Government proposals to cut the cost of complex fraud cases have resulted in a stand-off between barristers and the Legal Services Commission. Reduced fees could mean the quality of representation in complex fraud cases will plummet, as law firms and barristers desert the practice. Jon Robins reports

There can be few things about the law more likely to dangerously raise the collective blood pressure of the great British public than press reports of millions of public money being squandered. Consider, for example, the alleged fraud relating to the London Underground Jubilee line extension (£60m of public money spent on a 21-month court case that collapsed) or HM Revenue & Customs' (HMRC's) failed prosecution of a gang alleged to have swindled £107m in a VAT scam involving imported mobile phones (another £65m). These are just two recent examples of the 1% of fraud cases that swallow up a massive 50% of the legal aid budget.

So what could be less controversial than the Government's plan to bring very high-cost cases (VHCC) under tighter control? Despite the apparent logic of the plan, it is this issue that last month led to barristers manning the barricades although – as the Bar Council is keen to point out – each and every one of the 2,300 members of the Bar offered contracts under the new scheme have come to their own decision over whether or not to boycott it. The reason behind many barristers' decisions to protest is fees: many argue that the new daily rates, set as low as £55 an hour, are just too low. The scale of the barristers' protests, coupled with the harsh words being exchanged over this issue, show that the issue of instructing both law firms and counsel on VHCC cases is not going to go away quietly.

So, what is the scale of the protest? The Legal Services Commission (LSC), the body responsible for legal aid in England and Wales, acknowledges that a "substantial number" of barristers refused to sign up to the new scheme by the mid-January deadline. The LSC wrote a letter to the Bar Council chairman, Tim Dutton QC suggesting that the professional body had been abusing its market position in encouraging the mutiny. This prompted a rather short-tempered reply rejecting "any suggestion" that the Bar Council has sought to encourage barristers to act "in a manner inconsistent with competition law obligations". In his response to the LSC's executive director Richard Collins (21 January), Dutton said: "In fairness, your letter does not make this allegation outright (rather there is an implication of it) and for the record I should say I was grateful to you for acknowledging when we spoke on the telephone last week the lengths to which we have gone to ensure compliance with the law. Instead, if barristers are not signing up to the new scheme, it is because they do not find the rates 'economically viable'."

"None of our members have signed up," reports the chief executive of a leading set of barristers which specialises in white-collar crime and complex cases. "I must add, each member came to his own decision independently." Under the proposals, advocacy fees per day for a QC drop from £525 to £476 and for juniors from £330 to £285. "There has also been a significant slippage in terms of the categorisation of cases," he adds. "There will be remarkably few category one cases. We reckon that the cuts will be as much as 20% or 30%."

"The daily rates are unacceptably low," agrees Mark George, a barrister at Garden Court North in Manchester which specialises in complex crime cases. George also says he is "extremely exercised" by the LSC reserving the right to change the rates, as well as insisting on powers to oblige barristers to take on cases and to monitor their diaries should they refuse. "We do not share that sort of information with other members of the Bar and so we are pretty upset about having to share such personal information with civil servants," says George. "The insult is made worse by carrying with it a clear implication that, by saying we are unavailable, we are lying."

He adds: "Frankly, I am buggered if I am going to have someone from the LSC saying (a) 'We don't believe you'; and (b) 'Once we have seen [your diary] we are going to force you to work'."

VHCC work was always going to be high on the list of the Government's favourite troubleshooter Lord Carter's targets when he began the task of reforming legal aid two years ago. These cases are defined as those likely to run for more than 40 days or eight weeks a year. "Corporate fraud cases represent the most costly and complex criminal cases," explains David Keegan, who heads up the LSC's complex crime unit which administers the scheme. "Those kinds of cases are typically costing us £50m for 50 cases every year, out of our total spend of £100m on VHCC cases."

From the law firm perspective, VHCC cases have historically been undertaken by a mix of criminal defence firms and a select band of highly-specialist City practices undertaking much of the high profile white-collar crime work; notably the likes of Peters & Peters, BCL Burton Copeland, Corker Binning and national firm Irwin Mitchell. The work is vital for both camps, but for very different reasons. A place on the VHCC panel could well be the difference between life and death for many defence firms, as VHCC is one of the few areas of publicly-funded work left with the potential to make decent money. For the white-collar specialist, reputations have been made on VHCC work.

So how did this latest impasse come about? The Bar's stand-off follows an arguably angrier clash between the solicitors' profession last year over the arrangements of a tender, whereby firms bid to be on a VHCC panel of firms to undertake the work. The Law Society threatened a judicial review of the LSC's proposals last May unless further consultation was carried out, and, in particular, a race equality impact assessment was undertaken. The Law Society's letter-before-action flagged up a report by the consultant Andrew Otterburn, which noted that the financial position of many defence practices was "highly fragile" and argued that the shake-up of VHCC could be the final blow for many of those firms.

"These cases are critical. If we did not have them, we would close," says Andrew Keogh, a partner at Tuckers, one of the UK's largest defence firms. He reckons his firm has done two dozen in the last two years; mainly computer counterfeiting and terrorism cases. "If we had not been on the panel, my firm would have said: 'Forget legal aid, we are not going to do it anymore'," acknowledges Ian Kelcey, immediate past chair of the Criminal Law Solicitors' Association and partner at Bristol firm Kelcey & Hall.

