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Thousands of disabled Canadian war veterans and their families have won a stunning victory in their billion-dollar class action against the federal government.

Mr. Justice John Brockenshire of the Ontario Superior Court said in a judgment released yesterday that Ottawa is liable for breaching a fiduciary trust with the veterans, many of whom were hospitalized with physical and mental problems or ended up as street people.

Declared incompetent, they relied on the government to manage their finances. But Ottawa failed to pay interest on their military and old-age pensions and disability benefits until 1990. In some cases, the government improperly confiscated the accumulated money when veterans died and failed to inform their beneficiaries or heirs.

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By its own mid-1980s estimates, the government acknowledged that about 10,000 First and Second World War veterans were involved. One of the veterans' lawyers says that by his calculations they and their descendants are owed at least $1.3-billion.

Judge Brockenshire said the number of veterans may have dwindled to about 1,000 today. He also made no finding on any damage claim, saying that would be dealt with if his judgment is not overturned on appeal.

John Spencer, one of the Justice Department lawyers, said last night that he and his colleagues would have to study the decision before making any recommendations to government on whether to appeal. An application to appeal would be brought to the Ontario Court of Appeal.

Judge Brockenshire, who sits in Windsor where the case was heard, ruled in favour of the veterans on every legal point they raised, including that the government "breached its obligations, by taking in and using those funds as if they were the Crown's, by failing to invest the funds, and by failing to pay interest on the funds it held."

He made his ruling by way of summary judgment, meaning that he had decided, against objections by federal Justice Department lawyers, that the documentary evidence was clear and strong enough to decide Ottawa's liability without a trial.

Peter Sengbusch, one of several lawyers representing the veterans, said yesterday that he is overjoyed by the decision.

"It is a wonderful vindication of what the good people working in the Department of Veterans Affairs and the Department of Justice have been telling their masters for 30 years, that what they were doing was wrong.

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"Veterans' families who approached the government on this issue were told, 'Go away.' That was wrong. This is a wonderful vindication of justice being done."

The lead plaintiff in the lawsuit is Joseph Authorson, an 86-year-old, who has spent most of the past 50 years in a London, Ont., veterans' hospital. A Second World War veteran, Mr. Authorson was diagnosed with schizophrenia that was believed related to combat.

He underwent a lobotomy in 1950 and was declared incompetent to manage his affairs.

Mr. Authorson's account, which was administered by the veterans department until 1991, grew to $260,000. His lawyers say it would be worth hundreds of thousands more if it had been invested properly by the account administrators.

The case was begun by Lenore Majoros, his niece. Ms. Majoros asked Mr. Sengbusch to act for her uncle after being distressed by his unkempt appearance at a family funeral several years ago.

Coincidentally, Mr. Sengbusch had already been researching other allegations of financial mismanagement by the Department of Veterans Affairs.

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Justice Department lawyers argued that the Crown is immune from the veterans' liability claims, that the government never had a trust relationship and, in any case, was barred from paying interest for money held before 1990 without Parliament's approval.

In 1986, the federal Auditor-General had warned of serious irregularities in the management of veterans' account and of potential Crown liability.

Even a decade or more earlier, federal bureaucrats were studying the problem of non-payment of interest and the potential liability.

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