08/13/2012 03:06 EDT | Updated 10/13/2012 05:12 EDT

Vets worry settlement in clawback case could be chewed up by legal fees

OTTAWA - There's growing concern among veterans that a big chunk of a planned multi-million settlement over the clawback of military pensions could be gobbled up by legal fees.

One member of a class-action lawsuit has written to Defence Minister Peter MacKay, asking that the federal government pay the cost of lawyers over and above any out-of-court compensation that arises from upcoming negotiations.

"I hope that you make a separate reasonable payment to lawyers in accordance with the reasonable fees set by precedent in the courts," wrote Louise Gagnon, a retired major.

"This payment should not come from the monies contractually and honourably owed us."

The federal government announced in June it would not appeal a Federal Court of Canada ruling that rejected clawbacks from the pensions of disabled veterans. Defence Minister Peter MacKay ordered a stop to the practice on July 1.

A class-action lawsuit was filed in March 2007 on behalf of Dennis Manuge and 4,500 other disabled veterans whose long-term disability benefits were reduced by the amount of the monthly Veterans Affairs disability pension they receive.

He argued it was unfair and unjust to treat pain and suffering awards as income.

The federal government recently appointed Stephen Toope, the president of the University of British Columbia, to lead the discussions with Manuge's legal team to arrive at a settlement, including retroactive payments.

Internal government estimates have suggested that the settlement could run as high as $600 million, depending upon how many years back the federal compensation plan will go.

Gagnon told MacKay that settlement scheme was proposed by the government and "it would seem reasonable that you repair this tort out of your own funds."

Information from Veterans Affairs Canada suggests legal fees could be included in whatever final agreement is made.

"By agreement with the representative plaintiffs, counsel fees may be calculated at 30 per cent of any amounts recovered,"said the department's website.

"If a settlement, judgment, voluntary payment or execution or other benefit is obtained, the lawyers will apply to court for approval of a fee that is consistent with the terms of this agreement, or some lesser amount. The court will decide what amount is fair."

In the case of a $600-million settlement, Gagnon said lawyers could net up to $180 million, if the 30 per cent formula is upheld.

"This has caused growing alarm with myself and many disabled veterans who could hypothetically be required to pay 30 per cent or more of our (long-term disability) monies for legal costs," she wrote.

"Having the class members foot any bill for legal fees would be tantamount to subjecting them to a second clawback."

Heather Domereckyj, a spokeswoman for MacKay, said the federal government has set in motion a process that has checks and balances.

"Any settlement of the class action reached between the parties will need the Federal Court's approval," Domereckyj said in an email.

"The government is committed to working towards a positive resolution in this matter. It would be inappropriate to comment further."

Manuge was not immediately available for comment.

Even though the clawbacks ended in July, there are still some veterans who still face the deduction. Ex-soldiers whose additional rewards and payments exceed the limit of 75 per cent of their military salary — often those who were most severely injured — say they’re still not being treated fairly.

Those veterans with the most grievous injuries are entitled to receive the maximum benefit, particularly since many can’t work, advocates have said.