Getting A Letter Of Demand

In most disputes a letter of demand is the first letter you receive and it sets out the allegations against you. It is typically followed by a “Without Prejudice – Save as to Costs” letter which sets out the compromise the other side it willing to offer, and it is also sometimes called a Calderbank Offer. Your instinctive reaction as a recipient of a letter of demand / without prejudice letter will in many cases be focused on defending your position. Given that many of these types of letters are purposefully sent on a Friday near to the close of business there might even be a huge temptation on your part to blast off a response and ensure that the other side understands its role in the dilemma and why you are not to blame. It is usually much better to let some of the dust of conflict to settle before articulating a response and when the stakes are high sensible, commercial advice can help.

A Without Prejudice Or Calderbank Letter

The idea behind a without prejudice letter or negotiation is to get some protection with respect to legal costs, and to make it clear that there is risk if the offer is not accepted. The usual rule is that costs follow the event so that the winner of the case pays the loser legal costs as agreed between them or as determined on assessment failing agreement. However, given that costs are discretionary both parties have an incentive to make informal offers of compromise by way of Calderbank letters (named after Calderbank v Calderbank [1976] Fam 93) or formal offers of compromise under the court rules so they can argue for a different costs order. In a simplistic sense a party who makes a valid without prejudice offer that it beats at trial might be in a position to argue that it should receive an indemnity costs order from the date of the offer (or soon after) rather than a party/party costs order. If an indemnity costs order is made a party could get every cent in the dollar spent on legal costs as opposed to just getting somewhere between 50 – 66 cents in the dollar. As such the law encourages parties to resolves disputes by informal means and it provides an incentive for this to occur through costs orders where a party unreasonably rejects a sensible offer. The specific provisions are includes s 98 of the Civil Procedure Act 2005 and UCPR 42.1.

Importance Of A Valid Calderbank Offer

Responding to a without prejudice letter is something best done on the basis of legal advice. That is particularly so since lawyers are often in a better position to determine whether the offer is a valid offer, whether sufficient particulars are provided and whether it is within the range of possible outcomes if the matter proceeded. Where the offer is not valid, or arguably invalid for making it inclusive of costs, it may be useful to explain to the other side why the offer cannot be evaluated and why it would not be unreasonable to accept it. Another form of response is to make a counter offer so that the element of risk shifts to some extent to the other side as it now has to make a decision to accept or reject the offer.

If you are thinking of suing someone, or are the recipient of a letter of demand / without prejudice letter in a breach of contract case, then contact Litigant on + 61 2 8644 0663 for more information on how best to commence or respond especially when litigation is imminent.

• Further reading see: Hazeldene’s Chicken Farm Pty Ltd v. WorkCover Authority (Vic) (No 2) (2005) 13 VR 435; [2005] VSCA 298