Callie's behaviour was typical surprised Sheltie "Oi, don't do that." behaviour. I used to see that a lot here with Merlin and Sparrow, when Sparrow was younger and hadn't completely learned boundaries around Merlin. The snap is equivalent to us yelling out in surprise. As Caro says Callie actually showed good restraint by avoiding making contact.
Merlin did that once to me in the early days of Sparrow when he was feeling a bit stressed by her boisterous presence. He was asleep on the sofa next to me and I reached out to stroke him. His head shot round and I know he thought it was the puppy, then in a split second he realised it was my hand and wagged his tail instead. I told him "you nana, that was me!"
My point is, this is behaviour that to the dog seems quite logical, but which is easy for us humans to misunderstand.
I would keep reinforcing with your grandson that he mustn't grab the dog, in fact the air snap may have helped him realise that, and keep promoting positive interactions. Ensure Callie has a safe place to retreat to, this could be a crate, but she is not to be shut in. Its only a place for her to choose to go to when she feels overwhelmed and your grandson should be taught that he does not enter the crate, or touch Callie when she is in the crate. It has to be her safe haven.
I am not sure about having her on a lead around your grandson, because if she does feel overwhelmed by him she can't then escape and that can make the situation worse. I would rather use a stairgate or a playpen to have her in an area that she can still see and be with you, but she is safe from your grandson and vice versa.
To give you another story to demonstrate such incidents can have a positive outcome - my brother works part time for his farming friend (sheep and pigs), naturally the farmer has dogs and is very dog savvy. He also has two little girls. When the eldest, Hattie, was around 2 she grabbed the paw of their rescue lurcher Willow. Willow was badly treated as a pup and is nervous about rough contact. She did exactly like Callie and snapped. Hattie was unhurt, but obviously upset. Her mum and dad's reaction?
"Well Hattie, now you know to be more respectful around the dog." And Hattie is, she is one of the most lovely, sensible, animal savvy 4 year olds I know, and she is now about to have her own puppy as her dad's collies were bred before Christmas.
So take this as a reminder that Callie needs space around your grandson and act accordingly, but don't think you have a dangerous dog. Everything will be ok with a few sensible precautions put into place.
