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LETTERS OF DEMAND

"Letter of demand" is a general term which describes any letter from one party to another demanding that the second party either take a particular action or not take that action.

In business, the issuing of letters of demand is a regular occurrence. It is the normal preliminary step to commencing court proceedings.

The simplest letter of demand is for payment of money. Demands can also cover any type of contractual breach or other breakdown in a business relationship.

Letters of demand can also be used in non-business disputes, such as between neighbours.

As the name indicates, a letter of demand simply demands what the party issuing it wants and claims to be entitled to. There is no law that specifies what letters of demand generally must say or contain, and in many cases they have no legal status. They can however have a significant impact on the parties' legal rights, and can damage a party's position if incorrectly drafted.

The first step in drafting a letter of demand will be to consider whether there is any formal requirement for its contents. The most important place to look is the contract, if there is one. Many contracts specify what a demand must contain, and other matters such as where it should be sent. If the letter does not comply with the contractual requirements, it will be ineffective. If this happens, the party issuing it may not have the right to commence proceedings.

These general principles should always be followed.

  • Check the contract and follow its requirements to the letter.
  • State specifically the details of the breach and what the recipient is required to do (eg pay money, stop throwing rubbish over your fence, etc).
  • Allow a reasonable time period for the recipient to comply with the demand. What is reasonable will vary widely. In some case as little as a few hours might be appropriate. For payment of money, seven days is generally a minimum.
  • State what will happen if the demand is not complied with.
  • Make sure you can prove that the letter of demand was served on the recipient. Again, check the contract for any requirements in this regard.

There are a number of other principles to be taken into account, and of course you should always give serious consideration to whether to seek legal advice before issuing a demand at all.

GENERAL LEGAL PRINCIPLES

The phrase "letter of demand" is not a legal term, although very commonly used. It describes any letter which is written by one party to another and which contains a demand that the second party take some particular action or refrain from taking some particular action.

There is no law that specifies what letters of demand must say or contain, and they have no particular legal status. They can however dramatically affect parties' rights with respect to each other. They normally are drafted at the outset of a dispute, before any litigation has commenced, and they can and often do impact on the outcome of the litigation if it proceeds.

The time to consider issuing a letter of demand is when you find yourself in a situation of dispute with another party. This could be a party with whom you have a contract, or a non-contractual relationship. It could be someone who has been providing you with goods or services, or to whom you have been providing goods or services. If the dispute involves legal rights and obligations, then you should consider issuing a letter of demand before taking any other action.

A word of warning: as you will see from the next document, which is a checklist of things to take into account when drafting a letter of demand, the issues and importance of a letter of demand can be easily underestimated. If you are in any doubt as to your rights or what you should or should not say in the letter, then you will be best served by obtaining expert assistance from a solicitor.

CHECKLIST FOR DRAFTING LETTER OF DEMAND

When you set about drafting a letter of demand, you should follow these rules every time:

  1. Check the contract (if there is one) between you and the recipient of the demand and, if it provides any requirements for demands, follow them very carefully. This includes the following.
  • The contract may specify conditions that must be satisfied before you can send the demand. For example, the other party may only be in breach of the contract if a certain period of time has expired, or you may be required to send a particular type of notice specifying the breach, or to engage in mediation or other dispute resolution process first.
  • The contract may specify the contents of the letter of demand, or certain information it must contain.
  • The contract may require that you allow the other party a certain amount of time to rectify the breach, on your letter of demand.
  • The contract may specify an address to which notices must be sent, in which case you must send the letter of demand to that address.
  1. State the legal basis for your demand. If it is a contract, refer to it by description and date. If some other basis, provide sufficient details. For example, "I hired you on 3 September to mow my lawn." Or, "You and I have been partners in this business for 17 years."
  2. State specifically the details of the breach and what the recipient is required to do; for example, pay you an amount of money, take a particular action or stop doing something.
  3. Include sufficient details so that the recipient, and any person reading the letter with no prior knowledge of the dispute, can understand what is being alleged and what is required by the letter. For example, if demanding a debt, details such as invoice numbers, dates and description of goods or services should be included.
  4. Allow a reasonable time period for the recipient to comply with the demand. What is reasonable will vary widely, depending on the particular circumstances. If you are demanding payment of money, seven or 14 days is usually reasonable. If it has been outstanding for a long period, a shorter time may be reasonable. If there is urgency involved, for example your neighbour has dug a hole which threatens to undermine your foundations, then a very short time will be reasonable such as a couple of hours. Sometimes, there is literally no time to waste and in those cases you will be best served by not bothering with a demand at all but proceeding immediately to more direct action. It is better to state specific a specific date by which the demand must be complied with, than to say for example "seven days from the date of this letter". The latter option can lead to uncertainty as to when the deadline actually expired. It is often also a good idea to include a time, for example "by 5.00 pm".
  5. State what will happen if the demand is not complied with. For example, that you will take court action. If unsure, or you want to keep your options open, then it is usually sufficient to state words to the effect "We reserve our rights to take further action against you without notice".
  6. Make sure that you can prove that the letter of demand was served on the recipient. Again, check the contract to see if it includes any requirements such as personal service. If sending the letter by post for example, make sure that you or someone in your organisation is in a position where you can later swear that the letter was actually despatched. If by facsimile, keep the transmission slip. And always keep a copy of the signed letter.
  7. Do not head the letter of demand "Without Prejudice". This wording is used only on correspondence which the sender does not want to be used against him in court proceedings, for example a letter making a settlement offer or containing admissions of liability. As a general rule, the sender will always want to be able to use the letter of demand as evidence.
  8. Do not include any statements in the letter of demand which are or could be defamatory, either of the recipient or any other person. A letter of demand does not have any immunity against defamation action. In simple terms, a statement is potentially defamatory if it would tend to cause reasonable people to think less of the person about whom the statement is made.
  9. Avoid emotive or irrelevant words or language. The letter will quite likely end up as evidence in court proceedings, and the use of such language may damage your credibility in the court's eyes. Stick strictly to the point.
  10. Read the letter over before you send it. Better still, get someone else to objectively review it. If they cannot tell from the letter what you are requiring the recipient to do and what the consequences will be if they do not do it, then the letter requires more work. Remember, if in doubt it is better to include more rather than less information.

FURTHER INFORMATION

For more information or formal advice, contact Marks and Sands Lawyers who are experienced in this area of law. They are located at Level 9, 30 The Esplanade Perth WA 6000 or call them on (08) 9488 1300.

Marks & Sands Lawyers is one of the largest independent law firms in Western Australia and has been providing legal services to the community for over 25 years. Our legal services are certified by Standards Australia Quality. We provide a broad range of legal services for government agencies, corporations, small businesses and private individuals. We offer a 24 hour, 7 day service and have branch offices in Wagin and Merredin - our country connections remain strong. Call us to discuss your situation or to arrange an appointment.

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