Buying a Franchise in Saudi Arabia: How to Review the Dispute Resolution Clause

Dispute resolution may seem a distant concern when you are preparing to buy a franchise, but it determines how you can enforce your rights if the agreement is not carried out as intended. A clear obligation on the franchisor is not enough if enforcing it is expensive or the procedures are unclear. In franchising, a balanced process helps address disagreements early and protect the working relationship. Review this clause before signing as part of your purchase decision, rather than treating it as a legal detail to revisit later.

1. Start with Saudi legal requirements

Franchise relationships in the Kingdom are governed by the Commercial Franchise Law, issued by Royal Decree No. M/22 dated 9/2/1441 AH, and its Implementing Regulations, issued by Ministerial Decision No. 591. A franchise agreement must include a mechanism for resolving disputes relating to it. What is needed, then, is not simply a promise to cooperate, but a process that can be understood and followed when a disagreement arises.

The agreement must be in writing, signed by both parties and drafted in Arabic, or accompanied by a certified Arabic translation if drafted in another language. The disclosure document must also be provided at least fourteen days before the agreement is signed or any franchise-related payment is made, whichever comes first. Under the Implementing Regulations, it must be accompanied by a copy of the proposed agreement.

Use this period to examine the dispute resolution clause in the proposed agreement and all its schedules. Do not assume that registration with the Ministry of Commerce means the process is financially suitable for you, or that every provision has been reviewed to protect your interests. There is an important distinction between the legal requirement to include a dispute resolution mechanism and choosing balanced terms for it.

2. Turn the clause into workable steps

Read the clause as though a dispute has already arisen: who receives the complaint? How should it be sent? When can you move to the next stage? A statement that ‘disputes will be resolved amicably’ does not, on its own, answer these questions and may leave you exchanging correspondence indefinitely without a result.

Ask for the following points to be made clear in the wording:

• Notice: the designated correspondence address, the authorised recipient, how receipt is proved and the procedure for updating contact details.
• Internal escalation: each party’s representative and their authority, and how the dispute is referred to someone empowered to approve a settlement.
• Time limits: when the negotiation period begins and ends, and what happens if one party refuses to respond or attend a meeting.
• Mediation, if chosen: how the mediator is appointed, how costs are shared and whether mediation is a mandatory step before the next procedure can begin.
• The final route: the court or tribunal that will decide the dispute if settlement fails, with no conflicting provisions in the contract or its schedules.

These are suggested points for negotiation, not details that the legislation expressly requires in every agreement. Also ask your lawyer to check that the sequence does not prevent you from seeking urgent relief when necessary or put you at risk of missing statutory deadlines for bringing a claim. Do not assume that negotiations automatically suspend those deadlines.

3. Compare litigation and arbitration using realistic costs

No single route is best for every buyer. The court with jurisdiction may be suitable for a domestic relationship, while the parties may choose arbitration because of the nature of their relationship or the involvement of a foreign party. But the word ‘arbitration’ alone does not establish a clear process.

If the contract provides for arbitration, check which institution will administer it, if institutional arbitration is chosen, as well as the applicable rules, the seat of arbitration, the number of arbitrators, how they are appointed and the language of the proceedings. Distinguish between the legal seat of arbitration and the venue for hearings: the choice of seat may have legal consequences that go well beyond travel arrangements.

The Saudi Arbitration Law governs arbitration within its scope, but assessing a particular clause requires specialist advice, especially where a foreign franchisor is involved. Do not assume that drafting the contract in Arabic automatically makes Arabic the language of arbitration, or that choosing a foreign governing law excludes mandatory Saudi provisions.

Ask for an initial estimate covering legal representation, experts and translation, as well as institutional fees and arbitrators’ fees where applicable. Ask who must make payments during the proceedings and how costs may be allocated in the final decision. A general clause requiring the losing party to pay costs does not mean you will not need to fund your claim upfront.

Test the process against a small-scale dispute, such as a disagreement over an amount owed or the performance of an operational obligation. If the likely cost of bringing a claim is disproportionate to the value of the dispute, discuss a simpler route or expedited procedures where the chosen rules allow them.

4. Preserve evidence and keep the business running

Before buying, check how you will obtain the documents needed to demonstrate performance: correspondence, meeting minutes, visit reports, invoices and order records. Ask whether you can export your data from the systems used and lawfully retain copies. Having data on a platform managed by the franchisor does not guarantee easy access once a dispute arises.

Also discuss which obligations each party must continue to fulfil during a dispute, and how disputed amounts will be treated compared with undisputed amounts. Do not unilaterally stop making payments or using systems based on a general sense of fairness; doing so could amount to a separate breach. Seek advice specific to the contract and the facts before taking any action that escalates the dispute.

Prepare a short review sheet recording, for each point, the current wording, the risk, the requested amendment and the agreed outcome. Make sure amendments are incorporated into the final signed version rather than left as verbal promises.

The practical takeaway: do not sign until you can clearly explain the dispute resolution process, its likely cost and how you will preserve your evidence. A good clause makes enforcing your rights a practical option, not merely a theoretical possibility.