Receiving formal correspondence from a lawyer can feel like the opening move in a Court case. In most instances, it is closer to the opposite.
For many people, receiving a solicitor's letter immediately raises concerns about litigation, lengthy legal disputes and significant legal costs. However, a letter of demand or pre-action letter is often the first step in resolving a dispute before Court proceedings become necessary.
Understanding why the letter has been sent and responding appropriately from the beginning can often shape the course of what is to come.
What the letter is actually doing
A letter of demand sets out one party's version of events, explains the legal basis for their position and identifies the outcome they are seeking. Whether the issue involves payment of a debt, rectification of a breach or the cessation of particular conduct, the letter gives the recipient a clear understanding of the claim being made and an opportunity to consider their position before deciding how to respond.
A letter of demand will usually include a timeframe for response, often between 7 and 14 days. While that deadline should be taken seriously, a response does not necessarily mean accepting or rejecting the claim. It may seek further information, dispute the allegations, propose a compromise or invite further discussions. Beyond formalising the dispute, the letter also tests whether the recipient is willing to negotiate, making it one of the earliest opportunities to resolve the matter before legal costs escalate and the dispute becomes more difficult to resolve.
What not to do when a letter arrives
The first response to a solicitor's letter can have lasting consequences. Avoiding a few common mistakes at this stage can help preserve your legal position and keep negotiations on track.
Do not ignore it: Ignoring a solicitor's letter will not make the issue disappear. It may signal that legal action is the only way to obtain a response and can later become relevant when the Court considers who should pay the legal costs of the proceedings.
Avoid an immediate, unassisted reply: A quick email or phone call made without legal advice can inadvertently admit liability, waive legal rights or provide the other party with evidence they did not previously have.
Preserve all relevant records: Once a legal issue has been raised, documents, emails, contracts, messages and other relevant records should be retained. Altering or destroying that material can have serious legal consequences.
Why resolving a dispute at this stage is usually the better option
The earlier a dispute is resolved, the greater the opportunity for both parties to control the outcome. Once Court proceedings begin, legal costs increase, the process becomes more complex and much of that control shifts to the Court.
That approach is also reflected in Australian procedural law. Under the Civil Dispute Resolution Act 2011 (Cth), parties commencing proceedings in the Federal Court are generally required to demonstrate they have taken genuine steps to resolve a dispute before litigation begins.
In Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282, a dispute over approximately A$10,700 in unpaid patent attorney fees ultimately generated more than 400 pages of affidavit material. In considering the parties' conduct, the Federal Court emphasised that pre-action dispute resolution is intended to avoid unnecessary costs and the inefficient use of Court resources. An unreasonable failure to do so may also influence the legal costs ultimately awarded.
In Australian Courts, costs generally follow the event, meaning the unsuccessful party may be ordered to contribute towards the successful party's legal costs. However, costs awarded on the ordinary basis typically recover only 60 to 75 per cent of the actual legal fees incurred. As a result, even a successful party can still be left substantially out of pocket.
Litigation is not a quick process, with straightforward commercial disputes in the District or Supreme Court commonly taking between 12 and 24 months to reach trial. During that time, parties are required to prepare evidence, exchange documents, comply with procedural directions and attend multiple hearings, all while the matter continues in the background.
Settlement offers made during this process should be taken seriously. Where a reasonable offer is rejected and the outcome at trial is less favourable, the Court may order the rejecting party to pay indemnity costs from the date the offer was made.
Courts commonly require parties to participate in mediation or other forms of alternative dispute resolution before a matter proceeds to a final hearing. As a result, disputes that could have been resolved at the letter stage often reach the same outcome only after considerably greater time, expense and stress for everyone involved.
When litigation is the right tool
Litigation has an important role where negotiation has failed, an enforceable Court order or injunction is required or the other party refuses to engage in good faith.
It allows individuals to pursue or defend claims involving personal injury, employment and contested estates, while businesses may rely on it to enforce contracts, recover debts or resolve partnership disputes. In criminal matters, proceedings are brought by the State on behalf of the public rather than a private party.
In each case, litigation is best understood as a tool of last resort, appropriate once reasonable attempts to resolve the matter have been exhausted.
Legal information is not the same as legal advice
Much of the confusion people experience after receiving a solicitor's letter comes from treating general legal information as if it were advice specific to their situation.
Determining whether a claim has legal merit, identifying weaknesses in the other party's position and deciding on the most effective response requires a professional assessment of the particular circumstances. Experience allows a lawyer to recognise strategic opportunities that may not be immediately apparent, weigh the risks of different courses of action and focus on achieving the most beneficial outcome for the client. Two disputes that appear almost identical on paper can require entirely different responses depending on the facts.
Seeking legal advice can help ensure important procedural requirements are not overlooked. The legal system operates within strict rules of evidence, filing requirements and limitation periods and missing one by a single day can have significant consequences. Where the other party is already legally represented, obtaining advice of your own also helps ensure negotiations are conducted on an even footing.
Professional representation allows your decisions to be made strategically rather than reactively, often creating pathways to resolve a dispute that might otherwise be missed.
Working with a lawyer
The greatest opportunities to influence a dispute often arise long before a courtroom is involved. Obtaining legal advice early can preserve options, strengthen your position and, in some cases, avoid the need for Court proceedings altogether.
At Aubrey Brown Lawyers, our Commercial and Litigation team advises individuals and businesses on responding to legal correspondence, resolving disputes and pursuing or defending Court proceedings.
