Sandbagging

Diligence on a small or mid-sized business is rarely perfect or exhaustive on a compressed timeline. It is common for a buyer’s accountant or lawyer to flag something questionable during the process that never gets formally resolved before signing — and later becomes the subject of a post-closing claim.

Why the agreement’s wording matters so much

An explicit "pro-sandbagging" clause preserves the buyer’s right to claim regardless of what they knew going in. An "anti-sandbagging" clause does the opposite, barring a claim on anything the buyer knew about before closing. Many Canadian purchase agreements say nothing on the point at all, leaving it to be argued after the fact.

The mistake people actually make

• Assuming the answer is obvious either way without checking whether the agreement actually addresses it
• Leaving a diligence finding informally noted rather than either fixing it, pricing it in, or expressly carving it out
• Not realizing that Canadian case law on this point is unsettled enough that silence is a real gamble, not a neutral default

A Canadian wrinkle worth knowing

Quebec’s Civil Code imposes an express, general duty of good faith on contracting parties, which can shape how a Quebec court reads a buyer’s conduct in a sandbagging dispute differently than a common law court working case by case from prior decisions rather than a codified good-faith obligation.