Blavo & Co was burgled less than a month after its director and staff were informed that the Legal Aid Agency had commenced an official investigation into the legal aid firm's mental health claims, the High Court has heard. 

The burglary was mentioned on the second day of a hearing into the Lord Chancellor's bid to seek £22m from John Blavo, director of the firm, which was shut down by the Solicitors Regulation Authority three years ago. The Legal Aid Agency says the money was paid out under its legal aid contract for mental health cases. 

Blavo & Co was notified on 10 August 2015 that the agency had commenced an investigation. Cross-examining Mark Stewart, a senior investigator at the Legal Aid Agency's counter fraud team, Robert Bourne, representing John Blavo, said a burglary took place at the firm's offices on 29 August 2015. 'You have no reason to suggest or do not suggest that the burglary did not take place. I do not know if you went to the premises after the burglary, did you?' Bourne asked. 'No,' Stewart replied.

Rachel Sleeman, representing the lord chancellor, referred to a document signed by Stewart and Fred Blavo, who was a practice manager at the firm, in which the firm was asked if any documents have been lost, destroyed or damaged after being sent to storage. Sleeman quoted the answer to the court: 'It does happen occasionally but is not a common occurrence. It is not a problem because we scan many documents. Not every fee-earner does it but we're working on it.'

Karen Early, an operations manager for HM Courts & Tribunals Service, was questioned about HMCTS's database, known as 'Martha'. Early told the court that she could not remember the proportion of mental health applications that were received on paper and electronically. Details requested on an application would include name, date of birth, the section under which the mental health patient was detained and other information. 'On many occasions we do not get everything we request,' Early said.

Early said the system has changed over the years. 'I cannot say specifically what happened in 2012/13... At one point the solicitor's name may have been inputted on Martha after we received the decision of the mental health tribunal judge.'

'Is it the case that Martha is always 100% accurate?' Bourne asked. 'I cannot say it's 100% accurate. What system is?' Early replied. 

Tamsin Fendley, a commercial manager at HM Treasury, told the court that part of a file review process 'is that you need to provide files'. Bourne flagged up an email written by Fendley containing her views of the firm at the time. In the email, Fendley described the firm as 'progressive and savvy'. However, she raised concerns about administrative staff numbers and said the firm was 'subject to extra scrutiny from other firms'. 

Fendley told the court: 'I would not say that [Blavo & Co] were unpopular. Other firms who had mental health contracts had questions over their number of matter starts in comparison to other firms.' Asked by Bourne if there was a degree of competition in the market, Fendley said: 'Matter starts is money. [Blavo & Co] did have a significantly large number of matter starts than other firms.'

Fendley also said in her email that Blavo & Co was 'very positive and professional in dealing with the Legal Aid Agency' and 'want to be a leading player in the legal aid market'. She said the firm's advice was of a 'very high standard' and that the firm was 'prepared to go the extra mile' to help clients.

Bourne's cross-examination of Fendley revealed that the government - prior to the LAA's visit to Blavo & Co's offices on 10 August 2015 - wanted to recoup £1.8m from the firm following a review. John Blavo, in a three-page letter dated 12 June 2015, said the recoupment would 'likely bankrupt the firm' and leave thousands of clients without representation.

'Did you believe that sort of level of recoupment was likely to have that effect on the firm?' Bourne asked. 'It could be reasonable to think that. At the end of the day, my job is to protect the public purse from being misspent,' Fendley said.

The court heard that Blavo & Co delivered 976 files to the Legal Aid Agency on 18 August 2015. Asked if the boxes looked like they had been in kept in storage, Fendley said the files were 'dirty', had cobwebs and there were no labels on the outside of the boxes. 

Kevin Giles, who worked at the Legal Aid Agency at the time, was asked whether the agency's request to provide 1,000 files a week was reasonable. Giles said 'there may be difficulty in providing all of those files but I think it would not be unreasonable to expect the vast majority to be located within seven days'.

Towards the end of the second day, Mr Justice Pepperall raised the issue 'not just of contract compliance' but the SRA, telling counsel 'whether or not it's something you want to address in due course, the extent to which a law firm obviously has to comply with its own professional code of conduct'.

He said: 'My own understanding of the SRA in recent years, [it has] moved to a more outcomes-based rather than prescriptive approach. But whether there is guidance as to a law firm should be able to, for the purposes of proper management of its own practice, to be able to lay its hands on files. That may be something you address it in due course.' Pepperall told the court he simply wanted to make an observation as it was 'something going through my mind'.

The hearing continues.