Unsure of what to do upon receiving a Letter of Demand (LOD), or need to draft one but don’t know where to begin? This concise guide is here to assist you.
What is a Letter of Demand (LOD)?
A letter of demand (LOD) is a formal letter demanding the sender’s compliance on certain matters by the receiver. Therefore, the need to haul the receiver to contest the matter in court can be avoided.
A letter of demand can be issued for a couple of instances, for example:
- Payment of a debt that is due to the sender;
- Claiming for compensation for damaged property or personal injury; or
- Cease and desist from continuing an act. Such as defaming the sender.
If the receiver complies with the demands within the LOD, the matter is usually put to rest. However, there are instances where the sender has no other option but to pursue the matter in court. This is due to the fact that the receiver is unresponsive or in contesting the demands and claims in the LOD.
Today, we will not be diving into the nitty-gritty of pursuing a matter in court. Instead, we will be looking at why sometimes it is better to settle a matter by way of a LOD and how to potentially draft one.
Why a Letter of Demand?
A letter of demand acts as a prologue to a claim in court. While we are not discouraging or dissuading you from pursuing your claim in court, it is always prudent to first consider sending out a LOD for the reasons below:
1. A quick solution to a (perhaps menial) problem
It is always better to settle it out of court if you have sufficient evidence to back up your claim of a person owing you money. At the end of the day, you just want your problem to be rectified. Escalating the problem will do no one any good, especially if it is a problem that can be solved by merely sending a letter and notifying the receiver of your problem against them.
2. Cost
The cost of sending out a LOD, assuming if the receiver complies and does not contest it in court, is definitely way cheaper compared to if you were to hire a solicitor to initiate litigation in court. If you are confident in your letter drafting skills and know what you are doing when preparing the LOD, you might not even need to consult a solicitor nor ask them to prepare one for you, both of which will still cost you, albeit not as expensive as contesting the matter on your behalf in court.
Also, while we are not in any way saying that the cost of consulting or employing a solicitor is expensive, there are some instances where your claim for compensation or money that is due to you is small. In these instances, it would be pointless for you to recover your debts or receive compensation through a court process only for you to later put it into the solicitor’s pocket.
You might end up recovering less than what you could have achieved by sending a LOD and solving the matter amicably.
3. Time
Due to the nature of litigation proceedings, your claim could potentially take months before the court arrives at a verdict as to whether you are entitled to your claim. By sending out a LOD, you could potentially prevent a long drawn out battle, especially if you just want your monies or compensation or you just simply want the receiver of LOD to cease from doing a specific act, such as defaming you in public.
Who should issue a letter of demand?
While a letter of demand is not exclusively the domain of lawyers, it can be initiated by anyone seeking to assert their rights in the context of debt recovery. Individuals and businesses alike can draft and issue a letter of demand independently. However, it is prudent to consider involving a legal professional in the process. Having a lawyer review or even draft the letter before issuance can provide valuable insights, ensure legal accuracy, and enhance the overall effectiveness of the communication. This extra layer of legal scrutiny can be particularly beneficial in complex situations, helping to strengthen the position and credibility of the party seeking recovery
How to draft a LOD
- Precision in Addressing:
Ensure accurate delivery by sending the LOD to the correct address. For individuals, leverage a lawyer to obtain the last known address through the National Registration Department (Jabatan Pendaftaran Negara (JPN). Companies’ registered addresses can be pinpointed through a company search on the Companies Commission of Malaysia’s portal.
- Thorough Description of Facts:
Provide a comprehensive and chronological summary of the events leading to the demand. Supporting documents should be attached to strengthen the credibility of your claim.
- Detailed Identification of Breach:
Clearly outline the recipient’s misconduct, specifying whether it involves non-payment, non-performance, or a breach of contract. Clarity is key to conveying your position effectively.
- Explicit Statement of Demand:
Clearly state the demand amount and the reason behind it. For instance:
“TAKE NOTICE that we demand the immediate payment of the outstanding amount of RM5,900 within FOURTEEN (14) days from the date of this letter.”
- Articulation of Impact Due to Breach:
Humanize the LOD by illustrating how the breach has adversely affected the claimant. This not only strengthens the LOD’s probative value but also lays the groundwork for potential compensation awards in legal proceedings.
- Forewarning of Consequences:
Clearly articulate the potential consequences if the demand is not met within the stipulated time frame. This typically involves the intention to pursue legal action without further notice.
- Designation of Preferred Settlement Mode:
Depending on the debt amount, present multiple resolution methods such as a lump sum payment or an installment plan, offering flexibility to the recipient. You can also include in your LOD that you are open to any negotiations between the parties.
- Setting a Deadline for Compliance:
Establish a reasonable timeframe (usually between SEVEN (7) to TWENTY-ONE (21) days) for the recipient to fulfill the demand. This demonstrates the claimant’s commitment to resolving disputes amicably before resorting to legal action.
By incorporating these detailed elements into a LOD, you not only articulate the demand clearly but also provide a comprehensive overview of the situation, enhancing the document’s effectiveness in fostering resolution and potentially preventing the need for legal proceedings.
Why do we need a lawyer to issue a letter of demand then?
