An exhaust valve system for a two-stroke internal combustion engine having: at least one exhaust valve movable between open and closed positions; an actuator for moving the at least one exhaust valve; a valve position sensor; a controller communicating with the actuator and the valve position sensor. The controller being programmed for: controlling the actuator to attempt to move the at least one exhaust valve to a desired one of the open and closed positions; determining if the at least one exhaust valve has failed to reach the desired position based on the position of the at least one exhaust valve sensed by the valve position sensor; and controlling the actuator to move the at least one exhaust valve to an intermediate position when the at least one exhaust valve has failed to reach the desired position.