Would-be buyer claims property’s gas wells are unlicensed, legally inoperable
The Ontario Superior Court said a seller in an agreement of purchase and sale (APS) governing a farm property did not violate an environmental warranty that did not cover two natural gas wells, which the buyer blamed for his default.
In Duad Inc. v. Shi, 2025 ONSC 5258, the plaintiff seller wanted to dispose of a farm property at Chippewa Road East, Hamilton, Ontario.
The defendant buyer – comprising an individual and his company – agreed to pay $1.8 million for a 120-acre property with a barn, a farmhouse, outbuildings, and two gas wells. The buyer planned to run a mushroom farm with his brothers.
However, the buyer refused to close the sale on Dec. 18, 2017. He claimed that the seller breached an environmental warranty in the APS that supposedly covered the status of the gas wells, which were allegedly unlicensed and legally inoperable.
After the buyer defaulted, the seller unsuccessfully attempted to salvage the transaction by offering to repair any deficiencies in the gas wells. The seller then tried to mitigate its damages by selling the property for the best price available. The seller eventually succeeded in selling the property.
Before the court, the seller sought the forfeiture of the buyer’s $250,000 deposit, held in trust pending the trial outcome, and consequential damages from the buyer’s breach.
The seller alleged that the environmental warranty did not encompass the gas wells. Assuming it did, the seller asserted that it was not a condition but a warranty, which the seller did not breach.
Assuming there was a warranty violation, the seller argued that the buyer had the obligation to close the deal and seek compensation for the breach.
The Ontario Superior Court of Justice partly granted the plaintiff seller’s claim against the defendant buyer, ordered the forfeiture of the buyer’s deposit, and found the buyer liable to the seller for $287,296.57 in damages, minus a $250,000 credit due to the forfeiture.
First, the court determined that the environmental warranty did not refer to the two natural gas wells and did not apply to them. The court said the warranty’s ordinary grammatical wording demonstrated that it addressed environmental matters, not the gas wells.
The court explained that the repeated use of the word “environment,” the phrases “environmental matters” and “environmental orders,” and the specific reference to prior use as a waste disposal site showed that the warranty did not mean to cover the gas wells.
The court added that the agreement’s specific clause regarding disconnecting gas to nearby properties demonstrated that the parties utilized language clearly referencing gas wells when addressing these wells and the conditions applicable to them.
Second, assuming the environmental warranty applied to the gas wells, the court ruled that the seller did not breach the warranty.
The court noted that the environmental warranty, restricted to the seller’s knowledge and belief, encompassed the following primary areas:
As of the environmental warranty’s Apr. 6, 2017 date, the court found that the seller received no information that the gas wells needed repairs or fell short in any way. The court concluded that the seller made an accurate representation to the best of its knowledge and belief.
The court added that the buyer failed to provide evidence establishing the non-compliance with environmental laws, the existence of hazardous conditions or harmful substances, continued use restrictions, pending environmental litigation, outstanding Ministry of the Environment orders, or the property’s prior use as a waste disposal site.
Third, the court agreed with the seller that the law supported the conclusion that the environmental warranty was indeed a warranty, not a condition.
The court found that the buyer:
The court said the seller appropriately mitigated its loss. The court also saw no factors justifying relief against the forfeiture that the seller sought.
