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:
"4. During 1990 and 1991, Robin Small, J. Clark, D. Shorrocks and Gregory Cusack on behalf of the defendant represented to each of the plaintiffs or alternatively induced them to hold the assumptions that if the first plaintiff agreed to provide the defendant with assistance in the pursuit and prosecution of certain persons:
(a) the plaintiffs could participate in the defendant's witness protection program ('the program') provided they complied with a series of requirements which the defendant would or might impose on them from time to time and which would include the plaintiffs having to forfeit their respective businesses;
(b) the defendant would ensure the plaintiffs' protection;
(c) the defendant would ensure that the plaintiffs would be 'looked after' financially and supported financially and would suffer no disadvantage as a consequence of forfeiting their respective means of livelihood;
(d) if the plaintiffs agreed to participate in the program it was necessary to execute a formal agreement but whatever the terms of that agreement the plaintiffs could rest assured that they would not be financially disadvantaged by their participation in the program.
PARTICULARS
The representations were made orally by Robin Small, J. Clark, D. Shorrocks and Gregory Cusack at 181 Clarence Street, Sydney and at the Sydney offices of the defendant."
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:
"5. In reliance upon the representations set forth in paragraph 4 above the plaintiffs to their detriment agreed to participate in the program and complied with the following requirements of the defendant:
(a) they changed their names;
(b) they vacated and terminated the lease of residential premises under the defendant's instruction, never to return to those premises;
(c) they ceased trading under their respective business names and ceased all trading activities;
(d) they gave up their identities;
(e) they ceased contact with most of their friends and acquaintances;
(f) they sold their businesses at a discount to their market value;
(g) they never returned to their businesses or their former addresses;
(h) they were never to trade again under their names in the fields that they were known in;
(i) the first plaintiff executed a written agreement on or about the 2nd March 1990.
PARTICULARS
A copy of the agreement is available for inspection at the offices of the plaintiffs' solicitors by arrangement.
(j) the first plaintiff provided extensive assistance to the defendant in pursuit of the prosecution of various persons over a period of 6 to 7 years.
PARTICULARS
(i) Extensive discussions, interviews and other attendances with National Crime Authority officers, New South Wales Police, Federal Police, officers of the Commonwealth Director of Public Prosecutions and barristers.
(ii) Appearing at committal proceedings and several Supreme Court proceedings and giving evidence.
(iii) Attendances at meetings with officers of the Drug Enforcement Agency of the United States of America.
(iv) Agreeing to give evidence in the United States of America.
(v) Meetings with the French Police and providing statements for the French Police.
(vi) Being on call for the defendant for approximately 8 years.
(vii) Agreeing to assist in obtaining evidence.
(viii) Wearing electronic recording devices and attending meetings with criminals as an under cover operative."
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:
"7. The defendant, since the beginning of September 1997, has contrary to its said representations and in an attempt to depart from the said assumptions:
(a) refused to give the plaintiffs protection;
(b) refused to ensure that the plaintiffs are not financially disadvantaged.
PARTICULARS
(i) The defendant terminated the protection of the plaintiffs.
(ii) The defendant has not reinstated the protection of the plaintiffs.
(iii) The defendant has failed to continue making payments for the plaintiffs' accommodation as the defendant had agreed to do.
(iv) The defendant has failed to continue making payments for the plaintiffs' electricity accounts.
(v) The defendant has failed to continue subsidising the plaintiffs' telephone accounts as agreed.
(vi) The defendant has failed to continue paying to the plaintiffs the sum of $500 per week for sustenance."
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
(1) as a discretionary defence, there was an unreasonable delay between the alleged representations (if made) and the commencement of the proceeding;
(2) as a further discretionary defence, any equitable damages or compensation should be refused or reduced in view of the benefits received by the plaintiffs (protection under the witness protection program, substantial financial benefits in the period 1990-1997, and non-financial support during the period), the fact that any representations made were made by law enforcement officers seeking information in respect of very serious offences, and in light of various aspects of the conduct of the plaintiffs, namely
· 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;
(3) that the plaintiffs' conduct, referred to above, constituted an election by them (or alternatively an election by Mr Gray) to affirm the memorandum of understanding that Mr Gray signed, with the consequence that the plaintiffs are (or Mr Gray is) not entitled to deny that they are (or he is) bound by the instrument;
(4) that, by the same reasoning, the plaintiffs are (or Mr Gray is) estopped from denying that they are (or he is) bound by the memorandum of understanding.
