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A growing trend, at least in the U.S., is for parties to a contract to waive their rights to sue and instead submit disputes to alternative (or "external") dispute resolution (ADR)--i.e., mediation or arbitration. Is is proper for parties to be able to do this?

In the essay, "Government Financing in a Free Society", Ayn Rand mentioned that parties could opt out of having their contracts protected by the legal system. However, she did not specifically address the propriety of ADR.

It is true that ADR clauses are part of voluntary contracts. However, there are limits to the extent to which one may surrender one's own rights, as Leonard Peikoff discussed in a podcast.

One might argue that ADR is similar to "jurisdiction shopping," but the latter relates to governmental judicial systems with established territoriality. An ADR agency can be a private entity.

As has been discussed elsewhere, it would be improper for a private agency to usurp other legitimate functions of government: the military, police, criminal courts. By offering an (often mandated) alternative to civil courts, are ADR agencies--within this particular sphere--setting themselves up as "competing governments" (hence the anarcho-capitalist aspect)?

asked Dec 31 '12 at 12:02

El%20Manantial's gravatar image

El Manantial

First of all, I assume the question is about binding arbitration. Parties are of course free to enter into "contracts" which cannot be enforced by courts (just insert a clause which says "this contract is not enforceable by any court"). But then courts won't enforce the arbitration clause either. Under such a "contract", the parties could voluntarily submit to arbitration, or one or both parties could refuse to go to arbitration.

Presumably this question is about a situation where the contract is enforced by the courts, but what the courts enforce is the submission to arbitration.

(Dec 31 '12 at 16:25) anthony anthony's gravatar image

Once we make this clarification, I don't think the argument that this is a form of anarcho-capitalism holds any water. An arbitration clause can only be enforced via a court order, issued by a branch of the government.

Anarcho-capitalism would be if the arbitration company could order an arrest for contempt (or a lien or a levy) without going through a government court. I don't believe that is possible.

A related question would be one of when it is proper for the courts to order submission to arbitration. But I think that's different enough to be worthy of a separate question.

(Dec 31 '12 at 16:35) anthony anthony's gravatar image

After doing a little googling, it looks like arbitrators may, in some cases, be able to issue subpoenas, and that these subpoenas are at least to some extent enforced by the courts.

That might be an example of one area where laws surrounding arbitration have overstepped their legitimate bounds. But I haven't read all the details of this. I'd love to hear from anyone else who knows just how far the powers of arbitrators reaches.

(Dec 31 '12 at 16:54) anthony anthony's gravatar image
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Asked: Dec 31 '12 at 12:02

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Last updated: Dec 31 '12 at 16:54