Barclays Plc was found liable for breach of contract in a lawsuit filed by a unit of hedge fund Black Diamond Capital Management LLC seeking more than $300 million in collateral from a derivative agreement.

BDC Finance LLC, one of Greenwich, Connecticut-based Black Diamond’s funds, sued Barclays in New York State Supreme Court in Manhattan in October 2008, saying that the London-based bank defaulted on a total return swap when it failed to give back more than $40 million of collateral demanded by BDC.

Justice Eileen Bransten in August 2012 granted a motion by Barclays for a pre-trial ruling dismissing BDC Finance’s claim of breach of contract. An appeals court in Manhattan yesterday reversed Bransten’s ruling and granted BDC’s motion for a pre- trial ruling finding Barclays liable for breach of contract.

“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 agreement’s dispute resolution procedures, Judge Peter Tom wrote for the majority, which also affirmed Bransten’s dismissal of Barclays’s breach of contract counterclaims.

Barclays didn’t respond to an e-mail seeking comment on the ruling.

The two parties entered into the agreement in May 2005, and each side had the right to demand collateral based on changes in the value of the corporate debt instruments underlying the transaction, according to yesterday’s ruling.

BDC says Barclays failed to transfer $40 million in collateral it demanded and instead gave the fund more than $5 million pending resolution of the dispute, according to yesterday’s ruling. BDC then declared Barclays in default and demanded the $297 million in collateral it was holding.

Two judges on the five-judge panel, Richard Andrias and Judith Gische, disagreed in part with yesterday’s majority ruling, saying that BDC failed to follow dispute resolution procedures that were laid out in the agreement.

“Even if the ‘potential event of default’ is viewed as Barclays’s 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,” the dissenters 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 case is BDC Finance LLC v. Barclays Bank Plc, 650375/2008, New York State Supreme Court, New York County (Manhattan).