Article 10 of the Saudi Franchise Law

This article sets out a general principle that governs the whole relationship: the franchisor and the franchisee must fulfil their obligations under the franchise agreement in good faith.

The article is short, but its effect is wide. The main points are:

• The obligation falls on both parties, not on one of them only.
• The subject of the obligation is what the franchise agreement provides for by way of obligations.
• The way of performance must be in good faith, so formal compliance with the letter of the contract is not enough if the performance is meant to harm the other party or to empty the agreement of its substance.

The article does not define "good faith" or set out its forms, and does not set a specific penalty for breaching it, so its effect in a particular dispute remains a matter of assessment according to the facts.

This article comes after Article 9, which sets the franchisee's obligations. For example, when the franchisor exercises his right to inspect the facilities under Article 9, this is expected to be done in good faith, although Article 9 itself provides that the inspection must not disrupt the franchisee's business or harm him. It is followed by Article 11, which regulates the form of the franchise agreement and its mandatory contents.

Anyone who believes the other party is performing the agreement in bad faith is best advised to consult a lawyer who specializes in commercial cases to assess his position.