If the other party to your contract has breached the contract, you may consider sending a letter of demand. Please note that a letter of demand is very different than a statutory letter of demand, which I will cover in another article.
What is a Letter of Demand?
While a letter of demand can be used to request payment of a debt or other outstanding monies, a letter of demand can also be used to require that a contractual obligation be performed.
Is a Letter of Demand Important?
In the context of planning for litigation, a letter of demand can be quite important, especially when it comes to costs. This was emphasised in Galea v Camilleri [2019] NSWSC 167 where Robb J at [60] found:
“It is a fundamentally important practical aspect of litigation that parties and their lawyers not lose sight of the need to send letters of demand before suit in appropriate cases.”
Further, parties sending letters of demand in relation to matters where the Federal Court has jurisdiction, will most often need to send a letter of demand before before filing a claim. Under the Federal Court Rules, plaintiffs must file a Genuine Steps Statement containing evidence that the plaintiff has taken reasonable steps to resolve the dispute. The letter of demand will form part of the evidence of those geniune steps.
The First Steps – The Letter of Demand
The first thing is to ascertain whether the breach is capable of being rectified. For example, a breach of a warranty or an intermediate term can often be fixed. If the beach of the contract is a material breach or a breach that is incapable of being rectified, for example, if a party refuses to pay (or deliver a deliverable), then it is best to talk to your lawyer as soon as possible. Failure to do anything when the breach arises can, in some circumstances constitute an election. Which can mean that you accept the breach and waive your rights.
What Should I Include In a Letter of Demand?
The letter of demand must set out exactly how the other side breached the contract and what you expect them to do about it and by a specified date. In the letter of demand, you should also advise the other party of what will happen if they don’t rectify the breach – for example, that you intend to commence legal proceedings along with costs orders. It is always advised that you have a lawyer draft this letter, as if there is a requirement to take legal proceedings, then the letter of demand will be used as evidence. The letter can show that you have acted reasonably and provided the other side sufficient notice. Having a lawyer draft your letter of demand may also help you gain costs in action that you commence.
You must also properly identify the other party to the contract in the letter, so you are providing notice to the correct party. This may seem fundamental, however, it is sometimes overlooked or otherwise inaccurately described. I also advise that you send a copy by email to the company’s registered office. You can get the address of the company’s registered office by doing a company search through ASIC connect.
What Happens if the Other Side Doesn’t Respond to My Letter of Demand?
If the other party does not respond, it is a good idea to follow-up with another letter or email, which references your initial letter.
If you receive no response again, or you otherwise receive a response that is not favourable, then you may contact your lawyer to commence legal action through litigation. This action commences by drafting and filing a claim and statement of claim and serving it on the other side.
A letter of demand is an important step most times, as it can establish the other side’s position. It can establish whether a dispute exists as well as the other side’s intentions concerning your demands.
