‘The possibility that the person naming the price can be forced either to buy or sell keeps the first mover honest’

– this is how Judge Easterbrook explained this mechanism in a decision of the U.S. Court of Appeals (Valinote v. Ballis, 295 F.3d 666, 667; 7th Cir. 2000).

Introduction

Deadlock‑resolution mechanisms included in agreements between members of a company, as well as joint venture agreements, colloquially bear interesting names: Russian Roulette, Texas Shoot‑Out, Mexican Shoot‑Out and Dutch Auction (Fairest Bid). Their purpose is to quickly and objectively resolve a ‘deadlock’ (blockage, stalemate), that is, a standstill situation when the partners are unable to reach an agreement. In practice, they are used when there is equal ownership over a company or a joint venture with equal contributions, as well as when high quorums are required for decision‑making.

Are they ‘safe’ to use?

To prevent hasty activation of the clause (without proper consideration), practice recommends including in the agreement a negotiation period or a ‘cooling‑off’ period after the initial notice on activating the clause is delivered.

Assessments of the validity of these clauses are mentioned throughout the text; they are generally recognized as valid and effective, based on the autonomy of will of the contracting parties and commercial law practice. Knowing that autonomy of will is limited by mandatory rules, public policy and good morals, the question arises whether there are potential problems with their application in continental European law.

In scholarly literature and comparative case law, it is considered that in this context, a violation of public policy provisions is unlikely. Nevertheless, in exceptional circumstances, such a clause may be deemed invalid if, from the outset, it is clear that one of the two partners is not in a position to finance the purchase of the share. This argument is known as the ‘Damocles’ Sword argument’ developed by the German Federal Court of Justice (BGH – Bundesgerichtshof), and is considered in the literature to be applicable when assessing the validity of deadlock clauses.

Russian Roulette

Russian Roulette functions on a ‘buy or sell’ model. One member submits an offer to purchase the share of the other member at a predetermined price, and the other member must choose whether to accept that offer and sell their share, or, at that same price, purchase the share of the member who made the offer.

Thus, when an event occurs that causes a blockage/stalemate, the Russian Roulette clause is activated. The clause often includes language that prevents contractual parties from blocking the process through obstructive behavior, for example by introducing a ‘consent by silence’ mechanism (upon expiration of the deadline, the offer is deemed accepted).

One of the fundamental problems of this clause is determining the share price. The mechanism itself encourages the partners to determine the market value of the share.

In the law of some European countries, this mechanism has been deemed valid because it essentially represents a balanced system (Court of Rome, Special Business Division, Decision No. 19708 of 19 October 2017). This clause entered Europe from Anglo‑American legal practice (often called the Savoy clause), and its validity has been considered by several European courts. For example, the Italian Supreme Court held, in Decision No. 22375/2023, that such a mechanism is evidently designed to prevent one party from being exposed to the arbitrariness of the other, while the French Supreme Court, in Decision No. 21‑25.952/2023, stated that the Russian Roulette clause cannot be equated with the institute of exclusion of a company member, because their purposes are fundamentally different.

Texas Shoot‑Out

Under the Texas Shoot‑Out mechanism, one member submits an offer to buy the other member’s share. The other member may accept the offer or submit a counteroffer at a higher price. If both participants wish to buy the other’s share, a bidding process is activated; agreements often provide limitations on the number of bidding rounds to prevent escalation.

In the U.S. case Michael D. Crain v. William ‘Will’ Northern (Cause No. 25‑BC08A‑0014, Tex. Bus. Ct. Jan. 29, 2026), the validity of a clause known in practice as Texas Shoot‑Out and the consequences of failing to respond within the contractually prescribed deadlines were examined. The court held that such a clause in a company members’ agreement is valid, and, applying standard rules of contract interpretation, emphasized that the contracting parties must apply clear and unambiguous contractual provisions as written. If the text of the agreement indicated that the procedure was mandatory when the clause was activated, then a provision stating that silence within the prescribed period constitutes acceptance of the offer is also valid.

