Ms O'Grady told Thursday's hearing of the Royal Commission into Institutional Responses to Child Sexual Abuse, she had concluded there was a likelihood Sutton was abusing students after reading an entry in the teaching diary he kept on his desk.

But as mandatory reporting had not taken effect, she had put all her concerns and evidence in the hands of the Catholic Education Office.

Ms O'Grady, and another teacher, had decided to check the diary while investigating Sutton's unexplained absence after a school camp.

She said Sutton had been observed to write in his teacher's diary more frequently than would be considered necessary.

"The entry [for the day in question] read: 'Picked up AC. What an afternoon. She is magnificent'.

The subsequent entry said Sutton and AC had fought and a later entry said they had made up.

"I concluded he had acted absolutely inappropriately for a teacher in our school by picking up a child and spending the rest of the day with her," Ms O'Grady said.

Earlier in the hearing, Ms O'Grady said she had seen Sutton chasing two young girls around his classroom before catching and hugging one of them while he was a teacher at the school in 1985, 1986 and 1987.

Ms O'Grady said Sutton, who was later sentenced to 18 years jail for child sex offences spanning three states and many years, had a bad attitude, kept himself isolated from other staff, and showed favouritism to selected students.

He was repeatedly warned his behaviour was unacceptable and, in late 1986 was sent on a personal renewal course to New Zealand.

Ms O'Grady said Sutton had joined St Carthage's in early 1985 - the same time as a new principal, Sister Julia Sullivan, took up her appointment.

"His attitude towards me was quite hostile; I heard remarks he made to other people, including some parents, which were certainly not giving the school praise," she said.

"He isolated himself from most of the other teaching staff. I think it was fairly obvious quite early on."

Ms O'Grady said she and other teachers were concerned at a number of Sutton's practices.

"I know the blinds [in his classroom] were drawn. It struck me as a very closed classroom," she said.

"The door was often closed too. It was very closed in and very dark.

"I thought it was very strange; I had never seen that before in a classroom."

Mrs O'Grady said despite repeated warnings Sutton's behaviour, especially his favouritism of some students, did not change over the two years and she lost faith in Sister Julia's ability to manage Sutton effectively as a result.

Asked about the incident when she saw Sutton chase, catch and hug a girl in his classroom she said the scene had shocked her.

"There was something about what I had seen that just didn't seem right," she said.

"I spoke to Mr Duroux, another teacher, and we both thought it was serious."