Divisional Court Says Standard of Review on Appeal of Master’s Order is Housen v. Nikolaisen’s “Palpable and Overriding Error”

In an important, just-released decision, the Divisional Court has clarified the standard of review on appeals from orders made by masters. The court, composed of Justices Sidney N. Lederman, Katherine E. Swinton and Wailan Low, unanimously held that on an appeal from a master’s order, “the decision will be interfered with only if the master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error”.

The ruling was made in Zeitoun v. The Economical Mutual Insurance Group. The order in question required plaintiffs in a personal injury action to post security for costs. The order, made by Case Management Master Linda S. Abrams, had been overturned on appeal to Justice Romain Pitt.

Justice Pitt had treated the appeal as a de novo hearing, applying the standard of review propounded by an earlier decision of the Divisional Court in Hudon v. Colliers Macaulay Nicolls Inc. (c.o.b. Colliers International). As the Divisional Court said in Zeitoun, “Hudon is relied upon for the proposition that where a master makes an order which, while interlocutory, is nevertheless most vital to the final issue in the case, the appeal may proceed as a de novo hearing.”

Leave to appeal the decision of Pitt J. was granted by Justice John Jennings. The basis on which leave was granted was the conflicting caselaw regarding the appropriate standard of review of masters’ interlocutory orders going to a matter vital to the final issue in the case. The line of authority competing with Hudon was represented by the Court of Appeal’s decision in Carter v. Brooks, which had held that an appeal should proceed as a true appeal, with deference being shown to the findings of fact made at first instance.

The panel of the Divisional Court analyzed the two streams of caselaw. (Interestingly, Carter did not involve a master’s order at all. Rather, it concerned an appeal from an order made by a judge on an application. The issue was whether the fact that the order had been made on the basis of a paper record, rather than viva voce evidence, meant that the appellate court was equally well-positioned to decide the issue and therefore, need not defer to findings made by the application judge.)

The court looked at its own earlier ruling in Hudon. It noted that the decision in that case had actually been based on the case management master having made an error in law (which, of course, would be a basis for intervention by an appellate court, no matter what standard were applied), but that the case had subsequently been interpreted to mean that “where a master makes a discretionary order that is final or is vital to the final issue of the case, the appellate court may hear the matter de novo“.

The court then looked at a later Divisional Court decision, Bank of Nova Scotia v. Liberty Mutual Insurance Co., which had laid down principles in relation to appeals from orders of masters where the orders did not dispose of an issue vital to the final determination of the suit. Depending on whether the order was discretionary or not, that standard could either be one of “clearly wrong” or “correctness”.

In coming to its conclusion, that appeals from masters’ orders based on the exercise of discretion or the apprehension of evidence should henceforth be decided on the “palpable and overriding error” standard of review, the Divisional Court made some important observations about the role of masters in the judicial process in this province. It noted that the idea that such appeals should be heard de novo appears:

…to have been driven to large degree by historical notions of hierarchy and prerogative that now warrant reexamination in light of (a) the evolution and rationalization of  standards of review in Canadian jurisprudence, (b) the expansion of the role of the master within Ontario’s civil justice system, (c) the values of economy and expediency expressed in the general principles underlying the Rules of Civil Procedure (see rule 1.04) and (d) the difficulty and contentiousness in deciding in each case whether the interlocutory order appealed from is one which is vital to the final issue in the case.

The Court observed that the wholesale changes to the Rules of Civil Procedure that were made in 1985 had effected a “change of culture”. Under the new system, masters had the same jurisdiction as did judges with respect to motions, except in specific types of cases. The powers of masters were further expanded with the 1996 advent of case management under Rule 77.

The Court went on to say that, from the standpoint of “the efficient and rational use of judicial resources”, it doesn’t make any sense to have masters deciding motions and for the parties to then be able to go right back to square one on appeals from those decisions:

There is no functional value in assigning a task to a particular judicial officer with the reservation that a different judicial officer at a higher point in the hierarchy may substitute his or her view solely by reason of his place in the hierarchy and without some demonstrated deviation in the original decision from the applicable legal principles or some misapprehension of the facts and the evidence that affects the soundness of the result.

The end result now is that where an appeal from a master’s order involves an error of law, the standard of review on appeal is correctness, whether the decision is final or interlocutory and whether or not it is vital to the final determination of the lawsuit. Where the order appealed from involves the exercise of discretion, the order will not be interfered with on appeal unless the master exercised his or her discretion on the wrong principles or misapprehended the evidence such that a palpable and overriding error has resulted.

Applying those principles to this case, the Divisional Court found that Justice Pitt, in conducting a hearing de novo from the decision of Master Abrams, had erred in law. Here, the Master had held that the plaintiffs had not met their obligation to show impecuniosity and so, an order for security for costs was warranted. The Divisional Court ruled that the Master had exercised her discretion on correct principles and in accordance with the evidence before her. Accordingly, there was no basis for interfering with her decision.

In our view, the ruling in Zeitoun is an important (and probably overdue) recognition and endorsement of the role that masters play in the administration of justice in this province. In our experience, master’s motions have sometimes been viewed as “dry runs”, since a hearing de novo could usually be had before a judge in the event of an unfavourable outcome. Clearly, that thinking will now have to change.

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