Letters of demand are often seen as the bread and butter of litigation lawyers. These letters can be issued quickly as they are usually brief and follow a standard structure. An unintended side effect of this mass production is that some parties have taken the view that letters of demand have no real legal consequence, since they are not a required precursor to a legal suit and amount to nothing more than a strongly worded request. Many demand letters therefore go unanswered in attempt to call the other party’s bluff: are you going to sue or not?
The recent Court of Appeal decision in Small Medium Enterprise Development Bank Malaysia v Lim Woon Katt on 11 August 2016 sets the record straight – ignoring a demand letter is at your own peril.
In this case, the Plaintiff alleged that the Defendant was liable under a Guarantee and Indemnity Agreement signed by the Defendant. The Defendant chose not to respond to the Plaintiff’s letter of demand, and a civil suit was filed. In the civil suit, the Defendant’s defence was that he did not sign the Guarantee and that he believed his signature was forged.
The Court of Appeal found that a failure to respond to a demand notice will weaken the probative force of any defence subsequently raised in a civil suit. While failure to respond cannot be equated to an admission, it relates to conduct which is a relevant fact for the court to take into account in order to determine which version of events is more credible.
When wrong allegations are made, it would be reasonable to expect a prompt and vigorous denial. The Court went on to say that this is especially so in commercial cases:
“In the ordinary course of business, if one man of business states in a letter to another that he has agreed to do certain things, the person who receives that letter must answer it if he means to dispute the fact that he did so agree.”
While there is no legal requirement to respond to a demand notice, the failure to respond without a good reason may just be the one thing that destroys a defence.
ABOUT THE AUTHOR. This article was written by Donovan Cheah. Donovan Cheah is a partner at Donovan & Ho. He is an advocate and solicitor of the High Court of Malaya, and his writings have been featured in publications like The Edge, The Star, the American Chamber of Commerce updates, and Asialaw.
Have a question? Contact us.