We have recently seen an increase in the number of instructions to issue and/or to reply to Letters of Demand. This can be partly attributed to the ending of the moratorium placed on parties from enforcing their contractual rights pursuant to the COVID-19 (Amendment) (No.2) Act. With the deadline ending on 31.12.2021, and without any further amendments by Parliament to extend said timeline, parties now wish to enforce debts to recover losses and recuperate cash flow.
WHAT IS A LETTER OF DEMAND?
A letter of demand is usually a letter sent by a law firm or a legal related entity, setting out the nature of a breach and a demand to either make payment or to do or cease to do an action.
Most commonly, it is seen for the failure of parties to make payment for a good or service. For example, if A sells B a microwave but B fails to make payment, the first step in the legal process is for A to send B a letter of demand.
While it is not a necessity to send a letter of demand prior to beginning a legal case, it does provide the defaulter with an opportunity to correct the default.
SO WHAT TO DO WHEN YOU RECEIVE ONE?
1.Check the details
Always, always check to make sure the letter of demand is addressed correctly to your name and or IC. There have been instances where the claim was wrongly addressed resulting in the wrong person being asked to pay.
An example we have seen was when one of our clients, Mr. Tian (not his real name) was sent a letter of demand from his supplier. Confused he asked his office to clarify and or make payments if necessary. It later turned out that the Letter of Demand was supposed to be addressed to a Mr. Tiang (with a G). Thankfully Mr. Tian didn’t have to make any payments and/or face a legal suit
2. Check the default
Once you have received the letter you should always check the alleged default. Check to see if the details of the default are accurate. For example, in a case of good sold and delivered there may be an instance of a claim for an invoice already paid or for a portion of goods which was not received.
This is important so that you have a clear picture of what is actually owed. We have had a client who was given a letter of demand by a utility provider for the sum of RM 100,000.00. He was shocked seeing as the property was unoccupied. The utility claimed for the period of 12 years. However, he had made all payments for the last 10 years. When we wrote to the said utility provider, the sum was re-evaluated and reduced to RM 1,300.
Therefore, always check the alleged default as there may be mistakes or double calculations
Once you have evaluated the Letter of Demand, you have the option of doing one of the following:
a. Write back to the lawyers to say you will need time
All Letters of Demand usually have a time limit for a response. The usual time limits are 7 days or 14 days after which the creditor party may institute a suit against you. Sometimes, the contents of a Letter of Demand may just be too much to address. As such, to avoid a suit being filed, it is proper to write back to the demanding party to state that you are in receipt of the letter and that you will need some time to get advice and/or time to respond.
It is advisable that you include an expected time for your response when asking for an extension of time to reply.
b. Write back to the lawyers to say that you will be challenging the contents of the claim
Alternatively, if you believe the claim is wrongful, inaccurate or malicious, you should write back to the creditor saying so. Please note you cannot send a bare denial. For example you cannot simply send a letter in reply saying “No I’m not paying. Your claim is wrong”.
You will need to outline why you believe their claim is wrong. For example, if the claim is for RM 500.00, but you had already made payment for the said RM 500.00. It would be advisable writing to them and stating that the claim is no longer valid as the said sum was transferred on such and such date and provide the creditor with the proof of payment.
If you have called and explained the situation to the creditor, do not leave it as is. Always confirm the same by way of letter so that all information is in black and white. This is because of the creditor later takes a case against you, you can show the court that you had explained and yet the creditor still took the case against you.
c. Write to the lawyers to come to a scheme of arrangement
On reviewing the Letter of Demand, and you accept that there is a valid claim, then it is advisable to come to a scheme of arrangement with the creditor. The scheme of arrangement could be for the full payment right away, partial payment or instalment payment. This will of course be subject to whether the creditor is willing to accept said payment scheme.
If you do come to an agreement on the payment scheme, MAKE SURE IT IS CONFIRMED IN WRITING.
An example is when a distributing company owed the manufacturers money for the goods they had purchased. The directors of each company came to an understanding that the distributor would pay the debt in instalments over a 10 month period. However on month 4, the distributor was sued. Seeing as they had been making payments and had agreed to the liability, they were found liable and asked to pay the full amount immediately by court. When the distributor raised that they had an agreement, the court asked for proof. However, with only a verbal agreement, there was no written proof.
So please make sure that whatever arrangement is confirmed in writing.
3. If you are unsure, consult a lawyer to assess the liability
Of course if you truly want to know what is being claimed and what your options are, consult a lawyer. They may be able to tailor their advice to your specific situation and ensure your rights are protected.
If you have questions or would like to know more, contact us at asa@adhaselvi.com.my