Barclays found liable in $300 million Black Diamond dispute

Fri Oct 25, 2013 6:51am EDT
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By Joseph Ax

NEW YORK/LONDON (Reuters) - British bank Barclays Plc (BARC.L: Quote) breached a derivative agreement with a Black Diamond Capital Management unit and must return an estimated $297 million in collateral to the hedge fund, a divided New York state appeals court ruled on Thursday.

Barclays said on Friday it disagreed with the decision and was considering an appeal against it.

The Connecticut-based fund's BDC Finance LLC filed a lawsuit against Barclays in 2008, claiming it had defaulted on a $40 million collateral call made at the height of the financial crisis.

Barclays disagreed with that amount, asserting it owed only $5 million, which it remitted to Black Diamond two days after the call was made. Black Diamond then declared Barclays in default.

Last year, Justice Eileen Bransten in state Supreme Court in Manhattan dismissed Black Diamond's breach of contract claim. However, the Appellate Division of the Supreme Court, a midlevel appeals court, reversed that ruling in a 3-2 decision on Thursday.

The court found Barclays breached the contract both by not making the $5 million payment on time and by failing to follow the contract's procedures for disputing a collateral call, which required the bank to pay the full $40 million amount before disputing it.

"The evidence in the record undeniably shows that Barclays failed to pay the undisputed amount by the deadline, and establishes as a matter of law that Barclays did not comply with the (contract's) dispute resolution process," the three-judge majority wrote.

With Barclays in default, Black Diamond had the right to terminate the agreement and demand a return of its entire collateral, which the fund has estimated at $297 million, the court said.   Continued...

A sign hangs outside a branch of Barclays Bank, in London in this January 26, 2011 file photo. REUTERS/Stefan Wermuth