LETTER OF DEMAND – AS SCARY AS IT SOUNDS, DO NOT IGNORE IT.
At the time of writing, the world is going through a pandemic, all eyes are on the contagious Covid-19 virus yet legal rights and liabilities that might come under a Letter of Demand could be left out of sight. However, if you ever receive a Letter of Demand, seek legal assistance immediately. Do anything you can to mitigate your liabilities and minimise your losses, but never ignore it. This article will tell you why.
What is Letter of Demand?
Letter of Demand is a letter to request for some demands, more commonly to demand for payment of money. It is a document that carries legal consequences should the recipient fail to comply with the demand(s) stated in the letter.
A Letter of Demand should not be confused with a Statutory Notice of Demand issued under Section 466 of the Companies Act 2016. A Statutory Notice of Demand is essentially a notice sent by a creditor to the debtor company informing the latter that winding-up proceedings will be initiated against the company if the sums stated in the Statutory Notice of Demand is not paid within the time stipulated. A Statutory Notice of Demand is a precursor to the commencement of winding-up proceedings; whilst a Letter of Demand is not a prerequisite for the initiation of a civil action.
Anyone can issue a Letter of Demand, but most of the time individuals or companies engage lawyers to do so on their behalf.
Why You Shouldn’t Ignore a Letter of Demand?
Some people may see a Letter of Demand as a toothless tiger because it is not a precursor to a civil action. As a result of this perception, Letters of Demand end up in the miscellaneous pile “to be dealt with later”, and the deadline to pay lapses unintentionally.
Here are some reasons why you should take Letter of Demand seriously and never ignore it.
(i) Possibility of Out-of-Court Settlement
There are instances where the amount stated in the Letter of Demand is undisputed, but due to cash flow problem, you could not pay the amount demanded. In such instance, it is prudent to respond to the Letter of Demand and try to negotiate a reduced sum to be paid or to propose for payment in kind.
By doing so, the creditor gets what is rightfully due to him whilst good business relationships can still be maintained. Should the negotiation become unfruitful and the dispute eventually goes to Court, the attempt to settle out-of-court could also be seen as a genuine move to try to settle the matter amicably and not merely just escaping from liabilities.
In any event, remember to negotiate your case on a “without prejudice” basis so that any statement made during the course of the negotiation cannot be deemed as admission and held against you should the dispute subsequently end up in court.
(ii) Possibility of Negating Any Frivolous Claims
Sometimes, a Letter of Demand may also disclose a weak claim or a claim that is totally unmeritorious. To tackle such claim, it is important that the recipient lay out his case by responding to the Letter of Demand.
In the case of Small Medium Enterprise Development Bank Malaysia (formerly known as Bank Perusahaan Kecil dan Sederhana Malaysia Bhd) v Lim Woon Katt [2016] 5 MLJ 220, in defending against the appellant’s case, the respondent who chose not to respond to the appellant’s letter of demand alleged that he did not sign the guarantee and indemnity agreement and that his signature was forged.
The Court of Appeal in allowing the appeal held, amongst others, that the respondent’s failure to respond to the appellant’s letter of demand when the respondent’s case was related to forgery, weakened the probative force of the respondent’s case.
The Court of Appeal, whilst acknowledging that it is settled that not all demand notices must be responded to, went on further to decide that failure to respond will relate to conduct which is a relevant fact for the court to take into account to give the relevant probative force to the version of the respondent’s case. It should be noted, however, the Court of Appeal said that failure to respond must not equate to an admission.
Therefore, when a wrong allegation is made against you, and you think that you have a plausible defence against it, it is only wise to send a prompt denial to the sender. In this regard, the Court of Appeal made the following observations: “in the ordinary course of business, if one man of business states in a letter to another that he has agreed to do certain things, the person who receives that letter must answer it if he means to dispute the fact that he did so agree.”
Consequences of Ignoring a Letter of Demand
It is easy to put aside a Letter of Demand you received and pretend it never existed. However, “running away from any problem only increases the distance from the solution. The easiest way to escape from the problem is to solve it.”
Ignoring a Letter of Demand can result in a chain of serious but avoidable consequence. A creditor who does not get back what he rightfully deserves will most likely commence a civil action in Court to claim for the same.
Taking part in a litigation is not only costly but also extremely stressful which causes mental anguish. A lawsuit often last for months, if not years. During this period of time, a litigant is faced with fear and stress of having his case tried before a judge. It is only at this point when a litigant might suddenly come to his senses and try to settle the dispute. Most of the time, a creditor will not entertain such attempt at this stage, as ample of opportunity was accorded to the debtor before the creditor has to take the last resort of commencing an action in court.
Consequently, if the debtor is found liable in an action which could have been amicably settled out-of-court if not because of the recipient’s ignorance, he might end up paying more than what he needed to, including interest on the principal sum and excessive damages which may be awarded by the court at its discretion.
The Court of Appeal in the case of David Wong Hon Leong v Noorazman bin Adnan [1995] 4 CLJ had gone further to suggest that the failure to respond to a letter could result in a judgment being entered by the Court, as per Gopal Sri Ram JCA (as His Lordship then was):-
“During argument, we registered our surprise at the learned Judge’s reluctance to enter judgment for this sum of RM100,000. After all, the appellant had failed to respond to the letter of 17 December. If there had never been an agreement as alleged, it is reasonable to expect a prompt and vigorous denial. But, as we have pointed out, there was no response whatsoever from the appellant.”
Needless to say, litigation can also burn bridges and relationships can be severed, making future business opportunity impossible.
Conclusion
Receiving a Letter of Demand can be daunting, and it would be even more intimidating if the Letter of Demand comes from a lawyer’s office. But ignoring it can bring greater harm.
So, if you ever receive a Letter of Demand, do not sit on it – seek help from your lawyer immediately and act upon it wisely and prudently.
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By Chloe Tan Ern-Yi (view profile)
Associate , Azman Davidson & Co (Construction Law, General Litigation, Arbitration, Adjudication)
+603 2164 0200 (ext no. 191)
chloe.tanern-yi@azmandavidson.com.my
