Explainer: Illiquid claims and interest

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...