Former detective out on bail

A relative said, "Good men," as the three appeal judges left the bench, and tried to shake hands with a prison officer guarding Dale.

Outside court, John Dale said his brother had "obviously had a hard seven months". His release was "fantastic".

Dale, 39, is accused of having Hodson killed in 2004 to prevent him testifying. Hodson had agreed to give evidence against Dale and another policeman over an attempt to steal $1.3 million worth of drugs from an East Oakleigh house. Without him, the case against Dale collapsed.

After his arrest in February Dale made two unsuccessful bail applications in the Supreme Court. In March, Chief Justice Marilyn Warren found Dale had not proved exceptional circumstances, and posed an unacceptable risk of interfering with witnesses.

Justice David Byrne, however, found last month that the onerous conditions in which Dale was being held in Barwon Prison's high-security Acacia unit were exceptional. But he refused bail because of the risk Dale posed, stating his murder charge related to the most serious kind of interference with witnesses imaginable.

Gavin Silbert, SC, for the Crown, said risk to witnesses was the key issue. He said Dale had contacts in the underworld and police force that he could use to harm a crucial witness who corroborated the evidence of a gangland figure, who will give evidence that Dale solicited him to arrange the Hodson hit.

"To put it crudely, organising an execution from prison has to be more difficult from prison than outside," Mr Silbert said.

The appeal court judges were not satisfied that Dale posed an unacceptable risk to the witness and granted him bail subject to conditions, including that he not approach any prosecution witnesses.

He must also refrain from approaching any serving police officers except to report on bail daily and for the purpose of applying for legal funding from the Police Association.

Dale was released on a $500,000 surety. He is likely to return to his Wangaratta service station. He is due to face a committal hearing in Melbourne Magistrates Court in March.