In a Cineworld lawsuit, Cineplex was awarded $1.24 billion in damages

Key takeaways:

• The feud between the two movie theatre chains began when Cineworld pulled out of a deal to buy Cineplex in June 2020.
• Cineplex Inc. has won a legal battle against a U.K. theatre conglomerate that wanted to buy the Canadian cinema chain.

Cineplex Inc. has announced that it has won a legal battle against a U.K. theatre conglomerate planning to buy the Canadian cinema chain before the COVID-19 pandemic hit.

Cineplex, based in Toronto, announced Thursday evening that the Ontario Superior Court of Justice had ruled in its favor in a breach of contract lawsuit brought by Cineworld Group PLC, a former suitor.

Cineplex said that Judge Barbara Conway awarded $1.24 billion in damages and dismissed Cineworld’s counterclaim.

In a statement, Cineplex president and CEO Ellis Jacob said, “We are pleased that the court found Cineplex acted properly throughout this difficult period in our history.”

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Cineworld, on the other hand, is not giving up. Cineworld acknowledged the ruling shortly after Cineplex announced its victory, noting that the court had also ordered it to pay $5.5 million in lost transaction costs.

“Cineworld strongly disagrees with this decision and intends to appeal,” the company said in a statement.

“While any appeal is pending, Cineworld does not expect damages to be paid.”

The feud between the two movie theatre chains began when Cineworld pulled out of a deal to buy Cineplex in June 2020.

By that time, the pandemic had peaked, and movie theatres in many parts of the world had been forced to close their doors.

As bills from landlords, studios, and concession stand suppliers came due, Cineplex and Cineworld reported massive losses and turned to layoffs to save any money they could.

Cineworld pulled out of the takeover, claiming the company it was supposed to buy was responsible for “material adverse effects and breaches,” as the companies navigated the crisis and awaited final approvals from Canadian regulators.

Cineplex dismissed the negative consequences that Cineworld was blaming it for as “nothing more than buyer’s remorse” and decided to sue its former suitor for more than $2.18 billion in damages.

Cineworld responded with a $54.8 million counterclaim.

Cineworld’s right to terminate the takeover agreement it signed with Cineplex in December 2019 without payment was up to the court to decide.

Cineplex strayed from the “ordinary course” when it deferred its accounts payable by at least 60 days, cut spending to the “bare minimum,” and stopped paying landlords, movie studios, film distributors, and suppliers at the start of the pandemic, according to Cineworld.

“Ordinary course” is a legal term that frequently appears in acquisition agreements when companies want to ensure that they will be able to terminate a deal and limit their risks if other parties diverge significantly from their current operations or business model.

In response to Cineworld’s claims, Cineplex claimed it had met all of its obligations and that the industry had continued on its “normal course” during the pandemic.

It claimed that deferred payments to landlords, film distributors, and suppliers were standard practices in the industry during COVID-19. It presented testimony from the studio and real estate executives who claimed that the delays had not strained their relationship with Cineplex.

Cineplex also claimed that Cineworld lacked grounds to terminate the agreement because a clause exempted outbreaks of illness or changes affecting the motion picture theatre industry from being considered “material adverse effects.”

On the other hand, Cineworld believed the clause had no bearing on the case because it claimed the contract was terminated due to Cineplex’s inactions rather than COVID-19.

Some observers saw the case as setting a precedent for other companies involved in their legal battles over abandoned acquisitions and COVID-19 pandemic-related material adverse effects.

Source: CP24

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