Lawyer X’s police handlers warned the highest echelons of Victoria Police as far back as 2008 that their use of the supergrass could lead to a royal commission, a public inquiry has heard.

The role played by Nicola Gobbo, a former gangland barrister turned high-level police source, and the force’s use of her is at the centre of a royal commission being held in Melbourne.

Day two of the inquiry on Thursday was told her handlers raised concerns with senior police, including then deputy commissioner Simon Overland, in late 2008 when Ms Gobbo was going to be used as a witness for the Petra Taskforce against suspected drug squad detective Paul Dale.

Nicola Gobbo. Credit:Justin McManus

Police suspected Dale organised the murders of police informer Terence Hodson and his wife Christine. At the time, Hodson was giving police information about Dale that led to him being charged with a drug burglary.