Brent LBC v Davies

The court analysed a complex dispute about payments made from a maintained school’s delegated budget between 2003 and 2009. Key legal points were the statutory framework for delegated school budgets (notably s.49(5) and s.50 SSFA 1998), the mandatory effect of the School Teachers’ Pay and Conditions Document (STPCD) on teachers' pay, and the nature and scope of fiduciary duties which arise in the context of a governing body spending local authority funds.

The judge found that many of the payments were not authorised by, or consistent with, the STPCD and the school’s pay policies, and distinguished two approval routes: (a) PRC (pay review committee) approvals, which routinely involved multiple governors and were in many instances known to innocent governors, and (b) an informal "ad hoc" procedure whereby the chair and vice-chair of governors approved additional, often substantial, payments on the basis of memos written by the headteacher. The ad hoc procedure lacked effective lawful delegation and adequate reporting.

Applying s.49(5) SSFA the judge treated the delegated budget as property of the council until spent and held that where governors or a headteacher exercised dominion over that money in circumstances identified in the judgment they could owe fiduciary duties. On the facts the headteacher (first defendant) was found to have breached fiduciary duty in causing substantial ad hoc payments to be made (except for two listed exceptions), and to hold the proceeds on constructive trust. The chair and vice-chair of governors were held to have been recklessly indifferent (and therefore liable) in respect of later ad hoc payments (from mid/late 2007 onwards).

The court dismissed the unlawful means conspiracy claim but upheld claims in breach of fiduciary duty, knowing receipt (against some recipients for payments received after 10 July 2008) and misfeasance in public office (as to specified payments and periods). Limitation issues under the Limitation Act 1980 and the defences in s.50(7) SSFA were considered and rejected or applied as appropriate in the judgment.

Background and parties: Copland Community School (a Brent maintained foundation school) paid large bonuses and additional sums to a small group of senior staff between April 2003 and April 2009. The council (Claimant) sued the headteacher (first Defendant) and five others, alleging unlawful means conspiracy, breaches of fiduciary duty, knowing receipt and misfeasance in public office. The aggregate overpayments were about £2.7m.

Relief sought: recovery of sums paid (proprietary and personal remedies), equitable account and tracing, and damages for misfeasance. The Claimant relied on s.21/s.32 Limitation Act exceptions where necessary.

Issues framed:

• Were the overpayments unlawful per se (statutory and regulatory limits under the STPCD and school policies)?
• Were the payments properly authorised (delegation to PRC; validity of the ad hoc delegation to chair/vice-chair)?
• What did non-accused governors and committees know about bonuses and the ad hoc payments?
• Was there an unlawful means conspiracy?
• Did the various defendants owe and breach fiduciary duties?
• Did recipients have knowledge making retention unconscionable (knowing receipt)?
• Did the chair and vice-chair commit misfeasance in public office?
• Limitation questions and available statutory defences (eg s.50(7) SSFA).

Court’s reasoning, concisely:

• The STPCD constrained teachers’ pay and allowed only limited additional payments; many of the large ad hoc payments were incompatible with those limits though payments to non-teaching staff were not per se unlawful.
• The PRC (a properly constituted committee) had long been the body exercising pay decisions and did so in meetings attended by governors not accused of dishonesty; those PRC approvals (the PRC presentation documents) were generally accepted as real and known to innocent PRC members.
• A separate "ad hoc" route emerged (memos authored by the headteacher and signed by the chair/vice-chair). That route lacked lawful sub-delegation from the governing body, was not properly reported, and enabled the headteacher to draft recommendations and himself obtain approval for substantial payments.
• The headteacher was found to have breached fiduciary duties (no-conflict and no-profit) in causing most ad hoc payments to be made to himself and others (many memos were misleading or double‑counted prior payments); he must account and hold proceeds on constructive trust (except specified limited payments which were either properly ratified or otherwise not impeached).
• The chair and vice-chair (governors) were initially trusting but became recklessly indifferent by mid/late 2007 and thereby liable for breach of fiduciary duty (and alternatively in tort/misfeasance) in respect of later ad hoc approvals; s.50(7) SSFA did not protect them because of their lack of good faith/recklessness.
• Certain recipients (second to fourth Defendants) were held liable in knowing receipt only for sums received after 10 July 2008 because earlier claims were time barred absent deliberate concealment; the court found deliberate concealment did not extend limitation for most recipients.
• The unlawful means conspiracy claim was rejected because many payments were made openly before governors not accused of wrongdoing, and no credible common design to defraud the council was proved.

Wider context: the judgment emphasises careful scrutiny of governance, statutory pay controls (STPCD) and the dangers of informal delegation and opacity when public funds are administered by volunteers.

First instance: the court dismissed the unlawful‑means conspiracy claim but found substantial breaches of fiduciary duty and related liabilities. The headteacher (first Defendant) must account and hold on constructive trust the majority of the ad hoc payments made pursuant to the memoranda (exceptions: the first Ali Memo, the first NSD Memo and one small August 2007 payment); he must also repay an admitted Saturday‑school overpayment. The chair and vice‑chair of governors (fifth and sixth Defendants) were held liable for breach of fiduciary duty (and alternatively in tort/misfeasance in public office) in relation to ad hoc payments authorised from mid/late 2007; they were not protected by s.50(7) SSFA. The second to fourth Defendants (senior staff) were held liable in knowing receipt for specified sums received after 10 July 2008. The court gave detailed reasons: s.49(5) SSFA rendered delegated funds the council’s property until spent; the STPCD limited lawful payments; the ad hoc process was inadequately delegated and reported; the headteacher authored misleading memos; and the governors became recklessly indifferent as to later ad hoc payments. The claim in respect of the cost of the council’s investigation was not advanced further and a counterclaim by the headteacher was dismissed.