The laws say that any negative effect in cities is illegal, but demoralize doesnt cause a yell as other effects do. Given that it is -100 mana and -25 morale, pretty significant effect should it not either be that the orc is seen to yell wildly while doing it or the player yells showing that the law is broken?

Not everything that is harmful or potentially illegal results in a yell, including some things that can actually kill you.

If your character is harmed by demoralize and you feel like it should be a crime, just flag the orc. I've flagged Orcs for using demoralize in town before. It is up to you the player to interpret each situation and act like your character would. Just because mechanics aren't in place in the game itself doesn't mean you can't justify via RP the fact that you came to harm. There are lots of different things like that. Vandalize from Outlanders is another one that causes confusion that isn't 'by the book' illegal. You the player have a right to interpret law as a Trib, if your leadership disagrees with your decisions they have a right to punish your actions. (If you're the leader you can just put it into policy as a crime)