The Court of Appeal has questioned the Legal Aid Agency's handling of a case involving alleged large-scale fraud, which was being prosecuted by a local authority rather than the director of public prosecutions.

The lord chief justice, Mrs Justice Carr and Mr Justice Gilbart, in Regina and AB, CD, EF, declared that Thurrock Council did not have the power, under section 222 of the Local Government Act 1972, to prosecute the appellants, who are alleged to have conspired to defraud the agency. The loss to the agency is said to be £4m.

The judges said the agency 'never considered independently' the question of whether or not the council had the power to prosecute the case. Attempts to engage the police 'even at the investigation stage were half-hearted and at a low level'. The director of public prosecutions was 'never invited to prosecute the matter'.

The judges added: 'Despite that lack of contact with the DPP, of which the crown court and the appellants were not informed at the time, the court was told in February and May 2016...that it was 'unlikely', indeed 'fanciful' that any other body would agree to prosecute the matter.

'In the absence of formal and informed confirmation to this effect from the DPP, such assertions should not have been made, particularly in circumstances where they were the subject of direct challenge by the appellants. It was (rightly) submitted for the appellants that it would be 'astonishing' if the CPS were to decline to prosecute a prima facie case of this nature and gravity.'

The judgment states that the appellants are presently awaiting trial.

They are alleged to have conspired together and with others, between August 2007 and December 2013, to defraud the agency by submitting claims for payment in respect of work which a solicitors' practice in London had not performed. A charge of perverting the course of justice alleges dishonest activity in the form of forging client files and submitting them to the agency to conceal the alleged fraud once the appellants became aware that the practice was under investigation.

The appellants deny the allegations.

The prosecution was brought by Thurrock Council following an investigation by its fraud investigation department for the agency. The head of the department said 26 addresses used by the practice to facilitate the fraud had been located.

The judgment stresses that the appellants did not challenge the decision to investigate; they challenged the decision to prosecute.

The judges said the council's decision to prosecute fell outside the ambit of its broad powers under section 222, adding that the alleged criminality to be prosecuted 'must have an actual or potential impact on the inhabitants of Thurrock, not just as UK taxpayers more generally'.

The director of public prosecutions has now taken over the prosecution.

The judges said: 'It is in the public interest that major prosecutions such as this are handled by the single prosecuting agency established by statute to conduct them.'

The agency told the Gazette it is unable to comment as court proceedings relating to the matter are ongoing.