiving financial assistance as provided for by the memorandum of understanding, until August 1997, when their participation was terminated.

223 As to implied actual authority, Inspector Small was the senior investigating officer in Project OMO, charged with the task of obtaining the co-operation of Mr Gray. The nature of his office was such, in my opinion, as to imply authority to commit the defendant to representations or promises with respect to the financial arrangements associated with witness protection. However, I had decided that there was no implied actual authority for the same reason that there was no express actual authority. On balance, I accept Mr Cashman's evidence that the arrangements with respect to authority were as reflected in paragraph 14.35 of the Manual. That amounts to a finding that there was a restriction on the authority that would otherwise be implied by virtue of Inspector Small's office.

224 Ostensible authority is a different matter. I am satisfied that Inspector Small had ostensible authority to make the financial representations. As I have said, Inspector Small, as senior investigating officer, occupied an office which carried with it the responsibility of negotiating with Mr Gray for his co-operation. The authority to conduct those negotiations implied, as part of the usual authority of the office, authority to bind the defendant to financial arrangements for the purpose of securing witness co-operation. The express limitation on Inspector Small's actual authority that I have found to exist was not communicated to Mr or Mrs Gray. Indeed, it was not communicated to Inspector Small, who believed he had the authority to act in a common sense way.

225 Mr Cusack, who had actual authority to give a financial undertaking on behalf of the defendant, was aware on 24 January that Inspector Small was negotiating for the co-operation of Mr Gray. He knew at about that time that a loss was anticipated in respect of the salon business. He recognised that there should be recompense for financial losses at an appropriate stage. Knowing these things, he did not seek to restrict Inspector Small's negotiations concerning financial matters. On the contrary, on 24 January he encouraged Inspector Small not to lose Mr Gray as a co-operating witness.

226 By appointing Inspector Small to the office of senior investigating officer and acquiescing, through its principal officer Mr Cusack, in Inspector Small conducting negotiations to secure witness co-operation, the defendant held out Inspector Small as having the authority to bind it to the financial undertakings that he gave: see Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480 at 503-505; Crabtree-Vickers v Australian Direct Mail (1975) 133 CLR 72 at 78ff. That holding out was confirmed by the fact that Inspector Small was authorised by the defendant to sign the memorandum of understanding, which contained undertakings of financial assistance funded by the defendant.

Were Inspector Small's representations invalidated when the memorandum of understanding was signed?

227 The defendant drew attention to clause 3 of the memorandum of understanding, according to which representations or promises previously made to the witness by persons in authority regarding his participation in the program were null and void, except those set out in the memorandum of understanding.

228 In my opinion clause 3 would not have the effect of invalidating the financial representations made on behalf of the defendant by Inspector Small, if those representations were otherwise of legal or equitable effect. If the plaintiffs and the defendant had entered into a new written contract which was intended to set out comprehensively the terms of their legal relationship, a provision of that new contract saying that it replaced any previous representations, which were no longer to be of any effect, may well be valid and operative. In the present case, however, Inspector Small's oral representations were directed towards the arrangements between the plaintiffs and the defendant with respect to compensation for financial disadvantage, and the memorandum of understanding was about a different subject matter, namely the tripartite terms upon which the New South Wales Police Service would provide witness protection.

229 It is clear from the plaintiffs' evidence that they regarded the memorandum of understanding as relating to this different subject matter. There are some specific indications in the evidence of Mr Cusack that he, as an officer of the defendant, had a similar understanding. It appears that Mr Cusack, Mr Sage and Mr Cashman all saw the witness protection arrangements as different from the question of what they called "ex gratia payment".

230 In these circumstances, clause 3, if effective at all, invalidated only representations or promises made to Mr Gray with respect to the provision of witness protection under the New South Wales scheme. It did not, on its proper construction, have any application with respect to representations made on behalf of the defendant concerning compensation for overall financial disadvantage.

Encouraged assumptions

231 The second and third ingredients of equitable estoppel, as presented above, are that the defendant's representations, promises or conduct must have created or encouraged in the plaintiff an assumption, the assumption being that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant. One of the difficult factual issues in this case is to ascertain what assumptions or beliefs were created in the minds of Mr and Mrs Gray in January 1990, when they heard Inspector Small's representations about their financial security.