Engaging a lawyer in the process of issuing a letter of demand serves multiple crucial purposes. Firstly, it ensures that the terms and intentions behind the demand are meticulously and accurately articulated. The careful crafting of the letter by a legal professional helps to eliminate ambiguity and potential misinterpretations, safeguarding the clarity and effectiveness of the communication. Lawyers possess the expertise to navigate the nuances of legal language, ensuring that the letter is not only persuasive but also legally sound.
Secondly, a letter of demand represents a final attempt for compliance before resorting to legal action. In some instances, a legal demand issued personally may not carry the same weight and impact as one issued by a reputable law firm. This discrepancy is particularly evident in corporate scenarios, where legal actions in court mandate representation by a lawyer. The letter of demand, when backed by the credibility of a law firm, assumes a more authoritative stance. It serves as a strategic and compelling final warning, signaling the gravity of the situation and affording an opportunity for resolution before escalating the matter to formal legal proceedings.
Moreover, the involvement of a lawyer adds a layer of professionalism and credibility to the entire debt recovery process. The recipient is more likely to take the demand seriously when it comes from a legal professional, increasing the chances of a favorable response. Additionally, a well-drafted letter of demand by a lawyer demonstrates a commitment to pursuing legal avenues if necessary, underscoring the seriousness of the situation and potentially prompting the recipient to address the matter promptly and responsibly.
Explaining the Difference: Demand Letter vs. Statutory Notice for Debts
It is essential to discern the disparity between a regular Letter of Demand (LOD) and a Statutory Notice, as while they may share a semblance in appearance, their underlying purposes are fundamentally divergent. The Statutory Letter of Demand, mandated by Section 466 of the Companies Act 2016, holds a statutory requirement, serving as the catalyst for commencing a winding-up process against a debtor. In contrast, the conventional Letter of Demand functions as a preliminary step in the resolution of disputes, laying the groundwork for potential negotiations and resolutions.
Consider the regular Letter of Demand as a preliminary measure, a means to address and resolve disputes before escalating the matter further. Its purpose is to communicate grievances, demand payment, and initiate discussions for an amicable settlement. On the other hand, the Statutory Letter of Demand, backed by legal mandate, carries significant weight as it sets in motion the formal process that could lead to the dissolution of a company if not appropriately addressed within the stipulated time frame.
In essence, while both may share a common format, it is imperative to recognize their distinctive roles – the conventional Letter of Demand as a tool for dispute resolution, and the Statutory Notice as a legal instrument with potential far-reaching consequences, particularly in the context of initiating winding-up proceedings against a debtor company.
What steps should I take upon receiving a Letter of Demand?
When faced with a Letter of Demand, it is paramount to respond promptly and strategically, even if the contents appear vexatious or frivolous. Silence in response may be misconstrued as acceptance, potentially compromising your legal position.
In crafting your response, provide a clear and comprehensive statement of your position, addressing each point raised in the Letter of Demand. This proactive approach not only reinforces your stance but also establishes a foundation for potential negotiations or legal proceedings.
Should you opt for negotiation or wish to contest the demand with substantiated reasons, seeking legal advice is highly recommended. Consultation with a lawyer is particularly crucial when preparing a ‘without prejudice‘ letter, a privileged document containing proposals for settlement. While the general principle is that such a letter is inadmissible in court, exceptions exist. Hence, it is imperative to obtain professional legal advice before issuing a ‘without prejudice’ letter.
Engaging a lawyer ensures that your response is not only well-articulated but also legally sound and strategically aligned with your objectives. This proactive and informed approach significantly contributes to resolving the matter, whether through negotiation or, if necessary, within the confines of legal proceedings. By leveraging legal expertise, you enhance the effectiveness of your response, navigating the complexities of the situation while safeguarding your interests comprehensively.
Not Responding to a Letter of Demand (LOD)
Failing to respond to a Letter of Demand (LOD) can have serious consequences. Upon receiving an LOD, it is imperative to seek immediate legal advice. Consulting a solicitor is crucial in navigating the complexities that may arise.
Solicitors, in turn, play a vital role in the process. They should proactively issue a ‘holding letter,’ indicating that a comprehensive response will be provided pending the receipt of instructions from the client. This strategic approach not only acknowledges the LOD but also demonstrates a commitment to engaging in the matter responsibly. It is also common for Solicitors to use these LODs as proof in litigation matters in Court to prove that they have attempted to recover their respective demands where the demands were not fulfilled.
The importance of responding to a LOD cannot be overstated. It not only sets the stage for a well-informed and strategic reply but also showcases a willingness to address the issue professionally. This proactive stance can significantly impact the direction of subsequent interactions and potential legal proceedings, emphasizing the importance of taking swift and informed action in such situations.
Conclusion
In summary, it is imperative for individuals or entities who receive letters, particularly Letters of Demand (LOD), to respond promptly. Seeking legal advice should be prioritized, and careful attention should be given to any specified timelines within the LOD.
The analogy of burying one’s head in the sand, much like the proverbial ostrich, is not a prudent approach when facing legal matters before a judge. Ignoring the situation can lead to detrimental consequences. Instead, taking proactive steps, seeking timely legal counsel, and thoroughly understanding the implications outlined in the LOD contribute to a more informed and strategic response in the context of legal proceedings.
Need to learn more about the letter of demand?
1. https://asklegal.my/p/send-letter-of-demand-malaysia-lawyer
2. [2016] 9 CLJ 73
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