Barclays breached a derivative agreement with a Black Diamond Capital Management unit and must return an estimated $297m in collateral to the hedge fund, a divided New York state appeals court ruled on Thursday.
Reuters reports that the Connecticut-based fund's BDC Finance LLC filed a lawsuit against the bank in 2008, claiming Barclays had defaulted on a $40m collateral call made at the height of the financial crisis.
Barclays disagreed with that amount, asserting that it owed only $5m, 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 $5m 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 $40m 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.
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image: © Elliot Brown