Resolving Franchise Disputes in Lebanon: Clauses to Draft Before Signing

When turning an existing business in Lebanon into a franchise, agreeing on how it will operate is not enough; you also need to agree on how disagreements will be handled. A dispute may begin with a discrepancy in calculating payments due or an objection to how an obligation has been fulfilled, then escalate because there is no clear route to resolution. In franchising, a written dispute resolution procedure helps protect the relationship and identify the next step, without becoming a means of delaying claims or forcing concessions.

Distinguish between the governing law and the forum for resolving disputes

Lebanon has no comprehensive law specifically governing franchise agreements, nor a franchise-specific mandatory disclosure regime comparable to those in some other countries. The relationship is governed primarily by the Code of Obligations and Contracts and relevant commercial rules, subject to any mandatory provisions that apply according to the nature of the business and the relationship. Litigation and arbitration procedures are governed by the relevant provisions of the Code of Civil Procedure.

Do not, therefore, write ‘Disputes shall be resolved under Lebanese law’ and consider the job done. The governing law determines the rules used to interpret rights and obligations, while the jurisdiction or arbitration clause identifies the court or arbitral process that will hear the dispute. These are related decisions, but they are not the same decision.

If either party proposes a foreign governing law, ask for a practical explanation: why is it suitable for the relationship? What will advice on that law cost? How does it interact with Lebanon’s mandatory rules? Choosing a foreign law does not automatically exclude those rules. The legal classification of the relationship may also raise the question of whether Legislative Decree No. 34 of 1967 on commercial representation applies; simply calling the document a ‘franchise agreement’ does not settle the issue. A Lebanese lawyer should review how this possibility affects the drafting of the dispute resolution clause.

Establish a short process for documenting disputes and negotiating

Before resorting to court proceedings or arbitration, put in place a contractual procedure that is workable in practice. A useful starting point is written notice identifying the facts, the relevant clause, the supporting documents and the remedy sought. Specify the addresses for notices, the people authorised to receive them and how their details should be updated. Distinguish contractual notices from service of court documents, which is subject to its own rules.

The amicable resolution stage can be structured as follows:

• Each party’s operational manager reviews the facts and relevant records.
• Any unresolved dispute is escalated to a representative authorised to propose and approve a settlement.
• Clear deadlines are set for responding, meeting and concluding negotiations, rather than relying solely on the phrase ‘within a reasonable time’.
• Any agreement is recorded in writing, identifying the obligation, who is responsible for fulfilling it and the deadline for doing so.

Distinguish between correcting an error and waiving a right. Accepting an interim arrangement for a disputed invoice, for example, should not leave either party uncertain about any remaining claims. Clarify the scope of the agreement in writing, and do not assume that all negotiation correspondence automatically enjoys absolute confidentiality or legal protection.

Nor should negotiations become an open-ended condition that prevents a party from seeking urgent protection. Ask your lawyer to draft an appropriate exception for urgent and protective measures, and to make clear that negotiations do not automatically suspend statutory time limits.

Choose courts or arbitration based on enforceability and cost

Arbitration is not automatically better because it appears more specialised, and courts are not unsuitable simply because the relationship is commercial. Compare the likely value of claims, where the parties and their assets are located, the cost of handling the dispute, the need for specialist expertise and the prospects of enforcing the resulting decision.

If you choose the courts, have the jurisdiction clause drafted with due regard to mandatory legal rules. If you choose arbitration, do not stop at ‘The dispute shall be referred to arbitration’. Discuss at least the following with your lawyer:

• The scope of disputes covered by the clause.
• The seat of arbitration and the applicable procedural rules.
• The number of arbitrators and how they will be appointed if the parties cannot agree.
• The language of the proceedings and arrangements for submitting and translating documents.
• Arrangements for costs and the ability to seek urgent measures from the competent court or tribunal.

You can also provide for mediation before a dispute is decided, with a fixed deadline and a mechanism for selecting the mediator. A mediator helps the parties reach an agreement; appointment alone does not give them the power to issue a binding decision. If the parties reach a settlement, its terms and the arrangements for implementing it need appropriate legal documentation.

Avoid combining clauses from different templates that give courts exclusive jurisdiction while referring the same dispute to arbitration. This contradiction can create a further dispute over the proper forum before the underlying problem is even considered.

Test the clause against a realistic dispute before adopting it

Sit down with your team and lawyer and work through this scenario: the franchisee disputes an amount due, while the franchisor considers the delay a breach of contract. Who sends the notice? Which documents are required? Who has authority to settle? When does the amicable resolution stage end? If the answers are not clear, the clause needs revising.

Also set out what happens while the dispute is ongoing: performance of undisputed obligations, preservation of records and continued communication necessary for operations, without assuming an unrestricted right to suspend services or block access to systems. These provisions must be consistent with the rest of the agreement and the governing law, and must not turn operational pressure into a substitute for the proper claims process.

The practical takeaway: Before granting your first franchise, establish a documented process that starts with notice and negotiation and ends with a clearly identified forum for deciding the dispute. Test it against a realistic problem, then review its practical application and enforceability with a Lebanese lawyer—not just how well it is worded.