Reported speech, a test task

Good day, Friends. Could you help with a test question?
The question is a ‘fill the gap’ type:

We had expected that they _______ fluent English, but in fact they didn’t.

a) were speaking
b) would speak
c) had spoken
d) spoke

I’m going to take the IELTS exam quite soon, so I decided to go to a language school in order to get some help in preparation. As it usually happens in these cases, I was asked to undergo the school’s testing so they would be able to offer me a proper study course. Everything went fine, but I stumbled at one question (above).
I told the teacher that it’s reported speech and went for the d)-option, having mentioned that the statement of the question isn’t quite clear so the b) and c) are also possible (depending on what the ‘speaker/thinker’ had in mind).
The school said I gave a wrong answer, with which I disagreed and wanted to argue a bit out of pure interest, which ended up with a little bicker and conclusion that I know nothing about subjunctive mood.
The school insists that this is a subjunctive mood/imaginary situation, because !!!!!, there is not a ‘say' verb :)) so the only right answer is b)-would speak.
Could you please help and judge who’s right?

Answer

c) is incorrect, since the sentence would then have to be

We had expected that they had spoken fluent English, but in fact they hadn’t.

to accommodate the change in tense.

On first glance I would've agreed with you, though looking over it more carefully "spoke" doesn't fit together with the expectation.

They spoke fluent English, but in fact they didn’t.

would be grammatically correct (but absolutely nonsensical). But because the 'main' verb is 'expect' and not 'speak', 'speak' gives way to 'would speak'.

I hope that made sense and helped a little, even though I detest bickering teachers.