232 In my view the evidence shows that both Mr and Mrs Gray came to believe, when they heard Inspector Small make and repeat his representations on 24, 25 and 27 January 1990, that a promise would be performed by the defendant with respect to their future financial welfare. The promise was that they would be looked after and not be financially disadvantaged, if Mr Gray co-operated as required and they entered into the Witness Protection Program.

233 The plaintiffs' case is that their encouraged assumption was that they would not be financially disadvantaged for the rest of their lives. Inspector Small did not say to them that his representations about financial disadvantage would operate for the rest of their lives. I cannot draw from the evidence any inference that his statements were intended to extend for the whole of their lives, or that they made any contemporaneous assumption to that effect. In my view the natural meaning of a promise to make good any financial disadvantage through witness co-operation and entry into the Witness Protection Program is that the promise extends through the period of co-operation and witness protection, rather than for life (unless the witness dies before the protection arrangements come to an end).

234 It must have been understood by Mr and Mrs Gray that the witness protection arrangements were in place to protect them from risk, and that the arrangements would no longer be needed if the risk evaporated. That being so, the correct inference to draw is that Inspector Small's representations were not capable of encouraging an assumption on the part of Mr or Mrs Gray that they would be looked after and protected from financial disadvantage for the rest of their respective lives. It is therefore unlikely that Mr or Mrs Gray in fact made any assumption in January 1990 that this would be so. Rather, Inspector Small's representations implied that Mr and Mrs Gray would be looked after and protected from financial disadvantage for so long as they were at such a risk as to require witness protection. The protection from financial disadvantage would entail financial support not only during the period of witness protection, but also for some reasonable period thereafter so as to permit them to be "rehabilitated" into the community, but it would not entail financial support for the rest of their lives.

235 In my opinion, the facts establish on balance, that there was an encouraged assumption to the effect that the defendant would pay Mr Gray's income tax in respect of the payments and benefits he received under the Witness Protection Program. There was no specific representation by Inspector Small or anyone else as to whether the payments and benefits received by Mr Gray under the Witness Protection Program were or were not subject to tax. As I have said, no such implied term can be extracted from the memorandum of understanding, which is the source of Mr Gray's entitlement to the payments and benefits that have been taxed. As a general proposition, it can hardly be the responsibility of the payer to draw the payee's attention to the tax consequences of the payments. A person who acquires a contractual entitlement to periodical payments would assume, absent any specific warranty or very special circumstances, that the payments would be subject to income tax and that the tax would be borne by the receiving party.

236 On the other hand, however, while there was no implied term in the memorandum of understanding it was the understanding of the parties that the benefits made available to Mr and Mrs Gray reflected what was needed for their sustenance. In this respect, the evidence of Mr Cashman was significant. In cross-examination, he agreed that under the Witness Protection Program a determination had been made as to the appropriate level of accommodation and the amount needed for the sustenance of Mr and Mrs Gray, in circumstances where it was likely that they had no means of earning an income. Then he agreed that is the issue of income tax had been raised in 1990 it would have been treated as part of the payments to be made within the program.

237 This evidence has persuaded me that, in the very unusual circumstances of this case, the assumptions encouraged by the defendant's conduct (here, its conduct in settling on amounts for sustenance on a net-of-tax basis) included the assumption that any tax payable in respect of the benefits under the Witness Protection Program would be met by the defendant.

Reliance and unconscionability

238 The fourth ingredient of equitable estoppel, as presented above, is reliance by the plaintiff on the assumption created by the defendant's representation, promise or conduct. The fifth ingredient is that the reliance must be such that it would be unconscionable for the defendant to depart from the assumption.

239 Counsel for the defendant helpfully submitted that it is not necessary that reliance on the representation, promise or conduct of the defendant be the sole reason why the plaintiff has acted to his or her detriment. He said that, consistently with other areas of law, it is sufficient that the defendant's representation, promise or conduct is one of the matters relied upon by the plaintiff for altering his or her position: see Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Limited (1993) 41 FCR 229 at 234 (Full Federal Court, in relation to s 52 of the Trade Practices Act 1974 (Cth)); Alexander v Cambridge Credit Limited (1987) 9 NSWLR 310, at 357 per McHugh J, in relation to tort). However, he insisted that it is necessary that the plaintiff's reliance upon the encouraged assumption is such as to make it unconscionable for the defendant to resile, having regard to all of the circumstances. I agree with these principles.

