Most people think a letter of demand is simply a final warning before legal proceedings commence.
Sometimes it is. More often, however, the real value of a letter of demand has very little to do with the demand itself. Rather, its value lies in what it reveals.
A well-drafted letter of demand can clarify the issues in dispute, create a clear record of escalation and, in some cases, avoid litigation altogether. Even where proceedings ultimately become necessary, it often places both parties in a better position because everyone understands exactly what is being alleged and why.
Why send a letter of demand?
To create a clear record
Disputes rarely appear out of nowhere.
If a matter ultimately proceeds to court, it is often helpful to be able to demonstrate that you identified the issue, communicated your position and provided the other party with an opportunity to respond before commencing proceedings.
A letter of demand creates that chronology.
In many cases, it demonstrates that litigation was not your first option. It was simply the next step after earlier attempts to resolve the matter were unsuccessful.
Litigation is expensive!
Not every dispute requires a court to decide it. This may sound obvious, but litigation is expensive.
A letter of demand provides an opportunity to resolve a dispute before substantial legal costs are incurred. Sometimes that opportunity is taken; sometimes it is not.
Even where proceedings ultimately become necessary, that process can assist in narrowing the issues and reducing unnecessary costs for everyone involved.
Courts generally expect parties to take reasonable steps to resolve disputes before commencing proceedings. A party who has made genuine efforts to resolve a dispute may be viewed more favourably than a party who rushes directly to court.
Likewise, a party who ignores a reasonable demand may find themselves in a more difficult position if proceedings ultimately become necessary.
Understanding the dispute
One of the most overlooked benefits of a letter of demand is that it gives the recipient an opportunity to explain their position before legal proceedings are commenced.
If there is a genuine dispute, a response may identify factual disagreements, relevant documents, misunderstandings between the parties or legal issues that had not previously been considered. In some cases, that information may prove invaluable.
Before spending your hard-earned dollars on litigation, it is generally sensible to understand precisely what is disputed and why. After all, it is difficult to resolve a dispute if the parties do not agree on what the dispute actually is.
Sometimes a response confirms the strength of your position. In other cases, it reveals issues that are best addressed before proceedings are commenced. Either way, it assists both parties to make better-informed decisions.
Download our Free Letter of Demand Template
If you are dealing with a straightforward dispute, you may wish to start with a basic letter of demand before seeking legal advice.
We have prepared a free Letter of Demand Template that you can download HERE and adapt to your circumstances.
Please keep in mind that every dispute is different. A template may be sufficient for simple matters, but it does not constitute legal advice and may not be suitable where liability is disputed, multiple parties are involved, significant sums are at stake or court proceedings are a realistic possibility.
Common mistakes
Some of the most common mistakes we see include:
- making allegations without evidence;
- demanding payment without clearly explaining why it is owed;
- setting unrealistic deadlines;
- using emotional or inflammatory language;
- claiming amounts that cannot be substantiated; and
- threatening proceedings before properly understanding the other party’s position.
A letter of demand should be measured, persuasive and focused on achieving a practical outcome.
When should you speak to a lawyer?
A basic letter of demand may be sufficient for straightforward matters. However, legal advice is often worthwhile where substantial sums are involved, liability is disputed, multiple parties are involved or litigation is a realistic possibility.
A well-articulated letter of demand does more than request payment. It helps identify the real issues, creates a useful record of escalation and allows both parties to better understand their respective positions before substantial costs are incurred.
Sometimes that process resolves the dispute. Where it does not, it often means that any subsequent litigation is more focused, more efficient and better informed.
Need assistance?
If you are considering legal action, the team at Modus Law can assist with preparing an effective letter of demand, assessing the strength of your claim and advising on the most commercially sensible path forward.
The best litigation strategy starts long before proceedings are commenced.
Written By:
Richard Shen
Associate