International commercial transactions often involve more than two parties. In addition to the buyer and seller, brokers, introducers, escrow agents, and paymaster providers may participate in arranging or facilitating the transaction.

When several parties are involved, clearly defining their respective responsibilities becomes essential. Without proper contractual arrangements, disagreements may arise over payment obligations, commission entitlements, fund handling, and responsibility for completing the transaction.

A Tri-Party Agreement provides a contractual framework for documenting the roles, obligations, and responsibilities of three parties involved in a commercial arrangement.

1. What Is a Tri-Party Agreement?

A Tri-Party Agreement is a contract entered into by three parties to establish their respective rights and obligations in a particular transaction.

In international business, this may involve a buyer, a seller, and an intermediary responsible for facilitating or coordinating specific aspects of the transaction.

Depending on the commercial arrangement, the third party may be an escrow agent, paymaster, broker, or another authorized service provider.

The agreement should clearly identify each party, explain the purpose of the arrangement, and define the scope of responsibilities assigned to each participant.

2. Clearly Defining the Responsibilities of Each Party

One of the primary purposes of a Tri-Party Agreement is to prevent uncertainty concerning the obligations of the parties.

For example:

• Buyer: Responsible for providing the agreed purchase price, complying with payment requirements, and fulfilling the contractual conditions.
• Seller: Responsible for delivering the agreed goods, assets, or cryptocurrency in accordance with the transaction terms.
• Intermediary or Escrow Agent: Responsible for performing the specific services agreed upon, which may include coordinating settlement, receiving funds, verifying release conditions, or distributing funds to designated beneficiaries.

The agreement should avoid assigning responsibilities that fall outside the third party’s agreed scope of engagement.

3. Payment Handling and Fund Release Conditions

Where the third party is appointed to receive or distribute funds, the agreement should establish clear procedures governing the handling of money.

Relevant provisions may include:

• Designated bank accounts and permitted payment methods.
• Conditions for accepting and acknowledging receipt of funds.
• Verification requirements before releasing funds.
• Authorized beneficiaries and payment instructions.
• Procedures for handling delayed or disputed payments.
• Return of funds where settlement conditions are not satisfied.

These provisions help ensure that all parties understand how funds will be received, held, and distributed.

4. Commission, Fees and Other Financial Obligations

International transactions may involve several financial arrangements, including brokerage commissions, intermediary fees, escrow charges, and paymaster fees.

A Tri-Party Agreement should clearly establish which party is responsible for each payment and when the relevant amount becomes due.

Where commissions are payable to multiple intermediaries, the agreement should identify the beneficiaries, agreed amounts or percentages, and applicable payment conditions.

Separately agreed fee arrangements should also be properly documented to avoid disputes over payment entitlements.

5. Compliance and Due Diligence Obligations

A transaction involving multiple parties requires appropriate identification and verification procedures.

Depending on the nature of the transaction and the applicable regulatory requirements, due diligence may include:

• Know Your Customer (KYC) verification.
• Corporate documentation and beneficial ownership checks.
• Source of Funds and Source of Wealth verification.
• Sanctions and Politically Exposed Person (PEP) screening.
• Verification of authorized representatives.
• Additional checks relating to cryptocurrency wallets and transaction history, where applicable.

The agreement should clarify the parties’ respective responsibilities for providing information and cooperating with compliance reviews.

6. Liability, Indemnification and Dispute Resolution

A properly structured Tri-Party Agreement should address what happens when one or more parties fail to fulfil their contractual obligations.

It should establish the consequences of delayed payments, failure to deliver assets, inaccurate representations, unauthorized instructions, and non-compliance with agreed settlement procedures.

The agreement should also address the scope of each party’s liability, appropriate indemnification provisions, termination rights, governing law, and dispute resolution mechanisms.

These provisions help establish a contractual framework for addressing disagreements without leaving important responsibilities undefined.

7. Why Independent Legal Review Matters

The involvement of three parties can introduce additional contractual and operational complexities, particularly where the participants are established in different jurisdictions.

A Tri-Party Agreement should be reviewed in the context of the underlying transaction, the applicable laws, and any separate agreements between the parties.

Particular attention should be given to ensuring that the agreement does not conflict with the Sale and Purchase Agreement (SPA), escrow arrangements, brokerage agreements, or Legal, Escrow and Paymaster Services Agreement (LSA).

The contractual documents should work together and clearly establish the authority and responsibilities of each participant.

Conclusion

Tri-Party Agreements play an important role in structuring international commercial transactions involving buyers, sellers, and intermediaries. By documenting responsibilities, payment procedures, compliance requirements, and liability provisions, the parties can establish a clearer framework for completing the transaction.

Dr. Mohamed Alhammadi Advocates & Legal Consultants Office LLC provides legal, escrow, and paymaster services for appropriately structured transactions. Depending on the agreed scope of engagement, the firm can assist with drafting and reviewing Tri-Party Agreements, escrow arrangements, and related commercial documentation.

Before proceeding with a high-value international transaction involving multiple participants, the parties should ensure that their respective roles, obligations, and settlement responsibilities are clearly documented.

Disclaimer: Dr. Mohamed Alhammadi Advocates & Legal Consultants Office LLC provides escrow and/or paymaster services only where such services are ancillary and wholly incidental to the provision of legal services.

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