Tuesday, 22 July 2014
Last updated 10 hours ago
Oct 25 2013 | 12:56pm ET
Barclays owes Black Diamond Capital Management nearly $300 million after a New York court found that it had breached a derivative agreement with the hedge fund.
The Supreme Court Appellate Division, in a divided opinion, overturned a lower-court ruling that threw out Black Diamond's suit, and additionally found that Barclays had defaulted on a $40 million collateral call made by a Black Diamond fund in 2008.
"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," Judge Peter Tom wrote for the majority.
When Black Diamond's BDC Finance fund made the collateral call, Barclays disputed the amount sought, and sent the hedge fund just $5 million. BDC then declared the bank in default and demanded the return of all of its collateral.
The court found that Barclays had actually violated the agreement twice: It missed BDC's deadline when it paid the $5 million, and its agreement required it to pay the entire amount sought before disputing it.
Black Diamond is seeking more than $300 million.
"We are disappointed with the court's decision," Barclays said. "We are evaluating our options with respect to an appeal," which would go to New York's highest court, the Court of Appeals.
Two members of the five-judge panel dissented from the majority, arguing that Black Diamond was the party violating the dispute-resolution procedures.
"Even if the 'potential event of default' is viewed as Barclays' failure to pay the return amount or notify BDC that it disputed the collateral and pay the undisputed amount, the notice gave Barclays two days to cure this failure and did not state that this could only be accomplished by paying the full return amount," judges Richard Andrias and Judith Gische wrote. "Thus, even if Barclays was in default, contrary to the majority's view, Barclays could cure by either paying the return amount or the undisputed amount."
The majority upheld the lower-court's dismissal of Barclays' counterclaims.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…