240 The conversations between Mr Gray and Inspector Small on 24 and 25 January, and the conversation between Mr and Mrs Gray and Inspector Small on 27 January, demonstrate to my mind that the plaintiffs were concerned about three things during that time. First, they were both frightened that they would suffer physical injury at the hands of Saxon and Schneiders or their henchmen. Mr Gray realised that immediate protection was necessary, and Mrs Gray trusted his judgment, even though her life was falling apart.

241 Secondly, Mr Gray was very anxious to secure, as best he could, immunity from prosecution. The risk that he would go to gaol probably weighed heavily on his mind from the moment the police arrived at his apartment on 24 January, and certainly once he discovered that the money was drug money and "went ashen". Mr Morris QC confirmed on the following day that there were grounds for prosecution and a probability of conviction. Thereafter Mr Gray and his solicitors lost no opportunity to record that Mr Gray's co-operation was conditional upon the defendant doing what it could to secure that immunity. I have referred to Gadens Ridgeway's letter of 25 January, and various occasions when statements about immunity were made in the course of witness interviews. Counsel for the defendant handed me a list identifying references, in the Gadens file which is in evidence, to immunity from prosecution. There are 16 in all. Clearly the issue was a very important one to Mr Gray and, I infer, Mrs Gray as well.

242 The importance of those other two matters is no obstacle to a finding that there was a third matter of concern for Mr and Mrs Gray, namely the question of their financial security. That concern arose in specific form when Mrs Gray discovered that it would be necessary for her to leave her salon business, never to return. But the issue was raised in more general terms by Mr Gray on 24 and 25 January. A fair reading of Inspector Small's evidence demonstrates, in my view, that the question of financial security, involving both compensation for financial losses and payment of living expenses, was a substantial issue for the plaintiffs. Consequently Inspector Small's representations, that they would be looked after and would not suffer financial disadvantage, were significant to the decision of Mr Gray to co-operate with the defendant and the decision of the plaintiffs to enter the witness protection program. The plaintiffs relied on representations about immunity from prosecution in making the decision, but they also relied upon Inspector Small's representations about their future financial security.

243 The defendant emphasised that according to Inspector Small's account, the financial representations were first made only after Mr Gray had decided to co-operate by wearing a listening device to his meeting with Schneiders. Therefore, it was said, the plaintiffs had not proved that they relied on those representations in acting to their detriment, or that those representations caused them to suffer the financial loss that occurred after they put themselves in the protection of the defendant.

244 It seems to me clear from Inspector Small's account that Mr Gray's initial decision on 24 January to co-operate by wearing a listening device to his meeting with Schneiders that evening was taken without regard to financial considerations. However, later in the day he raised the financial question and received some assurances from Inspector Small, and he returned to the matter the following day, before wearing a listening device to the meeting with Schneiders and Saxon that evening. Mr Gray's co-operation with the defendant comprised several elements. One was to attend the two meetings wearing a listening device; another was to give witness interviews and eventually to sign witness statements; a third was to attend meetings of various kinds, with counsel and others; a fourth was to give evidence in court; and a fifth was to have discussions with overseas investigators. That is not necessarily comprehensive. The present point is that many of those elements of co-operation occurred after Inspector Small had made the full set of financial representations. It was open to Mr Gray to limit or discontinue his co-operation, especially after he discovered, in May 1990, that summonses had been issued against him for money laundering offences, notwithstanding his best efforts to secure immunity from prosecution. Yet he remained committed to the process of co-operation throughout the period from 1990 to 1996, when the need for co-operation ceased.

245 My view is that, looking at the evidence as a whole, and in particular the evidence of Inspector Small's conversations with Mr Gray on 24 and 25 January and with the plaintiffs on 27 January, it is reasonably plain that Mr Gray relied on Inspector Small's representations in continuing to co-operate and not resiling on and after 25 January 1990, and that both plaintiffs relied on Inspector Small's representations of 27 January when they are allowed themselves to remain thereafter in the protection of the defendant and subsequently when they entered into the Witness Protection Program.

