Letter of demand

A letter of demand is a formal request demanding something from the other party – usually the payment of a debt.

What is this document?

A letter of demand is a formal request demanding something from the other party. Usually the document demands the payment of a debt, but it may also ask a party to refrain from doing something (injunction) or to carry out the obligations of a contract.

A letter of demand warns the receiver party that if the demand is not addressed within the stipulated timeframe, the creditor may commence legal proceedings in court.

What are the options for a response?

There are several defences you can explore when receiving a letter of the demand, but your response will depend on the circumstances: 

  •  If you do not dispute the claim, you can try to negotiate an agreement for payment with the creditor on a “without prejudice” basis. This means that the creditor may not use any statements made during your discussions against you in court proceedings if negotiations fail.
  • If you disagree with the claims made against you, you can respond giving a clear explanation of why you deny the claim and are not liable to comply with the demand. However, if the creditor does not accept your denial, they may commence court proceedings against you.
  • If you are unsure about the matters alleged in the demand, you can write to the creditor a request for clarification and further particulars. 
  • In any case, you can request a mediation session to resolve the dispute but be aware that it doesn’t prevent the creditor from going to court.

What is the legal effect of ignoring it?

If you ignore a letter of demand, the creditor may immediately start a case in court against you, which it is generally a costly and time-consuming process.

What documents and information do you need to give your lawyer?

If you have been served with a letter of demand, you should seek legal advice as soon as possible and provide your lawyer with: 

  • the letter of demand;
  • information regarding the accuracy of the claims made against you;
  • whether you dispute the claim or not;
  • the agreement (if any) between creditor and debtor;
  • any documents relating to the debt;
  • information and receipt of any payments made to the creditor;
  • information regarding whether you have financial capacity to pay the debt – if you owe it; and
  • any other additional documents required by your lawyer.