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:
Inspector Small: "The money you have been handling is almost certainly drug money, and they'll be after you for the money."
Mr Gray: "I've got a meeting with Tamas Schneiders tonight."
Inspector Small: "Who is Tamas Schneiders?"
Mr Gray: "He is the man that gave me the money from Ian."
Inspector Small: "Are you prepared to wear a listening device to this meeting?"
Mr Gray: "Yes, but what is going to happen?"
Inspector Small: "Well, it's too early to say much at this stage but you are certainly in the big league. What will probably have to happen, you will have to go into witness protection."
Mr Gray: "What is that? I have heard about people getting killed, and people getting kicked out after that."
Inspector Small: "What it is that you and your family will be taken and put, given a new identity either in Australia or maybe outside Australia. Of course you will be expected to give evidence, you will be expected to attend conferences. If you are prepared to do this, the National Crime Authority will make an application for you to be given an immunity from prosecution for any offences that you may have committed."
Mr Gray: "Okay, but I would like to see a solicitor about this. I have a personal friend who is a solicitor and he is in London. I can get somebody from Gadens Ridgeway."
Inspector Small: "Go ahead, use the phone."
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:
"No undertakings will be given by me regarding charging you or the provision of an indemnity. All negotiations in relation to those matters are to be done with Inspector Small. Senior Investigator Balaglow and myself are not in a position to offer any deals."
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.
The letter made no reference to any promises of financial compensation. As noted below, the defendant replied to Ms Kelly's letter, but did so only on 28 February 1990.
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
"This Memorandum is NOT a contract but merely a means by which the conditions necessary to give protection are clearly spelt out, nor is it a contract for employment between 'the witness' or the 'Approved Body' and the New South Wales Police Service."
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:
"(a) I will not return to my former abode without authority of my case officer.
(b) I will not attend any meetings with existing associates without prior authority of my case officer.
(c) I will not frequent the eastern suburbs of Sydney without the authority of my case officer."
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:
"That assistance shall consist of:
"(a) Payment will be made for accommodation.
(b) Payment will be made for electricity accounts.
(c) Telephone accounts (private) will be subsidised up to $250 per quarter.
(d) $500 per week will be paid for sustenance."
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
"I understand that the agency will NOT be liable for any financial loss to me which comes out of my voluntary involvement in the program."
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:
Mr Gray: "Should I get legal advice before I sign this and who will pay for it?"
Inspector Small: "Well in my opinion you don't need legal advice, it appears to be a standard document used by the New South Wales Police that governs your day to day behaviour whilst you're in their program."
Inspector Small (after Mr Gray drew attention to clauses 4 and 28 of the document): "This is a fall back position. It can't be altered except by consent of all the parties so there is no way anybody can wriggle out of this by themselves."
Mr Gray: "What about the agreement we have? That doesn't appear in here."
Inspector Small: "That is an agreement between you and the NCA and provided that you give honest and truthful evidence and continue with debriefing on what you know. The payments in the memorandum of understanding are set in concrete. Everything is above board, nobody is trying to take you for a ride."
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.
Termination of witness protection
110 The plaintiffs wrote letters to various authorities requesting compensation for loss by way of "ex gratia payment", in 1991 and 1996. Inspector Small also wrote letters. I shall deal with this correspondence below. The 1996 letters, coupled with the guilty plea by Saxon and his sentencing in that year, appear to have led to a review of the plaintiffs' position within the National Crime Authority.
111 It is likely that there were one or more meetings between Mr Gray and an officer of the defendant in March 1996 and later months, at which the plaintiffs' further participation in the Witness Protection Program was discussed. A "minute" was written by Chris Hohnen, Operations Division Co-ordinator, to Peter Lamb, General Manager Operations, on 5 September 1996. It appears that neither of them had any direct or close involvement with the plaintiffs or Operation OMO. The minute was admitted into evidence on the basis that the assertions of fact contained in it were evidence of the author's belief rather than of the truth of the facts. In the minute, Mr Hohnen referred to a meeting between Mr Moses, an officer of the defendant, and Mr Gray in March 1996, when (he said) it was explained to Mr Gray that his retention in the Witness Protection Program was being closely examined with a view to releasing him from it. Mr Hohnen said, "He appeared happy with the proposition but was adamant that he receive an ex gratia payment for past loss of income and for some future security and independence." The minute is not evidence of the fact that such a meeting occurred, but in my opinion Mr Gray's later conduct in writing to the defendant is consistent with such a meeting having taken place.
