"I received a Letter of Demand". Should I reply or just ignore it?"

A company receives a letter from a firm of solicitors demanding RM250,000 within seven days.

The management believes that the amount is incorrect.

Some of the work was delayed. Several invoices were disputed. The company also says it suffered losses because the supplier failed to complete the project on time.

One director suggests replying immediately. Another says:

“It’s only a letter. They haven’t sued us. Just ignore it.”

Ignoring the letter does not make the dispute disappear.

A Letter of Demand is not a court judgment, but it may be the final step before legal proceedings are commenced.

1. First, identify what document you have received

Not every document demanding payment has the same legal effect.

An ordinary Letter of Demand issued by a claimant or solicitor is different from:-

• a writ or originating summons;

• a statutory demand relating to insolvency;

• a notice issued under a contractual termination clause;

• a notice required by legislation;

• an adjudication claim;

• an arbitration notice; or

• an enforcement notice issued by an authority.

The title of the document is not conclusive. Its contents, legal basis and applicable deadline must be examined.

Some notices trigger specific legal consequences if no action is taken within the prescribed period. Treating every document as “just another demand letter” can therefore be dangerous.

2. Does a Letter of Demand prove that the amount is owed?

No.

The letter states the sender’s position. It does not establish that the allegations are true or that the amount claimed is correct.

The recipient may have a complete defence, a partial defence, a right of set-off or a counterclaim.

Common disputes include:-

• goods were not delivered;

• work was defective or incomplete;

• the amount had already been paid;

• the claimant calculated the amount incorrectly;

• the invoice was issued to the wrong entity;

• payment was subject to conditions that were not fulfilled;

• the claimant breached the contract first;

• the claim is out of time; or

• there was no concluded agreement.

However, disagreement alone is not enough.

The recipient should identify the documents and evidence supporting its position.

3. Should every Letter of Demand receive a reply?

There is no single answer for every case.

A reply may be useful to:-

• deny incorrect allegations;

• identify payments or credits omitted from the demand;

• preserve a contractual defence;

• explain that the wrong party has been pursued;

• raise a set-off or counterclaim;

• request documents;

• correct a misleading factual narrative;

• propose a commercial solution; or

• show that the dispute was genuine before proceedings began.

In some situations, a premature or poorly worded reply may create additional problems.

An unguarded response may:-

• admit part of the debt unintentionally;

• contradict earlier correspondence;

• disclose the defence incompletely;

• make allegations that cannot later be proved;

• waive a contractual right; or

• undermine an insurer’s or another party’s position.

The decision should be made after reviewing the claim and the relevant documents - not from a general policy of always replying or never replying.

4. Silence is not automatically an admission

Failure to answer an ordinary Letter of Demand does not automatically mean that the recipient admits the entire claim.

Nevertheless, silence may become part of the factual history.

If a detailed allegation was made and the recipient had a clear contemporaneous answer but raised it only after being sued, the claimant may question why it was not mentioned earlier.

The Court will consider the evidence as a whole. A timely and accurate response may help demonstrate that the dispute existed from the beginning rather than being invented after proceedings commenced.

This does not mean that every sentence in a demand must receive a lengthy rebuttal. The response should be proportionate and strategically consistent with the position that may later be pleaded.

5. Do not reply before checking the records

Before preparing a response, collect:-

• the contract and amendments;

• quotations and purchase orders;

• invoices and statements of account;

• delivery orders;

• payment records;

• certificates or progress reports;

• emails and WhatsApp messages;

• minutes of meetings;

• photographs;

• notices previously issued; and

• records of complaints or rectification work.

The company should also identify who has personal knowledge of the transaction.

A reply drafted only from management’s memory may omit an important payment, document or earlier admission.

If different departments were involved, obtain their records before confirming the company’s position.

6. Check whether the correct legal entity has been named

Businesses operating within a group may use similar trading names.

The demand may have been addressed to a holding company even though the contract was signed by its subsidiary. Alternatively, an individual may have been named when the agreement was made by a company.

