A bid to overturn a #163;400,000 compensation payout to a headteacher unfairly accused of "Islamophobia" has failed in the Court of Appeal.
Erica Connor is entitled to the full amount awarded to her last year after an appeal by Surrey County Council was turned down by a panel of judges.
Lord Justice Sedley said the council had faced an "unenviable task" in trying to respond to ethnic and religious tensions at New Monument School in Woking, Surrey, where more than 80 per cent of the pupils are from an Islamic background.
But the local authority failed in its duty to protect Mrs Connor and the fallout had "very plainly" caused her to have a breakdown and end her career, he ruled.
Mrs Connor was plunged into depression by acute stress and a string of "vituperative" complaints against her while she was head of the school, a court was told at the time of the award.
In a landmark case, she was awarded almost #163;408,000 after the court ruled that the local authority had been negligent in failing to support her.
The court was told that two governors had campaigned to make the school more Islamic, which had led to severe problems.
One governor, a Muslim convert, had stirred negative feelings towards the school and made claims of anti-Muslim comments by staff. Another had been verbally abusive, the court was told.
An official review later found no evidence of deliberate racism, but concluded that the governing body had become dysfunctional.
Council officers had shown "excessive tolerance" toward the governors, and their failure to intervene had resulted in the governing body being "torn apart", the original case found.
The result for Mrs Connor was "a severe depressive episode associated with symptoms of post-traumatic stress disorder".
Dismissing Surrey County Council's appeal, Lord Justice Sedley said that there had been no "adequate justification" for the delays before the council replaced the governing body with an appointed board, despite there being "good and obvious reason in the school's interests for doing so swiftly".
He said: "The failure to do so very plainly brought about Mrs Connor's ultimate breakdown."
An internal inquiry set up by the council was merely "used as a further excuse for doing nothing when there was now urgent need for intervention", he added.
"The picture that emerges is of a local education authority which had allowed itself to be intimidated by an aggressively conducted campaign to subvert the school's legal status, a campaign which was plainly destabilising the school and placing the headteacher under intolerable pressure," he continued.
Lord Justice Laws said Surrey had had to make "sensitive and difficult decisions", but agreed that the root of Mrs Connor's breakdown was "the council's lamentable capitulation to aggression".
A Surrey County Council spokesman said: "We are disappointed with the judges' decision because we believe that we provided the correct support, advice and guidance for Mrs Connor.
"We are considering the implications of this judgment carefully and will look at all options, including whether there are grounds to appeal to the Supreme Court."