Ontario – Court of Appeal upholds dismissal of litigation based on issue estoppel with Sharia Law arbitration – #037

In brief reasons, the Ontario Court of Appeal Mroue v. Mroue, 2017 ONCA 517 dismissed an appeal from Mr. Justice Colin D.A. McKinnon’s decision in Mroue v. Mroue, 2016 ONSC 2992 which struck a Statement of Claim on the basis of res judicata and issue estoppel with a prior arbitration award.  McKinnon J. held that the parties had bargained for a decision in accordance with Sharia Law and, having received one, could not now object to it.  Any alleged improprieties with the procedure followed in the Iran, while different from that in Ontario, did not result in any unfairness. 

McKinnon J.’s reasons in first instance contain a fuller portrait than the appeal decision of the facts and issues raised by the parties’ dispute, arbitration process and ensuing litigation following the final award.   

The underlying dispute related to the sale of land in Lebanon owned jointly by Hussein Mroue, plaintiff and eventual appellant (“HM”), and his brother, Issam Mroue, defendant and eventual respondent (“IM”).  The brothers agreed on the sale price, all documents being executed in Lebanon in accordance with Lebanese law and HM granting IM a power of attorney to proceed with the sale of the land. 

IM disbursed the $900,000.00 in proceeds among four (4) recipients, including HM and IM, after payment of $24,222.00 in commission and expenses.  HM objected to the IM’s distribution of the proceeds, demanding 50%.  IM refused.  After various discussions between HM and IM as well as between their representatives, HM and IM agreed to undertake arbitration in accordance with Sharia Law. 

[11]  Based upon the affidavit evidence and cross-examinations, it is clear that both Hussein and Issam became convinced that it would be preferable to have their dispute resolved under Sharia Law because they were brothers and believed that resort to the civil law courts would bring shame on the family. With the assistance of members of their family, and in particular their sister Layla, an arbitrator was chosen. The arbitrator was a learned scholar and Imam, Sayed Mohamed Mohsen El Husseini, of the City of Qom, Iran. This Shia scholar was known to the family. Sheik Yeyah, a brother of Hussein and Issam, had studied with him. Imad Mroue, Hussein’s son, had asked him for advice on a number of occasions. I find as a fact that this scholar was acceptable to both parties as being an appropriate person to arbitrate their dispute in accordance with Shia Sharia Law. 

An arbitration process was adopted and written submissions sent to the arbitrator by both HM and IM.  McKinnon J. reviewed the exchanges and held that the propriety of IM’s distribution of the proceeds of sale was directly before the arbitrator. In an award which McKinnon J. described as a “very brief decision“, the arbitrator confirmed IM’s distribution and appointed another individual, SY, as the arbitrator’s representative to determine the amounts of “losses and damages“, specifying that SY’s “decision for settling this dispute shall be final and legally binding“. 

McKinnon J. noted that nothing in the materials before him explained what would have been the “damages” that SY eventually partitioned between HM and IM but that, in the litigation before him, HM did not raise it. 

HM initiated the legal proceedings in Ontario, claiming his 50% of the proceeds of sale.  He included his son, an Ottawa resident, as co-plaintiff but McKinnon J. dismissed allegations of the grounds justifying the son’s involvement as an attempt to find jurisdiction in Ontario.  

McKinnon J. reflected a willingness to identify the exact bargain made by the parties and to enforce that bargain.   

[23] Hussein Mroue takes the position that at all times he believed the submission of the question to the learned arbitrator in Iran was merely to seek an “advisory opinion” and never to obtain a binding award. However, the documentation placed before the arbitrator clearly indicates that Hussein meant to be bound by the judgment. Specifically, Hussein acknowledged that it is his signature that appears on the original documents. Following his signature are the words “who accepts the Sharia based judgment”. He does not dispute the English translation of the documents. His son Imad testified that the submission of his father was correctly set out in the written material. 

[24] The documents admitted to be signed by Hussein Mroue clearly and unambiguously establish that he sought out a process whereby his dispute with his brother would be determined according to Sharia Law and that he was prepared to accept the judgment of the arbitrator as being binding upon him. 

[25] One must ask whether, had the decision of the learned arbitrator been in his favour, Hussein Mroue would now insist that it was simply an “advisory opinion”. 

IM asked the court “to declare that the doctrine of res judicata be applied to recognize the decision of the arbitrator as being final and binding on the parties, stopping them from re-litigating the issues before him“. 

McKinnon J. was not tasked with applying the provisions of Ontario’s International Commercial Arbitration Act, RSO 1990, c I.9 as HM did not raise it as part of the relief.  Had he, McKinnon J. added that HM had exceeded the three month period provided by section 34(3) to contest it.  

