Abstract
In this paper I want to analyze Private Legal Systems as an alternative source for generating norms. I argue that certain sectors, business communities have their own value -and normative system and the disputes they have are based on these commonly shared values norms and habits. The rise of the alternative dispute resolution method of mediation, requires the acknowledgment of those values and norms in order to mediate between parties in a dispute. This is what I want to elaborate briefly on this new phenomenon of private legal system.
I. INTRODUCTION
Legal norms do not only generate from state tinstitutions, but also from sources outside the official institutions. One can mention for example the rules which FIFA forces member states organizing the world cups to implement and set aside their own regulation on a certain issue, for example rules on competition. Likewise the Dutch organization whıch supervises the telecommunication sector is not state owned and established its own norms stemming from the sector itself. This approach has once been succinctly portrayed by Francois Ost and Marc van Kerchove in their groundbreaking work De La Pyramid au Resseau1. They argued that the traditional pyramidal structure of supply of legal norms has been replaced by a web of horizontal sources, varying from governmental institutions to non-governmental or international institutions.
This is why I want to elaborate on the topic of Private Legal Systems. I want to argue that certain professional communities, organizations or branches, have their own (legal) normative system which they apply unofficially. Moreover, these norms have a more binding effect and sense of validly among the subjects than state oriented norms.
One of the important aspects of understanding private legal systems is that these norms can be used in legal mediation procedures, which are spreading around the world and also in Turkey. Especially if we look at the establishment of the mediation office at the Grand Bazaar in Istanbul, where its aim to resolve disputes according to value and norms they adhere to. In order to mediate between parties, especially within a particular sector, attention should be paid on the existing norms and values in which the conflict arises. This is why the scholarship of Private Legal Systems has achieved much attention in the United States most notably.
II. SOCIAL ACTIONS AND PRIVATE LEGAL SYSTEMS
It is Amitai Aviram who has first addressed the topic of Private Legal Systems (PLS)although, the topic in itself has been discussed by different anthropologists and sociologists. But it was Amitai Aviram who first took notice of the importance of values and norms with certain communities and sectors in solving disputes. According Amitai Aviram, PLS can be defined as follows: “Theprivate ordering literature examines the institutions facilitating a private legal system (at a point in which the system has fully evolved), and tracks the evolution of rules that are created and enforced by the private legal system, but the literature pays scant attention to how the institutions themselves evolved to become a private legal system.Perhaps drawing on Ronald Coase’s theorem and assuming negligible transaction costs, and perhaps expanding on Friedrich Hayek’s theory of spontaneous order, most of the literature treats private legal systems as spontaneous creations that sprout in response to a governance need unfulfilled by government2.” Private Legal Systems have gained much attention due to the awareness of complexity of certain disputes which can only be resolved within those norms and values. Legal rules and adjudication institutions emanating from the state are therefore unable to provide proper solutions in these kind of cases. This is due to a different logic which state lead institutions endorse. State institutions depart from calculable, logical premises, which are a-priori determined, while Private Legal systems usually depart from an a -posteriori approach in determining the logical of the premises. This is to say that, since relationships constitute the main element in Private Legal Systems, the norms and values are therefore equipped to maintain those relationships. Many business’, sectors and communities, rather favor to act within the values and norms that are determining their relationships instead of adhering to norms (of the state) that hinder the long term-relationships.
This explains for example why in the United States there is a call for alternative legal systems, especially as it comes down to resolving conflicts like mediation. The way breach of contract or any other conflicts are being resolved within a PLS calls for a non-conventional method depending on the conflict at stake. While state institutions request a certain formality which is not always in pace with the custom of certain business branches or sectors. One can, for example, think of the so-called the mediator institution which is created or established at the grand Bazaar in İstanbul. The settlement of disputes by mediator is not that peculiar since, mediation is allowed and accepted by the Turkish state and accommodated by the Turkish Bar association However, the question that should be asked is how the mediator will solve disputes and according to which norm or rules he will handle disputes? This is an area that goes on the sphere of private legal systems, because the mediator will apply the dynamics which the network of the grand bazaar community offers, and the normative framework which the bazaar community accepts and endorses.
