Sandbagging (law)

Sandbagging, in the field of mergers and acquisitions law, refers to the act of claiming a breach of a contractual representation or warranty despite having known at the time of the contract that it was untrue.[1]

Legal status of sandbagging

United States

Delaware and New York law both generally permit sandbagging when a contract is silent on the point, whereas California law does not allow it unless the contract explicitly permits it.[2] New York case law indicates that sandbagging is not allowed in cases where the information about the falsehood of the representation or warranty came directly from the seller.[3]

United Kingdom

English law provides that "purchaser's knowledge" precludes post-closing remedies for breach of warranty, but that a contract may allow sandbagging based on pre-closing constructive knowledge or imputed knowledge (as opposed to actual knowledge).[4]

Canada

Ontario case law has not dealt with default rules for sandbagging but has indicated that sandbagging may be permitted by contract. The civil code of Quebec imposes a requirement of good faith in the exercise of contractual rights which would likely preclude sandbagging.[4]

Japan

The Japanese Civil Code does not allow sandbagging unless the contract explicitly permits it.[5]

References

  1. ↑ Jenkins, John. "Strategic Sandbagging: Let the Buyer Beware". DealLawyers.com. Retrieved 23 August 2013.
  2. ↑ Iovine, Luke (October 2012). "Sandbagging in M&A Deals: Silence May Not Be Golden" (PDF). Paul Hastings. Retrieved 28 January 2014.
  3. ↑ Spilko, Howard (June 2009). "The Importance of Sandbagging Provisions from a Buyer's Perspective: What You Know May Harm You" (PDF). Kramer Levin Naftalis & Frankel. Retrieved 28 January 2014.
  4. 1 2 Moncrieff, Jonathan (19 October 2012). "A little knowledge can be a dangerous thing: Sandbagging clauses in acquisition agreements". Stikeman Elliott. Retrieved 28 January 2014.
  5. ↑ Solomon, Richard. "Avoiding Japan's legal traps − Common mistakes in a (mostly) civil country". Beacon Reports. Retrieved 22 January 2016.
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