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UK government barred from intervening in appeal over halted fraud trial

* Justice minister asks to present new material at appeal hearing

* Judges say that only material seen by lower court can be considered

* Fraud case has focused attention on legal aid cuts

* Appeal could derail string of high-profile cases

LONDON, May 13 (Reuters) - Britain's Ministry of Justice has been barred from intervening in a court appeal over whether a judge was right to halt a fraud trial after defendants said they could not find senior lawyers to represent them because of government cuts to legal aid.

Three senior judges in London's Court of Appeal said on Tuesday that they had received notice on Monday that Justice Minister Chris Grayling wanted to present "valuable material" and answer questions at Tuesday's closely-watched hearing, which could lead to a string of high-profile trials being derailed.

But the judges, who said they would make a decision on the appeal in a "short space of time", said the Court of Appeal could only examine material that had also been seen by the lower court.

The lower court's decision this month to dismiss the case brought by Financial Conduct Authority (FCA) over an alleged land-banking scam has become the focus of a heated debate over Britain's legal system and a row over barristers' pay after legal aid rates were cut by 30 percent for so-called Very High Cost Cases (VHCC).

In throwing out the case, known as Operation Cotton, Judge Anthony Leonard accused the state of a failure to provide the necessary resources to permit a fair trial.

Prosecutors worry that the dispute between the Bar (barristers) and the Ministry of Justice (MoJ), which has sparked unprecendented walkouts by lawyers, will affect similar cases and allow criminals to walk free.

Seeking to overturn Judge Leonard's ruling, the FCA argued that the defendants in Operation Cotton could have found adequate legal representation, that the judge could have adjourned the trial in the expectation the government would resolve the impasse and that he "erred in principle and came to an unreasonable conclusion" by throwing out the case.

An MoJ spokesman said the government remains keen for independent senior lawyers to pick up complex and costly cases, but that it is expanding the Public Defender Service (PDS) to mop up any shortfall in lawyers able to represent defendants in court.

Some lawyers, however, remain unconvinced.

"Operation Cotton exemplifies the train hitting the buffers," said James Carlton, a partner at UK law firm Fox Williams. "If the Court of Appeal allows this decision to stand, it is clear that the judiciary will have little inhibition in staying (halting) proceedings in such circumstances, even in the most controversial cases or those with a significant public interest element."

LAWYERS' STRIKE

The Conservative-led government's decision to cut legal aid had sparked the first ever strike by trial lawyers in January, protesting against the reduction in legal fees.

The MoJ aims to reduce legal aid by 215 million pounds ($365 million) a year, arguing that the system is one of the most expensive in the world and pointing out that the bill will still hit an annual 1.5 billion pounds in England and Wales.

"We have tried to ensure the highest fee reductions apply to those earning the most," the MoJ said. "Despite making up less than 1 percent of Crown Court cases, these Very High Cost trials cost a disproportionate amount of taxpayers' money - just one has cost 8.5 million pounds in lawyers' fees."

The government says that Britain spends 39 pounds per person on legal aid, against 18 pounds in New Zealand and 10 pounds in Canada, and has sought to justify its cuts by publishing data showing that 1,200 barristers working full-time on taxpayer-funded criminal work received 100,000 pounds a year in fees.

Barristers say the figures are misleading the public, pointing out that they include value-added tax that goes back into the state coffers and do not take into account the high expenses faced by barristers, who are self-employed.

The cuts are just one element of a broad government cost-cutting programme aimed at reducing Britain's budget deficit.

Further strike action was called off in March after the government promised to delay fee reductions until after the next general election, expected in spring 2015.

On the day the Operation Cotton trial collapsed, the justice spokesman for the opposition Labour party said ministers had ignored warnings that cuts would lead to trials collapsing and miscarriages of justice. ($1 = 0.5927 British Pounds)

(Additional reporting by Costas Pitas; Editing by David Goodman)