112 The minute reviewed Mr Gray's case in some detail, and concluded with a recommendation that Mr Gray be offered an ex gratia payment of $45,000, the approximate equivalent of 12 months in witness protection, and that his withdrawal from the Witness Protection Program be negotiated immediately. The minute noted that in their letters of 8 April 1996 the plaintiffs claimed $250,000, but it recommended a lesser amount because Mr Gray was indemnified and not prosecuted for money laundering offences, he did not come forward of his own free will, he had already received a substantial financial outlay through the program, and he received assistance from the defendant with respect to some taxation matters and the immigration status of his wife's mother.
113 The direct response to Mr Hohnen's memorandum is not in evidence, but it appears that by May 1997 the defendant had reached a decision to recommend termination of the plaintiffs' participation in the Witness Protection Program. Under the memorandum of understanding, clause 29, protection could be terminated by the Commander, State Investigative Group, by notice in writing served on the witness. On 20 May 1997 Gary Allen, then Regional Director of the defendant, wrote to the Commander of the Witness Protection Unit setting out the history of Mr Gray's co-operation and protection and reasons for concluding that any threat remaining against him was extremely minimal. The letter concluded with a request that steps be taken to terminate Mr Gray's participation in the Program. The letter recorded that the defendant had offered Mr Gray a single, final severance payment which he had declined.
114 It appears that on 4 July 1997 Witsec served notice on Mr Gray informing him that his position under the Witness Protection Program would cease on 1 August 1997. That notice is not in evidence, but it is referred to in other correspondence.
115 On about 23 July 1997 the defendant contacted Mr Gray to propose a meeting to discuss his "exit" from the Witness Protection Scheme. Mr Gray replied by facsimile to the defendant dated 23 July. Mr Gray's letter is not in evidence, but evidently he asked for some clarification about the meeting. On the same day Mr Richard Moses, then Acting Regional Director of the Sydney office of the defendant, replied answering those questions. Mr Moses' letter sets out the following as the agenda for the proposed meeting:
"The agenda will be to provide reassurances that the NCA does not intend for you to exit the Witness Protection Program and assimilate back into the community without providing certain financial assistance. The NCA also wishes to reassure you that everything possible will be done to ensure your transition into the community is carried out properly and as smoothly as possible."
116 The evidence does not make it clear whether the proposed meeting ever took place. However, Detective Sergeant Shorrocks gave evidence that he attended a meeting with Mr Gray and Mr Moses and someone else in 1997, when Mr Gray raised the topic of an ex gratia payment, and Mr Moses said:
"Give us a figure that you're seeking as an ex gratia payment. We will consider it. We want to terminate you from the Witsec Program because we do not believe that there is any current risk to you."
117 Sergeant Shorrocks said that at no time during the meeting did Mr Gray refer to any promises, undertakings or commitments made to him by any NCA officer.
118 On 30 July 1997 Mr Gray wrote to the Regional Director of the defendant referring to a letter of his to the Commonwealth Attorney-General (not in evidence) and asking that any meetings between himself and the defendant to discuss his future be deferred pending the Attorney-General's decision, and that in the meantime the level of financial assistance paid to him under the memorandum of understanding should be continued.
119 On 1 August 1997 Acting Commander PA Gillam of Witsec wrote to Mr Gray informing him that his active status within the Witness Protection Program would cease on that day, in accordance with the notice served on 4 July 1997. The letter said that the defendant was expected to make another application for Mr Gray's inclusion in the Witness Protection Program, and that until a formal assessment could be conducted, Mr Gray had status within the Program on a temporary basis. The letter said that the defendant had funded him in the Program until 31 August 1997, that any funding past that date might be deducted from his "final settlement", and that the defendant had expressed a desire to meet with Mr Gray to discuss "the settlement issue".
