Brent London Borough Council v Davies & Ors

Funds delegated to a maintained school remain the local authority’s property until spent. The governing body and any person who substantively decides how those funds are spent may owe fiduciary duties to the authority.

Those duties are shaped by the statutory framework and include duties of loyalty, avoiding conflicts of interest, not making unauthorised profits and not dishonestly diverting funds from the school’s purposes. A statutory protection for governors acting in good faith does not prevent fiduciary duties arising.

For knowing receipt, the question is whether the recipient’s state of mind made retention unconscionable. Governors of maintained schools may also be public officers for misfeasance in public office where they exercise governmental responsibilities concerning education and public funds.

The claimant local authority sought recovery of approximately £2.7 million paid to staff and others at Copland Community School between 2003 and 2009. The claims included unlawful-means conspiracy, breach of fiduciary duty, knowing receipt and misfeasance in public office. The payments were authorised either through the school’s pay review committee or through an ad hoc procedure operated by the fifth and sixth defendants.

The principal issues were whether the payments were unlawful under the statutory and regulatory framework, whether they were properly authorised, whether the defendants owed fiduciary duties, whether recipients’ retention was unconscionable, and whether the fifth and sixth defendants were public officers who acted with the necessary mental state.

1. Unlawfulness and authorisation. Except for limited payments for Saturday or holiday teaching, recruitment and retention points, and certain acting-up arrangements, the payments to teaching staff were not permitted by the School Teachers’ Pay and Conditions Document. Payments to non-teaching staff were not unlawful per se. The governing body had effectively delegated pay decisions to the pay review committee, but the ad hoc procedure was not generally supported by a valid delegation.
2. Fiduciary duties. Under section 49(5) of the School Standards and Framework Act 1998, the delegated budget remained the authority’s property until spent. The governing body therefore held the funds on trust, and persons who exercised substantive control over their expenditure could owe fiduciary duties. Mr Davies was a decision-maker in relation to the ad hoc payments. Dr Patel and Mr Day also owed duties because they exercised dominion over the authority’s money. Dr Evans and Mr Udokoro were not decision-makers and did not owe fiduciary duties.
3. Breach. Mr Davies breached the no-conflict and no-profit duties by participating in decisions concerning his own remuneration. He also dishonestly caused most ad hoc payments to be made, relying on misleading explanations, double-counting and unsupported claims. The first Ali Memo, first NSD Memo and 13 August 2007 memo were excluded from that conclusion. Dr Patel and Mr Day were recklessly indifferent to the propriety of payments authorised from May 2007 onwards, and thereby acted dishonestly for the purposes of their fiduciary duties.
4. Knowing receipt. The applicable test was whether, in all the circumstances, the recipient’s state of mind made retention unconscionable. Claims were generally limited by the six-year limitation period. The claims succeeded against Dr Evans, Mr Udokoro and Ms McKenzie only for specified payments received after 10 July 2008.
5. Misfeasance and outcome. Governors of a maintained school were public officers because they fulfilled governmental responsibilities concerning education and public funds. Dr Patel and Mr Day had the necessary subjective recklessness in relation to specified payments. The unlawful-means conspiracy claim and Mr Davies’s counterclaim were dismissed. The remaining accounting and repayment orders were made as set out in paragraphs 697–704.