The Covid-19 pandemic that began in 2019 had an impact on business in a myriad of ways, including M&A transactions. The hospitality and entertainment industries around the world were particularly hard hit. In this matter, the forced closing of movie theaters resulted in a breach of contract claim, a countersuit, and a complex set of legal theories and damage assessments. Secretariat experts were called upon and provided novel damages calculations to assist Ontario’s Superior Court of Justice as it considered the complexities of the matter.


Covid-19 Creates Complex Damages Claims in a High-Profile M&A Dispute


In December 2019, just as the Covid-19 pandemic was beginning, Cineworld Group plc of UK (one of the largest operators of movie theaters in the world) agreed to purchase the shares of Cineplex Inc. (a Canadian movie theater and family entertainment company) for a large amount that included repayment of Cineplex’s approximately C$2.8 billion of outstanding debt. Prior to the deal’s scheduled close on June 12, 2020, however, Cineworld notified Cineplex that it was terminating the agreement because Cineplex breached a provision requiring it to continue operating normally between the agreement date and the closing, which included the period when normal operations of most businesses were impacted by the Covid-19 pandemic. Cineplex responded with a breach of contract claim in Ontario’s Superior Court of Justice (Court) alleging that Cineworld had no basis to terminate the agreement and sought damages of about C$1 billion. Cineworld then filed a counterclaim to recover its transaction costs of £32 million from Cineplex.

To determine the scope of potential damages, it became the Court’s job to decide between seemingly competing legal theories. One issue was the material adverse effects (MAE) clause in the agreement which appeared to give Cineworld the option to exit the deal because of “acts of God” or “illness outbreaks.” The other was the operating covenant that required Cineplex to continue operating its theaters normally during the Covid-19 pandemic.

In complex commercial litigation, an expert witness can assist the court’s assessment of damages by providing alternative theories and calculations to those provided by the parties themselves. These alternative calculations may assist the court in awarding the appropriate amound of damages based on its own legal findings.

Secretariat’s Role

Because of the agreement’s complexity, the Court considered five theories by which it could determine potential damages Cineplex incurred because of Cineworld’s cancellation of the transaction. But this was not an easy, straightforward process. As a result, Cineplex engaged Secretariat’s damages experts to provide additional measures by which damages might be assessed. Secretariat’s experts – well experienced in assessing damages from alleged breaches of contract – looked at various perspectives and presented seven measures of damages, carefully explaining to the Court the rationale behind each and how they could be applied. Some could be used in combination, and others required individual consideration.


Based on its review of the case facts, the Court awarded damages to Cineplex of C$1.2366 billion, relying on one of Secretariat’s proposed measures: loss of synergies suffered by Cineplex that would result from the combination with Cineworld. The Court ruled that “the lost synergies are Cineplex’s own losses as a result of Cineworld’s termination… An award of damages on this basis would therefore put Cineplex in the position that it would have been in if Cineworld had not terminated the Arrangement Agreement and had closed the Transaction.” The Court also decided that “the only damages recoverable by Cineplex are the losses sustained by Cineplex, not its shareholders.” Shareholders would be entitled to receive consideration only if the deal actually closed, and they had no rights to enforce the agreement.

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