Does anyone know what the rules/law is surrounding this situation? How can I ensure I get the domain I purchased?
If they notified you of the error, refunded your money then most likely there's nothing you can do. The sale wasn't completed if you never took ownership of the domain. You have no actual loss you just didn't get what you wanted.
If you happen to be able to show that they backed out of the deal because they gained knowledge of what your intended use was then perhaps you have standing, but that's still unlikely.
And yes, he has standing, and no, he should probably simply forget about it.
Since we don't know which is the case saying for sure the he has standing is misleading. The information we have now is, "but I want to more sir". Compelling items to be sold isn't a common thing. Sellers can choose to decline sales.
He would have a far better case if the situation was that the offer to sell was withdrawn after they found out it's intended use. That does not seem to be what happened here. It was a simple pricing mistake.