Check:-

• the name and registration number in the contract;

• the name on the purchase order;

• the entity receiving the goods or services;

• the account from which earlier payments were made;

• whether a guarantee was provided; and

• whether another party assumed or assigned the obligation.

Do not admit liability merely because the trading name appears familiar.

At the same time, avoid relying on a technical distinction if the documents show that the recipient did assume the relevant obligation.

7. What if part of the amount is genuinely owed?

A recipient does not have to choose between admitting everything and denying everything.

It may distinguish between:-

• the undisputed amount;

• the disputed amount;

• amounts requiring supporting documents;

• credits or set-offs;

• damages claimed against the sender; and

• amounts that have not yet become due.

If the recipient wishes to make payment or propose instalments, the communication should clearly state what the payment represents and whether it is intended to resolve the entire dispute.

Terms such as “without prejudice” should not be inserted mechanically. Their effect depends on the nature and purpose of the communication, particularly whether it forms part of a genuine settlement negotiation.

8. Can parties negotiate after a demand is issued?

Yes.

A Letter of Demand does not prevent the parties from negotiating.

Possible resolutions may include:-

• full payment by an agreed date;

• payment by instalments;

• payment of the undisputed portion;

• rectification or completion of work;

• return of goods;

• a credit note;

• mutual release of claims;

• mediation; or

• a settlement agreement with security.

Any settlement should state clearly:-

• the amount and payment dates;

• whether interest or costs are included;

• what happens upon default;

• whether proceedings will be withheld or withdrawn;

• whether the settlement is confidential;

• whether guarantees or security are required; and

• when the parties are released from further claims.

A vague promise to “settle soon” may only postpone the same dispute.

9. A demand does not ordinarily stop the limitation period

Negotiations and correspondence do not necessarily prevent time from continuing to run.

Under section 6 of the Limitation Act 1953, actions founded on contract or tort in Peninsular Malaysia are generally subject to a six-year limitation period from the date the cause of action accrued, subject to the nature of the claim and applicable exceptions. Different legislation applies in Sabah and Sarawak.

The limitation date is not necessarily calculated from the date of the Letter of Demand.

For example, the cause of action may have accrued when payment first became due or when the breach occurred.

A claimant should not issue repeated demands while assuming that time has restarted. A recipient should also not assume that an old claim is automatically barred without checking the relevant dates, acknowledgements, payments and statutory provisions.

10. What should the recipient do immediately?

Upon receiving a demand:-

1. Record the date and method of receipt.

2. Identify the deadline stated.

3. Confirm whether the document is an ordinary demand or a statutory or contractual notice.

4. Preserve all relevant records.

5. Notify insurers, financiers or other stakeholders if required.

6. Check the identity of the claimant and recipient.

7. Reconcile the amount demanded.

8. Identify available defences, set-offs and counterclaims.

9. Decide whether to reply, negotiate or prepare for proceedings.

10. Avoid destroying, amending or retrospectively creating records.

The company should also appoint one person to coordinate the response. Multiple inconsistent replies from directors, employees and accounts personnel can weaken an otherwise valid position.

11. What if the deadline is only three or seven days?

A short deadline does not automatically prove that proceedings will be filed immediately after it expires.

However, the deadline should not be ignored.

If more time is reasonably required to retrieve documents or obtain instructions, a written extension may be requested. The sender is not necessarily obliged to agree.

The recipient should begin its review immediately rather than waiting until the final day to seek advice.

12. A reply should support the next step

The purpose of a response is not to win an argument by correspondence.

It should place the recipient in the best position to:-

• resolve a genuine debt;

• narrow the disputed issues;

• protect an available defence;

• advance a legitimate counterclaim; or

• prepare for proceedings if settlement is not possible.

A Letter of Demand is often the point at which an informal disagreement becomes a legal dispute.

The appropriate response is therefore neither automatic panic nor automatic silence. It is a measured review of the claim, the evidence and the commercial objective.