TORONTO – Cineplex Inc. says it won a court battle against a UK theater giant that was supposed to buy the Canadian film company before the COVID-19 pandemic hit.
Toronto-based Cineplex announced Thursday night that the Ontario Superior Court of Justice ruled in its favor in a breach of contract lawsuit against its former suitor Cineworld Group PLC.
Judge Barbara Conway awarded damages of $ 1.24 billion and denied a Cineworld counterclaim, Cineplex said.
“We are pleased that the court has determined that Cineplex acted correctly during this difficult period in our history,” Cineplex President and CEO Ellis Jacob said in a statement.
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But Cineworld is not giving up. Shortly after Cineplex announced its victory, Cineworld acknowledged the ruling and noted that the court had also ordered it to pay $ 5.5 million in lost transaction costs.
“Cineworld does not agree with this ruling and will appeal the decision,” the company said in a statement.
“Cineworld does not expect damages to be paid while the appeal is ongoing.”
The acrimony between the two theater chains began when Cineworld abandoned its deal to acquire Cineplex in June 2020.
By then, the pandemic was in full swing and theater operators in many corners of the world had been forced to close cinemas.
Cineplex and Cineworld reported massive losses and resorted to layoffs to save as much cash as they could as bills for stand owners, studios and vendors came due.
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As the companies navigated the crisis and awaited final approvals from Canadian regulators for their deal, Cineworld withdrew from the acquisition, claiming that the company it was supposed to buy was liable for “non-compliance and material adverse effects.”
Cineplex pointed to the adverse effects that Cineworld blamed him for as “nothing more than a case of buyer’s remorse” and decided to sue his former suitor for more than $ 2.18 billion in damages.
Cineworld filed a counterclaim valued at approximately $ 54.8 million.
The court was left to decide whether Cineworld had the right to terminate the acquisition agreement it signed with Cineplex in December 2019 without payment.
Cineworld argued that it was free to withdraw from the deal because Cineplex deviated from the “normal course”, when it deferred its accounts payable for at least 60 days, reduced spending to the “minimum” and stopped paying owners, film studios, film distributors and suppliers at the beginning of the pandemic.
“Ordinary course” is a legal term that often appears in acquisition agreements when companies want to ensure they have the ability to terminate a deal and limit their risks, if other parties deviate greatly from their current operations or business model.
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In response to Cineworld’s claims, Cineplex argued that it met all of its obligations and continued a “normal course” for the industry during the pandemic.
He said deferred payments to owners, film distributors and suppliers were the norm for the industry during COVID-19 and introduced testimony from studio and real estate executives, who said the delays had not strained their relationship with Cineplex. .
Cineplex also claimed that Cineworld had no reason to terminate the deal because there was a clause that exempted disease outbreaks or changes affecting the motion picture industry from being considered “material adverse effects.”
Cineworld, however, considered that the clause should be unrelated to the case because it claimed that it terminated the contract due to inaction by Cineplex rather than COVID-19.
Some observers felt that the case could set a precedent for other companies that may find themselves embroiled in their own litigation over abandoned acquisitions and material adverse effects caused by the COVID-19 pandemic.
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