Validity of the “russian roulette” clause

The Court of Rome addressed the validity of the so-called “russian roulette” clause under Italian company law.

January 2018

The “russian roulette” clause deals with the interest of resolving a deadlock situation in a 50:50 corporate joint venture or in a majority/minority corporate joint venture. By virtue of this clause one party offers either to buy the shares of the other party or to sell its own shares to the other party at the same price. On the assumption that the receiving party may either accept or reverse the offer at the same price, the offering party is exposed to the risk of being forced to buy out its partner’s shares or to exit the company due to the reversal mechanism. On October 19^th, 2017, the Court of Rome upheld the validity of the “russian roulette” clause, rejecting the arguments advanced by the applicant.

The applicant’s claim on the invalidity of the clause due to the uncertainty of the subject of the contract, as a result of the power of one party to arbitrarily determine the shares market value, was rejected. The Court stated that the faculty either to buy or sell the shares ensures the balance of power and legal protection among the negotiating parties. Indeed, the receiving party has the unquestionable right to either accept the offer, in case of overestimation of the market value of the participation, or reverse it at the same price, in case of underestimation of the latter. Therefore, the equal treatment of all parties is ensured and it is not required the fair-compensation of the selling party so that it receives as a share price at least the amount that could have been obtained through the company’s liquidation (pursuant to article 2437ter of the Italian Civil Code).

Furthermore, the Court held that the “russian roulette” clause complies with certain statutory rules, including the prohibition of the so called “leonine agreement” (it. “patto leonino”), provided under article 2265 of the Italian Civil Code, not being intended the above mentioned clause to make one party entitled not to share profits or business risk.