What is a Letter of Demand?
A Letter of Demand (or an LOD as it is widely known in the legal fraternity) is essentially a letter that is sent to a potential defendant demanding for a certain remedy to be done as per the plaintiff’s request. Depending on the type of the claim, the said remedy can range from payment of a sum of money (for debt related matters) to seeking for an action to be done (i.e. an apology for defamation related matters).
A letter of demand is actually issued to potential defendants prior to the filing of a legal action.
In certain disputes, the issuance of a letter of demand can be a prerequisite before filing a suit in Court. Such requirements would be provided for in the contract or agreement and failure of issuing a letter of demand could invalidate your action in Court.
Purpose ?
The purpose of issuing a letter of demand is to, as much as possible, try and settle the dispute between parties without the need of a lengthy and costly Court battle.
Reasons to issue a letter of demand before filing a claim
- Establishes Your Claim
It is helpful in establishing a creditor’s intent and claim against a debtor. The letter of demand is able to record, in simple language, the following:-
• The relationship between the creditor and debtor;
• How was the relationship built;
• The debtor’s breaches / wrongful acts; and
• The amount owed (including interests / costs where appropriate);
Once this is drafted in a coherent manner, if the debt is not recovered after the issuance of the letter of demand, the letter of demand can be used in Court as contemporaneous evidence of the debt, and that the creditor had exercised reasonable steps to recover the amount owed.
- Gauges the Debtor’s Response
A letter of demand is sometimes issued to gauge how the debtor would respond i.e. if he is disputing the debt, what are his reasons for doing so. This will also give you an idea as to what is the likely defence that will be raised by the debtor in the event of a legal suit, which will allow you to assess your chances of success if a claim is filed. This will allow the creditor to strategically prepare for what to expect next and to structure his case better if the dispute goes to court.
- Saves Costs
The issuance of a letter of demand may be an ideal way for a prospective litigant to save costs, if successful. This is because instead of directly delving into a commercial legal dispute where the fees involved would be higher, the issuance of a letter of demand might convince the debtor to pay the debt owed in order to avoid a legal dispute. The legal fees involved in issuing a letter of demand is significantly cheaper than engaging a lawyer to litigate your matter all the way through trial.
- Corporate Governance
Reference can be made to the term “everything must be in black and white” which means you should always have a record of material events as good corporate governance.
When the letter of demand is issued, it will serve as a record of the ongoing dispute.
For example, by reading the letter of demand, one would be able to quickly ascertain the background facts and the amount outstanding, compared to if one has to sort through invoices and other accounting documents to piece together the story of the debt. This would be especially useful if the key personnel in the company / business has left; keeping proper documentation will make things easier in the long run.
Can I ignore a Letter of Demand?
So, if you have received a Letter of Demand, what can you do? Can you choose to ignore it?
As explained above, a Letter of Demand is technically not an action in Court, which we basically may be able to choose to ignore it. However, it is advised not to do so.
As per the case of Small Medium Enterprise Development Bank Malaysia (formerly known as Bank Perusahaan Kecil dan Sederhana Malaysia Bhd) v. Lim Woon Katt [2016] 9 CLJ 73 (COA), the Court of Appeal held that not responding to a letter of demand will not be taken as an admission, it can be inferred against you depending on the circumstances of the Defence you intend on pleading.
Hence, it is advisable to consult a lawyer once you have received a letter of demand.
Conclusion
It should be noted that a letter of demand does not necessarily have to be issued through a law firm’s letterhead. It is perfectly acceptable to issue a letter of demand on your own company letterhead. Of course, it is advisable to get a professional to vet through your letters before issuing, especially if there is a potential that a matter could be escalated to the Court.
