Limits of mandatory rules in contract law: an example in agency law

Abstract

This paper uses Article 17 of the Commercial Agent (Council Directive) Regulations 1993 as an example to illustrate the regulatory limits of a mandatory rule in contract law. Article 17 aims to protect commercial agents by forcing the principal to a commercial agency contract to make a mandatory end payment to the agent on termination of the contract. This paper argues that Article 17 cannot benefit the commercial agent. Rather, it makes both the agent and the principal worse off. Based on the analysis, the paper provides four general implications for understanding the limits of the mandatory rule in policing abuse of bargaining power. First, the mandatory rule will generate a new compliance cost for the stronger party, who can pass it on to the weaker party. Second, the mandatory rule cannot benefit all of the parties aimed to be protected. It inevitably creates both winners and losers. Third, the mandatory rule cannot be used to force the stronger party to make a direct payment of money to the weaker party. Fourth, the mandatory rule may exacerbate the problem of information asymmetry in a contracting process.