A federal court has sided with a group of veterans who sued the government over the way it handles disability group insurance.

About 4,500 veterans across Canada joined a class-action lawsuit, claiming the government was unfairly clawing back money paid out for pain and suffering.

"The government of Canada has been unlawfully taking advantage of Canada's disabled ill and disadvantaged veterans for far too long," said Dennis Manuge, the Nova Scotian man who led the lawsuit on behalf of the veterans.

"Today's ruling by the federal court of Canada provides hope for Canada's disabled veterans."

The case had hinged on the meaning of the word "income."

The government claimed the long-term disability benefits are only meant to be a top-up to make sure members receive 75 per cent of the income they were making before they were released from the military.

The veterans argued the pension was not income, but rather recognition for the service and sacrifice of members of the Canadian Forces.

In a decision released Tuesday, a federal court in Halifax ruled the government's actions amounted to a breach of policy.

"The government of Canada has a moral, and ethical, and now a legal obligation to move quickly to implement this federal court of Canada decision," Manuge told reporters at a news conference.

"The money will never fix any of us but what it does do is it provides that little bit of dignity to do some things you might not otherwise have been able to do because of your disability, or to allow your family to do things."

Manuge, the lead plaintiff, is a former mechanic who was injured in 2003. He estimates he lost about $10,000 between then and 2005 to government clawbacks, while others are losing up to $3,500 a month.

The class-action suit was certified in 2008, a year after Manuge launched his case.

"If nothing else, I think this provides those without a voice a lot of hope that the system works and the cream will rise to the top," he said Tuesday while fighting back tears.

"I just hope that this puts the pressure on Canada's government to restore our dignity."

Peter Driscoll, a lawyer with Halifax-based firm McInnes Cooper and the lead counsel on the class action, said he wasn't sure whether the government would appeal the decision.

"We're hopeful they'll review this decision, hear Dennis's voice, hear other veterans' voices and come to the table with us to implement a solution to the assisted clawback rather than put us through an appeal," said Driscoll.

"Disabled veterans deserve these benefits, they need these benefits and they've earned these benefits."