120 On 15 August 1997 Acting Commander Gillam wrote to Mr Gray again, saying that as a result of an application by the defendant, he had previously been placed on temporary protection in accordance with s 10 of the Witness Protection Act 1995 (NSW), pending a revised threat assessment. The letter said that correspondence from the Regional Director of the defendant indicated that the level of threat was considered to be low, and therefore the defendant had withdrawn its application to include Mr Gray in the Witness Protection Program. Accordingly, said the letter, temporary protection was forthwith withdrawn and Mr Gray was no longer a participant in the Program, but the payment of expenses and remuneration would be continued until final arrangements had been made.
121 The evidence does not disclose whether payments were made under the memorandum of understanding for any period beyond 15 August 1997. The plaintiffs have not challenged the validity of the termination of their participation in the Witness Protection Program. I find that their termination took place on 15 August 1997.
Claims for compensation
122 In January 1991 Inspector Small's secondment to the defendant ended and he resumed his career with the New South Wales Police Service, being assigned to Newtown Police Station. Mr Gray remained in close contact with him. By mid-1991 Mr Gray's evidence in the committal process had been completed. He spoke to Inspector Small on a number of occasions about compensation for the losses he said he and his wife had incurred. Eventually Inspector Small suggested that Mr Gray should write to the defendant.
123 On 19 June 1991 Mr Gray wrote to the defendant "through Acting Superintendent Robin Small" at Newtown Police Station. He recounted the history of his involvement with the defendant and alleged that his placement in witness protection had caused financial loss to himself and his wife. Amongst those losses were, he alleged, cessation of his trading under his own name and his inability to conduct any business locally under a false name, and his wife ceasing her activity in her "salon" business operated by herself and her daughter. He recounted the history of sale of the salon business. He referred to the large amounts of cash, gold and drugs seized by the defendant and the money confiscated by the Australian Taxation Office, and then he said, "I am directly asking for some recompense for the loss suffered by me and my wife through the forced sale of the salon under instructions, for the good of the Australian community and law enforcement in general". He also sought reimbursement of legal costs in connection with his prosecution. He concluded, "Perhaps you can give consideration remitting to us a small proportion of the financial benefit reaped by the Australian Government".
124 Mr Gray's letter attached a letter from Mrs Gray to the defendant, also dated 19 June 1991. In it Mrs Gray said that the restrictions placed upon her in January 1990 had put her life in utter turmoil, both physical and financial. She referred to the loss of the value of her business and reduction of the value of her financial plan, and her "total loss of independence and having to rely upon [her] husband for all [her] financial needs".
125 Neither of the two letters claimed any entitlement to the financial compensation that they sought. They were expressed in language of supplication. They did not claim that the defendant had made promises that they would be compensated to avoid financial disadvantage, or for life, or at all.
126 Mr Cusack replied to Mr and Mrs Gray's letters by his letter dated 20 August 1991. He described their letters as being "about an ex gratia payment for loss suffered" by them in assisting the defendant. He said:
"I am of the view that the making of an ex gratia payment is not appropriate at this stage. I have come to this view on the basis that your obligation to the Authority is not yet complete (ie that you may be required to give evidence at a trial)."
127 Mr Cusack gave evidence that he sent this letter after discussing the matter with officers of the defendant. He said that the matter of financial compensation to the plaintiffs was not even being considered by the defendant at that time, because the trials of Saxon and Schneiders had not taken place. He conceded, however, that at the time he was of the view that an ex gratia payment to Mr Gray, and possibly Mrs Gray, may be appropriate at the conclusion of all legal proceedings, having regard to the dislocation of their lives caused by them assisting the defendant.
128 Mr Gray telephoned Mr Cashman on several occasions. He also had further conversations with Inspector Small. Mr Cashman told him that his claim was still being investigated, and Inspector Small advised him to wait until all of the hearings were finished before pressing the matter.
129 In 1996, Inspector Small told Mr Gray that Saxon had pleaded guilty, that it was unlikely that Schneiders would be found, and consequently that Mr Gray would not be required to give any further evidence. They discussed renewing the application for compensation and for an "ex gratia payment". Inspector Small advised Mr Gray that it was the right time to do so.
