In 2006 the two co-venturers in Quadrante s.p.a., a now dissolved Italian real estate developer based in Rome, agreed on a private arrangement relating to the fate of the company in case of decisional deadlock. In fact, the two were shareholders on equal foot (50% each) of Quadrante’s equity and their common intent was to hammer out a straightforward mechanism for resolving management disputes where no amicable solution resulted as practicable. What’s better than a “Russian roulette” clause? giving either party – in its simplest form – a one-shot chance to either get rid of its own share, or to buy out the partner’s share, at the vary same price.
The rationale behind that sort of mechanism is that the price proposed by the offering party tends to be fair, and well-thought out, since the activation of the clause exposes the offering party to symmetrically divergent consequences. It’s like two kids ready to attack a pie, that agree that one will cut it in two, and the other will be the first to pick up his slice.
In 2012 one of the co-venturers (Fintecna spa, a public-owned financial investor) activated the clause and eventually acquired the other co-venturer’s share. The operation left the latter deeply unsatisfied since the money they earned was, in their opinion, patently lower than the share’s market value.
A lawsuit was initiated, so, before the courts in Rome. Both the first instance and the appellate court, however, rejected all claims against Fintecna[1]. Recently, the Court of Cassation had a final word on the case[2] by upholding the lower courts’ decisions. On the occasion, some interesting principles of law has been stated. This is likely to be the governing guidelines in similar cases, also considering that no specific precedent may be found in the Italian caselaw[3]:
- In principle, a Russian Roulette clause is a valid clause under the Italian law. In particular, it does not collide with –
- 1355 civil code (CC), that inhibits “purely potestive conditions”, i.e. a condition that will be fulfilled only if the obligated party chooses to do so.
- 2265 CC, that prohibits the so called “leonine partnership”, i.e. agreements among shareholders where the weaker one is liable for losses, but is not entitled to share profits.
- The criteria set in general for a shareholders’ agreement, under art. 2341-bis CC
- The criteria set under art. 2437-ter CC for assessing shares value.
- The price stated by the offeror may be held a “presumptively fair” (a 2002 US decision of Court of Appel 7th Circuit is cited in support[4]).
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[1] Tr. Roma 19/10/2017 no. 19708/2017 and C. App. Roma 03/02/2020 no. 782/2020.
[2] Cass. 10/03/2023 n. 22375.
[3] The Cassation court has released some decisions relating to shareholders agreements (see 36092/2021); call, and put options (27227/2021); share preemption agreements (12956/2016).
[4] US C. App 7th Circ. no. 01-3768 Valinote v Ballis, decided June 26, 2002.
