Thursday, June 14, 2012’s Plan to Build the Future of Legal Systems

By Zachary Caceres
Radical Social Entrepreneurs

Peter-Jan Celis
All around the world, people struggle with expensive legal fees and backlogged courts. Judges are sometimes biased or corrupt. Political agendas tilt the scales of justice. In many places in the developing world, courts are used almost exclusively by elites.

But if 26-year old Peter-Jan Celis has his way, this is all bound to change. Celis founded – a private, online small claims court based in Santiago as part of Start-up Chile.

While building, he has come to see a paradigm shift in law and legal services as the only realistic way to fix the problems of today’s legal systems. Taking arbitration online and making it cheap and user-friendly is the first step towards a much deeper vision.

Celis is an outspoken advocate of polycentric law, a clunky phrase for a network of parallel legal systems, where jurisdictions and legal firms compete with each other to ensure high-quality and low price.

At its debut, lay dormant for months. But recently, Celis suddenly found himself trending on sites like HackerNews and Reddit, and his website has roared to life.

Radical Social Entrepreneurs chatted with Celis about, and his bold vision for the future of legal systems.

RSE: So, what’s

Celis: is a small claims court for the internet. We offer fast and convenient online arbitration that is legally binding in 146 countries at just $299 total fixed price ($149.50 per party).

RSE: That’s surprisingly cheap. Some courts can charge that much just in paperwork fees. At RSE, we’re always interested to hear people’s stories and how they arrived upon their radical social entrepreneurship project. What’s yours? How does a twenty-something end up in ‘start-up law’?

Celis: The divorce of my parents has been going on for 7 years and still running. It became very obvious to me the court system was failing around the same time I got interested in private law as a “last frontier” for innovation.

In essence, any legal system is an attempt to manage negative externalities, although incentives in centralized legal systems unfortunately also go beyond that.

[Negative externalities are effects of private activity which spill over onto others. For instance, pollution or loud noise. –Ed.]

Imagining how private law might work as an alternative to today’s monopoly legal systems was the last “hard nut to crack” for me. Trying to find a pragmatic way in the current legal system was an even harder exercise, but after studying arbitration at a CIArb course (Chartered Institute of Arbitrators) I came up with the system.

What I am most proud of is that I found a way to offer immediate enforcement value to my customers leveraging current international arbitration laws while hoping to build a more reputation based enforcement mechanism as soon as possible. (Read: user profiles.)

RSE: seems to have two main components. The first is the arbitration service, which is why people pay you. The second is your contract clause. With one click, people can literally copy and paste a clause from your website into their contracts — making any disputes that arise cases. This could be used by all sorts of people. How have both components been received? What’s the caseload like? What does the market look like?

Celis: The service has been very well received. There is, however, a lag between clause usage and dispute filing. As a result, the number of disputes arbitrated can still be counted on one hand.  Also, I can’t track how many contracts use my clause yet.

When I launched my service on January 17th, I started with business-to-consumer marketing, assuming case load would take off organically. However, looking at my stats now, I see maybe 1 case filing per 500 unique visitors and most of those don’t even end up in arbitration hearings because either the filing is fake or the responder refuses to agree to arbitration.

Post-dispute agreement on arbitration is indeed very unlikely as often one of the parties knows they are likely to lose. Hence it is really important for me to push my customers to add my arbitration clause to all their contracts pre-dispute.

So looking at where I am now, I received a lot of media attention, good and increasing traffic and great applications from arbitrators, rails developers, and business developers. The only thing lagging is a steady case load, which is why I decided to start focusing on business-to-business partnerships with market places and escrow companies.

If they send the disputes between their users to me for arbitration, it lowers their support costs and users can settle in a low cost and binding way.

I am not giving up on targeting consumers though. The great response I get when I talk openly about the vision for has convinced me I should take a page from the 37Signals handbook and out-educate any existing arbitration provider.

RSE: So how can other startups or individuals use your service?

Celis: can be used for any type of commercial and private dispute. Disputes that are not arbitrable include crimes and all issues involving identity. To give you an idea, the disputes that have been settled using arbitration so far included the parents of a quickly divorced couple disputing who has to pay what share of the wedding, a freelance management consultant and his client disputing project delivery and payment, and a dispute between a student and a private tutor.

So in practice, I advise everybody to put the arbitration clause in all their contracts, to avoid costly and time consuming court litigation. Businesses are well advised to put the clause in their terms and conditions.

If anyone reading this interview runs or works for a market place or escrow service, I’d like him or her to contact support on my website so we can talk about a partnership.

RSE: Great. Let’s get back to your bigger vision.
How scalable are the services provides? Having affordable arbitration in the developing world, where so many people face such terrible courts, would be a major achievement for humanity. But does rely so heavily on the effectiveness of state-provided courts that it’s constrained to the developed world? If I live in a country with ineffective courts, how binding is the judgment?

Celis: In its current version indeed relies on the existing framework for international arbitration and as a result on the local courts for enforcement. Please note, however, that even when doing business with less reputable jurisdictions, it is the location of assets of the other party that matters for enforcement. In other words, even if you do business with someone from the Central African Republic you can always go after his assets in other countries if possible.

Overall though, I agree that will only be able to revolutionize the rule of law in corrupt developing countries if a) we are able to provide arbitration cheaper than $299 – e.g. evolve to 2% of claim value if the depth of our arbitrator market increases – and b) becomes so well known as a brand that the reputation on your future profile becomes so important that being called out if you don’t pay up is enough for people to comply.

RSE: We keep calling a start-up. Are you in the ‘market for law‘? What do you say to someone who says that law is necessarily the duty of nation-states and their sub-units? Centralized provision of law seems to work decently – though certainly not perfectly – in some places, and extremely poorly in others, such as in the developing world. What are the virtues of your ‘start up law’, polycentric approach?

Celis: I do consider to be in the market for law. Currently we are simply a service that applies equity principles/contract law, but the next step is building a market place of arbitrators with reputations and case law history. Eventually I want to allow 3rd party providers to plug-in to my system as well, so becomes the platform for polycentric law.

As far as those who doubt, I’d rather just create the future and people will use it if it benefits them. If you surveyed people 20 years ago whether some TV broadcasting time should be randomly distributed to everybody who wanted it, people would most likely have demanded special checks to make sure criminals or those with extreme views could not participate.

Today there is YouTube and everybody thinks it is the most common-sense thing in the world that everybody can upload a video.

Polycentric law, if universally adopted, would eliminate all the incentive problems in politics that public choice theory describes so well. Being principled as a politician would pay off.

Last but not least until we get to this polycentric ideal, having a few extra private alternatives to government courts can only benefit consumers.

RSE: Wow. So what is the future of law given changing technology and start-ups like Are we ever going to be able to challenge monopolies in the market for law?

Celis: The monopoly on law is basically a claim by the government that they are best at managing negative externalities and as a result, the reputation of individuals in the legal system. As reputation becomes more important on the internet, and more advanced dispute resolution systems arise to track reputation online, this claim will become increasingly unsustainable.

In the future, I see law and as a result politics moving online, with “being a famous politician” meaning, among other things like YouTube views and Facebook followers, “having a lot of arbitrators in my group with a lot of users liking us.”

Another catalyst for this change will be major governments going into bankruptcy and major currencies going into hyperinflation or extreme currency controls. There will be a void for “government” services such as justice, social security and education, and the free market will have to fill it.

RSE: Fascinating. Thanks a lot, Peter-Jan.

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