Cineplex move will be one to watch for businesses considering COVID litigation: experts – .

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Cineplex move will be one to watch for businesses considering COVID litigation: experts – .


TORONTO – The way forward for Canada’s largest movie theater owner hinges on an upcoming court ruling, but the case is being watched closely by companies across the country as the ruling could have far-reaching implications. scope for litigation inspired by a pandemic.

The case in question has been pending before the Ontario Superior Court of Justice since last July, when Toronto-based Cineplex Inc. announced that it would sue former British contender and theater operator Cineworld Group PLC.

Cineworld backed out of its deal to acquire Cineplex in June 2020 as pandemic-related closures shut down theaters, alleging significant negative effects and Cineplex violations. Cineplex called Cineworld’s decision to end the deal “nothing more than a case of buyer’s remorse.”

Judge Barbara Conway, who is hearing oral argument this week, must decide whether Cineworld had the right to terminate the takeover deal without payment.

Cineworld claims it had the right because Cineplex strayed from the “normal course,” postponing its accounts payable for at least 60 days, cutting expenses to the “bare minimum” and stopping paying owners, movie studios, film distributors and suppliers at the start of the pandemic.

Cineplex maintains that it has fulfilled all of its obligations and pursued a “regular course” for the industry. He says Cineworld had no grounds for terminating the deal because there was a clause exempting disease outbreaks or changes affecting the movie industry from seeing it as “significant adverse effects.”

But Cineworld said the clause should have no bearing on the case because it terminated the contract due to Cineplex’s inactions and not COVID-19.

“If the court says, ‘I think this dispute arose directly from the impacts of COVID and we will analyze what happened from that angle, everyone will be very fascinated by this tribunal and will follow it.’ said Andrew Wilson, Managing Partner at Jensen Shawa Solomon Duguid Hawkes LLP in Calgary.

The case will be interesting because while there is a lot of case law dealing with abandoned acquisitions and other significant negative effects, the novelty of COVID-19 means that there are few precedents that lawyers can rely on or use to predict the outcome of litigation.

Wilson is just starting to see cases where courts are being asked to review parties’ obligations during a pandemic, but predicts the pace will pick up.

In particular, he believes courts will see more cases involving a party who entered into an obligation or contract that looked like a good deal before the pandemic, but then found out it was a bad deal once COVID- 19 has spread.

If the judge applies a COVID lens to the Cineplex case, Wilson believes it could give many companies hope for their own litigation and lead to the case being appealed. It could even go all the way to the Supreme Court, where it could set a precedent, he said.

“But if the court just says COVID has nothing to do with any of this. Good faith and fair dealing have nothing to do with all of this. These are only statements and financial guarantees… that will not be all. that of getting people interested, ”Wilson said.

However, Andrey Golubov, professor of finance at the University of Toronto, said companies are looking for cases like Cineplex because they give a sense of their chances if they file similar lawsuits.

While Cineplex has been the big deal to watch in Canada, he highlighted Europe, where French luxury goods giant LVMH abandoned its US $ 16 billion buyout from jeweler Tiffany during COVID-19, after the The luxury industry has been grappling with the problems of COVID-19.

LVMH claimed the French government asked it to delay the deal to assess the threat of proposed tariffs in the United States, but Tiffany took legal action because it wanted the original deal to be honored.

The two sides eventually reached a revised deal that saw LVMH pay US $ 131.50 per share for Tiffany, down from the previous deal of US $ 135 per share.

“There’s a whole bunch of companies that find themselves in this very specific pandemic situation where deals were announced with terms that had a worldview, and then the world completely changed,” Golubov said.

“Nothing made sense anymore with these old plans and therefore for them, these cases are going to be particularly relevant. “

The Cineplex affair, he said, is also essential for the recovery of the theater industry.

Both Cineworld and Cineplex have reported multi-million dollar losses in recent quarters.

Losing the deal would exacerbate these financial woes, as Cineworld seeks $ 54.8 million in damages, while Cineplex wants Cineworld to pay the $ 2.18 billion that Cineworld would have paid had the deal gone through.

Cineplex is also seeking compensation for the $ 664 million in debt and transaction costs Cineworld allegedly incurred, as well as reimbursement of certain “benefits” it received in connection with the transaction.

This report by The Canadian Press was first published on November 4, 2021.

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