Interest is the cost of using somebody else’s money.

Under Maltese law, the deprivation of use of one’s own money is made good by the payment of interest at the rate of eight per cent a year.

This is really and truly a simple concept, justifiable on the basis of the fact that the creditor has not had his money at the due date, whether regarded as the profit he might have made through investment if he had had the use of the money, or, conversely the loss he suffered because he had not had that use.

In personal injury compensation cases, the idea is to fully compensate the aggrieved party by putting him into a position he would have been in had the wrongful act not been committed, and not allow the perpetrator of the act to enrich himself unfairly on money he should have paid to the victim.

Certainly, one may have misgivings with this principle, for truth be told, a sum of money deprived of cannot in reality always be invested successfully. Some investments may go wrong.

However, our law presumes that money may be invested without any difficulty and at any time, and operates under this assumption. Hence, where a sum is due, interest is also due without the creditor being bound to prove any loss.

Decisions on interest due is rendered a tad more complicated when a plaintiff in a lawsuit does not ask the court to decide upon a specific sum, but instead leaves it up to the court to determine (the legal term being ‘to liquidate’) what is due.

This can be done.

Some claims may be of such a nature that it would be impossible for the plaintiff to know from the onset what he is owed. An example of this is claims for compensation for personal injuries, which may depend on conclusions reached by a medical expert appointed by the court after the case would have been filed.

Often, the question arises as to from when shall interests be calculated if there is a favourable judgment for compensation where the request is initially unspecific. Is it from the date when the damage occurred? Is it from the date when the case is filed? Or is it from when the judgment is delivered?

This might initially seem like a trivial question but in reality, it is not. A five-year-old claim worth €100,000 can bring therewith a staggering 40,000 worth of legal interest.

The timing of interest is thus critical.

Simply put, interest starts running from when the sum claimed is easily determinable or when it is determined by a court of law

The answer to this question lies in the Latin principle correctly termed: ‘illiquidis mora non contrahitur, mora non committitur in illiquidis et incertis’, and that ‘non potest improbus videri, qui ignorant quantum solvere debeat.’

This is legalese for: there can be no default on a debtor for the lack of payment of illiquid debts.

The idea is that it is impossible to adopt interest for late payment on a credit of compensation for damages which is still unquantified.

The judgment of the Civil Court, First Hall, in the names of ‘Mariella Vidal v Micaela Cassar (774/14GM)’, delivered on February 18 studiously discussed this principle at law.

This was a typical action for the liquidation and payment of damages suffered by a victim of a traffic accident.

Back in 2014, the plaintiff had filed a judicial letter against the respondent, and had proposed, on a without prejudice basis, that the respondent pays as compensation the sum of €77,112. The respondent did not pay and a few months later, the plaintiff filed the lawsuit.

The court found that the respondent was responsible for the accident and quantified the damages suffered by the plaintiff at €92,107.81.

However, there was the quandary of interest to sort out.

The court quoted article 1139 of the Civil Code, which states that “…where the subject matter of the obligation is limited to the payment of a determinate sum, the damages arising from the delay in the performance thereof shall only consist in the interests on the sum due at the rate of eight per cent per annum.”

Conversely, it can be stated that interest does not trigger if the sum request is not quantified.

This makes sense, for if the debtor does not know how much the claim of the other party is, he is not to be faulted for not paying. This principle does, however, carry an exception, exemplified in the Latin brocard ‘malitiis non est indulgendum’ (mischievous behaviour should not be endorsed); that is, if the respondent would have frivolously and vexatiously delayed the liquidation of what is due, or when he is fully aware of the amount being claimed, then interest may still be triggered prior to the determination of the amount due.

It has also been stated by our courts that interest starts running from the date in which the amount due becomes decidedly manifest. It is not sufficient to reveal the amount claimed, for interest starts running only when the amount is objectively determined by a court of law.

For instance, if the court determines a lesser amount than that claimed, no interest is due prior to the conclusion of the judicial investigation in a court case. Simply put, interest starts running from when the sum claimed is easily determinable or when it is determined by a court of law.

Here, it could not be stated that the respondent’s defence was in any way capricious. In this case, the determination of the amount was not easily ascertainable, no less because it depended on a number of factors, including medical conclusions (those leading to the rate of disability suffered by the plaintiff) which are often subject to much debate. The respondent was not in any way to be faulted for the fact that the case had taken six years to conclude.

For these reasons, there was no justification against the adoption of the general principle ‘in illiquidis non fit mora’.

The court then ordered the respondent to pay the plaintiff the sum of €92,107.81 by way of damages, with interest to run only from the date of the judgment of the court.

Carlos Bugeja is a partner at Azzopardi, Borg & Abela Advocates.