The future of two Burnaby movie theatres, and one Burnaby entertainment complex, could be at stake with a messy lawsuit that has finally hit the courts.
Cineplex Inc., which operates the VIP theatre and the Rec Room at the Amazing Brentwood, plus a theatre at Metropolis at Metrotown in Burnaby, says a U.K. theatre giant acted in bad faith by delaying a takeover deal of the Canadian company and hoping it would default during the pandemic, a judge heard at the opening of its trial against Cineworld Group PLC.
Toronto-based Cineplex is seeking to recoup $2.18 billion in damages from Cineworld after the company walked away from the December 2019 deal amid a strict COVID-19 lockdown in June 2020.
The amount is significant because if Cineplex loses, it would be another financial blow for a company that only recently was allowed to reopen.
"Cineplex did what all other affected businesses, including Cineworld and its other peers, did," Alan Mark, a lawyer representing Cineplex, said in opening remarks Monday in the case being heard by the Ontario Superior Court of Justice.
"These actions were consistent with Cineplex's obligations under the arrangement agreement to preserve the value of its business during the interim period."
Cineplex was right in the middle of building the two Brentwood entertainment ventures when the pandemic hit in spring 2020, postponing construction and then the opening plans until summer 2021. That meant having to eat a lot of carrying charges on the two Burnaby projects at a time when no revenue was coming.
Cineworld is arguing it had the right to terminate the agreement without payment because Cineplex strayed from "ordinary course," when it deferred its accounts payable by at least 60 days, reduced spending to the "bare minimum" and stopped paying landlords, movie studios, film distributors and suppliers at the start of the pandemic.
The trial is expected to be a test case for pandemic-era litigation as the two companies argue about each other's actions during the pandemic that led to plummeting revenues and changed the cinema landscape.
Mark alleged Cineworld never stated it took issue with Cineplex's actions until it filed to break its deal with the Canadian company.
He added that Cineplex's leadership team was in constant discussion with Cineworld as the two companies weathered the pandemic.
Mark further alleged that Cineworld would not discuss its integration plans with Cineplex in writing, and only spoke over the phone to avoid any paper trail of their plans.
"What Cineworld was pinning its hopes on, was that Cineplex would eventually not be able to manage its liquidity without running afoul of the debt ceiling covenant," Mark said.
"They were playing for time, and in fact that's what they told their insiders that they were doing."
Cineworld's legal team is set to deliver its opening presentation later this afternoon.
Cineplex has said it plans to call its first witness, Cineplex CFO Gord Nelson, following Cineworld's remarks.
The case won't change Cineworld's decision to scrap the Cineplex deal, but legal and entertainment experts say it will offer a window into the future of Canadian movie-going and may inspire further suits.
- With reporting by the Canadian Press