Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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If you run a small business, you’ve probably had at least one moment where you’ve thought: “Can I just tell them we’ll take legal action?”
Maybe a customer won’t pay, a supplier has missed a deadline, or a competitor is copying your branding. In those situations, mentioning the possibility of legal action can feel like the fastest way to get someone to take you seriously.
In New Zealand, it’s often lawful to warn someone that you may take legal action. But the detail matters. The way you do it (and what you say) can create real risk - including allegations that you’ve misled them, harassed them, or tried to improperly pressure them.
This article is general information only and not legal advice. Below, we break down what’s generally allowed, where it can go wrong, and how to communicate firmly while still protecting your business.
Is Threatening Legal Action Actually Legal In New Zealand?
In many cases, yes - it can be legal in New Zealand to tell someone you may take legal action, as long as what you say is honest and accurate, and your conduct stays professional and lawful.
At a practical level, this usually looks like:
- telling someone you believe they’ve breached a contract and you want them to fix it;
- warning you may file a claim (for example, in the Disputes Tribunal, District Court, or High Court) if it isn’t resolved;
- asking them to pay an outstanding invoice by a certain date, otherwise you’ll take recovery steps.
That’s not only common - it’s often part of sensible business risk management. In fact, a written “final notice” or “letter of demand” can sometimes resolve a dispute quickly without needing to actually file anything.
Where things get tricky is when the warning crosses over into conduct that the law considers unfair, misleading, harassing, or coercive.
So the better question is usually:
When does a legal threat become unlawful (or create liability) for a small business?
When Can Threatening Legal Action Cross The Line?
You can generally be firm - but you can’t use legal threats in a way that becomes unlawful pressure. Here are some of the key risk areas for small businesses.
1) If The Threat Is Misleading Or Exaggerated
If you say things that overstate your legal rights (or invent legal consequences), you can create problems under the Fair Trading Act 1986 - especially if the situation involves trade or commerce and your statements could mislead the other party.
Examples that can be risky include:
- saying “we will definitely win” or “the court will order you to pay triple damages” when that’s not a real or clear outcome;
- claiming you’ll start a criminal prosecution when the matter is actually civil;
- stating you have evidence or documentation you don’t actually have.
A good rule of thumb: if you wouldn’t be comfortable repeating your statement to a judge, keep rewriting it.
This is also where Misrepresentation issues can come up - even outside a classic “sale” situation - because inaccurate statements can escalate a dispute and weaken your credibility.
2) If It Becomes Harassment Or Intimidation
Even if your underlying complaint is legitimate, repeated or aggressive messages can expose you to allegations of harassment. Depending on the facts and the communication method, relevant laws can include:
- Harassment Act 1997 (focused on patterns of behaviour that cause distress and can lead to restraining orders);
- Harmful Digital Communications Act 2015 (where communications are online and cause harm);
- general legal principles around unconscionable or unfair pressure (particularly where one party is vulnerable).
For small businesses, this risk often shows up when someone is chasing an unpaid invoice and sends multiple messages in a short time, contacts family members, posts publicly on social media, or uses threatening language.
If you’re owed money, it’s absolutely reasonable to be persistent - but it needs to stay professional and proportionate.
3) If You Use Threats To Get Something You’re Not Entitled To
This is where things can get serious. If someone uses threats (including legal threats) to obtain something they’re not legally entitled to, it can raise criminal-law issues in some circumstances (for example, conduct sometimes described as “demanding with menaces” under the Crimes Act 1961). This is highly fact-specific, and it’s a good reason to keep any demand closely tied to your actual legal rights and the underlying dispute.
Most business owners aren’t trying to do anything improper here - it’s more that people sometimes “overreach” when they’re frustrated. For example, threatening to “report them to the police” unless they pay an extra amount that isn’t actually owed, or demanding something unrelated to the dispute.
Keep your demands tied to a genuine legal claim: payment of a real debt, performance of a real contractual obligation, or stopping a real infringement.
4) If You Make Defamatory Allegations
When disputes get heated, it’s tempting to “warn” the other party you’ll tell others about their behaviour. But if you publish statements that harm someone’s reputation (and you can’t justify them), you can create defamation risk under the Defamation Act 1992.
Common high-risk scenarios include:
- posting on social media that a customer is a “scammer” or “fraud”;
- emailing other businesses claiming a supplier is “dishonest”;
- publicly accusing someone of criminal behaviour without strong grounds.
It’s usually safer to keep your dispute communications private, factual, and directly between the parties (or their lawyers).
5) If You Breach Privacy Or Misuse Personal Information
If your dispute involves customer details, employee details, or any other personal information, you also need to keep the Privacy Act 2020 in mind.
For example, if you post someone’s personal details online to pressure them to pay, that can create a privacy complaint risk even if the person owes you money.
If you collect and use personal information in your business, having a clear Privacy Policy and internal processes is a smart way to reduce risk when disputes arise.
How Can Small Businesses Communicate Firmly Without Creating Legal Risk?
There’s a big difference between being firm and being reckless. If you want to pursue a dispute professionally (and keep your position strong), focus on clarity, accuracy, and tone.
Stick To The Facts (And Attach Evidence Where You Can)
Instead of escalating with emotional language, spell out:
- what happened (dates, deliverables, invoice numbers, communications);
- what agreement applies (quote, terms and conditions, contract, purchase order);
- what you say the breach is;
- what you want them to do to fix it (pay, deliver, stop using your IP, return goods);
- when you need it done by.
