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ECONOMIC PRINCIPLES OF RESPONSIBILITY.

Though economic activities have been performed by the mankind for thousands of years, the institute of "property responsibility" is still a controversial and not thoroughly studied issue. "Property responsibility" in the economic literature is considered somewhat broader than in the legal literature. Economists interpret this term as legal responsibility and consequences of economic activities (e.g., losses) as well.

Responsibility in its legal meaning is considered as state enforcement imposed to execute the requirements of law, as the legal relation where each party must answer to the other party, the state, and society for its actions. (1) Does it mean that legal responsibility is an obligation to be responsible for something, to suffer the consequences, to experience the sanctions? Legal responsibility is definitely regarded as a kind of social responsibility, but responsibility as a general social phenomenon "reflects objective, historically particular nature of relations among an individual, community, and society in terms of the conscious implementation of mutual requirements imposed on the participants of relations". (2) Thus, responsibility in philosophical and social interpretation is considered broader, though it is also considered using requirements (binding in legal studies).

Unfortunately nowadays the functionality of responsibility and its measures are developed neither in judicial practice nor in literature and legislation. The statements developed by the science of administrative and financial law are being repeated as some kind of spells. What is a mean to influence economic interests of economic relations participants? What stimulates their behavior: responsibility, sanctions or a system of obligations?

Responsibility peculiarities defined in the legal theory (in the literature of the Soviet period) define responsibility as a measure of state enforcement based on legal and public censure of an offender and expressed in the establishment of certain negative consequences in the form of personal or proprietary restrictions. Even nowadays this thesis is supported by a number of scholars. V. K. Babaev (3) and S. S. Alekseev (4) defined legal responsibility as an application of state enforcement measures to person guilty of a violation. This quality of an offender presumes that a competent authority, officer or citizen impose a certain means of deprivation of property on an offender on the ground of a law or special rule. Thus, legal responsibility is trated as a certain kind of legal deprivation, encumbrance, damage, restrictions of a personal, organizational or material nature.

There can be two approaches to determining limits of responsibility. As for the first one, property responsibility will be limited by an amount of property at the disposal of an offender. In the second case, property responsibility will (or must) be limited by inflicted damage or loss.

On the basis of the first approach, responsibility is of one-time nature; it depends on a proprietary status of an offender. To this end, even responsibility unlimited in law will always be limited in terms of economics. (5) In institutes of subsidiary and shared responsibility, limitations will be stipulated by law or defined by losses of an injured person.

In the process of regulating responsibility relations, two interests can be specified: an interest of an injured person and an interest of a state. From the view of an injured person (and, to some extent, of a public entity as well), the main function of responsibility shall be restoration of an infringed right. The interest is usually of a propitiatory nature in economic relations, consequently a sanction is easily determined by an amount of a loss caused to an injured person. In case of public order violation, damage is caused to the entire system of economic relations and it can hardly be defined in any material categories. Therefore, in such cases responsibility determines punishment and sentence rather than restoration. The most important condition of responsibility existence is an inevitability of its implementation rather than its gravity. Implementation is represented not by a sanction itself but by the fact of necessity to respond to relevant illegal actions.

According to V. A. Khokhlov, (6) the Russian legal doctrine is based on recognition of an offender (debtor) as a pivotal figure in the sphere of responsibility; the main attention is paid to the offender while responsibility itself is interpreted as some kind of retribution, punishment, and judgment. Moreover, essential changes in the sphere of economics and economic situation are focused on problems connected with an injured party, creditor. Anyway, it is appreciated in the sphere of private law.

On the one hand, the legal institute of property responsibility constitutes a competitive economic order and ensures its efficiency, and, on the other hand, it is a precondition for public order where freedom and independent responsibility thrive. (7)

An economic order of market relations presumes that a state ensures economic environment, fair play, appropriate competition, etc. However, a dynamic character of market processes and the nature of "competition as a discovery procedure" (8) assume that the conflict of interests occurs, as well as mistakes and other circumstances connected with responsibility risks. The scope of responsibility and its mediation by contracting party's losses (without considering own risks of negative business results) strengthen an uncertainty factor in business calculations. Among other things, economic calculation is based on a price mechanism and transaction expenses (9) that are to be optimized by the responsibility mechanism.

According to the Coase Theorem" the decrease in transaction expenses is also achieved by establishing a company inside which a lot of contracts and transactions are implemented with minimal (with regard to a competitive market) expenses. Moreover, companies decrease uncertainty and insecurity of connections between entities and define property responsibility.

