Can You Claim Damages From a Client Without a Written Contract?

When accepting a job, it is standard practice to enter into a service contract. If a contract has been signed, it is clear that an agreement has been reached, and if any damage is incurred, you can claim for damages. But what if you could claim damages in cases where no contract has been signed?

This article explains whether you can claim damages if you have taken on a job without signing a formal contract and have encountered problems such as the contract being unilaterally terminated due to the client’s circumstances.

Can a Contract for Outsourcing Be Established Without a Written Agreement?

A contract for outsourcing can be categorized into two types based on its nature: ‘contracting’ and ‘quasi-delegation’. In either case, it is a ‘consensual contract’ that is established solely by the mutual agreement of the parties involved. This means that the creation of a written contract is not a requirement for the establishment of the contract, and a verbal agreement alone can constitute a contract. In other words, a conversation such as, “I would like to request △△ services for ○○ yen,” “Understood,” can be considered as a valid contract.

However, for contracts aimed at creating or customizing software, there are precedents that consider the contract to be established when both parties confirm the details of the work and remuneration through written documents such as specifications and estimates.

Even without a written contract, a contract can be established. However, in the event of a dispute, there will be no evidence left, so it is better to create a written contract. Even if you cannot conclude a written contract, it is safer to create at least some written documents such as specifications and estimates.

Even without a written contract, a contract can be established. However, in the event of a dispute, there will be no evidence left, so it is better to create a written contract. Even if you cannot conclude a written contract, it is safer to create at least some written documents such as specifications and estimates.

Can You Claim Damages If You Start Work Without a Contract?

If you start work without a contract and the client unilaterally notifies you of the contract’s termination, can you claim the remuneration for the work you’ve started as damages? In such cases, the key points are whether a contract has been established and whether you can prove it.

If a Contract Has Been Established, You Can Claim Damages

As we have seen, even if a contract has not been signed, if there is a mutual agreement between the parties, it can be said that a business contract has been established. However, when claiming damages, you need evidence to prove that a contract has been established.

If there is no formal contract, documents such as estimates and specifications that clearly state the content of the contracted work and the amount of remuneration can make it easier to prove that a contract has been established. If these documents do not exist, you can use email exchanges or recorded phone calls as evidence. Also, documents that show that deliverables have been delivered, or passbooks that show that payments have been made, can also serve as evidence. If you can prove that a contract has been established with such evidence, you can claim damages.

If a Contract Has Not Been Established

If you cannot clearly establish that a contract has been made, you may be able to claim damages based on the legal theory of “negligence in contract formation”. This theory holds that if one party causes damage to the other by acting in bad faith, despite the fact that contract negotiations are underway, they bear liability for damages.

Specifically, actions that repeatedly raise strong expectations of contract formation, despite having no intention of forming a contract, and cause the other party to actually start product development, for example, fall under “negligence in contract formation”.

There have been court cases that have recognized claims for damages based on this theory, but it is not applied simply because a contract was not formed despite negotiations. It is only applied when actions contrary to good faith are recognized. Even if contract negotiations were underway, it is not uncommon for a contract not to be concluded for some reason, and each party is also recognized to have the freedom not to contract. Therefore, you cannot immediately claim damages simply because you did not form a contract.

Dispute Surrounding the Anime “Tokyo BABYLON 2021”

An example of a dispute arising from starting production without a contract is the conflict between GoHands and King Records over the anime “Tokyo BABYLON 2021”.

In August 2021, the anime production company GoHands filed a lawsuit against King Records in the Tokyo District Court, demanding payment for the unpaid portion of the production costs for “Tokyo BABYLON 2021”. This anime had been cancelled due to issues such as the personality design resembling idol costumes.

GoHands had undertaken the production of “Tokyo BABYLON 2021” from King Records and had already delivered 13 episodes. The production cost of 314.6 million yen was supposed to be paid in installments, but GoHands claims that the contract was unilaterally terminated after the first payment. In addition to the remaining production costs, they are also seeking payment of 171.82 million yen for the costs of episodes 14 to 21, which they had already started producing even though no formal contract had been concluded.

As for the payment for episodes 14 to 21, for which no formal contract was concluded, the point of contention will likely be whether it can be proven that a contract was concluded based on evidence other than the contract. However, even if the existence of a contract is acknowledged, it is possible that no compensation will be paid due to the alleged plagiarism by GoHands.

Summary: Secure Your Business Consignment with a Formal Contract and Legal Advice

Even without a formal contract, a business consignment contract can be established. However, it can be difficult to prove in the event of any trouble, so it is desirable to conclude a contract before starting the work if possible. Even if you have taken on work without a contract and it has led to trouble, there are ways to prove the establishment of the contract, so don’t give up and consult with a lawyer.

Introduction to Our Firm’s Measures

Monolith Law Office is a legal office with high expertise in both IT, particularly the Internet, and law. In business transactions, the creation of contracts is essential. Our firm handles the creation and review of contracts for various cases, from companies listed on the Tokyo Stock Exchange Prime Market to venture companies. If you