If your dispute is contractual, it can help to sanity-check whether what you’re saying lines up with your rights around Terminating A Contract (because threatening to “cancel immediately” when you don’t actually have that right can backfire).
Avoid Absolute Statements Or Legal “Overpromising”
Try not to say:
- “We will sue you” (especially if you’re not sure);
- “You have committed fraud” (unless you’re prepared to prove it);
- “You will be prosecuted” (that’s not typically your decision);
- “You have no rights” (almost never true).
Safer wording is usually along the lines of:
- “If this isn’t resolved by [date], we may consider taking further steps to enforce our rights, including legal action.”
- “We reserve our rights.”
This keeps your message firm while avoiding statements that could be inaccurate later.
Choose The Right Channel (And Don’t Go Public)
When emotions run high, it’s easy to fire off messages in the fastest channel available. But from a risk perspective, it’s usually better to keep dispute communications:
- in writing (email or letter) so you have a clear record;
- directed only to the other party (not their friends, customers, or employer);
- professional, not personal.
As a general rule, avoid “naming and shaming” online. It might feel satisfying in the moment, but it can create defamation and privacy exposure - and it also makes settlement harder.
Set A Clear Deadline And A Clear Next Step
Unclear threats often lead to more back-and-forth. Your message should clearly state:
- what you want;
- the deadline;
- what you’ll do next if it isn’t resolved (without overcommitting).
This is one of the reasons many businesses use a formal letter of demand - it’s structured, calm, and action-focused.
Common Business Scenarios Where Threatening Legal Action Comes Up
Not all disputes are the same. Here’s how the possibility of legal action typically plays out in common small business situations (and what to watch for).
Unpaid Invoices And Debt Recovery
If a customer or client hasn’t paid you, you can generally send a written demand and warn that you may take further action. What matters is that your demand is accurate and proportionate.
Your message should usually cover:
- the invoice amount and due date;
- what the invoice relates to (and attach the invoice);
- any contractual right to charge interest or recovery costs (only if it’s actually in your terms);
- a deadline for payment;
- the next step (for example, Disputes Tribunal, debt collection, or court depending on the amount).
If the other party is disputing the invoice, it’s often worth stepping back and working out whether you have a straightforward claim for breach. This is where it can help to understand What Happens If Someone Breaks A Contract and whether the dispute is really about performance, quality, or scope.
Supplier Or Contractor Disputes
If a supplier has failed to deliver, or a contractor has missed milestones, it’s usually better to focus on:
- what the agreement says about timeframes and deliverables;
- whether you have a right to withhold payment;
- whether you have a right to terminate and engage someone else;
- what losses you’re actually claiming.
Threatening legal action here can be legitimate, but exaggerated claims (“you’ll be liable for all our business losses forever”) can escalate things and may not be realistic.
Customer Complaints And Refund Pressure
Sometimes it’s the customer threatening you with legal action - for example, claiming they’ll “report you” unless you refund them immediately.
In these moments, your best protection is having clear terms and complaint processes, and making sure your business is compliant with consumer law (like the Consumer Guarantees Act 1993 and the Fair Trading Act 1986).
If you feel like a customer is using threats to pressure you into doing something unreasonable, it’s worth considering whether the conduct could fall into broader Unfair Business Practices territory (and whether you need to respond carefully to protect your brand).
Employment Disputes
If the dispute is with an employee or ex-employee, be careful. Employment law has its own processes and expectations around good faith and fair process.
Threatening legal action against an employee (or threatening to “ruin their future” or “give them a bad reference”) can escalate fast and can look like intimidation.
Usually, the safer approach is to rely on a well-drafted Employment Contract, follow a fair process, and get advice early if things are heading towards a personal grievance.
Should You Send A Letter Of Demand (And What Should It Include)?
For many small businesses, a letter of demand is the “grown-up” version of threatening legal action. It’s still firm, but it’s also structured, credible, and easier to rely on if the matter proceeds.
There’s no one-size-fits-all template (and using the wrong template can cause issues), but strong letters of demand often include:
- Background: what happened and the key dates;
- Legal basis: why you say they’re in breach (in plain English);
- What you want: the exact amount, action, or remedy;
- Deadline: a clear date/time for response or payment;
- Next steps: that you may take further action if not resolved;
- Without prejudice / settlement: if you’re making a genuine settlement offer, you may want it framed properly (this is an area where legal advice matters).
If you’re negotiating a resolution, you may also end up documenting the outcome in a Deed Of Settlement so both sides have clarity on what’s been agreed and what happens if someone breaches it.
It can be tempting to DIY your demand letter when you’re frustrated - but if the dispute is important (or the relationship is sensitive), it’s often worth getting it drafted or reviewed. A well-written letter can help you resolve the matter faster, and it reduces the risk of saying something that later gets used against you.
Key Takeaways
- It’s often legal in New Zealand to warn someone you may take legal action if it’s a genuine position you’re considering and you communicate it in a lawful, professional way.
- The main risks are how you communicate - misleading claims, harassment-style contact, defamation, and privacy breaches can all create liability even if you have a valid dispute.
- Keep your message factual and calm, avoid exaggeration, and don’t make absolute promises about legal outcomes you can’t guarantee.
- Don’t “name and shame” publicly - dispute communications should generally be private and documented in writing.
- A letter of demand is usually a safer approach than informal threats, especially where money, contracts, or business reputation are on the line.
- Get advice early if it’s sensitive or high value - the right strategy (and wording) can resolve a dispute without creating a second dispute about your conduct.
If you’d like help writing or responding to a demand, or you’re not sure whether mentioning legal action in your situation could expose your business to risk, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