130 Inspector Small wrote to Mr Cashman on 29 March 1996. Evidently the letter was not signed by Inspector Small, but nothing turns on that, as he gave oral evidence that it was his letter. The letter was typed by Mr Gray on his typewriter, from a manuscript version prepared by Inspector Small. The letter said that Mr Gray had reactivated his claim for "an ex-gratia payment". It recounted the history of the matter, drawing attention to the significance of Mr Gray's co-operation. The letter expressed Inspector Small's belief that Mr Gray had been a truthful and effective witness. It continued:
"I, and no doubt yourself, have extensive experience with major witnesses who are in Witness Protection. Most are intractable characters who are a continuous worry and embarrassment to their sponsors. [Mr Gray] is an outstanding exception to this rule, a view formed not only by myself but by other Investigators attached to the inquiry and staff at the NSW Pol Witness Protection Branch."
The letter referred to the "physical, emotional and financial limitations" suffered by the plaintiffs since January 1990, and proposed a payment "considerably in excess of $250,000".
131 Mr Gray wrote to the defendant "through Superintendent Robin Small" on 8 April 1996. The letter was headed "Ex Gratia Payment". He noted that it was now the seventh year of his relocation and living within the Witness Protection Program, and that he had completed all court attendances requested of him. He reiterated his claims to financial losses and said that he had had probably over 100 meetings with the defendant, and innumerable conferences with the Director of Public Prosecutions and Crown barristers, and that he had made sworn statements. He said he had given assistance in matters not directly related to Saxon, mentioning two trials in September 1994 and his meeting with a police officer from the United States in Sydney. He referred to the fact that a reward had been offered in the sum of $250,000 for the capture of the escaped drug dealers. He asked that his original application be considered. Once again, the letter was written in language of supplication rather than in language asserting rights or seeking to enforce promises. No mention was made of any promises having been made.
132 Mrs Gray wrote a similar letter, also headed "Ex Gratia Payment". She outlined how her life since January 1990 had been "a very traumatic heart-aching affair" and she said that every knock at the door created anxiety for her. She listed several reasons for "seeking compensation". The reasons included her loss with respect to the salon business, the loss of her superannuation plan, her inability to afford a small car to visit children and grandchildren, her emotional strain, stress and illness, and her lack of financial security. She appealed to the defendant to grant her an ex gratia payment for the heavy losses she had incurred, due to her compliance with the defendant's instructions. Like her husband's letter, Mrs Gray's letter was expressed in language of supplication, and no claim was made based on any breaches of promise.
133 Mr and Mrs Gray's letters enclosed a financial statement claiming losses of $53,000 for the forced sale of the salon, $34,544 for the loss on Mrs Gray's superannuation plan, $93,600 for loss of wages during the period from 1990 to 1998 at a minimum of $200 per week, and $75,000 for physical and emotional stress and lack of independence, making a grand total of $256,144.
134 Mr Gray did not receive a reply from the defendant to his letter of 8 April 1996 and so he wrote again to the defendant, "for the personal attention of the Chairman", on 1 November 1996. The letter noted the defendant's failure to reply, and said:
"I do not address you by way of formal complaint - but simply to reaffirm the understanding of undertakings given by the NCA close to seven years ago. These were to the effect that by virtue of instructions given to me and my wife there would be compensatory measures for financial losses incurred."
135 It appears from the documentary evidence that this is the first time the plaintiffs asserted, in writing, an entitlement to compensation on the basis of undertakings given in 1990.
136 Mr Allen, then Acting Regional Director of the defendant, replied on 11 November 1996, saying that the contents of the letter were currently being examined and he anticipated that an answer would be given in the near future. As far as the evidence goes, no answer was given for some time.
137 There was evidently further correspondence between the parties in the first half of 1997. It appears that Mr Gray wrote to the Commonwealth Attorney-General on May 1997, in a letter he later described as an appeal against letters written by the defendant and dated 18 March and 2 May 1997. None of this correspondence is in evidence.