Mexican Shoot‑Out

The Mexican Shoot‑Out refers to a situation in which both members submit confidential written offers to an independent third party for the purchase of the other’s share, and the share is transferred to the member who submitted the higher offer.

This clause is a variation of the previous mechanisms and also originates from Anglo‑American legal practice. In practice, it is also called the counter‑offer clause (for example, in France it is known as the clause de contre-offre). In France, the question of its validity was raised under the Civil Code, namely Article 1591, which requires that the sale price be determined and fixed by the contracting parties. The French Supreme Court, in its decision of 29 September 2015 (Cour de cassation, Chambre commerciale, Pourvoi n° 14‑15.040, 29 September 2015), held that the price offer did not constitute an offer to sell but rather the execution of a statutorily prescribed procedure, and that a sale carried out at the highest offer pursuant to a precise procedure is valid.

Dutch Auction / Fairest Bid

In the practice of some European countries, the Dutch Auction (also known as Fairest Bid) clause is mentioned — members submit confidential offers, and the higher offer wins.

Note that these terms may have multiple meanings. In the world of finance, Dutch Auction is also used (for example, in initial public offerings) and refers to a situation where the auctioneer begins the sale by setting a high initial price, which is lowered until someone accepts the offer, provided that the offer is above the reserve price.

Another point — in one source, Dutch Auction (or Fairest Bid) is described, within contract practice, as a variant of Mexican Shoot‑Out using a ‘second‑price’ mechanism. Care must be taken with terminology here, because in finance the second‑price mechanism is associated with the Vickrey auction (a sealed‑bid auction). In this type of auction (named after William Vickrey, the 1996 Nobel Prize laureate for research on asymmetric information), the highest bidder does not pay their own bid but pays the second‑highest bid.

The principle is similar across all of these variants — to encourage participants to submit realistic prices and resolve the deadlock.

In conclusion…

Deadlock, Anti‑Deadlock, Shoot‑Out or Shotgun clauses were imported from the American legal system into our continental system, and some authors refer to this as the Americanization of contract law. As shown in the comparative decisions mentioned above, these clauses have indeed been found valid — nevertheless, they serve the legitimate purpose of resolving blockages or stalemates in the management and decision‑making among company members/shareholders or joint venture partners. European law is deeply rooted in fundamental principles of obligations law — the prohibition of abuse of rights and the principle of good faith. These principles serve as a corrective mechanism that goes beyond the boundaries of contractual autonomy.

Implementing this type of clause is not a minor decision, as it is a mechanism that resolves deadlock quickly. Their use requires understanding all the risks they carry.

Note: This text reflects the author’s personal opinion only and does not constitute legal advice.

Bauch, G. and Müller, L. (2026), ‘Calling the Price or Making the Call? Role Preferences in Texas Shootout Clauses’, Center for Mathematical Economics Working Papers, Bielefeld: Center for Mathematical Economics.

Castronovo, F. (2026), ‘The determinative will of contractual content: The Russian Roulette Clauses, In: Individual Will and the Civil Law – Tradition Rethinking Lex Privata’, ed: Tomasso dalla Massara, Routledge 4 Park.

Consiglio Notarile di Milano (2019), ‘clausola «anti-stallo» di riscatto o di acquisto forzato di partecipazioni sociali (c.d. clausola della «roulette russa» o clausola del «cowboy») (artt. 2437-sexies, 2473-bis c.c.), Massima n.181 – 9 Luglio 2019.

Fleischer, H. and Schneider, S. (2012), ‘Shoot-Out Clauses in Partnerships and Close Corporations – An Approach from Comparative Law and Economic Theory’, ECFR 1/2012.

Shapiro M. (1998), ‘Globalization of the freedom of contract’, in “The state and freedom of contract”, Stanford.

Szabó, G. (2012). Texas Shoot-out and other security clauses in the Syndicate (Shareholders) Agreement. Debreceni Jogi Műhely, 9(3).