A senior solicitor has said a warning from a middleman that a lead client in Iraq War torture and murder claims was a suspected insurgent was "nonsense".
Leigh Day co-founder Martyn Day said he had dismissed concerns that Khuder Al-Sweady, a central figure in damages claims against British soldiers, was a member of the Shia militia Mahdi Army.
The Solicitors Disciplinary Tribunal (SDT) heard an email sent to Mr Day by an intermediary, Mazin Younis, suggested Al-Sweady was threatening or blackmailing nine claimants who had made allegations of the torture and murder of Iraqi detainees.
Leigh Day pursued damages claims against the Ministry of Defence (MoD) over the alleged mistreatment and unlawful killing of captives at Camp Abu Naji following the Battle of Danny Boy in May 2004.
Among them was a claim by Al-Sweady that his nephew Hamid Al-Sweady, after whom a £31 million public inquiry was named, had been tortured and murdered by the British Army.
In December 2014, the long-running Al-Sweady Inquiry (ASI) dismissed the allegations as "false" and that Hamid died in battle.
Mr Day and Sapna Malik each face 16 misconduct charges, while fellow solicitor Anna Crowther faces four, including an allegation of destroying a key document, and the firm is charged with 11 counts.
Timothy Dutton QC, acting for the Solicitors Regulation Authority, said Mr Younis warned Mr Day, in an email to the firm on April 1 2008, that Khuder Al-Sweady was suspected to be a member of the Mahdi Army and had been "intimidating" other clients.
In another email the following day to now-disgraced solicitor Phil Shiner, who was struck off in February for dishonesty over his handling of the claims, Mr Younis warned Mr Day's contact with Khuder had "bolstered" his position.
He added: "He has physically threatened to send militia to kill (local fixer) Abu Jamal unless he is on every trip.
"Khuder may be trying to influence clients' testimony in some way."
But Mr Day said he dismissed the accusation because he felt Mr Younis had been vying with Khuder Al-Sweady to be the go-between for the firm and the detainees.
"I did not believe a word of what Mazin was telling me," Mr Day told the tribunal. "I thought it was to do with financial arrangements."
Asked if he felt it warranted investigation, Mr Day replied: "Sapna had been present at the incident this seemed to have related to.
"We had given money to Abu Jamal. Khuder was upset they had not been given any money to get home.
"Abu Jamal agreed to give 500 dollars of the money we had given him to Khuder."
Mr Day said that he did not speak to Mr Jamal, the detainees or Al-Sweady himself about the claim.
He said this was because he felt: "One: It's a storm in a teacup and two: We did not believe a word of this stuff about the Mahdi Army.
"As soon as the email from Mazin came in I said to my team let's see what's going on, so it's not me being blind.
"The clients were saying they would prefer to have Khuder as their point man.
"To be frank there was nothing in it at that point. He was using it to try and queer Khuder's patch.
"I did not feel it was appropriate to have hares running unless I felt the underlying point from Mazin had any truth to it.
"I did not think I would get into 'Mazin has just accused you of being Mahdi Army'.
"I thought it would have the result of actually making things a hell of a lot worse.
"I took the view here was somebody who was trying to organise a monopoly on Iraqi clients.
"This was entirely about territory. I thought it was a turf war - that's what I felt at the time and that's what I feel now."
Mr Younis emailed Mr Shiner again in May 2008 to report that Al-Sweady had threatened Mr Jamal and was a "senior" Mahdi Army insurgent.
He added: "I have informed Leigh Day of this incident but not much has changed since."
Mr Day maintained Mr Younis had financial motivations and said: "From the 1 April I took it very seriously, reviewed the position, considered the evidence and taking everything into account we thought what Mazin was saying was nonsense."
Asked why, in an email to Mr Shiner several days later, he had said the claim "may be entirely true", Mr Day said: "That was the turn of phrase I was using to be gentle with Phil Shiner."
He said he had been aware Mr Younis and Mr Shiner had a close relationship and he had tried to be "delicate".
He also said he met Al-Sweady twice and that the Iraqi could be "difficult".
"As far as Khuder was concern he had these flashpoints," Mr Day said. "As far as I'm aware the ASI continued to use him.
"He did not like people interfering in his territory."
Mr Day pointed to the fact that the Al-Sweady Inquiry had not found that Khuder Al-Sweady was a Mahdi Army militant.
The inquiry ruled it was "very likely" that the nine detainees the firm were representing were insurgents but made no such finding in relation to Al-Sweady himself - although Sir Thayne Forbes said he had made the allegations "without any regard for the truth".
Mr Dutton questioned Mr Day over the referral fee deal the firm struck with Mr Younis, which saw him get a 27.5% cut of successful damages claims.
The SRA alleges the fee deal was "improper" as Leigh Day doubled Mr Younis' cut from 13.75% after the middleman went "on strike" over lack of payment for historic cases.
But Mr Day said Mr Younis was only being paid for new cases and the historic cases had been referred by Mr Shiner's Public Interest Lawyers.
"We were prepared to pay 27.5% per case regardless of whether it was to Mazin Younis or PIL.
"That was the top line. PIL referred us the old cases, he referred us the new.
"Mazin would only ever receive money on cases that he had referred."
The reason Mr Younis' fee percentage had doubled was because it was initially intended he would split the fees with PIL but this was changed, Mr Day said, following SRA advice about prohibited fee-sharing deals for historic cases.
As a result, Mr Younis became the "sole" referee for new claims and introduced the firm to an "avalanche" of new clients, the tribunal heard.
He added Mr Younis and Mr Jamal had been working out in Iraq for PIL before Mr Shiner contacted him about the Iraqi clients.
He denied any wrongdoing after Mr Dutton said an SDT panel had found allegations of misconduct in relation to similar payments made by PIL proved against Mr Shiner in February.
Speaking of the deals, which also saw Mr Younis paid £50,000 in March 2009, Mr Day said: "There was never any suggestion there was a problem as far as that was concerned.
"I felt I had a pretty decent handle of what the provisions were saying."
He added he was "surprised" when the SRA said it would be filing charges against him over the financial agreements.
Mr Day will continue to give evidence to the tribunal on Monday.