What is sandbagging?
In M&A, sandbagging refers to the buyer’s right to claim indemnification for breach of a representation even though the buyer knew, before closing, that the representation was inaccurate. A pro-sandbagging clause expressly preserves the buyer’s right to recover regardless of knowledge; an anti-sandbagging clause bars recovery where the buyer had knowledge before closing.
Why sandbagging matters
Without an express clause, the default rule varies by jurisdiction. Delaware tends toward pro-buyer/pro-sandbagging at common law (Cobalt International Energy v. Eni, Akorn v. Fresenius): buyer’s pre-closing knowledge does not defeat indemnification claims absent an express anti-sandbagging clause. New York case law is more mixed and may favour the seller. Türk hukukunda silent — sözleşme dili kontroldür.
Pro-sandbagging clause language
Typical wording: “The right to indemnification, payment of damages, or other remedy based on representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date.”
When buyers want pro-sandbagging
- Due diligence findings absorbed into pricing: if a known issue was reflected in price, recovery preserves the bargain.
- Asymmetric information: buyer may know facts seller does not; pro-sandbagging encourages honest reps.
- Risk shifting consistency: pricing reflects seller’s reps; reps should be enforced regardless of knowledge.
Türk uygulaması
Türk M&A pratiğinde sandbagging hükmü uluslararası örneklerden ödünç alınır. TBK Madde 2 (dürüstlük kuralı) çerçevesinde aşırı sandbagging savunması itiraz edilebilir; ancak iyi düzenlenmiş sözleşmesel sandbagging hükmü Türk mahkemesi tarafından genelde uygulanır. Türk işlemlerde alıcılar dürüstlük kuralı sınırı dahilinde pro-sandbagging tercih eder; özellikle açıklama planında işaretlenmemiş ihlaller için.
Do: include an express pro-sandbagging clause if you are the buyer; specify that disclosure schedule items qualify reps in a defined manner, separate from extra-contractual knowledge.
Don’t: rely on default rules — silence may be construed against you depending on jurisdiction and case law evolution.