[59] Simply put, the responding parties are out of time to challenge the arbitral award. The award in question was issued in May of 2010. The statement of claim brought by the responding parties was issued on July 26, 2010. There is nothing in the statement of claim that refers to the ICAA. It is simply a claim for one half of the net proceeds of the sale of the Lebanon property, punitive damages, aggravated damages and pre-judgment interest in accordance with the Courts of Justice Act and costs. 

 The gap between May and July are within a three month delay so it appears that McKinnon J.’s reasoning is based more on the fact that the relief was not sought, not that it was not sought in time, and therefore could not be added to at a later date.  In any event, McKinnon J. did not agree that HM would have found relief in the provisions of ICAA.  He found there was no “real unfairness and real practical injustice” flowing from any of the procedure outlined.  

For the doctrine of res judicata or issue estoppel, McKinnon J. relied on the two step analysis established by the Supreme Court of Canada in Penner v. Niagara (Regional Police Services Board), [2013] 2 SCR 125, 2013 SCC 19 and Danyluk v. Ainsworth Technologies Inc., [2001] 2 SCR 460, 2001 SCC 44. The first step contains three preconditions: whether the same question has been decided; whether the judicial decision which is said to create the estoppel is final; and, whether the parties to the decision were the same in both proceedings.  If those three are met, the court can exercise its residual discretion not to apply the issue estoppel.  McKinnon J. held that, on the facts, the Sharia court decision dealt with the exact same issues as are the subject of the Ontario Superior Court litigation, between the same parties.  

McKinnon J. then examined the rules establishing if a decision was a judicial one and then considered if the Sharia court decision qualified as a judicial decision.   

[38] A judicial decision is one where the decision maker is of competent jurisdiction. It has been held in Canada that a court of competent jurisdiction is one having jurisdiction over the parties in question, over the subject matter, and having the authority to make the decision which is asked of it by one or more parties : R. v. Morgentaler, Smoling and Scott (1984), 1984 CanLII 55 (ON CA), 48 O.R. (2d) 519 (CA), at para. 15. 

[40] The expert evidence tendered in this case establishes that Sharia Law prescribes certain conditions for arbitrations to have legal and binding authority. First, the parties involved in the dispute must agree to proceed by way of arbitration. Second, the chosen arbitrator must be qualified. Third, the subject dispute must fall within the jurisdiction of what may be resolved by way of arbitration. While there are variances between schools of Islamic laws as to the scope of an arbitrator’s jurisdiction, these schools of law are all unanimous in confirming that an arbitrator who is a learned and respected cleric has jurisdiction to rule on property disputes deriving from payment of money. The arbitrator must have sufficient substantive knowledge of the law which is applicable to the subject dispute and he must be neutral. Fourth, the parties must agree on the common question to be put to the arbitrator. 

He accepted that the arbitration process chosen, namely Sharia Law, allowed for the arbitrator to delegate some aspects of this tasks to another.  Experts for both parties were called to opine on the qualifications of the arbitrator and the legality of the arbitration itself.  McKinnon J. accepted that expert evidence to conclude that the arbitrator’s decision was a judicial one.   

McKinnon J. examined the facts and held that all the criteria met for the application of issue estoppel: the same issue had been decided, the decision was final, the arbitration and the court litigation were between the same parties.  While HM’s son appeared as co-plaintiff in the court litigation, McKinnon J. dismissed his status as a procedural tactic insufficient to prevent application of the doctrine. Based on all the circumstances, McKinnon J. exercised his discretion and refrained from not applying it.  McKinnon J. issued an order dismissing Plaintiffs’ Statement of Claim.  

On appeal, the Court of Appeal summarized McKinnon J.’s reasoning in first instance and endorsed it by dismissing the appeal.  With regard to the arbitration process engaged in by the party now challenging its results, the Court agreed with the judge in first instance:  

[3] He concluded the parties sought a decision in accordance with Sharia Law and received one. It was not open to one of the parties, dissatisfied with the result, to complain now. 

Regarding McKinnon J.’s handling of the initial court application, the Court reminded appellant of the trial judge’s role and the deference the Court of Appeal gives to that role, observing that appellant could not appeal simply because he disagreed with the result: 

[6These conclusions were all open to the trial judge on the evidence before him. In this court the appellant simply seeks a different result. We are not persuaded that the trial judge made any error; his findings were clearly based on the evidentiary record before him. Where the evidence conflicted, he preferred the evidence of the respondent and his expert – this is the role of a trial judge and deference is owed to his factual findings in this court.