04/04/2013 05:27 EDT | Updated 06/04/2013 05:12 EDT

Federal Court gives green light to $887-million veterans disability deal

OTTAWA - The Federal Court has rubber-stamped an $887-million settlement of a class-action lawsuit involving thousands of disabled veterans.

The case involved a three-decade-long federal government practice of clawing back the military pensions of injured soldiers by the amount of disability payments they received.

Defence Minister Peter MacKay said late Thursday that settling the case was in the best interest of the soldiers and the public.

"I am extremely pleased that the Federal Court of Canada has approved the settlement that was reached between our government and the members of the class action, to resolve the issues regarding the offset of Pension Act disability benefits from the Service Income Security Insurance Plan (SISIP) Long Term Disability benefits. Acting quickly and fairly to resolve this matter was of the utmost importance," MacKay said in a statement.

"Our government continues to reflect and improve upon its programs dedicated to supporting Canada's ill and injured military personnel and veterans, and to provide the care that our personnel and their families deserve."

Halifax resident and former army sergeant Dennis Manuge, was the lead plaintiff in the case, which dragged its way through the courts for nearly five years, including a reference to the Supreme Court of Canada on a technicality.

The deal includes $424.3 million in retroactive payments to veterans dating back to 1976.

More than $82 million has been set aside to cover interest, while the rest of the settlement is an estimate of the amount the veterans will be owed in future.

The law firm that fought the case is in line for $35 million in fees or roughly four per cent of the overall settlement.

Manuge was injured in an accident at Canadian Forces Base Petawawa, Ont., in 2001. He left the military in 2003 following a deployment to Bosnia, but suffered from a lower back pain and bouts of depression.

He filed the class-action lawsuit in March 2007 on behalf of himself and other disabled veterans.

Originally 4,500 members were part of the case, but the number was bumped to 7,500 upon the review of files.

Almost a year ago, the Federal Court said it was unfair of the federal government to treat pain and suffering awards as income.

Justice Robert Barnes wrote at the time of the decision the deduction "wholly deprives disabled veterans of an important financial award intended to compensate for disabling injuries suffered in the service of Canadians."

He slammed the federal government by saying the "offset effectively defeats the parliamentary intent to provide modest financial solace to disabled CF members for their non-financial losses.

MacKay decided the government wouldn't appeal, and appointed a negotiator to cut a deal with the disabled veterans.

That agreement was reached in January.