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A letter of demand is a formal letter which sets out a legal demand. If you are in a dispute with another party, sending a letter of demand may be the best first course of action. This article sets out:

  • what a letter of demand typically includes; and
  • the advantages of sending one prior to commencing any legal proceedings in the court. 

What is a Letter of Demand?

A letter of demand refers to a formal letter which:

  • demands payment of an outstanding debt from a debtor, or compliance with another legal obligation; and
  • notifies the recipient that the sender may sue them if they fail to satisfy the demand. 

Businesses and individuals usually send a letter of demand in the early stages of a legal matter. This occurs prior to the commencement of court proceedings. A letter of demand is not a court document, and there is no prescribed format for sending such a letter. You can send a letter of demand yourself, or get a lawyer to issue one on your behalf. The exact contents of a letter of demand will vary depending on the situation. However, most of them contain similar elements.

What Should a Letter of Demand Contain?

If you need to send a letter of demand, make sure that you include the following elements.

The Correct Address

If you are sending a demand to a company, you should address the letter to someone who is in a decision making position and who will be able to respond appropriately. 

For example, a company director or in-house legal counsel. 

You can often find these contact details online. You can also obtain a company’s registered business address from ASIC’s online register. 

If you have a contact email address, you can send the letter both by:

  • registered post; and
  • email.

This ensures that the letter is brought to the recipient’s attention.

The Demands

The demand should be short and to the point. For example it should outline the:

  • exact sum of money which you claim is due and owing; 
  • actions that you would like the recipient to refrain from doing; or
  • steps that you would like the party to take to meet their contractual obligations.

The Legal Basis for the Demand

A demand might not hold much weight if it isn’t based on a genuine breach of legal obligations. Sometimes, the legal basis for a demand will be simple. 

For example, it could be for unpaid invoices for services which you have provided. It could also be for goods which you have supplied.

If the matter appears clear cut, it may be unnecessary to elaborate on the underlying legal reasons in much detail.

In other circumstances, where the situation is more nuanced, it can be appropriate to include:

  • a summary of the factual background of the matter;
  • the key legal conditions which apply (for example, contractual clauses, common law rights or legislative provisions); and
  • a clear argument which sets out why, on the facts, they are in breach of their legal obligations, and are therefore required to comply with your demand.

Ultimately, the level of detail you need to go into will depend on the specific circumstances of the matter. If your legal position is not clear cut, it is a good idea to go into more detail. If your legal situation is complex, obtain legal advice to help you understand your position and develop a strategy before issuing a demand.

Deadline For Response

It is common practice to provide a timeframe between 5 – 20 business days for the recipient to pay, comply or otherwise respond to the issues raised in your letter. The deadline you set is somewhat arbitrary, because nothing will actually happen after that date unless you take further steps yourself.

The exact deadline you should set will depend on the urgency of the matter. Keep in mind that if you set an unreasonably short deadline and the matter ultimately goes to court, the court may scrutinise the reasonableness of your conduct.

Consequences of Non-Compliance

A letter of demand is usually backed by a notice that you intend to commence legal proceedings, or, in other words, suing the other party if the demand isn’t complied with.

Sometimes, legal matters will have a prescribed dispute resolution process which set out steps that must be taken before you go to court (or instead of court).

For example, commercial contracts often require that parties go to mediation or arbitration prior to court. Some industries and sectors also require, by way of regulation, that parties attend mandatory mediation before suing. You should therefore always check exactly what your next step will be before you prepare a letter of demand.

It is worth noting that if you do not actually intend to follow up with legal proceedings due to the associated costs and risks, you are not bound to do so. However, keep in mind that if you don’t do what you say you are going to do, the other party may take future correspondence from you less seriously.

Do You Have to Send a Letter of Demand Before Suing?

Generally, you do not need to send a letter of demand before taking more advanced legal action. However, it is seen as good practice for a number of reasons.

You May Achieve an Outcome Easily

Sending a letter of demand gives the recipient a final opportunity to address the matter. The threat of being sued may be enough to prompt action. In some cases, the decision makers at the recipients organisation may genuinely not be aware of the issue, and a letter can spur them into action. In others, the recipient may be in financial trouble and only be prioritising the most ‘urgent’ matters, and your demand may encourage them to prioritise you.

Relationship Considerations

While a sternly worded letter of demand can put strain on a business relationship, commencing proceedings without notice is likely to be even more damaging. If you want to preserve your commercial relationship, sending a formal letter can be a more tactful approach.

Lower Costs

Preparing a letter of demand requires less work than preparing court pleadings, and much less work than engaging in contested proceedings. Even if the matter is complex, you do not need to delve into all of the technicalities in your first letter.

In contrast, once proceedings are underway, you need to be very thorough and leave no stone unturned when preparing your arguments and evidence. This takes time and costs can be high.

Strategy and Risk Considerations

Even if you think the matter is clear cut, you can never guarantee that the other side will not dispute your version of events or your interpretation of the relevant law. By sending a letter of demand, you provide an opportunity for the other party to prepare a formal response and raise any disputes.

This means that you will be more informed about whether the other party intends to defend any legal proceedings, and how they may do it. It is riskier commencing legal proceedings without attempting to flush this information out first.

Open the Door for Settlement Negotiations

If the matter is disputed, but both parties do not want to bear the costs of litigation, your letter of demand and the response that it receives may set the scene for negotiations on how to resolve the matter commercially and come to a compromise. 

Cost Considerations

If you issue the letter before commencing proceedings, you will be able to demonstrate to a court that you provided a fair and reasonable opportunity to address the demands, which may impact the court’s decision with regard to legal costs awards.

Key Takeaways

If you are owed money from a client or wish to stop someone from doing something that will breach your contract, you may wish to send a letter of demand. When you wish to do this, you will need to collate all the relevant documentation and take the appropriate steps. If you need assistance in drafting and sending a letter of demand, contact LegalVision’s New Zealand disputes lawyers on 1300 544 755 or fill out the form on the page.

FAQs

What is a letter of demand?

A letter of demand is a formal letter which sets out a legal demand. If you are in a dispute with another party, sending a letter of demand may be the best first course of action.

What should a letter of demand include?

A letter of demand should include the other party’s company address, the demand and its legal basis, a deadline for response and the consequences of non-compliance.

Do you have to send a letter of demand before suing?

Generally, you do not need to send a letter of demand before commencing legal proceedings. However, it is good practice as may assist you in achieving an early outcome and managing the relationship with the other party.

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