138 Mr Gray wrote to the Prime Minister on 9 and 15 May 1997. The first letter asserted that in January 1990 "NCA officers told us quite emphatically that by following their instructions we would not suffer any financial disadvantage", and that he and his wife "accepted this undertaking as a contract and abided faithfully with all instructions". The second letter claimed that at the time Mr and Mrs Gray vacated their premises at the insistence of NCA officers, "there were quite different obligations given by such officers as to the assurance that there would be no financial loss as a result of accepting their instructions", and that "these undertakings, regarded as contractual, were given quite separate from and prior to entry into a memorandum of understanding for participation in the witness protection scheme". His letters were passed on to the Attorney-General because the National Crime Authority is within the portfolio responsibilities of the latter. The Attorney-General did not reply until 10 October 1997, well after termination of the plaintiffs' witness protection.
139 On 8 July 1997 Detective Inspector Small wrote to Ms A Fagan of the Attorney-General's Department. He said that Mr Gray had contacted him on 5 July 1997, "a disillusioned and shattered man", to say that he had received a document that would remove him from the Witness Protection Program in August 1997. Inspector Small expressed the opinion that the defendant could not "hide behind" the memorandum of understanding to avoid obligations, because it did not come into existence for a considerable time after Mr Gray had agreed to co-operate with the authorities. The letter continued:
"With careful consideration the following propositions were put to [Mr Gray] and his wife.
1. Providing he maintained his current attitude, neither he nor his wife would not [sic] be cut off from necessary protection and the means to sustain a reasonable living.
2. Providing he maintained his current attitude, neither he nor his wife would be expected to incur any reasonable financial loss as a result of walking out of their environment.
3. Providing he maintained his current attitude, at the conclusion of proceedings, the NCA would support a claim by him for an ex gratia payment for all reasonable physical loss and trauma suffered as a result of so walking out."
140 The letter continued by asserting that Mr Gray had kept his side of the agreement in detail, and that without his co-operation the investigation would not have successfully led to one of the largest orders for confiscation of profits that Australia had ever seen. He asked that reasonable legal expenses be made available to Mr Gray so that he could engage a solicitor to represent him in negotiations for compensation.
141 By a letter dated 24 September 1997 to Horowitz & Bilinski, solicitors retained by the plaintiffs, which is not in evidence but is referred to in other correspondence, Mr Allen, as Regional Director of the defendant, offered an ex gratia payment to the plaintiffs in the sum of $45,000. It appears that the offer was rejected.
142 On 10 October 1997 Mr Norman S Reaburn, Acting Secretary of the Commonwealth Attorney-General's Department, wrote to Mr Gray replying to his letters to the Prime Minister dated 9 and 15 May 1997 (incorrectly designated 1996), and noting representations made on Mr Gray's behalf by Inspector Small. Mr Reaburn's letter
· noted that according to the memorandum of understanding, no liability would be accepted for financial losses and that if other promises were made, they were null and void;
· said that there was "compelling evidence" that Mr Gray's decision to enter the Witness Protection Program was not induced by any promise of financial accommodation, but was a decision taken in order to avoid prosecution for money-laundering offences (referring to Gadens Ridgeway's letter dated 25 January 1990);
· asserted that no NCA officer was authorised to give any undertaking other than as set out in the memorandum of understanding, and that it was unlikely that any unauthorised promise was made;
· noted the terms of Mr Allen's letter of 24 September to Mr Gray's solicitors, offering a payment of $45,000, and asserted that there was no obligation on the Commonwealth to make any additional payment.
Facts - after August 1997
143 The plaintiffs received no further payments from the defendant or the Witness Protection Scheme after August 1997. Mr Gray applied for the old aged pension but initially had difficulty in obtaining it, because the defendant had caused all his records to be changed. Inspector Small intervened to assist him and eventually he was recognised as eligible for the pension and received it.
144 According to Mr Gray's evidence, he did not work after his co-operation with the defendant commenced, and he received no income from any occupation after that time. There is some evidence inconsistent with Mr Gray's claim, but it is not specific. Detective Sergeant Shorrocks gave evidence that on numerous occasions in the period 1990 to 1997 he had conversations with Mr Gray in which he asked Mr Gray how his business was going, and Mr Gray replied, "I have a number of things in the pipeline".
