Arthur Scargill's trade union was paid more than £6 million by a firm of solicitors that deducted the money from compensation awarded to sick miners for industrial disease, a tribunal was told.

Money was sliced from the miners' damages and banked by the National Union of Mineworkers (NUM) after 29,000 claimants were persuaded by the law firm to pursue their case through a union “funding arrangement”. They were not told that the Government was paying the legal fees for successful claims and was not seeking to recover its costs for claims that failed.

Details of the relationship between the NUM and Raleys, a firm in Barnsley that earned £92 million for its handling of claims, were first revealed by The Times in 2005. The firm's six partners appeared before the Solicitors Disciplinary Tribunal in London yesterday for a misconduct hearing linked to the scandal surrounding the £7 billion coal health-compensation scheme. Last month two partners in a Doncaster law firm, Beresfords, were struck off for dishonesty and “conscious impropriety” in their dealings with the Union of Democratic Mineworkers.

In total 67 law firms have been investigated by the Solicitors Regulation Authority (SRA) and solicitors from 24 firms have been ordered to appear before the tribunal. The Raleys partners face two allegations of conduct unbecoming a solicitor and are also accused of numerous breaches of solicitors' practice rules.

Timothy Dutton, QC, appearing for the SRA, said that Raleys was a small firm that grew rich from the scheme set up in the late 1990s to compensate miners whose health was damaged by their work underground.

The lawyers registered 68,000 claims for respiratory disease and a disabling hand condition called vibration white finger. An estimated 93 per cent of the claims were successful.

Hundreds of firms handled claims and most made no deductions from damages. However, the tribunal was told that in 1999 Mr Scargill, who was then president of the NUM, wrote to thousands of miners and former miners in Yorkshire and Lancashire, urging them to pursue their claims through Raleys.

A year later, when Raleys' overdraft had reached £750,000 and the firm was struggling to obtain a bank loan to fund the expansion needed to handle the claims, its senior partner, Ian Firth, turned to Mr Scargill for help. The NUM leader approved a £4 million loan from the union to Raleys at an interest rate of 11 per cent, six percentage points above the base rate. The loan was paid back in full later, with a further £6.1 million that Raleys took from clients' compensation. Clients were told that the money represented a contribution to union membership, plus an administration fee.

As the number of settled claims rose, so did Raleys' annual profits. In the calendar year 2003, the firm's net profit was £10.8million, of which £5.4 million went to Mr Firth, 60, and £4.4 million to another partner, David Barber, 44.

Mr Dutton said that in early 2004 Raleys agreed to purchase an additional 19,000 claims from a company called Zuko Legal Ltd. The law firm later earned an estimated £36 million for settling the claims, he said.

The partners are alleged, through their relationship with the NUM, to have “compromised their independence and integrity and duty to act in the best interests of their clients”. All six partners, Mr Firth, Mr Barber, Jonathan Markham, 46, Carol Gill, 38, Jim Gladman, 49, and Katherine Richards, 40, who no longer works for the firm, deny any wrongdoing. The hearing, which is expected to last for 20 days, continues.

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