Dennis Manuge wiped a tear from his eye upon hearing the decision, which dismissed the federal government's position as harsh, particularly for Canada's most gravely injured veterans.
"Today's ruling provides hope for Canada's disabled veterans," said Manuge, who led a five-year-old class-action lawsuit against the federal government.
"We saw them in court and we won."
Lawyers representing Manuge and other veterans argued last November that the veterans' benefits were being unjustly clawed back because the payments were unfairly deemed as income.
The lawyers said that veterans' long-term disability benefits were being reduced by the amount of their disability pensions, with some of the most seriously injured not receiving any of their pension. In some cases, Ottawa's policy cost some veterans as much as $3,500 per month, they argued.
Lawyers for the federal government cited other cases that have found such benefits to be income, adding that the definition of income can include a broad array of monies that are coming into a veteran's household.
But in a decision released Tuesday, Judge Robert Barnes agreed that the monthly Veterans Affairs pensions aren't "income benefits," and therefore can't be used to offset money they are owed.
"The practical consequences of the claimed offset is to substantially reduce or to extinguish the long-term disability coverage promised to members," Barnes wrote in his decision.
He added this would create "a particularly harsh effect on the most seriously disabled Canadian Forces members who have been released from active service."
"That is an outcome that could not reasonably have been intended and I reject it unreservedly."
Manuge, 43, said the ruling is a significant victory after years of battles before ombudsmen, Parliament and the Senate.
"The money will never fix any of us but it will provide that little bit of dignity," he said.
The former vehicle technician was injured in an accident at Canadian Forces Base Petawawa just before being deployed to Bosnia in 2001. He left the military in 2003, suffering from a lower back injury and some bouts of depression.
In 2007, the native of Musquodoboit Harbour, N.S., launched the lawsuit against the government, saying he took the lead in the case because he was less seriously injured than many others and able to speak out.
Peter Driscoll, a lawyer for the veterans, said the decision could mean millions of dollars in retroactive compensation for former military members, if Ottawa doesn't appeal.
"We're overjoyed," Driscoll said in a phone interview. "We're pleased the court has found the clawbacks we've complained of are unlawful."
Both he and Manuge urged the federal government not to appeal the decision, saying it would delay payments to veterans.
Jay Paxton, a spokesman for the defence minister, said Ottawa is studying the decision and considering its next steps.
The government has 30 days to consider if it will appeal.
"The government is committed to the care and well-being of Canadian Forces personnel and veterans," Paxton said in an email.
"We take the ongoing care, health, well-being and benefits of military members and their families very seriously."
Driscoll said thousands of veterans have been subjected to the clawbacks, estimating it would cost somewhere between $270 million and $340 million to stop and reimburse them.
He said his clients are expecting the money to be repaid.
"These soldiers have fought long enough. They've fought on the battlefield, they've fought before the Ombudsman for the Department of Defence, they fought before the House of Commons and now they've fought before the courts," he said.
"We're calling on the government of Canada to honour their ethical, moral and now legal obligation to immediately end the clawback."
NDP veterans affairs critic Peter Stoffer also called on the federal government to abide by the ruling.
"Now that the court has ruled in favour of these injured veterans, the government must put things in place to fix this injustice," Stoffer said in a statement.
Manuge said he hopes negotiations for compensation begin soon.
"There is some more legalese that has to play out, but this puts the ball in our court and is a way for us to force the federal government to settle this," he said.
He said he stands to receive about two years worth of benefits, worth about $10,000.
Sean Bruyea, a retired army officer and advocate for the rights of disabled veterans, said in an email that the court decision is convincing.
"The feds do not have a legal leg to stand on to continue this practice," he said in an email.
"To continue it smacks more of punishing and discriminating against disabled veterans than treating disabled Canadian Forces veterans with dignity in the most vulnerable stage of their lives."
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