145 In July 1997 Mrs Meredith, a neighbour at Terrigal, wished to invest the proceeds of sale of her house. She handed Mr Gray a cheque for about $142,000. Mr Gray was to invest it for her. He placed the money in a bank account in his real name, but it is not clear from the evidence whether he ever invested the money and if not, what became of it. At some time after February 1999 Mrs Meredith obtained a judgment against Mr Gray for $168,000. The evidence does not establish that Mr Gray was in fact in any financial business in 1997, or that he and Mrs Gray had access to Mrs Meredith's money for their own living expenses or personal use at any time, or whether the money had been dissipated and spent. Indeed, the evidence is so sketchy that I cannot give it any significance. Specifically, I take the view that it does not contradict the plaintiffs' evidence as to their desperate financial circumstances in 1999.
146 On 7 April 1998 the Australian Taxation Office wrote to Mr Gray enclosing a Statement of Adjusted Incomes for the years from June 1990 to June 1996 inclusive. The Statement purported to set out his income for those years, taking into account payments and benefits he had received under the Witness Protection Program. Mr Gray was invited to indicate any items he considered to be wrong.
147 In August 1998 Mr Gray received a provisional tax notice for the year ended 30 June 1997, and a notice of assessment for the year ended 30 June 1996, each dated 6 August 1998, requiring him to pay tax in the sum of $127,457 on or before 10 September 1998. The tax was calculated by reference to the payments and benefits Mr Gray had received from the defendant during his participation in the Witness Protection Scheme, including payment of his sustenance allowance of $500 per week, and payment of rental, electricity and telephone accounts. The assessment by the Australian Taxation Office had been made on the basis of a letter from the New South Wales Police Service dated 17 November 1997, which attached a schedule of payments and benefits said to have been expended on Mr and Mrs Gray under the Witness Protection Program. It was assumed that all of the income was Mr Gray's income, and no assessment was issued to Mrs Gray. Mr Gray lodged objections to these assessments, through his solicitors. The evidence does not indicate the fate of the objections.
148 Mr Gray's health deteriorated and by October 1999, when he swore his affidavit, he had contracted liver and lung cancer and was receiving chemotherapy, which left him in a very debilitated condition. He was being hospitalised for at least one week each month, and spent most of his other time in bed.
149 According to Mr Gray, he and Mrs Gray borrowed in excess of $60,000 to meet living costs, an amount which they were unable to repay. Inspector Small gave evidence that he lent them $6000, which has not been repaid. They moved out of their rented premises early in 1999, because they were unable to pay the rent, and placed some furniture in storage at a cost of $157 per month, later increased to $168 per month. They sold some items of furniture and jewellery to meet expenses and, according to their evidence, by October 1999 they had no assets of value. When they moved out of their rented premises, they moved in with Mrs Gray's son and his wife for three months. Mrs Gray's mother, who had been living with them, returned to South Africa as Mr and Mrs Gray could no longer provide her with accommodation. After the three-month period, they moved to a friend's house, where they remained at the time of swearing their affidavits in October 1999, occupying a single bedroom.
150 In summary, by October 1999, when the plaintiffs swore their affidavits, Mr and Mrs Gray had no other income than the old aged pension, no assets of value, and an enormous tax bill related to the payments and benefits derived under the Witness Protection Scheme over a seven year period. Mr Gray had a serious and terminal illness, and he and Mrs Gray were occupying a bedroom in the house of friends on a temporary basis. Prior to 25 January 1990 they had lived comfortably, in a two-bedroom city apartment in a building with many amenities including a heated indoor swimming pool and a roof-top tennis court. They commenced the proceeding to recover substantial compensation which, according to their case, they were promised but not paid.
151 There is some sketchy evidence, emerging in the cross-examination of Detective Inspector Small, that he appeared on a television program for the Nine Network, "Sunday", on 28 November 1999. He was interviewed, and said words to the effect:
"Unfortunately, I really do have to say to anybody that contemplates giving evidence against major drug importers where lives are in danger, they would be silly coming forward until such time as there is legislation in place to protect their rights."
152 Inspector Small said he made those remarks in order to get something done, so that when promises are made, the organisation making those promises is required to keep them. He also made a statement to the effect that, in Mr Gray's case, the "bean counters" had moved in and were trying to get out as cheaply as possible, leaving morals and ethics out of it.
