Claimants lost money after a confidential deal between a leading law firm and a trade union claims manager, an investigation by The Times has discovered. The deal led to lucrative commission fees for the solicitors and the union employee but left clients with lumps of money sliced off their compensation. Had they gone to different solicitors, the claimants would almost certainly have received their damages in full.

At the centre of the scandal is a law firm that has earned £73 million in recent years by handling industrial disease claims. Some of the money paid to Beresfords, based in Doncaster, South Yorkshire, came from claims by thousands of workers whose hearing was irreparably damaged in the steel, textile and mining industries.

Many coalminers were introduced to the solicitors by Vendside, a claims-handling company wholly owned by the Union of Democratic Mineworkers (UDM). Until early 2002 miners whose UDM hearing-loss claims were settled by Beresfords received their damages — on average £2,100 — minus a fee of up to £352.50 that was paid to Vendside “to cover the cost of pursuing the claim”. The miner lost nothing if the claim failed.

But in January 2002, The Times has learnt, Beresfords’ two senior partners sat down with Clare Walker, the union’s claims manager, to shape a deal that transformed the way future hearing-loss claims were conducted. Miners whose UDM claim went to Beresfords after that date were likely to end up with a far smaller cheque.

After the 2002 agreement, a copy of which is with The Times, Beresfords advised every UDM hearing-loss claimant to take out an insurance policy that would cover him against liability for his opponents’ costs if the claim failed.

Clients were encouraged to take out a loan — from banks including First National and the Bank of Scotland — to fund the insurance premium and other fees that were likely to arise as the case proceeded.

If the claim succeeded the miner would receive his compensation but the deductions would now include both the Vendside fee and the interest, often several hundred pounds, accrued on the loan.

The solicitors say that the use of ATE (after-the-event) insurance has been “commonplace in personal injury claims” for several years. The firm said that it had begun protracted negotiations with the DTI over the insurance of claims in 2000. The new funding method proved lucrative for Beresfords and Ms Walker, 42. The law firm continued to pay £150 for each hearing-loss claim that it received from the UDM, but from 2002 the payment went not to Vendside, as it had in the past, but to a new company called Walker & Co, wholly owned by Ms Walker.

Future hearing-loss medicals would be arranged by Melex Ltd, 90 per cent of which is owned by the wife of Jim Beresford, the law firm’s senior partner. Melex, whose costs added to the size of the loan, would pay a £50-per-claim “admin fee” to Ms Walker’s company. Ms Walker would also be paid a £100 commission per policy by Composite Legal Expenses (CLE), a Cardiff company that acted as the agent for NIG, the insurance underwriter.

Beresfords would receive a £200 commission from CLE for each policy taken out by a client. This payment was declared to claimants. Later in 2002 Beresfords set up a panel of 11 solicitors’ firms to which it sold hundreds of UDM hearing-loss cases for £400 a claim. These firms also received £200 from CLE for each insurance policy that their clients took out. Beresfords agreed that all correspondence relating to Walker & Co should be sent directly to Ms Walker’s home and “must NOT [the word was in capital letters and underlined] be sent to the offices of Vendside Ltd”.

The solicitors say that this was at the request of Mick Stevens, the general secretary of the UDM and a Vendside director. He was at the 2002 meeting. Mr Beresford, 55, received £2.7 million as his share of his firm’s profits between 2002 and 2004.

Had he sought a more appropriate way of handling miners’ hearing-loss claims he could have looked at Towells, a firm in Wakefield that has handled more than 20,000 cases without once deducting money from a client’s damages. “When a solicitor is handling cases in bulk like this it is an enormously profitable enterprise,” David Russell, Towells’ senior partner, said. “As far as we’re concerned there can be no justification for deducting anything.”

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