A very well-structured decision from the Court of Rome confirmed that Russian-Roulette clauses can be included in shareholders’ agreements as a valid method to solve deadlocks.
Generally speaking, Russian roulette clauses have been imported in Italy from the Anglo-American practice. Such clauses are usually included in shareholders’ agreements or joint venture agreements entered into with respect to companies equally owned by 2 shareholders to unblock decisional and/or operational deadlocks.
Russian roulette clauses are usually structured as follows:
Below is an example of Russian roulette clause:
“If the parties are unable to resolve a Deadlock within [●] days from the occurrence of the Deadlock, then either party may within the following [●] days serve a Deadlock Resolution Notice on the other.
The recipient of a Deadlock Resolution Notice may choose to do either of the following, at the price for each share specified in the Deadlock Resolution Notice, by serving a counter-notice within [●] days of receiving the Deadlock Resolution Notice:
1. The case at stake
In the case at hand, the shareholders’ agreement entered into by two shareholders (hereinafter “Alfa” and “Beta”), owning a 50% stake each in an Italian joint-stock company provided a Russian roulette clause structured as follows:
The Court examined in detail each of the following arguments used by Beta to prove that Russian roulette clauses are invalid according to Italian corporate law principles.
2. The arguments
2.1 The fair determination of the Purchase Price
The 2 main arguments used by Beta are:
On the first argument, the Court stated that the balanced determination of the Purchase Price is somehow guaranteed by the nature of the price determination mechanics under Russian roulette clauses.
Indeed, it would not be in the interest of the offeror to determine a disproportioned Purchase Price:
The Court disagreed also with Beta’s second argument: i.e.: as drag along clauses, also Russian roulette clauses should contemplate a floor (minimum purchase price) and such floor should be equal to, at least, the value of the equity determined according to the criteria set forth by law in case of withdrawal of a shareholder from a company.
The Court focused on the different nature of drag along clauses and Russian roulette clauses and concluded that it is not necessary to indicate a floor in Russian roulette clauses; indeed:
2.2 The “leonine pact”
Another argument used by Beta is that Russian roulette clauses violate the Italian law principle whereby agreements aimed at excluding shareholders from participation in profits/losses (“patto leonino”) are considered null and void. In particular, assuming that the company is generating profits:
The Court stated that the Russian roulette clause at stake does not violate the abovementioned principle since Alfa has the power to active the clause only upon occurrence of a Deadlock, not at any time and at its sole discretion (in other words: the company may not generate profits when a Deadlock occurs and Alfa is not entitled to activate the Russian roulette mechanics only because the company is generating profits).
2.3 The duration of shareholders’ agreements
According to Beta, the power granted to Alfa to activate the Russian roulette clause in case of non-renewal of the shareholders’ agreement violates (indirectly) the Italian law principle whereby shareholders’ agreements cannot be entered into for an initial term exceeding 5 years.
Beta argues that such principle is violated due to the circumstance that Russian roulette clauses may have a “punitive” effect: the party that is not willing to renew the shareholders’ agreement may be “sanctioned” through the activation of the Russian roulette clause by the other party. This would have the effect to disincentive the exercise of the parties’ right not to renew the agreement, hence, to lead to an indefinite duration of shareholders’ agreements.
The Court disagrees with Beta’s interpretation and states that the purpose of Russian roulette clauses (which contemplate non-renewal of shareholders’ agreements as triggering event) is (a) not to trap shareholders in indefinite shareholders’ agreements, but (b) to preserve the functioning of the decisional bodies of a company and, hence, to prevent the company’s dissolution.
For the above reasons, the Court concluded that the Russian roulette clause at issue does not violate the maximum 5-year term provided under Italian law for shareholders’ agreements.
3. Conclusions and drafting tips
To conclude, Russian roulette clauses can surely be used in shareholders/joint venture agreements as valid and efficient method to solve operational/decisional deadlocks.
The decision of the Court of Rome gives us some tips on how to draft an enforceable Russian roulette clause taking into account Italian law principles:
The decision from the Court of Rome is available at the following link: https://www.giurisprudenzadelleimprese.it/wordpress/wp-content/uploads/2017/11/20171019_RG42409-2014-2.pdf.
 Decision no. 19708 of October 19, 2017.
 The requirement to indicate a floor equal to, at least, the value of the shares that shareholders would receive in case of withdrawal has been established in the precautionary decision issued by the Court of Milan on April 1, 2008.