A company possesses independent (from its participants' property) property, incurs its liabilities, and bears independent property responsibility. However, it is not correct to overemphasize the institute of responsibility and assign a pivotal role to it in transformation of risks in the process of company establishment, in making managerial decisions, and in development of competitive procedures. The history of a company development and its forms is focused on responsibility limitation; even in case of partnerships development, when participants traditionally bear complete responsibility for the partnership obligations with their entire property, a form of an LLC (Limited Liability Company) appears.

On the one hand, responsibility of an entrepreneur and a company is a simple imperative decree that is legally determined; on the other hand, responsibility is a consequence of entrepreneurial freedom where everyone must carry the burden of decisions consequences. As a result, responsibility is a certain condition when the offender must be aware of his/her actions. (10)

In the concept of a company legal capacity, a law-maker or a right holder uses methods equal to the methods of determining person's legal capacity. Law-maker determines qualities of a company or person; he/ she simply declares that since the exact moment such an establishment shall be recognized as a separate legal entity distinguished from its participants' legal capacity.

Person's qualities are separated from a participant (an investor) and it transfers into a company in the process of a company development. Every entity must have a possibility to speak out on his/her own behalf, in his/her own interests, rights, obligations, and certainly with his/her own responsibility.

Responsibility is determined by the rights and freedoms of entrepreneurial activity, by making business decisions, and by selecting a way of behavior. The contractual basis of market relations predefines mutual fulfillment of obligations including obligations for restoration of an infringed right (conditional upon violating the right but not upon occurrence of entrepreneurial risks). As for a prospective plan (prospective responsibility), responsibility appears to be a certain behavioral pattern when an entrepreneur calculates and estimates market and administrative circumstances in advance.

The Constitutional Court of the Russian Federation has stated, "While selecting enforcement measures, the law-maker is limited by requirements of justice, proportionality, and other constitutional and general principles of right." ... While establishing responsibility, lawmaker must provide reasons on the ground that limitation of rights and freedoms is possible only if it is proportional to objectives directly stated in the Constitution of the Russian Federation. (11)

The detection of economic responsibility intension requires clear delimitation of this concept from other categories of civil law that are often used when a civil rights violation takes place as well as responsibility and that are frequently used as consequences of such a violation. For instance, A lot of rules concerning the consequences of duties violations by one of contracting parties to a contract are prescribed in the Civil Code of the Russian Federation: the buyer is voluntarily entitled to demand an adequate decrease in purchase price from the seller; gratuitous eliminating of shortage of goods within a reasonable time; reimbursement of expenses for elimination of goods shortage, the buyer may refuse execution of a purchase agreement and require a refund of the sum paid for goods or replacement of goods (Article 475), the seller is entitled to demand a payment for goods and interests from the buyer in accordance with Article 395 of the Civil Code or to terminate a contract (Paragraphs 3 and 4 of Article 486), the lessee is entitled to demand rented property and require compensation for losses caused by delay or to require the contract termination and compensation for losses caused by non-fulfillment of obligations under a contract (Paragraph 3 of Article 611). Article 723 provides the contractor's responsibility for inadequate quality of works performed, etc.

Thus, O. S. Ioffe noted that enforcement of specific performance of obligations should not be considered as penalty. An obligation of specific performance results from the obligation itself indirectly. And if consequences of the breach were limited by it, then it would be proportional to complete irresponsibility of an offender who would bear the same duty--to perform an obligation--both before a violation takes place and after it. Whereas responsibility always represents a certain type of property or personal relations, it shall be expressed in some kind of additional encumbrances generating certain negative consequences for an offender. (12)

A civil rights violation during economic transactions is connected with improper conduct resulting from both a legal obligation and economic conditions. A creditor can define a method of a violated right restoration: specific performance, replacement of performance by means of any other method, compensation for losses, etc. Iin any case, the state does not impose any terms of compensation or implementation of responsibility. For instance, in tax legislation, parties have no choice and responsibility is realized only by means of penalty payment in terms of money.

An economic basis of responsibility in economic relations is a competence of an entrepreneur to pocket a profit and its consequence, i.e. the risk of losses being transformed into the institute of legal responsibility. Under the conditions of distribution of factors determining responsibility among corresponding entities, responsibility shall be distributed among them as well. In case of profits distribution among the company participants (investors), personnel and the company itself; in case of acceptance (or usurpation) and distribution of managing rights through the company, its participants (investors), personnel (managers); in case of the state intervention in market relations, etc. Assignment of social and other responsibilities as well as encumbrances put on business create a misbalance for the statements proposed.