246 As to the last point, Mr and Mrs Gray drew a distinction between the witness protection arrangements that were the subject of the memorandum of understanding, and the financial arrangements they had made with Inspector Small on behalf of the defendant, and Mr Cusack's evidence is (as I have said) to the same effect. In my view, when Mr Gray signed the memorandum of understanding on 2 March 1990 he did not at that point cease to rely on Inspector Small's representations, notwithstanding clause 3, because (as I have said) clause 3 had no application to these representations.

247 A principal point advanced on behalf of the defendant related to letters written by Mr and Mrs Gray and Inspector Small in 1991 and 1996. None of those letters makes the claim that the plaintiffs were entitled to compensation because of promises made by Inspector Small. That, says the defendant, is a good indication that the idea of recovery for breach of binding undertakings was invented much later, and that it in fact had no part to play in the plaintiffs' conduct during the period 1990 to 1997. I have already rejected this contention, so far as it relates to Inspector Small's evidence.

248 As to the plaintiffs' position, it is helpful to consider separately the 1991 letters and the 1996 letters. In 1991 committal proceedings were under way and the plaintiffs were still at considerable risk and in need of protection. The threat of prosecution had passed but they were relying on the Witness Protection Program for their daily needs. They were familiar with the idea of an ex gratia payment from other cases, as their correspondence indicates. They were on friendly terms with certain officers of the defendant. There is no evidence as to why Mr Gray chose to write in terms of supplication rather than entitlement, and I found Mrs Gray's attempt to explain herself to be totally inadequate. However, it seems to me that reasonable people in their shoes might have thought it politic, and most likely to produce a good outcome, to write the kind of letters they wrote and to avoid appearing assertive and aggressive. As with Inspector Small, it might have been a different matter if the representations were contained in a contract, especially if they were reduced to writing. But as lay people they may not have understood the potential for enforcing obligations of conscience in equity, until the possibility was eventually explained to them by their present solicitors.

249 By March 1996 the plaintiffs' positions had changed significantly. Saxon had pleaded guilty and Schneiders had absconded, and it was unlikely that Mr Gray would be needed in future as a witness. Inspector Small and the plaintiffs believed the time had come to pursue the claim the plaintiffs had made in 1991, which had merely been deferred and not rejected by Mr Cusack's reply. But as far as I can see, they had no incentive to alter their tactical approach from supplication to demand. Essentially they were reviving and re-asserting their 1991 claim. It was only in November 1996, when their 1996 letters had been unsuccessful and Mr Gray turned to the Prime Minister for assistance, that he saw fit to put the matter in terms of unfulfilled undertakings.

250 Taking all these things into consideration, I do not regard the absence, in the 1991 and 1996 letters, of claims based on breach of undertaking as demonstrating or even indicating that no undertakings were made or relied upon in 1990.

251 Having concluded that Mr and Mrs Gray relied upon the assumption encouraged by Inspector Small's representations (made with the ostensible authority of the defendant) when they are allowed themselves to remain after 27 January in the protection of the defendant and subsequently when they entered into the Witness Protection Program, I do not find it difficult to conclude that it would be unconscionable for the defendant to depart from the assumption. The steps taken by Mr and Mrs Gray in reliance on the encouraged assumptions fundamentally changed their lives. They were severed from their lawful means of livelihood, and they placed themselves in the hands of the defendant, thereby making themselves highly vulnerable. It would be outrageously unfair to permit the defendant to resile from the assumptions encouraged by Inspector Small's conduct. By terminating the witness protection arrangements without meeting the plaintiffs' encouraged assumptions -that is, by failing to provide full compensation to the plaintiffs for their recoverable losses - the defendant acted unconscionably within the meaning of the equitable estoppel doctrine.

Causation

252 In the present case the relief sought by the plaintiffs is equitable compensation. In a case such as this, equitable compensation is clearly an appropriate remedy. Recovery is limited, however, to compensation for the loss caused by the defendant's unconscionable conduct. What is the test of causation in this context?

253 Counsel for the defendant submitted that the applicable test is the common law test enunciated in March v Stramare (1991) 171 CLR 506, that is, whether the defendant's conduct was a "common sense cause" of the plaintiffs' loss. The plaintiff did not challenge the defendant's submission on this point.

