Anti-sandbagging clause

The anti-sandbagging clause deals with a sensitive question in sale agreements: can the buyer claim indemnification under a Asset and liability warranty for a risk it was aware of before signing? The term sandbagging describes the behaviour of a buyer who, informed of a problem during financial due diligence, stays silent in order to later trigger the warranty and effectively obtain a price reduction.

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Two approaches oppose each other. A pro-sandbagging clause allows the buyer to claim even if it knew the risk, the warranty being seen as a contractual allocation independent of its knowledge. An anti-sandbagging clause, conversely, deprives the buyer of recourse for facts it knew, or should have known, at the time of signing. The absence of a clause refers back to the applicable law, whose solutions differ between France and Switzerland.

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Take a buyer who discovers, during the audit, an unprovisioned employment dispute. Under a pro-sandbagging clause, it may still invoke it after closing; under an anti-sandbagging clause, its prior knowledge will bar any claim on that specific point.

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The treatment of sandbagging directly affects the value of the warranty and the parties' behaviour during the audit. It is a negotiation point that should not be left implicit, and whose resolution calls for coordinated legal and financial support in mergers and acquisitions advisory.