The Prime Minister says he wants to stamp out an “industry trying to profit” from baseless claims against serving military personnel and veterans.
Ministers on the National Security Council are drawing up plans, which could include measures to curb the use of “no win, no fee” arrangements used by law firms pursuing actions against service personnel.
Plans to introduce a residence test requiring people to have lived in this country for 12 months before applying for legal aid could also be brought forward. Law firms found to have abused the system could also face tougher penalties.
The announcement comes after the firm Leigh Day was referred to the Solicitors Disciplinary Tribunal for allegedly failing to disclose a key document to the Al-Sweady Inquiry into alleged war crimes by British forces in Iraq.
The £31m inquiry concluded that allegations of war crimes following the Battle of Danny Boy in May 2004 in southern Iraq were based on “deliberate lies, reckless speculation and ingrained hostility”.
Once disciplinary proceedings have been completed against any firm, Defence Secretary Michael Fallon has been ordered to attempt to recover as much taxpayers’ money spent on the inquiry as possible.
A Downing Street source said: “It would be unprecedented for the Government to sue a law firm in this way – but if they are found to have acted improperly, then it will be the right thing to do. The public, and the soldiers who have been subject to malicious lies, would expect nothing less.”
A spokesman for Leigh Day said the Government had paid out compensation in more than 300 cases relating to the abuse and unlawful detention of Iraqis.
He added: “No one is above the law: not us, not the British Army and not the Government. We cannot imagine that the Prime Minister is proposing that this should change.
“We have made it very clear that we refute all of the allegations that have been laid before us by the Solicitors Regulatory Authority. We will contest those allegations vigorously before the Solicitors Disciplinary Tribunal.”
Nicholas Mercer, who was Army’s chief legal adviser in Iraq after the 2003 invasion, criticised the announcement, saying: “Simply to polarise it as money-grabbing lawyers is simply wrong.
There are plenty of us who have raised our concerns without any financial motive at all. Nicholas Mercer
“There are plenty of us who have raised our concerns without any financial motive at all, if indeed the other lawyers have got a financial motive.
“The Government have paid out £20 million for 326 cases to date. Anyone who has fought the MoD knows that they don’t pay out for nothing.”
Defence Minister Michael Fallon has said he is concerned about the “industrial scale” of legal claims against military personnel.
The Iraq Historic Allegations Team (Ihat) has sent documents to around 280 veterans telling them they were involved in an incident under investigation.
Downing Street said that, of 59 cases which Ihat has looked at so far, only one was referred to the Director of Service Prosecutions, who decided not to proceed with the case. A further 34 cases were closed with no disciplinary action, and the remainder are ongoing.
Mr Cameron said: “It is clear that there is now an industry trying to profit from spurious claims lodged against our brave servicemen and women who fought in Iraq.
Our armed forces are rightly held to the highest standards, but our troops must know that, when they get home from action overseas, this Government will protect them from being hounded by lawyers over claims that are totally without foundation. David Cameron
Falklands veteran Simon Weston, said: “You have snipers being called into question who have judgment calls to make.
“It is so wrong that other people back here in their little ivory white towers in their comfy, cosy armchairs by the fireside, once they have gone after the ambulance-chaser van, then decide to judge that person.
“Nobody ever should be above the law. But don’t sit back here in your idle judgment just because it’s a job for you.”
He added: “Unless you have got absolute cast-iron evidence, don’t put people through the traumas of having to go through a legal case which can never be proven, or in the end is proven wrong.
Last month, Channel 4 News revealed that the Ministry of Defence has paid compensation over the deaths of at least 362 innocent civilians killed by British military activity in Afghanistan and Iraq.
Figures released under the Freedom of Information Act show the total compensation bill was less than £1m. In one case it was as low as £86.81 per death.