Fiduciary Duties of Governors

A maintained school’s use of its delegated budget has recently been considered by the High Court: which ruled that a school’s former headteacher and two governors (the “Defendants”) had breached a fiduciary duty they owed to a local authority (the “Claimant”) under the School Standards and Framework Act (SSFA) 1998 by issuing payments from the delegated budget improperly. This article explores the case (Brent LBC v Davies and others) and comments on whether the ruling may also apply to MATs.

Maintained schools are funded by way of a delegated budget from the local authority. The Defendants worked for a Foundation School (the “School”) which was funded primarily by the Claimant pursuant to the SSFA 1998. This delegated budget was controlled by the Defendants who had the power to “spend any such amounts as they think fit for: (a) any purposes of the school; or (b) (subject also to any prescribed conditions) for such purposes as may be prescribed” under the SSFA 1998. The Court noted that these funds are owned by the authority until they are spent by the governing body or headteacher.

The Defendants authorised numerous “bonus” payments from the School's delegated budget to staff members over a six-year period totalling £2.7 million (a third of which was paid to the former headteacher). These payments consisted of payments over and above the staff members’ basic salaries, and were purportedly justified as bonus payments or payments for additional responsibilities undertaken by them: mainly in relation to a proposed new school development.

In 2009, when the payments were brought to light, serious shortfalls were found in relation to the upkeep of the School. The School’s building was found to be in a state of serious neglect – it suffered from collapsed ceilings, leaking sewage pipes, failed heating and chronic overcrowding of pupils. The Claimant sought to recover the payments from the Defendants under various heads of claims. It was held that the Defendants all owed a fiduciary duty to the Claimant; that the two governors were guilty of misfeasance in public office; and findings were also made of ‘knowing receipt.’

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The Judge determined that the governors owed fiduciary duties to the Claimant because they were parties to decisions as to the spending of the delegated budget; and the former headteacher owed fiduciary duties where the governing body had expressly delegated power to him to make decisions as to spending.

This judgment is hugely significant as this is the first time a headteacher and governors have been found to owe a fiduciary duty to a local authority in respect of a school’s delegated budget by the courts.

The Court made no comment on whether the determined relationships would extend to Academy Trusts. Nevertheless, academy trusts should be aware that a judge may make a corresponding finding of a fiduciary duty to the Secretary of State if an Academy Trust is found to have misused its funds. Academy Trusts are however already under strict obligations in the Academies Financial handbook which have the same practical effect, and their trustees already have personal fiduciary duties under charity and company law to the pupils and others that the Academy serves.

The law and practice referred to in this article has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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