The validity of the russian roulette clause confirmed by Court of Appeal

The legitimacy and validity of the russian roulette clause was confirmed by the Court of Appeal of Rome, which upheld the judgment of the Court of Rome stated in 2017 in which the Court ruled on the merits, pursuant to Article 1322, paragraph 2, of the Italian Civil Code, of the clause included in a shareholders’ agreement.

The agreement of the russian roulette clause is left exclusively to the will of the shareholders who may establish in advance that, in the event of a deadlock, one of the two may make an offer to purchase the shareholdings of the other shareholder who, in turn, may choose to sell them to him or to purchase the shareholding of the former at the same price proposed by him.

In the case under review, the clause, included in a shareholders’ agreement, gave one of the shareholders (determined in advance) the power to initiate the exit procedure by formulating the purchase price of the other shareholder’s shareholding within 180 days of the trigger event. In the event of failure to exercise this power, the other shareholder could have taken the initiative and thus resolve the deadlock.

The decision of the Court of Rome (please refer to the point examined in the previous newsletter on the same subject), which had considered the clause in question valid and worthy of protection, was confirmed in the proceedings before the Court of Appeals which, with the sentence issued on 3rd February 2020, rejected all the grounds of grievance put forward by the appellant.

In particular, the Roman Court of Appeal ruled that:

– the circumstances that arise over time do not affect either the judgement of the merits of the clause or the judgement of its nullity due to lack of cause because the summary of the interests pursued by the contract must be assessed ex ante and not on the basis of subsequent events.

It is therefore irrelevant whether one of the two partners can take advantage of the condition of dependence and weakness of the other if it is a condition that occurred after the agreement;

– the clause cannot be considered null and void because of a defect in the object.

The possibility offered to the oblate to choose between the sale or the purchase of the shares avoids and excludes the other member’s will in determining the value of the shareholding without any predetermination of the criteria to be followed;

– there is no need to include in the russian roulette clause a mechanism for fair valuation of the participations cause the risk of unfair pricing by the taker is avoided by the mechanism of the clause itself which allows the oblate to reverse the situation.

The Court, moreover, after a careful examination of the differences between the russian roulette clause and the drag along clause, came to the conclusion that there is no need to predetermine a fair valuation of the shareholdings because the existence of the oblate’s power to choose between selling or buying at the price determined by others is a different legal situation from the case in which one is subject to another’s redemption right (as happens in the case of a drag along clause).

Moreover, in the Court’s opinion, when the russian roulette clause is included in a shareholders’ agreement, no restrictions and regulatory limits may be placed on the parties’ freedom to negotiate and, therefore, they are free not to provide for a method of determining the fair value of the shareholdings;

– the clause does not violate the prohibition pursuant in article 2265 of the Italian Civil Code.

The prohibited pact provided for in Article 2265 c.c. presupposes the total and constant exclusion of the shareholder from participation from losses or profits, while the activation of the russian roulette clause is not only subject to the occurrence of certain predetermined events but, in any case, until that moment each shareholder obtains profits or suffers losses;

– the clause does not violate article 2341-bis of the Italian Civil Code since it does not oblige the parties to renew shareholders’ agreements. The possible inclusion among the trigger events of the non-renewal of the agreement is aimed at restoring the balance within the company structure. So the clause would have the function of disciplining ex ante the redefinition of relations in the event that the shareholder relationship ceases to exist.

In conclusion, the Court of Appeal, in rejecting the appeal, reaffirmed the validity of the russian roulette clause which, therefore, must be considered a fully valid and effective clause since it is aimed at achieving interests worthy of protection under the legal system.


Desiree Pasquariello