It cannot be said that market freedom is a result of readiness to responsibility; a determining element will be unlikely found for this binary situation. These two spheres of competence--an obligation to bear responsibility as well as the right to manage--is mutually causal, they originate simultaneously with the legal capacity implementing precepts of law. Upon consideration of the legal responsibility institute in administrative relations where no freedom but only obedience to a managing entity can exist, responsibility is a central institute that is implemented due to improper execution of corresponding obligations.

Certainly, choice and market conduct of entities generating a market process depend on the form of obligation or responsibility. Any contracting party prefers to minimize risks entering into relations with an entity that is really able to redeem possible losses (superadded liability company, partnership). However, while creating a company to minimize transaction costs, an entrepreneur will not raise them choosing the form with lesser responsibility.

Alfred Schuller has written about the function of responsibility to lodge with powers. (13) A functional relationship or function is a relation between two variables when the unique value of a dependable variable corresponds to the value of an independent variable. But responsibility as a protective relation arises only in case of a wrong when normal development of regulatory relations is destroyed. Certainly, the model of responsibility relations determined by the law-maker or law has an adverse prospective effect on regulatory relations, but it does not mean that all participants of economic turnover act only under the threat of penalty. As a rule, everybody prefers normal development of relations. Knowing that entrepreneurial activities are performed at one's own risk, an economic entity tries to minimize it using various methods and forms where responsibility may be considered as the only one of them. Along with responsibility, insurance, and control over the balance of authorized capital and net assets, the creation of funds and reservation, definition of own capital indexes, control over major transactions and interested-party transactions, determination of economic factors for management purposes, approval of profit and loss ratios, etc. may be mentioned.

In these cases a state is an interested party because of limitation of one's damage may prevent chain reactions or domino effects (e.g., chains of burst-ups) resulting from violations in individual households.

The fulfillment of obligations is guaranteed by separate property of companies but not by private property of their members. Since each individual investor is able to have only insignificant influence on leading cases, the limitation of responsibility may be economically allowable.

It should be noted that the limitation of responsibility is not a condition to perform entrepreneurial activities on the basis of responsibility of others.

Limited responsibility stimulates competition; unlimited responsibility restrains entrepreneurial activity and gives reasons for substitutes and fraudulent structures. Thus, partnerships giving advantages in economic activity management spresumes full property responsibility for obligations of partnership. Practically, companies that become general partners are created for purposes of management concentration, but the scheme itself disavows full responsibility in partnerships.

In the process of entrepreneurial risks increase, a structure of economic entity's capital changes in favor of borrowed capital and vice versa. In accordance with the residual type of profiting from one's own capital, profitability of the latter is higher than in a case of borrowed capital provided their amounts are equal. No entrepreneur wants to risk his or her own capital. In mentioned cases responsibility does not take any special type or form, general rules are to be applied. In any case, an entrepreneur acts to decrease costs. To cover possible losses with regard to responsibility, a creditor accepts the risks considering the structure of contracting party's capital.

These relations are connected with an increase of the role and impact of such institutes as auditing, when "any scullery maid" may obtain reliable information about an economic status of the company and make a decision concerning his or her investment. Besides, intensification of shares turnover (permanent estimation of the object at financial markets) increases costs characteristics of assets; it stimulates investment attractiveness, creditability, and passive dispositive capacity.

Bibliography

(1.) Alekseev S. S. Law: Alphabet--Theory--Philosophy: Experience of Integrated Study.--M., 1999.--712 p.

(2.) Alfred Schuller. Entrepreneurial Responsibility, Economic Calculation, and Competitive Order. Concerning Balance between Market Freedom and Own Responsibility / Theory of Economic Order: "Freiburg School" and German Neoliberalism: translation from German / Consolidation, introduction and general editorship of V. Gutnik.--M.: CJSC "Economy", 2002.--482 p.--(Economic heritage).

(3.) Bortnikov S. P. Legal Responsibility in Doctrine of Russian Law and Tax Legislation // Legal Analytic Magazine. 2003. No. 4 (8).

(4.) Ioffe O. S. Law of Obligations. P. 97. Cit. ex: Braginsky M. I., Vitryansky V. V. Contractual Law. Book I: General Provisions: Second revised edition.--M.: "Statut", 1999.--848 p.

(5.) Ronald Coase. The Firme, the Market and the Law. Translated from English by Boris Pinsker. Science editor: Rostislav Kapelyushnikov.--Paper edition in Russian.--M.: "Delo LTD" with participation of "Catallaxy", 1993.--192 p.

(6.) Nazarov V. L. Legal Responsibility // Legal Encyclopedic Dictionary / Senior editor: A. Ya. Sukharev, editorial board: M. M. Boguslavsky and others. Second enlarged edition.--M.: Soviet Encyclopedia, 1987.

