All about the tripartite agreement: the contract and the parties to the agreement

A contract is either a bilateral or multilateral agreement, aimed at establishing, modifying, or terminating civil rights and obligations. When a single party undertakes a specific action, such as issuing a directive or submitting an application, it constitutes a unilateral transaction. Therefore, for a contract to be valid, it requires the involvement of at least two parties with specific agreements that need to be formally specified in the contract.

However, there are situations where multilateral contracts, involving three or more parties, are appropriate. These contracts are particularly useful when multiple parties share common rights and responsibilities.

Drawing on our expertise in crafting various types of contracts, we can provide legal advice on entering into multilateral agreements. If you're looking to ensure full protection of your interests during the contract negotiation process, don’t hesitate to our specialists for consultation.

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Can Tripartite and Multilateral Agreements Be Concluded?

Although the law permits the creation of multilateral agreements, and they do exist in legal practice, they are relatively rare. The infrequency of tripartite agreements stems from the following reasons:

1)   In many cases, what could be a tripartite contract is more easily managed as two separate bilateral contracts, simplifying the process for the parties involved. For example, we encountered a situation where a foreign company, alongside a Ukrainian company, wanted to sign a contract with software testers. The arrangement involved the Ukrainian company paying for testing services in Ukraine, with the foreign company receiving the results. This complex setup was unclear for both the regulatory bodies and the contractor. Our solution was to establish two separate service agreements: one where the tester provided services to the Ukrainian company and another where the Ukrainian company serviced the foreign firm.

2)  Litigation complexity. In the event of a contract breach and subsequent legal dispute resolution, it becomes necessary to involve all contracting parties in the court proceedings.

3)  Any modifications to the contract require the agreement of all involved parties.

Tripartite agreements are inherently complex, so when bilateral agreements can suffice, they are often the preferable, simpler option.

Nonetheless, if you do opt for a tripartite agreement, the same stipulations that apply to bilateral agreements are applicable. Typically, a tripartite contract is signed in three copies, with each party retaining one. It's also vital to accurately determine and specify the rights and obligations of each party in the agreement.

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Typical Agreements Involving Three or More Parties

Nearly any agreement can involve three or more parties. The key lies in the appropriateness of opting for such a structure. Here are some common scenarios where tripartite agreements are typically used.

Assignment of Claim Agreements (Cession, also Factoring) – that is, the transfer of a claim right generally occurs among the debtor, the current creditor, and the new creditor. In a business reorganization process we were involved in, it was necessary to switch the creditor in a yet-to-be-fulfilled obligation. To accomplish this, we drafted a cession agreement, and since the original agreement between the creditor and the debtor mandated mutual consent for any change in debtor or creditor, a tripartite agreement was established.

Agreements on Managing Property Owned by Several Parties. Sometimes, a tripartite agreement structure is employed for selling property jointly owned. For example, in a deal for purchasing shares in the charter capital, a client requested a tripartite agreement where two other sellers transferred their shares to our client.

Memorandums, Cooperation Agreements, and Joint Activity Agreements. These are probably the most common types of tripartite and multilateral agreements. Such agreements are drafted when three or more parties need to define the terms of their collaboration or to implement a project. For instance, if several organizations intend to jointly undertake a certain activity and rally around a shared concept with allocated responsibilities, multilateral agreements are often the go-to solution.

Agreements in the Brokerage Sector (Agency, Dealership, etc.). While not always the most straightforward, such examples have been part of our experience.

How We Can Assist You

Attempting to decipher the process and understand the interests, rights, and responsibilities of all three parties in an agreement can be quite daunting. This is true even for simpler bilateral agreements, let alone the intricate structures of tripartite agreements. Deciding whether to pursue a tripartite agreement or to use simpler mechanisms requires specific expertise, which our team possesses.

• A lawyer skilled in contract management can accurately define and structure the rights and obligations within the agreement.
• Without legal guidance, the risk of encountering issues stemming from the agreement increases for you as a client. These risks might not be immediately evident, but they exist, and each party often tries to mitigate them to their own advantage.
• A lawyer will ensure that your interests are safeguarded during negotiations.

Take, for example, a client who approached us for a review and potential revision of an assignment agreement. The task involved substituting the original creditor in an obligation with a new one, with all parties interested in making certain modifications to the agreement.

According to the agreement's stipulations, changing the creditor required the debtor's consent, hence the need for a tripartite agreement. Initially, the agreement's draft was approved by the companies' accountants. However, upon legal examination, our lawyers discovered that the parties in the agreement were incorrectly identified. The assigned rights and obligations had significant errors (the new creditor was mistakenly given the debtor's obligations to repay the debt, and the debtor assumed the role of the original creditor, which was illogical and didn't align with the parties' intentions), which could have led to the agreement being deemed invalid.

We evaluated the client's requirements, revised the agreement, and monitored its execution, enabling the client to circumvent potential risks and satisfy their business needs effectively.

Don't spend time worrying excessively or risk losing a lucrative agreement. Our firm is prepared to offer you top-notch legal assistance and consultations on entering into agreements.

No matter the type of agreement — whether it involves a purchase, lease, partnership, service, or any other arrangement — our lawyers are equipped to protect your interests and facilitate a favorable agreement.

Check out the pricing of our contractual services here.