254 I agree that the common sense test of causation is the appropriate one to use in the circumstances of this case. There is authority that this test may be used to establish causation in equity's exclusive jurisdiction. In Maguire v Makaronis (1997) 198 CLR 449, Brennan CJ, Gaudron, McHugh and Gummow JJ referred (at 473) to the requirement, in a case of breach of fiduciary duty, that there must be "an adequate or sufficient connection between the equitable compensation claim and the breach of fiduciary duty". In O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262, Spigelman CJ and Meagher JA held, applying Target Holdings Limited v Redferns [1996] 1 AC 421, that in Australia a "common sense view" of causation was to be applied in determining whether a loss was caused by a breach of trust.

255 In some cases in the exclusive jurisdiction, courts have adopted a "but for" test of causation: see Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1, 93; Youyang v Minter Ellison [2001] NSWCA 198 (8 October 2001) and White v Illawarra Building Society [2002] NSWCA 164 (19 July 2002) per Powell JA at paragraph 137 and the Hodgson JA at paragraph 145. In my view, the choice of a "common sense" test in some cases and a "but for" test in others does not mean that the authorities are inconsistent. Rather, it demonstrates that the principles governing the availability of equitable compensation have about them a measure of flexibility, which enables the Court to choose the most appropriate means to redress unconscionable behaviour in the circumstances of the case. In some cases a “but for” approach is the common sense approach. In other cases, a strict “but for” approach may produce a distorted outcome.

256 In the present case, it seems to me an accurate analysis of the case to say that the defendant's conduct was, from a common sense point of view a cause of the plaintiffs' loss. This is because the totality of the evidence that I have reviewed shows that the financial representation was an important, though by no means the only or even the most important, consideration leading to the plaintiffs’ action. It is a little more difficult to say that the plaintiffs would not have suffered their losses but for the defendant's representations, from which it subsequently departed. However, it seems to me that the importance of the financial considerations as shown by the evidence, points to the conclusion that neither Mr Gray nor Mrs Gray would have acted just as they did but for Inspector Small’s representations.

Measuring the plaintiffs' recoverable losses

257 My conclusions are that the plaintiffs have established the ingredients of equitable estoppel, and that they are entitled to recover losses caused, as a matter of common sense, by the defendant's conduct.

258 In final submissions Council for the plaintiffs handed out two schedules purporting to calculate "damages". In Schedule 1, the plaintiffs claimed the following:

1. Cutting Bird business:
$67,500

2. Less proceeds received:
($8,000)

3. Taxation assessments:
$127,457

4. Value of $500 per week discounted at 10%:
$248,350

5. Accommodation $19,535 per annum or $375 per week:
$186,262

6. Electricity $821.20 per annum or $15.79 per week:
$7,844

7. Telephone $1000 per annum or $19.23 per week:
$9,551

Total:
$638,964

259 Items 4-7 are claimed on the basis that the plaintiffs should receive the equivalent of their support under the Witness Protection Program for the rest of Mr Gray's life, and Mrs Gray should receive further equivalent support up to the present time, together with a capital sum to reflect her loss of that support for the remainder of her life, based upon life expectancy tables. Schedule 2 reduces the calculations by making an allowance to reflect Mrs Gray's reduced expenses after her husband's death. The proposed reduction is one-third, and on that basis Schedule 2 claims a total amount of $422,248.

260 There was conflicting evidence as to the value of the business. Mr Mendel, the plaintiffs' valuer, adopted the methodology of valuing the business at between two and 2.5 times the profit before owner salaries. He added into that profit an additional $10,000 by making an assumption that the profit in such businesses is usually understated by an amount of that order. The assumption is not supported by any evidence and is unjustified. Mr Weeks, the defendant's valuer, took an approach which asserted that Mrs Gray and her daughter worked for substantially less than a fair wage. I do not believe that the evidence supports any such assertion, when one takes into account the oral evidence. In all these circumstances, I have decided the best approach is to adopt Mr Mendel's methodology, which has the attraction of simplicity, but to take out the assumed additional profit of $10,000. That would produce a valuation of between $40.000 and $50,000. I shall take the midpoint, $45,000.

