A key witness in the $1.3 million fraud case against former Bermuda Housing Corporation worker Terrence Smith was granted immunity from prosecution in return for helping the Police.

The move was revealed on Friday by Smith?s defence lawyer, who claimed that carpenter Steven Barbosa lied to the Police about Smith in order to wreak vengeance on him over an argument.

The carpenter ? who says he helped the accused Property Officer divert money from the Corporation into his own pockets ? has previously told the jury about his own tangled love life.

Lawyer Larry Scott put it to him that he bore a grudge against Smith because Smith once revealed he was having an affair behind his wife?s back. Mr. Barbosa strongly denied this was his motive for blowing the whistle on the alleged fraud.

During six days of evidence, the self-employed carpenter has spoken of agreeing in August 2000 to take on work at both Smith?s house on Tee Street in Devonshire, and on BHC properties.

He has alleged that Smith, 45, then repeatedly instructed him to submit overpriced bills to the Corporation for his work on its homes between September 2000 and February 2002.

Mr. Barbosa said he passed the profits from his overcharging to Smith through bundles of cash and luxury items to equip his large home.

The Crown?s case against Smith is that he took advantage of his position as Property Officer at the BHC by rubber-stamping these payments to Mr. Barbosa in the knowledge that they were false.

The carpenter has previously told the case that he split up with his first wife, Anne-Marie Barbosa, because he found out she was already married to another man. He later married her sister-in-law, Gerlie Cruz.

He had denied claims by Mr. Scott that Smith once found him in an embrace with Gerlie in his workshop while he was still married to Anne Marie.

However, Mr. Scott put it to him: ?The reason why you have said these things is because you believe Mr. Smith caused difficulties in your marriage.

?You believe that Mr. Smith revealed to your first wife?s brother the compromising position that he witnessed you in with Gerlie.?

Mr. Barbosa responded: ?That?s not true.?

Mr. Scott continued: ?As a result of the story that you told the Police they said that you had committed a crime... having found yourself in that difficulty you were then given immunity to assist further.?

Mr. Barbosa agreed that this had happened.

The jury was also told by Mr. Scott about a legal wrangle Mr. Barbosa and his former tenant Smith once engaged in at Magistrates? Court. Mr. Barbosa won a judgment of $25,000 for arrears of rent that Smith owed.

Asked why he didn?t take this rent out of the profits from the overcharging scam he was keeping for Smith, Mr. Barbosa said he did not believe Smith owed him rent at that time.

Mr. Scott repeatedly questioned Mr. Barbosa?s claims to have handed over large sums of BHC money to Smith. The carpenter maintained that he did, stating of one instance: ?I gave it to him in cash. He always requested cash.?

Smith faces 46 charges of obtaining property by deception, which allege that he induced the BHC to pay Mr. Barbosa more than $1.3 million. He is said to have profited from this by more than $924,000.

Smith denies all of the charges against him, and the case continues.