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Coventry City Council has been forced to pay £100,000 in court costs after the local authority withdrew their application to remove three children from their parents.
Judge Clifford Bellamy ruled that Coventry City Council had "fallen below accepted standards" in mounting a failed legal case that the children were being mistreated by their parents.
The council had accused the parents of pretending the children were ill, and of subjecting them to unnecessary hospital and medical tests. The parents were also accused of lying about or exaggerating the children's symptoms.
The judgement was handed down in February, but the judge has only allowed the council to be named after an application by was made by the BBC.
The court heard that in June 2008 the council applied for care orders for three children. However in January 2010, the authority gave notice that it intended to withdraw proceedings for two of the children. Finally in February, it gave notice that it wished to withdraw the proceedings relating to the remaining child.
The family accrued almost £400,000 in legal aid legal costs, a figure that the judge said was a "matter of concern" as the council had only withdrawn its application "at the 11th hour".
In response the council's children's services director Colin Green said: "This has been a complex and difficult case and at all times the council's priority has been the welfare of the children.
"We accept that we made mistakes in the management of this case which we very much regret, particularly around our analysis of the 241-page forensic assessment provided by the medical expert instructed by all parties to carry out the assessment of the family, in relation to fabricated or induced illness.
"This assessment, the judge concluded, did not include sufficient evidence of fabricated or induced illness as had been concluded by the medical expert.
"We also did not review the case effectively at other key points, such as when the independent social work report was received.
"We did not step back to see the whole picture in a complex case with an enormous volume of material."
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