Executive Summary: Key Legal and Evidentiary Issues

• The Manitoba Court of Appeal dismissed an appeal concerning priority claims over restaurant equipment from a failed franchise.
   
• Sections 58, 63, and 66 of the Personal Property Security Act were central to the appellant's arguments regarding priority under a general security agreement.
   
• Strobel Holdings Inc. exercised distraint rights against the equipment following arrears of rent under lease agreements with the franchisee.
   
• Insufficient evidence regarding the equipment's existence, value, and financing history undermined the original application.
   
• Deference to the application judge's discretionary findings played a decisive role in the appellate court's reasoning.
   
• Costs were awarded against the appellant following dismissal of the appeal.
   

Facts of the case

This appeal arose from a dispute over restaurant equipment allegedly used by a failed Za Pizza Bistro franchise at premises on Osborne Street in Winnipeg, owned by Strobel Holdings Inc. The appellant, 10145668 Manitoba Ltd., is the franchisor of Za. It sought an order that, under a general security agreement (the GSA) assigned to it when it became franchisor, it held priority over the respondents with respect to the equipment; access to the premises to seize the equipment; and general damages for any diminution in the equipment's value. The respondents included Strobel and the "Freshslice respondents" — JM Food Services Ltd., RF Franchising Inc., and RFSP Equipment & Operating Inc. — who are franchisors of Freshslice Pizza, whose franchisee became the successor tenant of the premises. The Freshslice respondents were never tenants or franchisees of the premises and never had possession of the equipment; they adopted Strobel's position in the appeal. At least two lease agreements existed between Strobel and Za, and due to continued rent arrears and other alleged defaults, Strobel exercised rights of distraint over the equipment, re-entered the premises, and changed the locks.

Policy and legislative provisions at issue

The application below turned on the interpretation of sections 58, 63, and 66 of The Personal Property Security Act, CCSM c P35, particularly as they bore on the validity and extent of Strobel's distraint against the equipment under its leases with Za and/or Za's controlling minds. Also at issue were the applicable limitation periods for distraint, what equipment remained on the premises, and the equipment's value. The appellant relied on Housen v Nikolaisen, 2002 SCC 33, arguing that the application judge's alleged failure to properly apply PPSA principles was a legal error reviewable on a correctness standard.

Reasoning and analysis

The application judge had dismissed the appellant's application, finding an absence of "foundational and complete evidence to support an application of this nature." She was not satisfied sufficient evidence supported any of the relief sought, citing unresolved questions about whether the equipment existed on the premises, its value, whether it had ever been purchased or delivered, whether its purchase was financed and subject to other creditors' claims, issues of notice, and whether some property had become fixtures. She also found the evidence on the alleged expiry of the distraint limitation period insufficient, and although she considered the factual and credibility disputes required a trial, she declined to direct one given the insufficient evidentiary record. On appeal, Strobel argued the dismissal rested on a discretionary finding entitled to deference absent a palpable and overriding error of fact or a decision so clearly wrong as to amount to an injustice, citing Grant v Manitoba (AG), 2025 MBCA 7 at para 13, and Housen. Justice Kroft, writing for the court, agreed with Strobel, holding that even if another judge might have decided some issues differently, it was not unreasonable for the application judge to conclude the evidentiary record was insufficient to resolve the matters before her.

Ruling and overall outcome

Finding no palpable and overriding error and no decision so clearly wrong as to amount to an injustice, the Court of Appeal held there were no grounds for appellate intervention. The appeal was dismissed with costs in favour of the respondents, Strobel Holdings Inc. and the Freshslice respondents; the judgment does not specify the amount of costs awarded.