The main emphasis mediation is to highlight the, importance of relationships and more specifically it tries to cure and save the relationships that already exists. Especially in business, relationship are very precious since trust is not easily gained. Hence when a dispute arises the main thing which business partners want is to solve the dispute and save the business relationship. This is mainly the result of the fact that business relationships are based on trust, which constitutes the essence of not only business but also law.
The peculiarity of PLS resides in its unique bonding character, the foundation of PLS is mainly based on trust and relationships. As Aviram has succinctly stressed: “This problem may, in theory, be solved through a bonding mechanism that assures the members of the spontaneous private legal system (i.e., a newly formed system not based on a preexisting network) of their mutual abidance to the rules. But, bonding of this sort is very expensive, often outweighing the benefits conferred by the private legal system and at the very least making the spontaneous formation of a private legal system more costly, and therefore less attractive, than evolving an existing network into a private legal system by having it regulate the behavior of members it had served in other ways hitherto3.”
Hence a PLS is based on common set of shared values which is adopted among members of that particular professional community. These values regulate business relationship and guarantee trust among members. Having a good reputation is therefore essential in these communities since reputation involves commitment to values and a trustworthiness.
III. NETWORK EFFECTS AND TRUST
Network effects constitute to the foundation for PLS, and is part of the new approach in law, where they adopt a more social account of law rather than state oriented approach. In this respect the element of trust is binding element with trust relationships, and fulfills the function of logic in state made law. The importance of trust becomes sincere and evident since business relationships cannot be conducted without trusting in the fulfillment of certain agreed upon conditions and the abiding of contracts. Network effects should be placed according to this background, in order to understand why there is huge appeal to it. One of the main reasons why businesses place importance on network effect is because of the cost efficiency created by trust.
This explains for example why many businesses or community members shift to this system either officially or unofficially. The existing relationship based on trust, has a core advantage because it is cost efficient. State based court adjudication processes absorb a lot of time and are quite costly. Moreover, what is also worth considering in these kinds of cases, is that relationships are ruined, which makes up an important aspect in these kinds of business sectors or communities.
Hence, reputation in business relationships replaces the (a-priori) established logical relationship. That is to say that reputation or trust, enhances the predictability in those small communities or sectors. While state based legal regulations, fulfills the role of predictability, reputation or traced is replacing these regulation in PLS:
As Avner Greif has asserted the connection between transaction cost and trust relationships: “Reputation based exchange is characterized by a low cost but a high marginal cost of exchanging with unfamiliar individuals. Law-based exchange, however, is characterized by the high fixed cost required to set up an effective legal system but the low marginal cost of establishing new exchange relationship4. What Kahan refers is to is the fact that business partners within a certain network prefer to rely on their mutual trust relationship than trusting the state legal system with providing the same trust relationship by logically conducted rules. It is more efficient and more effective in doing business than applying state law. Moreover network effects within a business community also enhances the relationship, which is most important economical actor in those businesses. Without a network and a trust relationship, it is highly inconvenient to enter in any business deals at all. Aviram has elucidated this by asserting that , “…, trust exists in this situation precisely because obligations are enforceable, not through recourse to law violence but through the power of the community5.”
The diamond industry can be used as an example whereby the diamond industry itself constitutes a closed community with its own legal normative framework. The closed nature of the community ensures not only the application of these particular norms but also guarantees the accountability for the application of these norms.
One has to note that business relationships, either within a certain branch or sector, or cross-sectoral relationships, are all based on a certain amount of trust as explained above. Without trust-relationships, business relationships cannot develop or be maintained. Moreover, one can even argue that trust as an element constitutes the primary essence of a legal system. A legal system’s purpose is to uphold trust in order to enable people to enter into (business) relationships hence it is the purpose of the state to ensure trust in (business ) relations.
