An Ontario Superior Court judge has ordered a buyer who backed out of a real estate deal to forfeit a $250,000 deposit and pay additional damages after failing to close on a $1.8 million transaction for a Hamilton farm, ruling that last-minute concerns raised about the property’s natural gas wells were not a valid reason to terminate the agreement1. The decision, released on September 15, 2025, brings a conclusion to a years-long dispute over the sale of a 120-acre property that was intended to become a mushroom farm. The case involved multiple contract amendments, a counterclaim against the real estate agent, and a series of subsequent sales by the seller to mitigate its losses.
The legal saga began in 2017 when Ling Shi and his company, Siofresh Inc., entered into an Agreement of Purchase and Sale with Duad Inc. to buy a farm property located at 5299 Chippewa Road East in Hamilton. The property included a farmhouse, a barn, outbuildings, and two natural gas wells, which Shi intended to use for the planned mushroom farming operation. The initial agreement, signed in April 2017, stipulated a purchase price of $1.8 million and required an initial deposit of $80,000. The deal was conditional on Shi being able to assume the seller’s existing mortgage with RBC and on satisfactory home and septic inspections.
According to the evidence presented at trial, Shi encountered financing difficulties almost immediately. He was unable to negotiate the assumption of the RBC mortgage and requested an extension of the conditional period, which Duad Inc. granted. When a second extension also proved insufficient, Shi was still unable to secure the necessary financing. He then asked Duad Inc. to provide a vendor-take-back mortgage for $800,000. Despite some hesitation, Duad Inc. agreed to this significant change in terms to keep the deal alive. Following this agreement, in May 2017, Shi waived all conditions, making the deal firm and binding. At this stage, he understood that he could have walked away from the transaction but chose to proceed.
As the original summer closing date approached, Shi determined he still could not obtain enough financing to complete the purchase. He returned to the seller with another request: to increase the vendor-take-back mortgage from $800,000 to $1.1 million and to push the closing date back several months to December 18, 2017. Court documents show that the seller, Henry Du of Duad Inc., was concerned about Shi’s ability to close but was persuaded by the real estate agent, Youming Zhao, to agree. As a condition for granting these substantial accommodations on an already firm deal, Duad Inc. required an additional non-refundable deposit of $170,000. Shi agreed, bringing the total deposit to $250,000. The amending agreement explicitly stated the new closing date was “FIRM” and “CAN NOT be changed,” warning that the buyer would lose the entire non-refundable deposit for any failure to close.
On the scheduled closing date of December 18, 2017, the transaction fell apart. Shi refused to close, claiming for the first time through his lawyer that Duad Inc. had breached an environmental warranty in the purchase agreement. He alleged the two natural gas wells on the property were not properly licensed and could not be legally operated. Duad Inc. countered that the environmental warranty was intended to cover contamination issues like waste disposal, not the operational status of gas wells. They argued the wells were covered by a separate “as it is, where it is” clause in the agreement. Furthermore, Duad Inc. maintained that even if the warranty did apply, it had not been breached, as the licenses were in force and the transfer was the buyer’s responsibility after closing.
In his decision, Justice M.R. Gibson of the Ontario Superior Court of Justice systematically dismantled Shi’s arguments. He found that the environmental warranty, based on its wording and the surrounding circumstances, did not apply to the gas wells. The judge noted that the parties had inserted a separate, specific clause about disconnecting gas service to neighbours, showing they knew how to address the wells directly when they intended to. Justice Gibson concluded that Shi’s sudden focus on the wells was an “after-the-fact justification for refusing to close the sale.” The judge pointed to Shi’s relaxed attitude toward other potential issues with the property, such as the barn’s condition and the water supply, as evidence that the gas wells were not as critical to the deal as Shi later claimed.
Even if the warranty had applied, the court found no breach occurred. The warranty was qualified “to the best of the Seller’s knowledge and belief,” and the evidence showed Duad Inc. had no information suggesting the wells were non-compliant before the closing date. An expert witness confirmed the well licenses had always been valid and could have been transferred to Shi after the purchase. The minor deficiencies later identified by provincial inspectors were repaired for just over $4,400, a sum the judge deemed insignificant in the context of a $1.8 million transaction. The court determined that the clause was a warranty, not a condition, meaning Shi’s obligation was to close the deal and then sue for any repair costs, not to terminate the agreement entirely. The court also noted that Duad Inc. had offered to fix any well deficiencies to salvage the deal in a meeting after the failed closing, but Shi refused the offer. Justice Gibson agreed with the seller that the most likely reason for Shi’s failure to close was a lack of sufficient funds to operate the farm and meet the demanding mortgage repayment schedule.
Consequently, the court ruled that Shi had breached the contract and his $250,000 deposit was forfeited. Justice Gibson found no grounds for relief against forfeiture, a legal remedy for exceptional cases where keeping a deposit would be unconscionable. He noted the transaction was commercial, Shi was a sophisticated party, and he had explicitly agreed to the increased non-refundable deposit in exchange for significant concessions from the seller.
The court then turned to the issue of damages. Following the breach, Duad Inc. was legally obligated to mitigate its losses by reselling the property. This process proved complex and lengthy. The property was eventually sold in three separate transactions over several years. This involved selling a 38-acre parcel to the Niagara Peninsula Conservation Authority in 2019, followed by a 72-acre parcel to the same authority in March 2025. An offer for the final 10-acre parcel with the farmhouse was pending at the time of the trial. While Duad Inc. ultimately did not suffer a loss on the resale price, it incurred significant carrying costs, including property taxes, utilities, maintenance, and legal and commission fees associated with the subsequent sales. The court awarded Duad Inc. $287,296.57 in these allowable costs. The court disallowed other claimed costs, including expenses from evicting a problem tenant and repairing extensive fire damage to the farmhouse, deeming them too remote and not reasonably foreseeable consequences of Shi’s breach. The forfeited $250,000 deposit will be credited against the total damages award.
Shi had also filed a counterclaim against Duad Inc. and the real estate agent, Youming Zhao, who represented both parties in the transaction. Shi alleged Zhao had breached his duties by favouring the seller’s interests and misleading him. The court dismissed these claims, finding no evidence to support them. While Zhao had received a formal warning from the Real Estate Council of Ontario for sloppy paperwork in the transaction, an expert witness testified that his conduct did not fall below the professional standard of care. All claims and crossclaims against the agent and his brokerage were dismissed.
The final order confirms the forfeiture of the $250,000 deposit to Duad Inc. and holds Ling Shi and Siofresh Inc. jointly and severally liable for the remaining damages plus interest.
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