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IAC/InterActiveCorp. Chief Executive Barry Diller in New York, May 14, 2007. A Delaware court ruled in favor of Diller on Friday in a legal dispute with controlling shareholder Liberty Media Corp, paving the way for him to proceed with a proposed spin-off of four company units. REUTERS/Keith Bedford

NEW YORK (Reuters) - A Delaware court ruled in favor of IAC/InterActiveCorp chief Barry Diller on Friday in a legal dispute with controlling shareholder Liberty Media Corp, paving the way for him to proceed with a proposed spin-off of four company units.

Shares in IAC surged more than 8 percent on news of the decision.

In 78-page ruling, Delaware Chancery Court Judge Stephen Lamb upheld Diller's long-standing proxy agreement that allows him to vote Liberty's controlling interest in IAC, even if Liberty does not agree with his position.

He also acknowledged IAC still has to work out the precise structure of the spin-offs, a process that could land the two sides back in court.

"In particular, the court rejects Liberty's claim that the proposed single-tier spin-off gives rise to any right of consent on Liberty's part," Lamb wrote. "It follows that the (Diller) proxy remains in effect."

Liberty opposed a plan to structure the spun-off units with a single class share structure that would dilute its control over them as separate entities. In a five-day trial earlier this month, it accused Diller of violating a long-standing proxy agreement between the sides with the proposal.

Liberty owns about 30 percent of IAC, but retains 62 percent control through a class of super-voting shares. Diller has held the right to vote those shares under their proxy agreement.

"The simple, inescapable fact is that the IAC directors have not yet finally authorized the spin-off and have not even considered many of the essential terms of that transaction," Lamb wrote.

Liberty could still challenge those plans as they take shape, Lamb said, adding the court would retain jurisdiction for such claims if they need to be resolved at a later date.

IAC shares rose as high as $22.20 from their close of $20.49 on the Nasdaq on the news.