Equitable estoppel
153 These being the facts, the plaintiffs seek recovery principally on the ground of equitable estoppel. I shall set out the ingredients to be established for recovery on this ground, and then consider whether the plaintiffs have established them and with what consequences. I shall then consider the other ways in which the plaintiffs presented their case that the hearing, before turning to the defences.
154 The scope and content of equitable estoppel in Australian law have been moulded by two seminal decisions, Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and The Commonwealth of Australia v Verwayen (1990) 170 CLR 394. Writing after the Waltons Stores case but before Verwayen, Priestley JA usefully summarised the law in seven propositions (Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466, 472) as follows:
"(1) Common law and equitable estoppel are separate categories, although they have many ideas in common.
(2) Common law estoppel operates upon a representation of existing fact, and when certain conditions are fulfilled, establishes a state of affairs by reference to which the legal relation between the parties is to be decided. This estoppel does not itself create a right against the party estopped. The right flows from the court's decision on the state of affairs established by the estoppel.
(3) Equitable estoppel operates upon representations or promises as to future conduct, including promises about legal relations. When certain conditions are fulfilled, this kind of estoppel is itself an equity, a source of legal obligation.
(4) Cases described as estoppel by encouragement, estoppel by acquiescence, proprietary estoppel and promissory estoppel are all species of equitable estoppel.
(5) For equitable estoppel to operate in circumstances such as those involved the present case there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.
(6) Equitable estoppel may lead to the plaintiff acquiring an estate or interest in land; that is, in the common metaphor, it may be a sword.
(7) The remedy granted to satisfy the equity (which either is the estoppel or created by it) will be what is necessary to prevent detriment resulting from the unconscionable conduct."
155 In Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 Priestley JA expanded proposition (5) as follows (at 610):
"5. For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant , and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." [Emphasis supplied]
156 In Verwayen various aspects of the doctrine of equitable estoppel were re-stated in the High Court, their Honours expressing views about the law that were not uniform. Sheller JA provided a convenient summary analysis of the effect of the judgments in Verwayen in Wykes v Samilk Pty Ltd [1998] NSWCA 192 (19 May 1998) at 14-15, as follows:
"In [ Verwayen ] Mason CJ at 413 spoke of one doctrine of estoppel which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. Deane J spoke of 'the basic proposition that estoppel does not of itself provide a cause of action either in law or in equity' in aid of his conclusion at 404 that promissory estoppel was but an emanation of the general doctrine of estoppel by conduct.
"By contrast, Brennan J said at 428-9 that the judgments of a majority of the Court in Waltons Stores held that equitable estoppel yielded a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise. 'The remedy is not designed to enforce the promise although, in some situations (of which Waltons Stores v Maher affords an example), the minimum equity will not be satisfied by anything short of enforcing the promise.' Dawson J at 454 said that estoppel at common law and in equity may have had common origins, but there the similarity stops. Toohey J's conclusions as to the disposal of the appeal made it unnecessary to deal with the argument based on estoppel though his Honour observed, at 475, that the consequence of any promissory estoppel was that the Court should enforce the promise only as a means of avoiding detriment and to the extent necessary to achieve that end. At 487 Gaudron J said that it was not necessary for her to deal with the argument that the object of an estoppel is to avoid detriment and not to make good the assumption on which it is founded but noted her agreement with Mason CJ that the substantive doctrine of estoppel permits a Court to do what is required to avoid detriment and does not, in every case, require the making good of the assumption. At 500 make you J said:
'Equity, like the common law, also will not permit an unjust departure from an assumption of fact which one person has caused another to adopt or accept for the purpose of their legal relations … But the equitable doctrines of estoppel create rights. They give rise to equities which are enforceable against the party estopped. The equitable doctrines result in new rights between the parties when it is unconscionable for a party to insist on his or her strict legal rights.'
"At 501 his Honour quoted what Priestley JA said in [ Silovi ]: 'The remedy granted to satisfy the equity … will be what is necessary to prevent detriment resulting from the unconscionable conduct.'
"Although the judgments in Verwayen indicate division of opinion in the High Court about whether equitable estoppel gives rise to an equity which is enforceable rather than to an evidentiary constraint which removes an obstacle to common law relief, in my opinion, the law remains as stated by Brennan J in the passage which I have quoted."