Three Cleveland further education colleges face having to repay to the county council almost £1.4 million overspent on their budgets after a judge's ruling in the high court.
Redcar's Cleveland Tertiary College, Longlands College in Middlesbrough, and Hartlepool College, had all accused the Cleveland CC of getting its budgeting figures seriously wrong.
But Mr Justice Brooke rejected the colleges' claims that European Social Fund money earmarked for them had been unlawfully placed into the council's general contingency funds.
The judge said the budgeting dispute went back to the early 1990s when the colleges were given a certain amount of self-government in the interim period leading up to their full independence from the county council's control in 1993.
The council claimed the colleges had seriously overspent their budgets for the years 1990/93 and presented them with bills for the deficit.
'The colleges for their part maintain that the council made serious errors in the way it dealt with the grant monies it received from the European Social Fund (ESF) for students who attended courses run at the colleges since the start of 1990', said the judge.
Cleveland had high enemployment, and the ESF money was targeted at promoting conformity of living standards throughout the European Community, by providing job-related training in deprived areas.
Miss Genevra Caws QC, for the colleges, claimed the Euro- cash had been targeted at particular students, doing particular courses at particular colleges and should have been placed into a 'reserved fund' for direct allocation.
Instead the council had put the money in its general contingency fund, allocating it according to 'weighted' student numbers at each college.
But the judge said he had 'insufficient evidence' to rule on claims that those colleges which ran particularly large numbers of ESF grant-qualifying courses had lost out badly because of the council's budgeting scheme.
He said of the colleges: 'It was their duty to keep within their budgets, and they knew how much money they were being allocated'.
'I am satisfied that the council dealt with the ESF grant monies in accordance with the provisions of the scheme and that the colleges have no legitimate complaint in this regard,' he added.
The colleges had known of how the ESF money was being allocated from 1984 onwards, and had 'knowingly acquiesced' to the system operated until they were presented with bills for the over-spent money in 1993, he said.
There had been no complaint until long-after the colleges obtained independent corporate status, and the judge said it would be 'quite wrong' for the court to intervene.
Added to that was the fact that the county council would cease to exist in six weeks time, and if the court were to rule in the colleges' favour, the result could be administrative chaos.
'This evidence illustrates the sort of injustice which would be likely to ensue if so long after the end of the last three accounting periods a court were to order the council to endeavour to rewrite history by making a lote of quite artificial calculations about what would have happened it if had dealt with the complex budgeting in the quite different manner for which the colleges now so belatedly contend'.
The colleges had claimed that if the ESF grant money been dealt with differently, it might well have been the council who owed them money, not the other way around
But Mr Justice Brooke dismissed their complaints, leaving the colleges with a heavy legal costs bill.