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A mother and her daughter won £40,000 damages after a judge ruled that Medway Council unlawfully took the child into care.
The youngster, now seven, was separated from her mother for more than two years.
Judge Mary Lazarus, sitting at Medway Family Court, listed failings by the council and said it has breached the girl’s human rights.
The child was five when she was brought to the attention of social workers by school staff who were concerned she was being picked up by a number of adults and feared her mother might be a victim of human trafficking.
"What is betrayed is the most shocking misunderstanding of the law by both social work and legal teams at Medway Council" - Judge Mary Lazarus
She was placed in foster care in early 2013 after the mother, who speaks hardly any English, suffered an extremely serious episode of depression. When she was in hospital, she did not know where her daughter was.
Her mental health deteriorated further before the birth of another daughter in June this year.
The judge said the council “failed to bring proper proceedings” in a “proper and timely way”.
But added: “I do not consider that Medway Council was at any time acting in bad faith.
“However, that is not the point. What is betrayed is the most shocking misunderstanding of the law by both social work and legal teams at Medway Council.”
She said this was "compounded by an ignorant or arrogant disregard" of advice given.
The mother, although very unwell was not made aware of her daughter’s whereabouts while in hospital and there was no documentation to suggest she agreed to her being taken into care.
Mother and daughter were awarded £20,000 each in damages.
A council spokesman said: “"The child is thriving in our care and the judge has granted the local authority a court order and the child remains in our care.
"This was an extremely complex case and it is important to highlight that the judge said at no point did she believe we were acting in bad faith. The council maintains that all actions taken were carried out because we believed they were necessary and beneficial for the child.
“We have already put measures in place to address the concerns raised by the judge and will ensure that this good practice continues.”