Chasing debtors - the solicitor’s letter of demand

A letter of demand issued by a solicitor to a debtor can often result in prompt payment of outstanding debts.  This can be a cost-effective means of recovering money.  At Bartier Perry we offer an online letter of demand service for just $55.

But did you know that legislation, conduct rules and guidelines impact upon what your solicitor can and cannot say in a letter of demand?  In this bulletin we explore this further.

Letters of demand must not mislead, intimidate or threaten

By reason of the Australian Solicitors Conduct Rules 2015 (adopted in NSW, VIC, ACT, QLD and SA), solicitors must ensure that letters of demand:

• do not include any statements that grossly exceed the legitimate assertion of the rights and entitlements of the solicitor’s client, and which misleads or intimidates another person.

• do not threaten the institution of criminal or disciplinary proceedings against the other person if a civil liability to the solicitor’s client is not satisfied.

• do not use tactics that go beyond legitimate advocacy and which are primarily designed to embarrass or frustrate another person.

A breach of the Australian Solicitors Conduct Rules 2015 can amount to professional misconduct or unsatisfactory professional conduct.

Letters of demand must be courteous

Solicitors are also required by the Australian Solicitors Conduct Rules 2015 to be courteous in all dealings in the course of legal practice.

The Law Society of Western Australia has issued guidelines which neatly provide that,

“Politeness does not prevent effective communication.  It is possible to display firmness and resolve in pursuing a client’s interests without descending in to emotional, insulting, offensive, discriminatory, rude or intimidatory language”.

Australian Consumer Law- misleading and deceptive conduct

If a solicitor sends a letter of demand that is misleading or intimidating there is also the possibility that the solicitor will breach the Australian Consumer Law (ACL) (Schedule 2 to the Competition and Consumer Act 2010) which could result in proceedings being brought against them by the Australian Competition and Consumer Commission (ACCC).

An example of such a case is ACCC v Sampson [2011] FCA 1165 (17 October 2011) in which the Federal Court of Australia made orders by consent against a Victorian solicitor who had for many years been sending out misleading letters of demand on behalf of a video rental client.  

Orders were made restraining the solicitor from continuing to make such representations, ordering her to publish corrective advertising and ordering her to ensure that both she and her staff received regular (at least once a year) training around chapters 2 and 3 of the ACL.  

Disciplinary proceedings also followed for the solicitor and she was found guilty of professional misconduct: Legal Services Commissioner v Sampson (Legal Practice) [2013] VCAT 1439 (VIC).

ACCC/ASIC Debt Collection Guidelines

Following the Sampson decision, the ACCC wrote to solicitors practising in debt recovery advising them of the judgment and asking them to review their own letters of demand in light of the decision.  Some tips that the ACCC gave were:

• “If something is only a possible consequence of not paying a debt, ensure you do not create the impression that it is a definite consequence;

• Before asserting the right to payment of administrative and/or legal costs on top of a debt amount, ensure you are aware of whether or not your client has a legal entitlement to claim this amount;

• Ensure you do not create the impression that your debt collection letters and notices are documents that have been or are able to be filed with a Court”.

The ACCC and ASIC have also published debt collection guidelines for collectors and creditors. The aim of the guidelines is to assist debt collectors (including solicitors practising in debt recovery) to understand how the Commonwealth consumer protection laws apply to debt recovery.

Demanding pre-litigation legal costs

In the Sampson case the Tribunal held that pre-litigation costs cannot be demanded in a letter of demand where there is no contractual right to claim such costs, because to do so would be misleading and a breach of the conduct rules. 

In Western Australia there is a specific conduct rule to this effect.  There is no corresponding rule at present in the Australian Solicitors Conduct Rules 2015, however the ethical duty not to mislead a person in to believing legal costs or other debt recovery costs are payable is embodied in the principles underpinning a number of the conduct rules including:

• the rules referred to above

• the rule that solicitors must be honest in all dealings in the course of legal practice, and

• the rule that solicitors must not engage in conduct which is likely to a material degree to bring the profession in to disrepute.

Researching the claim

Solicitors must take care to look behind their clients’ instructions and check relevant invoices and contracts to ensure that a debt is due. 

ACCC/ASIC’s Debt collection guidelines state that a debtor ‘must not be pursued for a debt unless there are reasonable grounds for asserting the person is liable for the debt’.

Conclusion

To seek to avoid the potential problems outlined in this bulletin, solicitors who are drafting letters of demand should first seek proper instructions to ensure that the debt is actually due.  They should also ensure that letters of demand are courteous and that they do not contain any statements that are arguably misleading, intimidating or threatening.  Pre-litigation costs must not be demanded unless there is a contractual right to do so.  You can read further about the debt recovery services offered by Bartier Perry here and about our $55 letter of demand service here.

Authors: Jennifer Shaw and Snezana Roskov