• Letters of demand are formal requests to complete or a cease an action by a given date.
  • They often relate to payments of outstanding debts, including for goods or services supplied, outstanding rent, and loans that have not been repaid.
  • A letter of demand:
    • gives debtors an opportunity to pay the client before instituting expensive proceedings,
    • gives debtors clear notice of intention to pursue proceedings,
    • can be a prerequisite for instituting certain proceedings (eg, under Civil Dispute Resolution Act 2011 (Cth) ss 3–4),
    • can be used as evidence to demonstrate that the client has given sufficient opportunity for compliance and behaved reasonably, and
    • may help to preserve any goodwill between the parties.
  • Letters of demand should not be used to recover loss or damage (eg, for vehicle damage).
  • In some states there is a six year time limit from the date that the debt became due.
  • There may be restrictions on the amount that can be recovered using a letter of demand (check relevant rules).

What should be included included in a letter of demand

  • A date, so that any time-frames referred to in the letter are clear.
  • A heading setting out the purpose of the letter and identifying the creditor.
  • The amount of the outstanding debt, including a breakdown if possible, or a schedule containing multiple invoices.
  • The date on which the debt became due and payable.
  • An adequate description of the debt:
    • the goods or services to which it relates, or
    • the particular agreement to which it relates.
  • A statement that the debt has not been paid, and that reminders have been issued.
  • Details of previous letters of demand which have been sent.
  • The deadline for payment.
  • Details of how the payment should be made.
  • The consequences if the debtor does not pay, such as whether formal proceedings are intended to be pursued.
  • Any proof of the debt that is not too voluminous should be attached (eg, invoices, emails, letters, written agreements).

Key issues to consider

  • Take proper instructions.
    • Ensure the client has given all the relevant information needed to advise and draft the letter of demand.
    • Get clear information as to:
      • how much the client is owed,
      • what the debt relates to,
      • when the debt arose,
      • whether the debtor has made any repayments (and if so how much),
      • whether interest or legal costs are to be recovered (and if there is an entitlement to do so),
      • whether any previous letters have been sent and if so any response received, and
      • the client’s expectations in terms of timing and future steps:
        • Are they willing to agree to a payment plan?
        • Would they accept a lesser sum if paid within a certain time?
        • How long should the debtor have to make payments?
  • Ensure the debt is actually outstanding and determine when it became due and payable.
    • Do not rely on your client’s instructions that the debt is outstanding.
  • Check for and comply with any notice provisions if issuing the letter pursuant to the terms of an agreement.
  • Do an ASIC search if the debtor is a company to ensure the name is correct.
  • Check applicable rules and legislation of the jurisdiction (eg, applicable limitation periods may have expired).

Other drafting issues and considerations

  • Including ‘without prejudice’ may be useful for ensuring that the client’s existing rights and claims are not adversely affected.
  • Clearly state who you represent.
  • Include clear steps, reasonable timeframes and consequences; be clear as to what the debtor needs to do and by when.
    • Give the debtor a reasonable time to pay; if it is the only letter of demand, a longer time might be a good idea before commencing proceedings.
  • Check for accuracy:
    • Check recipient’s details and make sure the letter has been addressed to the relevant entity or person, and that the correct address has been used.
    • Confirm that the ABN/ACN, company name and registered address are correct.
    • Ensure that the right amount is being claimed:
      • Make sure interest and legal costs are included if appropriate.
      • Make sure interest is calculated correctly.
  • Use clear, concise and professional language and tone.
  • Do not make allegations or include arguments.
  • Do not include misleading or intimidating statements.

Ethical issues

  • Australian Solicitors’ Conduct Rules r 34 prohibits solicitors from stating in communications on behalf of their client:
    • anything that grossly exceeds the legitimate assertion of their clients’ rights or entitlements,
    • anything misleading or intimidating the recipient, or
    • threats of criminal or disciplinary proceedings in default of satisfying a civil liability.
  • Evaluate the use of words such as ‘must’ or ‘will’; ‘may’ or ‘potentially’ maybe be more appropriate.
  • Be careful when referring to the commencement of legal proceedings.
  • It may be misleading for a solicitor to demand repayment of legal costs where the client is not entitled to legal costs: see, eg, Legal Services Commissioner v Sampson [2013] VCAT 1177.

Sending the letter of demand

  • Subject to applicable notice requirements, send the letter by registered post or fax to confirm receipt.
  • Keep a copy of the letter of demand (including any receipts).
  • If the debtor does not respond, consider whether further letters of demand should be sent (but do not bombard the debtor).

Checklist

  1. Full instructions have been obtained and it is confirmed that a debt is owed which is due and payable.
  2. The letter is addressed to the relevant entity or person.
    • The full name of the company (if applicable) is included.
    • The address is correct.
  3. The letter complies with any notice requirements in any relevant written agreement.
  4. The letter is dated.
  5. There is a concise and clear heading indicating it is a letter of demand and from whom.
  6. The letter makes it clear who the client is.
  7. ‘Without prejudice’ is used if necessary.
  8. The letter states that the debt exists and describes it.
  9. The amount being claimed is accurate.
  10. The letter clearly states what is expected of the recipient and provides reasonable deadlines.
  11. The consequences of failing to comply are stated.
  12. The language is clear and concise, and the tone is professional.
  13. Proof of the debt is attached.