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Charles Russell is facing growing pressure over its role advising the trust created to compensate the families of victims of the human form of mad cow disease, after it came in for criticism last week over its costs and for its making contested claims regarding the scheme.

Senior trusts lawyers have warned that the firm, which has been advising the vCJD Trust since 2002, is vulnerable to a complaint to the Law Society, after it emerged that the Department of Health (DoH) accused the firm of making "highly misleading" statements in a letter to families regarding the costs of its legal work.

The issue was reignited last week after communications regulator Ofcom rejected a complaint by the firm against BBC’s Newsnight, which criticised Charles Russell’s handling of the work in a 2004 report.

The firm has so far billed £3.2m for its work on the trust. Families were awarded an initial payment of £120,000-£125,000 from the Trust’s total compensation budget of £67m. But much of the criticism of fees concerns a relatively small number of discretionary payments, which have generated legal fees that are five times the value of the payments to families.

It has also been reported that some of the 250 families are considering making a negligence claim after information about the families and their compensation was accidentally posted on the internet in March this year.

However, legal specialists have warned that potentially the most damaging claim against the firm relates to the letter it sent to families of vCJD victims in May 2004 following the initial Newsnight report.

The letter, which has been obtained by Legal Week, states: "The [DoH] has not expressed concern and has not called for a meeting with the Trustees."

The DoH then responded to the firm in a letter: "Contrary to what is said in your own letter, the [DoH] has most definitely expressed concern about the high level of costs involved…"

One trusts partner at a rival firm said: "[The letter] could be a disciplinary offence and there could possibly be a claim for breach of trust [regarding the internet]."

A professional negligence lawyer who specialises in acting for lawyers said that the apparently misleading nature of Charles Russell’s letter "could certainly warrant an investigation if it comes to the attention of the Law Society". The Law Society, however, this week said it had no current plans to launch an investigation.

The affair, which has generated highly damaging coverage for the firm, has also prompted Nick Harvey, Liberal Democrat MP for North Devon, a region where a victim’s family is based, to call for the National Audit Office (NAO) to investigate the situation. Harvey has also suggested the legal work should be opened up to tender.

He told Legal Week: "The NAO would be in an ideal position to compare the cost base here with anything it would consider as an equivalent. I do not accept that much of the administration work needed solicitors doing it, let alone top-drawer London solicitors. I am not accusing the firm of falsifying its accounting, it is just an expensive way of going about things."

Charles Russell has moved to defend its conduct. In a statement to Legal Week the firm disputed the assertion that the letter to the families was misleading, adding: "A Law Society investigation would not be appropriate, particularly as [our] clients, the trustees, approved the letter before it was sent."

The firm, which stressed that around £30m has now been paid in compensation to families, insisted that the letter was specifically referring to whether a meeting with the Secretary of State had been called for by the DoH as a result of concerns about costs. It added that the discretionary compensation payments are only a small part of the total compensation to families.

The firm stressed the trustees were happy with Charles Russell’s advice and pointed out that, at a meeting on 7 April, the trustees opted not to invite tenders from other law firms.

The case also promises to spark an intense debate among trust lawyers, with the trust’s chairman, Sir Robert Owen, claiming that the complexity of the trust set up to handle the claims was to blame for much of the legal costs. One trust specialist told Legal Week: "The fees per family do not sound like a fortune but even if the firm is justified, the public might not agree. There is an issue of proportionality here."

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