The Cineplex decision will be one to keep an eye on for companies looking at COVID disputes: experts

The Canadian press

Published Thursday, November 4, 2021 1:56 PM EDT

Last updated on Thursday, November 4, 2021 at 13:56 EDT

TORONTO – The road ahead of Canada’s largest cinema owner is pending a forthcoming court decision, but the case is being closely monitored by companies across the country because the ruling could have far-reaching consequences for pandemic-inspired lawsuits.

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

Cineworld walked away from its deal to acquire Cineplex in June 2020, when pandemic-related closures closed theaters alleging significant adverse effects and breaches from Cineplex. Cineplex called Cineworld’s decision to terminate the deal “nothing more than a case of buyer remorse.”

Judge Barbara Conway, who is hearing final arguments this week, must rule on whether Cineworld was entitled to terminate the takeover agreement without payment.

Cineworld claims that it was right because Cineplex strayed from the “regular course” when it postponed its accounts by at least 60 days, reduced expenses to the “absolute minimum” and stopped paying landlords, film studios, film distributors and suppliers in the beginning. of the pandemic.

Cineplex claims that it fulfilled all its obligations and continued with a “regular course” for the industry. It claims that Cineworld had no reason to terminate the agreement because there was a clause exempting outbreaks of disease or changes affecting the movie theater industry from being considered “material adverse effects”.

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

“If the court says: ‘I think this dispute arose directly as a result of the effects of COVID, and we will analyze what happened in that lens, everyone will be very fascinated by this court and will follow it. ” said Andrew Wilson, a managing partner at Jensen Shawa Solomon Duguid Hawkes LLP in Calgary.

The case will be of interest because, although there is plenty of case law dealing with abandoned acquisitions and other significant adverse effects, the novelty of COVID-19 means that there is very little precedent for lawyers to trust or use to predict the outcome of lawsuits.

Wilson is just beginning to see cases where courts are being asked to consider what obligations the parties have in pandemic times, but expects the pace to pick up.

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

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

“But if the court simply says that COVID has nothing to do with any of this. Good faith and fair handling have nothing to do with any of this. This is only a matter of financial representations and guarantees … it will not be all that of interest to people, “Wilson said.

However, University of Toronto professor of finance Andrey Golubov said companies are looking for cases like Cineplexs because they give a sense of what their odds would be if they pursued similar lawsuits.

While Cineplex has been the big deal to see in Canada, he pointed to Europe, where French luxury goods giant LVMH gave up its $ 16 billion takeover of jeweler Tiffany under COVID-19 after the luxury industry faced COVID-19 problems.

The LVMH claimed that the French government asked it to postpone the agreement to assess the threat posed by proposed US tariffs, but Tiffany sued because it wanted the original agreement to be complied with.

The two parties eventually reached a revised agreement in which LVMH paid $ 131.50 per share. share for Tiffany, a drop from the previous $ 135 per share.

“There are a whole bunch of companies that are in this very pandemic-specific situation where deals were announced on terms that had one view of the world, and then the world changed completely,” Golubov said.

“Nothing made sense any further out of the old plans, and so for them these matters will be particularly relevant.”

The Cineplex case, he said, is also the key to the theater industry’s recovery.

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

Losing the case would exacerbate these financial problems because Cineworld is demanding $ 54.8 million in compensation, while Cineplex wants Cineworld to pay the $ 2.18 billion that Cineworld would have paid if the deal had been closed.

Cineplex is also seeking compensation for the $ 664 million in debt and transaction expenses that Cineworld would have incurred, as well as repayment of certain “benefits” it received as part of the transaction.

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

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