A last-ditch challenge to the lord chancellor's legal aid reforms was thrown out by the High Court this morning. The Law Society and practitioner groups are seeking an appeal.

Law Society president Andrew Caplen said he was 'extremely disappointed at this outcome'.

Lord Justice Laws and Mr Justice Cranston heard challenges last month by the Law Society and practitioner groups the Criminal Law Solicitors’ Association (CLSA) and London Criminal Courts Solicitors’ Association (LCCSA) to Chris Grayling’s decision to press ahead with two-tier contracts for criminal legal aid.

Laws LJ said in today's judgment: 'I should conclude without hesitation that the [reform] scheme is proportionate. It is accepted on all hands that consolidation in the legal aid market is needed, if legal aid is to be provided at reduced fees. It may reasonably be concluded that this is a proper way to achieve it.'

He added that the issue concerning the applicable standard of review was important and merited a full debate between the parties. 'For that reason I would grant permission to seek judicial review in both sets of proceedings. But for all the reasons I have given, I would dismiss the substantive application.'

Laws LJ refused leave to appeal but an injunction to the tender process will continue until 4pm next Friday pending an application to the full court.

Caplen said: 'If the government's plans proceed, large areas of the country could be left without legal representation, which is why we are applying for permission to appeal the decision. We will continue to campaign for an effective, publicly funded defence system to prevent the risk of a sharp increase in miscarriages of justice.'

CLSA chair Bill Waddington said the group was disappointed at 'this temporary setback' in its campaign against the reforms 'but we are not downhearted and by no means out'.

LCCSA president Jonathan Black said the ruling was a 'terrible blow'. He added: 'What's really worrying about it is that it now offers the ideologically driven desire to cut publicly funded criminal legal aid a veneer of respectability.'

The Ministry of Justice welcomed the judgment. A spokesperson said: 'Given the financial crisis inherited by this government, we have no choice but to find savings in everything we do. This must include legal aid, which was one of the most expensive systems in the world.'

The MoJ said its reforms were designed to guarantee access to justice and help ensure a sustainable criminal legal aid service for the future. Even after reform, the ministry said it would still have a 'very generous' system – spending around £1.5bn a year.

The ministry said: 'We do understand reform will not be easy for some lawyers, so introduced a range of measures to support them and engaged in extensive consultation and dialogue with the sector when planning reforms.'

Measures included interim payments for lawyers working in lengthy Crown court cases and establishing a business partnering network to help practitioners with organisational and financial advice if they needed it. The MoJ said it has also worked with the British Business Bank to develop guidance and advice specifically for the legal aid market.

Laws LJ, considering whether the lord chancellor's proposed measures of support - notably interim payments - were legally sufficient, described some of the written financial advice provided to law firms as 'puerile and insulting. It is a matter of surprise that it has gone out under the lord chancellor's name'.

Publicly funded criminal legal aid work is currently carried out under contract with the Legal Aid Agency. Under the lord chancellor’s plans, there will be two types of contract – own-client work and duty provider work.

No limit has been set on the number of own-client work contracts, and some 1,808 such contracts were awarded in June 2014, which are due to begin from summer 2015.

On 27 November 2014 the government commenced a tender process for 527 duty provider work contracts, under which successful bidders would be contracted to provide a share of advice and assistance in police stations in a particular area.

The tender process was suspended in December pending the outcome of the JR, following an application for interim relief by the CLSA and LCCSA.

Alongside the dual contract system, the lord chancellor introduced a 8.75% cut in legal aid fees on 20 March 2014. A further 8.75% cut is planned for July.