Bonhams sold Ferrari 250 GTO #3851GT at its 2014 Quail Lodge auction for $38,115,000, including buyer’s premium. It was a world-record sale — the highest price ever obtained at an auction. One would expect Bonhams’ staff and the seller to be high-fiving after the hammer fell. Instead, the seller sued Bonhams. These are some of the details.
This GTO was acquired in 1965 by Fabrizio Violati. He later bought more Ferraris and formed the Collezione Maranello Rosso, housed in a purpose-built facility between San Marino and the Italian coastal resort city of Rimini. Violati died in 2010.
SCM Contributing Editor Steve Ahlgrim analyzed the sale in the November 2014 issue, perhaps presaging the litigation: “Bonhams’ tent was packed for the auction… The phone bidder finally prevailed at $34,650,000 plus buyer’s commission, and the room was stunned. Many had anticipated a $50,000,000, $60,000,000 or even $70,000,000 result. Even the insiders who knew better felt let down.”
The consignor was Maranello Rosso Limited (MRL), formed in Guernsey by Graham Sullivan for the sole purpose of acquiring the Maranello Rosso Collection, 33 Ferraris and 38 Abarths, and then flipping it at auction.
According to MRL’s court filings, this is the story. Keep in mind that this is just MRL’s version of what happened; none of the others involved here are on record, which will be explained later.
Sullivan had been in negotiations since 2012 to acquire the Violati Collection. His competition included well-known collector Evert Louwman, who owns an extensive collection in The Hague, Netherlands. Sullivan prevailed and ended up with an exclusive option to buy the collection.
But MRL didn’t have the approximately €80 million (about $110m at the time) needed to buy it. It made a non-refundable deposit of €2 million (about $2.7m) and sought financing for the rest. A deal was struck with Louwman, who had his company, Lohomij BV, lend €90 million (about $123m) to MRL to finance the purchase.
MRL had extensive discussions with both Bonhams and RM Auctions about auctioning the collection. Bonhams had unsuccessfully sought to auction the collection for the Violati family itself and had already considered how to best do so. MRL negotiated directly with the late Robert Brooks, Bonhams’ chairman. The agreement was that the entire Violati Collection would be offered, and protected by agreed reserves, at the 2014 Goodwood Festival of Speed auction.
RM Auctions was equally eager to handle the sale, so it went a step further. It offered €74 million (about $101m) to buy all of the cars, except one. This would have provided the funds MRL needed to complete the purchase. RM would then auction the collection at its 2014 Monterey sale. RM would keep the first €80 million obtained, and everything over that would go to MRL.
Bonhams had been unwilling to buy the cars and would only agree to consign them. Yet faced with losing the deal to RM, Bonhams agreed to match the RM terms if it could arrange the financing. It did so by bringing Louwman into the deal.
MRL now had competing offers from two of the top auction companies in the collector-car world. MRL saw RM as the stronger in the U.S., but Bonhams as superior in Europe. MRL decided that the best venue for the sale was Goodwood because the Violati Collection was so well known and respected in Europe and the most likely buyer would be European. For that reason, it chose Bonhams.
Surprisingly, there was a lot of confusion over the changing circumstances of the deal. MRL thought Bonhams was buying the cars, similar to the RM offer. But the documents signed by the parties didn’t work that way. Rather, Louwman, through Lohomij, was simply lending money to MRL to buy the collection, which Bonhams would then auction. Further, the agreements gave Lohomij and Bonhams a lot of control over the process. Specific cars, including all with estimates under £1 million (about $1.7m), were to be sold without reserve.
Prior to the auction, Bonhams received an offer from Mr. Bernhard Mayr to buy the GTO for $57 million. The sale could not be made without the consent of Lohomij, which refused on the belief that $60m–$80m could be obtained at the auction. Also prior to the auction, Bonhams made a deal with Mr. Carlos Monteverde that he would be afforded a special payment plan if he was the winning bidder on the GTO, which turned out to be the case. Similar terms were not offered to other bidders.
Bonhams offered 10 of the cars, including the GTO, at its Quail Lodge auction, all without reserve. MRL agreed to this only because Bonhams assured it that this was the best way to generate the highest prices. But the combined hammer prices were only $59,950,000, which was less than Bonhams had previously assured MRL would be obtained. To MRL, it was a disaster.
Bonhams then sold 17 of the remaining 60 cars at its Goodwood Revival sale, generating total hammer prices of £2.5 million (about $4.1m). It refused to sell the remaining cars at that auction.
The disappointing results left MRL unable to repay Lohomij, resulting in extensive legal battles. Lohomij tried to foreclose on the cars to settle its loan, which MRL claimed was more intended to destroy Sullivan than to recover any monies owed to it.
The parties ultimately entered into a settlement agreement in 2015. Eventually, the cars were sold and Lohomij was repaid.
Last year, MRL filed suit against Bonhams for negligence, breach of contract and breach of duty, claiming over £20 million (about $25m) of damages. The specific alleged errors were selling the 10 cars at Quail Lodge instead of Goodwood, selling them at no reserve, failing to adequately promote the auction, failing to contact the parties that had previously negotiated with MRL for the purchase of some of the cars, and not selling all of the cars at a single auction.
MRL also made other claims against the defendants — Bonhams, its principals, Lohomij and Louwman — including an unlawful conspiracy, breach of fiduciary duties, breach of contract, and negligence.
The previous settlement appeared to eliminate the core claim, breach of contract, and the litigation proceeded on the secondary and more difficult claims.
The case came to summary judgment in the High Court of Justice in the Business and Property Courts of England and Wales. Summary judgment is a procedure in which a court is asked to decide a case based upon the pleadings and memoranda filed in the case, without a trial. In evaluating a case on this basis, the facts are assumed to be as the plaintiff has presented them, which is why we have only MRL’s version of the story.
The British standard is that even if the facts are all as the plaintiff claims, the plaintiff stands no realistic chance of winning on the merits. Thus, there is no need to proceed to a trial, where the other defendants would tell their side of the story. Obviously, if you can’t win based upon your version of what happened, there is no need to waste time and money by going further.
In a 128-page opinion, Judge Keyser granted summary judgment to the defendants on all claims except a single claim against Louwman for conversion of one car, the civil law equivalent of theft, which even Louwman agreed could not be decided without a trial.
Obviously, this was a devastating result for MRL. We do not know if an appeal is expected.
First and foremost, keep in mind that we only have MRL’s side of the story, which is intended to paint the most damaging picture of the others.
It’s fair to ask just what Sullivan was thinking. He negotiated a deal to buy the Violati Collection for €80 million when he only had €2 million. The rest was going to come from other people’s money. By my reading, he didn’t love the cars but bought them to immediately resell for them for profit, and when things didn’t go his way and he got into financial trouble, he sued everyone.
The idea that you could acquire such a valuable asset with a mere 2.5% down payment and flip it for a big payday is crazy. If it was that easy to do, why wouldn’t the owner just make a direct deal with the auction company?
It’s also amazing that we have such disagreements about the exact terms of the deal. Everyone involved was represented by lawyers from major firms. How could there be such misunderstandings?
This case brings up a fairly unseemly side of the collector-car world. Auction companies do cut special deals. Some people are ruthlessly trying to gain a financial advantage with complicated financial deals that rival anything you would expect from Wall Street. ♦
John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. His recently published book The Best of Legal Files can be purchased on our website. John can be contacted at firstname.lastname@example.org. His comments are general in nature and are not intended to substitute for consultation with an attorney.