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.
Drafting the sandbagging answer
Sandbagging clauses answer one question: can a buyer close knowing a representation is false and still claim? Pro-sandbagging language preserves claims regardless of knowledge; anti-sandbagging conditions claims on no-knowledge, then fights about whose knowledge and proven how. Silence delegates the answer to governing law — US states split famously, and under Turkish law good-faith principles (TMK m. 2) plus TBK rules on known defects push toward the anti-sandbagging side absent clear language. The drafting craft: define knowledge (actual, of a named deal team, no imputed constructive knowledge), reconcile the clause with disclosure-schedule mechanics, and if W&I insurance is in play, mirror the policy — insurers exclude known breaches, so the SPA’s sandbagging position and the policy’s knowledge definitions must be aligned at signing.