Many at some point in their life would have received or seen a letter of demand.

It could be for having defaulted in paying a housing loan instalment; it could be for having defaulted on a hire purchase instalment; or it could be for having defaulted on an insurance instalment - the list goes on and on.

What’s in a Letter of Demand

A letter of demand would essentially state the following:

• the nature of the loan in question, and the amount that is due and owing;

• the number of months for which the amount has been due and owing; and

• the number of days available/left to make payment.

There will also sometimes be a notice stating that court action will be taken if payment is still not made by the last date.

Now, many choose to ignore such a letter and hope for the whole thing to magically go away. Alternatively, some choose to deal with the demand only once the claim actually proceeds to court – which is a bit too late, as by then lawyers would already have entered the scene.

On the Weight of a Letter of Demand

The Malaysian Court of Appeal has recently asserted the importance of a letter of demand and why people must take such letters seriously, especially when they have a proper defence to the demand made against them.

The case of Small Medium Enterprise Development Bank Malaysia v Lim Woon Katt [2016] 9 CLJ 73 concerned a guarantor:

• He, the guarantor, together with several other guarantors of the principal debtor (a company), had been sued for the debt the company owed under a facility agreement.

• He claimed that he was not liable for the borrower’s debt. His main defence was that he had never been a director of the debtor; consequently, he claimed that all documents relating to his directorship were forged and that he had not signed the guarantee papers.

• The High Court judge dismissed the bank’s claim. The bank then appealed.

• On appeal, the Court of Appeal noted that the guarantor had failed to respond to the letter of demand sent to him. Further, he chose to dispute this issue only in his Statement of Defence.

• The Court of Appeal also noted that the trial judge had failed to appreciate the Respondent’s conduct and his failure to respond.

In delivering its decision, the Court of Appeal stressed that:

1. While one’s failure to reply to a letter of demand cannot be taken as an admission under Section 17 of the Evidence Act 1950, failure to respond relates to conduct under Section 8 of the Evidence Act 1950.

2. Conduct is a relevant fact. And the court ought to have taken account of the guarantor’s conduct in weighing the relevant probative force of the plaintiffs’ and/or defendants’ version of the case.

3. The trial judge had compromised the decision-making process, by not properly considering the guarantor’s failure to respond, which ought to weaken the probative force of his defence.

That being said, this is not the first time that the Court of Appeal has taken a stand on letters of demand. In 1995, some two decades ago, the Court of Appeal had gone on further to state that one’s failure to respond on the facts should lead to entry of judgment: see David Wong Hon Leong v Noorazman Adnan [1995] 4 CLJ 155. It is my personal view that this is a rather extreme interpretation, but I can only state the law as it stands.

In conclusion, the next time a letter of demand makes its way to your postbox, don’t catalogue it with your shopping magazines or novels. Attend to it immediately. Better still, get in touch with a lawyer ASAP!