Where purchasers are disappointed by the goods they receive, the principle of caveat emptor – or buyer beware – is often cited. As a High Court case concerning the part exchange of a Ferrari sports car showed, however, the principle has no application to transactions that are tainted by fraud.
A car dealership agreed to part exchange a McLaren Spider, priced at £235,000, for a vehicle that it believed to be a Ferrari 599 GTO, a limited production super car. As part of the deal, the Ferrari’s owner (the seller) also received £35,000 in cash. It emerged soon afterwards, however, that the Ferrari was in fact a 599 GTB model, a production car valued at about £75,000.
After the seller refused to unwind the deal, the dealership launched proceedings. He put forward various defences to the claim but eventually admitted that he knew the car was not a GTO when he purchased it. He contended, however, that he was entitled to refer to the car as a GTO in that it had previously been modified to give it the appearance of the more valuable model. There was no dispute that the part exchange was subject to full inspection of both vehicles.
Granting the dealership summary judgment on its claim, however, the Court noted evidence that the seller had commissioned a body shop to fix a GTO body-kit to his GTB. There was irrefutable evidence that his representation to the dealership that the car was a GTO was, to his knowledge, false. He made that representation to induce the dealership to enter into the part exchange and the dealership relied on it.
The Court accepted that the dealership had the right to rescind the contract from the moment the fraud was discovered. The seller was also liable for breach of contract in that the car he exchanged did not correspond to its description as a Ferrari 599 GTO. The factual basis of his defence was fanciful and he had no realistic prospect of successfully resisting the dealership’s claim.
The Court found that the seller should have returned the £35,000 and the McLaren when requested to do so. The ruling required him either to take that course, and to compensate the dealership for any depreciation in the McLaren’s value, or to pay damages sufficient to put the dealership in the same position that it would have been in had he performed his contractual obligations.