What Should I Do If I Receive a Letter of Demand?

It can be an unnerving experience to receive a legal letter, particularly if you do not understand its contents. You open an envelope delivered by express post, or click on an email from a law firm. The bold title ‘Letter of Demand’ stares back at you. The words inside are stern, filled with aggressive ultimatums demanding your immediate attention. Often, the letter states that you owe money or have engaged in misconduct or unlawful activity, threatening to commence proceedings.

So, what do you do if you receive one? Comply, ignore or fight?

Choosing to ignore such correspondence may have legal and financial consequences. A modest $3,000 claim can unnecessarily increase into tens of thousands of dollars with the addition of accumulated interest, legal fees, and court expenses if formal proceedings commence.

What is a Letter of Demand?

A Letter of Demand is a formal written request that typically sets out the following:

• What is being claimed (e.g. unpaid invoices, damages, or correction of misconduct).

• The legal or factual basis for the claim, together with details of some of the evidence a party may rely on.

• What the recipient must do (such as pay an amount of money, stop certain conduct, or rectify a breach).

• A deadline for compliance, and a warning that court action may follow if the demand is ignored.

There is no single piece of legislation that governs letters of demand, however, their function is intertwined with nearly all areas of civil law. Letters of demand are often the first step a party will take when enforcing their legal rights, so letters of demand will often include reference to other pieces of legislation, such as the Corporations Act 2001 (Cth), the Australian Consumer Law, the Defamation Act 2005 (NSW), the Fair Work Act 2009 (Cth) or the Copyright Act 1968 (Cth).

Although letters of demand are generally not required by law before commencing civil litigation, they can play a critical role in court proceedings. Issuing a letter of demand can serve as crucial evidence that one or both parties attempted to resolve the dispute before it escalated. This can benefit a party when seeking its legal costs after a successful court application, as the courts are generally more inclined to award costs to parties who can demonstrate consistent, good faith efforts to resolve disputes without court intervention. In addition, letters of demand can be useful evidentiary tools, providing a timeline of the dispute that can be referenced throughout the proceedings.

Letter of Demand vs Cease and Desist Letter

Like letters of demand, cease and desist letters can be used as tools to resolve disputes before they escalate to court. Both types of letters are designed to put the other party on notice and to encourage compliance without immediate litigation.

Cease and desist letters, however, serve a different purpose from letters of demand: they are generally used to stop ongoing harmful conduct, such as trademark infringement, harassment, or defamation, while letters of demand generally seek to enforce an obligation or secure compliance before litigation becomes necessary.

Both types of letters, however, can serve as important evidence of good‑faith dispute resolution and can shape the strategy for any subsequent proceedings.

10 Steps To Take When you Receive a Letter of Demand (And Try Not To Panic!)

1. Go over every detail

Examine the allegations included in the letter. Whether it is an unpaid debt, contract breach, property dispute, defamation claim, intellectual property infringement claim, consumer rights violation, or employment matter, note all deadlines and specific demands contained in the letter. The devil is often in the detail.

2. Check the sender's credentials

Verify the letter is from a legitimate law firm, business, or individual. Watch out for red flags such as poor grammar, suspicious contact details, or unprofessional presentation. Scammers increasingly target vulnerable and unsuspecting members of the public with fake legal threats.

3. Do not rush to respond or make admissions

Resist the urge to immediately admit fault or make payments, regardless of whether you are facing debt or allegations of misconduct. Making hasty admissions upon receiving a letter of demand can severely damage your legal position if proceedings are later commenced.

4. Collect evidence

Start gathering the relevant documentation, such as contracts, invoices, employment records, correspondence, or proof of ownership of an asset. For defamation matters, preserve all publications, messages, images and posts. Thorough documentation of all relevant evidence can assist you with preparing a response, or a defence if legal proceedings are subsequently commenced. Writing a timeline can help you collate the relevant facts and eliminate irrelevant information.

5. Identify the area of law

Try to understand the legal basis for the letter. Is it a consumer or business dispute, an allegation of defamation or an employment matter? Each area of law has distinct requirements and dispute resolution pathways. This is where the next step is important!

6. Get professional legal advice

Consult a lawyer as early as possible to navigate the matter legally, strategically and, sometimes, reputationally.  Consider specialists in the relevant area of law and make enquiries early.

7. Weigh your response options

You might choose to:

• comply with the demand if the claim is valid and you have a limited defence.

• attempt to negotiate a settlement agreement or a payment plan.

• dispute the claim with evidence.

• raise a counterclaim where appropriate.

• propose mediation or other alternative dispute resolution methods.

8. Note deadlines 

Many areas of law impose inflexible timeframes of days or weeks. For example, a 21-day deadline applies to statutory demands, as well as to commencing an application with the Fair Work Commission. If you do not respond to the letter of demand in a timely manner, the matter may escalate before you have the chance to do so.

9. Document everything

After you have received the letter and become aware of the claim, maintain comprehensive records of all correspondence, including taking detailed notes of phone conversations or meetings, and evidence of any payments made. This documentation proves essential for court, tribunal, or alternative dispute resolution proceedings.

10. Prepare for potential escalation

Even with carefully drafted responses, some disputes cannot be resolved by letter alone. In those circumstances, matters can escalate to a tribunal or court where the consequences become more serious, both legally and financially. Engaging a lawyer early on can give you strategic insights into the strength of your position, the possible outcomes, and the procedural steps that lie ahead. This can mitigate the risk of litigation and ensures you are well-prepared should litigation become unavoidable.

Conclusion

Remember, receiving a legal letter can be stressful, however keeping a cool head and taking immediate action can protect your interests leading to a resolution without costly court proceedings.

The content in this Article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive, nor does it constitute legal advice. It should not be relied upon as such. You should seek legal or other professional advice before acting or relying on any of the content.

The solicitors at BlackBay Lawyers can provide specialised and detailed advice for employers and employees. If you require advice, please feel free to contact BlackBay Lawyers on (02) 8005 3077 or via www.blackbaylawyers.com.au  for a confidential discussion with one of our solicitors.

Lawyers or another qualified legal professional.

ABOUT THE AUTHOR

Naomi Shivaraman  has been an award winning journalist and producer for 25 years. She joined BlackBay as the team’s Legal Affairs Strategist, a role created to utilise her combined legal and media strategy skills, helping clients and stakeholders navigate the court of public opinion.

Not only does she assist the team in a paralegal capacity on complex litigation matters, but she also provides reputational, media and communications counsel. For the past few years, Naomi has combined her law studies with a full-time career. Naomi will finish her Bachelor of Laws degree at Macquarie University next year.