261 Hence, in my view the net compensation in respect of the loss of the business should be one half of $37,000, that is to say $18,500. I take one half of the net valuation figure to reflect the fact that Mrs Gray had only a one half interest in the business. Her daughter is not a plaintiff but clearly she has also suffered loss by virtue of what has happened. Whether there is a case for ex gratia payment to the daughter, in light of these reasons the judgment, is a matter for others to decide, but I hope the matter will be considered.

262 For the reasons I have given, the assumption encouraged by Inspector Small's representations, and the defendant's departure from them, caused Mr Gray to suffer loss with respect to the taxation assessment, and therefore item 3 is correct. Mrs Gray is not entitled to compensation in respect of this sum, because the assessment was directed to Mr Gray. Counsel for the defendant submitted that if I came to the view that an entitlement had been established with respect to the tax assessment, the most convenient course would be to direct the defendant to pay the amount outstanding for tax, rather than to order that the amount be payable to the plaintiffs. This was because of the possibility that if the amount of tax was paid into Mr Gray’s estate, there might conceivably be some proprietary claims to it having priority to the Australian Taxation Office. Counsel for the plaintiffs put forward no cogent reasons for not doing so, and therefore I shall make the order proposed on behalf of the defendant.

263 I have found that the assumption encouraged by the defendant's conduct was not an assumption that the plaintiffs would be looked after and protected from financial disadvantage for the rest of their lives, but only that they would receive those benefits while the witness protection arrangements continued, and that those arrangements would continue only so long as they were at risk, and for a reasonable time thereafter to allow their rehabilitation in the community. Therefore paragraphs 4, 5, 6 and 7, which are calculated on a life basis, need to be substantially discounted.

264 The Court must exercise judgment, taking into account all the circumstances, when deciding upon the measure of compensation for the reasonable period of rehabilitation. Taking into account the age of the plaintiffs in 1997, when the witness protection arrangements were terminated, Mr Gray's health, the substantial length of time during which the protection arrangements operated, the effect that those arrangements had on the ability of the plaintiffs to earn income after the termination, and the difficulties Mr Gray encountered in obtaining the old age pension, I have decided that lump sum compensation should be paid by the defendant, measured by the value of the payments and benefits Mr Gray would have received under the Witness Protection Program had the arrangements continued for another three years after August 1997.

265 Since the payments and benefits received by Mr Gray under the Witness Protection Program were for the sustenance and maintenance of himself and his wife, half of the amount so calculated should be paid to the each of Mrs Gray and the estate of Mr Gray, subject to what follows. The amount payable to Mr Gray should be reduced from half of three years' benefits to half of 2 2/3 years' benefits, to take into account the fact that he died in April 2000, within the three-year period. Mrs Gray should receive compensation for the period from April to August 2000 measured at the rate of 2/3 of the annual payments and benefits under the Witness Protection Program, rather than one half, to reflect the fact that during that period her husband had died and it was necessary for her to bear the additional expense of living alone.

266 The total annual amount claimed in items 4, 5, 6 and 7 is $47,356. That is $142,068 for 3 years, half of which is $71,034. Mrs Gray should receive the latter amount plus $2683, totalling $73,717 under these headings. The estate of Mr Gray should receive $71,034 less $7892, totalling $63,142 under these headings.

The plaintiffs' alternative claims

267 Having reached conclusions generally favourable to the plaintiffs on their pleaded case in equitable estoppel, it is unnecessary for me to consider the alternative cases raised on behalf of the plaintiff at the hearing, based upon estoppel by convention and a general doctrine of unconscionability. In my opinion, this is one of those relatively infrequent cases where, were at necessary for me to do so, I would hold the plaintiffs to their pleaded case. Given the volume of evidence in this case, and the fact that alterations to the pleading would affect the nature of the evidence to be adduced, real prejudice to the defendant would arise if the plaintiffs were permitted to alter their course at the hearing.

268 I offer the observation, however, that French J's judgment in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (No 2) (1999) 96 FCR 491 provides, in my opinion, no basis in general law for taking up and applying the notion of unconscionability to produce new outcomes outside the established categories of equitable doctrine

Defences

269 My findings imply that there was no unreasonable delay on the part of the plaintiffs in asserting their entitlements and commencing the present proceeding, such as to affect the granting of equitable relief.

