The BAF had challenged a High Court ruling that the 800m runner could proceed with her action, on the grounds that the Lisbon laboratory at which her failed drug test was carried out was not accredited by international athletic bodies, and there had been bias at Federation disciplinary hearings.
Three Court of Appeal judges headed by the Master of the Rolls, Lord Woolf, agreed yesterday that the accreditation issue could not go to trial, but that she could proceed with the bias claim.
Afterwards, Ms Modahl, 31, issued a statement through her solicitors saying that the allegations of bias were "very serious" and she had experienced "the most terrible public humiliation and disgrace" over the drugs allegations.
She said: "BAF has attempted to frustrate my claim at every step.
"In December 1994 they convicted me of being a drugs cheat, and then when I was cleared by their own appeal panel in July 1995, and finally cleared by the International Amateur Athletic Federation in 1996, they refused to pay me a penny in compensation."
She said it was now nearly three years since she was withdrawn from the Commonwealth Games on the day she was to have defended her 800m title.
"I have had to battle every day since to prove my innocence and achieve justice. I have received neither an apology, nor any compensation whatsoever from either BAF or the IAAF."
The BAF said it intended to continue to fight the court battle.
Ms Modhal is suing to recover the pounds 480,000 she spent on legal and medical costs. She also wants a similar figure in punitive damages for the way her case was handled.