Chancery Lane complained about the proposed VHCC changes on a number of grounds, including that the LSC consultation was shortened from the usual 12 weeks to six and that vital information (not least over rates) was only provided at the last minute. The profession also complained that the LSC effectively dumped the Carter proposal for having the LSC offer a start price and, if supply exceeded demand, reducing price and re-tendering until capacity offered matched capacity required. Instead, the LSC went for a bid at three 'prices' – three hourly rates at £155, £150 and £145 N against which firms bid.

"We had a glass floor and a glass ceiling," argues Kelcey. "It certainly was not the free market Lord Carter was proposing."

Practitioners accused the LSC of rigging the market and it appears that – surprise, surprise – all firms bid at the lowest rate. "We were given three prices to choose from and everybody chose the price that was the lowest," says Rob Brown, a partner at Corker Binning. "That was obvious and inevitable. All solicitors were trying to do what was needed to stay in the game." The fact that the LSC has delayed its announcement of those advocates and litigators appointed to the VHCC panel suggests the panel process has not gone as smoothly as the Commission would have hoped; contracts were supposed to be returned to the LSC by 14 January for the 330 law firms the LSC says it offered contracts to and 21 January for barristers but, at the time of Legal Week going to press, still no word on the make-up of the panel.

According to Corker Binning founding partner Peter Binning, the new scheme will be bad for all lawyers doing VHCC work, whether they are barristers or solicitors, because the rates are so low. "That means there will be a reduction in the number of people doing this work," he says. "You will get fewer people – who are not necessarily competent – doing the work, and the quality of justice will fail to satisfy reasonable standards. The public will be let down because you will not be getting cases being given robust advice at an early stage. There will then be more cases fighting when they should not be and more courts clogged up with unnecessary cases."

Binning is unimpressed by what he sees as the LSC's recent strong-arm tactics over the Bar. "It is quite an extraordinary allegation to make and they are trying to use the Competition Act to frighten the Bar into signing up to an unfair contract. That is a disgraceful way to negotiate."

The LSC's Collins argues that the terms of the contract have been known to the advocates and the Bar Council "before the advocates put their names forward to be included in the tender process". In his letter to Dutton, he talks of "an inevitable inference" being drawn about "some intervening event" leading to a change of mind causing barristers not to sign up.

"There was no intervening event," says one senior clerk. "The more the consequences of signing up became clear, the more they directed their minds to the deal. If we had tendered ourselves (as opposed to being part of a solicitors' tender) we would have directed our minds much more." Corker Binning's Brown says: "No barrister had any say whatsoever in agreeing to one of the most important terms of the proposed new scheme – the price."

So, are these VHCC cases actually important to the City firms?

"Absolutely, and to some extent that is why we decided to bid, because we have historically acted in these cases for the defendants," replies Samantha Morton, a partner at BCL Burton Copeland. "Bearing in mind our reputation is commercial fraud, if we did not bid and were not on the panel we simply could not do this type of work."

BCL's Ian Burton launched into a ferocious attack on the perceived failings of generalist defence practitioners in an interview with The Times last year: "Criminal practice has historically attracted the lowest common denominator from the legal profession because the rewards were not there. The Criminal Bar is not well served – made up of a lot of people who speak rather well but do not have a huge amount of intelligence, even less judgement. The worst thing is they think they are rather good." Unsurprisingly, this outburst was poorly received by many in the profession (including Dutton, who called it "ill-considered and ill-judged"). Some saw the outburst as part of a jockeying for position in light of the then upcoming VHCC tender.

Morton is rather downbeat about the firm's long-term prospects in acting on these cases. "In two or three years' time we will not be doing this kind of work," she says. "It just will not be economically viable for us. We would have to be churning it out to make any kind of money and that is where standards and quality do slip." This grim prediction is given weight by the news that one firm with a stellar reputation for acting in this kind of case, did not bid.

Monty Raphael (pictured right), joint head of fraud and regulatory at Peters & Peters, declined to comment on whether the firm bid for a place on the panel, other than to say: "We hope that the situation will be resolved in such a way that clients continue to receive fair trials and be represented by competent lawyers."

Sarah Cleary (pictured left), the northern head of Irwin Mitchell's regulatory and investigations team, reckons the impasse could result in the LSC being "forced to return to the drawing board after massive amounts of money, effort and resources have already been expended derailing the whole tender". All firms attest to the time taken to submit their tenders – which, in the case of Irwin Mitchell, was 300 hours.

"The contract we signed specifies, and our own professional duties dictate, that we must brief only those leading advocates who possess the skill and experiences to represent clients prosecuted by, for example, HMRC and the Serious Fraud Office for serious and complex fraud offences," Cleary says. "There are relatively few at the Bar who would meet that high specification. We are talking about cases such as Maxwell, Jubilee Line, multimillion-pound VAT evasions and the current pharmaceuticals cartel prosecution, already accepted as the largest-ever criminal fraud prosecution."

Part of the problem, as Cleary sees it, is that the LSC refused to set up two different panels – serious crime and fraud – and, in his words, failed to tender directly with the Bar in the first place, leaving them with no real opportunity to voice their concerns until this point.

Cleary argues that such cases are prepared in a different way altogether to what one could call 'serious criminal cases', which also form part of the contract. "They take longer to prepare, longer to come to trial and require a different set of resources, skills and specialist legal knowledge," she continues. "It might seem like an extreme example, but we would arguably be negligent if we briefed a silk who had only ever done murders and kidnappings."

With the barristers' fees debate unresolved, it seems that the imminent announcement of who has made it on to the VHCC panel will not mark the end of this debacle. Raising barristers' daily rates to make them economically viable may mend some of the damage, but as young talent is deterred from criminal practice, the long-term effects of the VHCC debacle may be irreversible.