270 The method of calculation of the equitable compensation in this case implies that there is no basis for reducing the compensation by reference to the benefits received by the plaintiffs under the Witness Protection Program. The equitable compensation relates to matters outside those benefits.

271 Having considered the aspects of Mr Gray's conduct referred to by the defendant in its pleading and submissions, I see no basis for interfering with the award of equitable compensation by reference to any of those matters.

272 The defendant's contention that the plaintiffs elected to affirm the memorandum of understanding or that they were estopped from denying that they are bound by the memorandum of understanding is unsuccessful on the facts. The memorandum of understanding related to the protection provided by the New South Wales Police Service, whereas the representations upon which the plaintiffs' claim was based were representations by the defendant. In any case, in my view nothing in the memorandum of understanding, properly construed, prevented the assertion of the plaintiffs' claims, for reasons I have given.

Conclusions

273 The plaintiffs have made out their case for equitable compensation as follows:

· Compensation to Mrs Gray for loss of business $18,500

· Payment by defendant to Australian Taxation Office $127,457

· Compensation to the estate of Mr Gray in respect of rehabilitation $63,142

· Compensation to Mrs Gray in respect of rehabilitation $73,717.

274 I shall direct the plaintiffs to bring in short minutes of orders to reflect these determinations, and I shall make arrangements to hear submissions with respect to any consequential matters including the question of costs.

**********

Last Modified: 03/03/2003

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Gray v National Crime Authority [2003] NSWSC 111

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CITATION:	Gray v National Crime Authority [2003] NSWSC 111
HEARING DATE(S):	22, 23, 24 & 25 October 2002
JUDGMENT DATE:	28 February 2003
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	See under heading "Conclusion"
CATCHWORDS:	EQUITY - equitable estoppel - whether representations were made - whether representations sufficiently clear to ground estoppel - whether representations were relied upon to plaintiffs' detriment - causation of loss - equitable compensation - measure of recovery
LEGISLATION CITED:	Director of Public Prosecutions Act 1983 (Cth) s 9(6) Evidence Act 1995 (NSW) s 32(2)(b) National Crime Authority Act (State Provisions) 1984 (NSW) s 31 Proceeds of Crime Act 1987 (Cth) s 82(1) Witness Protection Act 1995 (NSW) s 32
CASES CITED:	Alexander v Cambridge Credit Limited (1987) 9 NSWLR 310 Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (No 2) (1999) 96 FCR 491 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Crabtree-Vickers v Australian Direct Mail (1975) 133 CLR 72 Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480 Legione v Hateley (1983) 152 CLR 406 Maguire v Makaronis (1997) 198 CLR 449 March v Stramare (1991) 171 CLR 506 Morley v Morley (1855) 25 Beav 253 [53 ER 633] O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 R v O'Neill [1972] VR 327 Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Limited (1993) 41 FCR 229 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 Target Holdings Limited v Redferns [1996] 1 AC 421 The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Verwayen in Wykes v Samilk Pty Ltd [1998] NSWCA 192 (19 May 1998) Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 White v Illawarra Building Society [2002] NSWCA 164 (19 July 2002) Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1971] 1 All ER 665 Youyang v Minter Ellison [2001] NSWCA 198 (8 October 2001)
PARTIES :	Margaret Gray as administrator of the Estate of John Gray (P1) Margaret Gray (P2) National Crime Authority (D)
FILE NUMBER(S):	SC 2580/98
COUNSEL:	M R Aldridge SC with P Livingstone (P) D Ryan SC with M Dicker (D)
SOLICITORS:	Horowitz & Bilinsky (P) Andrew Adams, Solicitor for National Crime Authority (D)

1. Cutting Bird business:	$67,500
2. Less proceeds received:	($8,000)
3. Taxation assessments:	$127,457
4. Value of $500 per week discounted at 10%:	$248,350
5. Accommodation $19,535 per annum or $375 per week:	$186,262
6. Electricity $821.20 per annum or $15.79 per week:	$7,844
7. Telephone $1000 per annum or $19.23 per week:	$9,551
Total:	$638,964