So, if we take the component of trust as the focal element in legal relations one can encounter the same trust in any kind of relations, the same goes for the establishment of (sub) legal system. Trust relationships are far more cost-efficient than relations based merely on state security.
According to Aviram “Networks are very often the most efficient private regulators6. “ Because, “…, in a world with no transaction costs, private legal systems will form spontaneously, through ad hoc contracting. Of course, no such world exists. There are costs to identifying the most efficient regime and negotiating its terms with all stakeholders7.”
Hence decreasing transactions costs, is one of the main reasons why companies tend to lean more on sociallegal systems which is based on their commonly shared values. This is why as Aviram claims “Scholars have recognized long ago that institutions form to reduce these transaction costs. Some institutions solve collective action problems by appointing an agent (e.g., a trade association) to act on their collective behalf (thus coordinating their actions); other institutions ensure the enforceability of the private regime (e.g., through mandatory arbitration);and others still cure or mitigate additional causes of transaction costs8.
IV. CONCLUSION
Private Legal Systems is receiving much attention from legal scholarship lately. The reason is that due to globalization and increased professionalization ,existing values and norm within certain branches received a lot of attention. Business relationships are much more important than adjudication regulated by the state. Relationships lead to a vast area of web based normativity, as explained by Van Ost and Kerchove.
In contrary to a prior determined, calculative normative system, the scholarship of Private Legal Systems allows dispute resolution to be based on a-posterior logic instead of a-prior. The transparency of these systems enables the state to take control of customs and habits that are already taking place within certain sectors and branches. Moreover, it helps them to accommodate the solving of disputes based on that what is really taking place in the field, rather than adjudication based on alogic that does not match the reality of that particular sector or community.
The rise of dispute settlement institutions of mediation throughout the world and in particular in Turkey, can be explained by trying accommodate private legal systems. The recent effort of the Turkish State to boost and promote mediation as an alternative method of dispute settlement should be understood within this perspective. Mediation occurs along values and norms that both parties share within a certain sector or community.
BIBLIOGRAPHY
Alejandro Portes, "Social Capital: Its Origins and Applications in Modern Sociology", Annual Review of Sociology, C.24/1, California 1998.
Amitai Aviram," A Network Effects Analysis of Private Ordering.", Berkeley Program in Law & Economics, Working Paper Series, C.80., California 2003.
Amitai Aviram, "A Paradox of Spontaneous Formation: The Evolution of Private Legal Systems", Yale Law & Policy Review, C.1/68, New Haven 2004.
Amitai Aviram, "Allocating Regulatory Resources", Journal of Corporation Law, C.37/4, Iowa City 2012.
Amitai Aviram, "Regulation by Networks", Brigham Young University Law Review, C.2003, Provo 2003.
Avner Greif, "Impersonal Exchange without Impartial Law: The Community Responsibility System", Chicago Jornal of International Law, C.5/1, Chicago 2004.
Barak D. Richman, "Ethnic Networks, Extralegal Certainty, and Globalisation: Peering into the Diamond Industry" (Last Access: 04.11.2017). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=949467.
Carol J. Greenhouse, "Looking at Culture, Looking for Rules", Man, C.17/1, London 1982.
Dan M.Kahan, "The Logic of Reciprocity: Trust, Collective Action, and Law", Michigan Law Review, C. 102/1, Michigan 2003.
François Ost/Michel Van de Kerchove, De La Pyramide Au Réseau?: Pour Une Théorie Dialectique Du Droit, Publications des Facultes universitaires Saint-Louis Bruxelles, Bruxelles 2002.
Robert J. Sampson "Linking the Micro-and Macrolevel Dimensions of Community Social Organization", Social Forces, C.70/1, Oxford 1991.
FOOTNOTE
1 Ost and Van de Kerchove, De La Pyramide Au Réseau?
2 Aviram, ‘A Paradox of Spontaneous Formation’.
3 Ibid., 5.
4 Ibid., 89.
5 Aviram, ‘A Paradox of Spontaneous Formation’, 9.
6 Ibid., 10.
7 Ibid., 9.
8 Ibid.