(7.) Judgment of the Constitutional Court of the Russian Federation dated 17.12.1996 No. 20-P in the case involving the examination of the constitutional provision of items 2 and 3 of part one, article 11 of Law of the Russian Federation dated 24.06.1993 "Concerning Federal Bodies of the Tax Police" // Bulletin of the Constitutional Court of the Russian Federation, 1996.--No. 5.

(8.) Theory of State and Law: Textbook / Ed. by V. K. Babied. M., 2001.--256 p.

(9.) Philosophic Encyclopedic Dictionary / Senior editor: L. F. Ilyichev, P. N. Fedoseev, S. M. Kovalev, V. G. Panov.--M.: Soviet Encyclopedia, 1983.

(10.) Friedrich Hayek. Competition as a Discovery Procedure // World Economy and International Relations. 1989.--No. 12.

(11.) Khokhlov V. A. Responsibility for Breach of Contract under Civil Law.--Togliatti: Volzhsky University named after V.N. Tatischev, 1997.--320 p.

By Sergey Bortnikov (Russian Federation)

Author

PhD, Associate Professor of the Department of Civil Procedural and Business Law, Samara State University

111a Vodnikov St., Samara, Russia, 443099

serg-bortnikov@yandex.ru

(1) Nazarov V. L. Legal Responsibility // Legal Encyclopedic Dictionary / Senior editor: A. Ya. Sukharev, editorial board: M. M. Boguslavsky and others. Second enlarged edition. M.: Soviet Encyclopedia, 1987.

(2) Philosophic Encyclopedic Dictionary / Senior editor: L. F. Ilyichev, P. N. Fedoseev, S. M. Kovalev, V. G. Panov. M.: Soviet Encyclopedia, 1983.

(3) Theory of State and Law: Textbook / Ed. by V. K. Babied. M., 2001. P. 506-507.

(4) Alekseev S. S. Law: Alphabet--Theory--Philosophy: Experience of Integrated Study. M., 1999. P. 74.

(5) Alfred Schuller. Entrepreneurial Responsibility, Economic Calculation, and Competitive Order. Concerning Balance between Market Freedom and Own Responsibility / Theory of Economic Order: "Freiburg School" and German Neoliberalism: translation from German / Consolidation, introduction and general editorship of V. Gutnik. M.: CJSC "Economy", 2002. P. 344.

(6) Khokhlov V. A. Responsibility for Breach of Contract under Civil Law. Togliatti: Volzhsky University named after V.N. Tatischev, 1997. P. 11.

(7) Alfred Schuller. Entrepreneurial Responsibility, Economic Calculation, and Competitive Order. Concerning Balance between Market Freedom and Own Responsibility / Theory of Economic Order: "Freiburg School" and German Neoliberalism: translation from German / Consolidation, introduction and general editorship of V. Gutnik. M.: CJSC "Economy", 2002. P. 344.

(8) Friedrich Hayek. Competition as a Discovery Procedure // World Economy and International Relations. 1989. No. 12. P. 45.

(9) Ronald Coase. The Firme, the Market and the Law. Translated from English by Boris Pinsker. Science editor: Rostislav Kapelyushnikov. Paper edition in Russian. M.: "Delo LTD" with participation of "Catallaxy", 1993. P. 192.

(10) Friedrich Hayek. Competition as a Discovery Procedure // World Economy and International Relations. 1989. No. 12. P. 26.

(11) Judgment of the Constitutional Court of the Russian Federation dated 17.12.1996 No. 20-P in the case involving the examination of the constitutional provision of items 2 and 3 of part one, article 11 of Law of the Russian Federation dated 24.06.1993 "Concerning Federal Bodies of the Tax Police" // Bulletin of the Constitutional Court of the Russian Federation, 1996. No. 5.

(12) Ioffe O. S. Law of Obligations. P. 97. Cit. ex: Braginsky M. I., Vitryansky V. V. Contractual Law. Book I: General Provisions: Second revised edition. M.: "Statut", 1999. P. 97.

(13) Alfred Schuller. Entrepreneurial Responsibility, Economic Calculation, and Competitive Order. Concerning Balance between Market Freedom and Own Responsibility / Theory of Economic Order: "Freiburg School" and German Neoliberalism: translation from German / Consolidation, introduction and general editorship of V. Gutnik. M.: CJSC "Economy", 2002. P. 347.
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Title Annotation:LEGAL REGULATION OF ECONOMIC RELATIONSHIPS: THEORY AND PRACTICE
Author:Bortnikov, Sergey
Publication:Kutafin University Law Review
Date:Oct 1, 2016
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