A surprise decision by an Ontario superior court judge has denied key provisions of a $57 million benefits package for thousands of pensioners, long-term disabled workers and those let go without severance.

Judge Geoffery Morawetz said in his decision that the deal is "a flawed agreement that cannot be approved" because "it creates risk rather than eliminates uncertainty."

Three days of hearings were held earlier this month where disabled Nortel workers joined with lawyers for several creditors who were all critical of the deal.

It would have extended, until the end of the year, health and other benefits for 400 disabled workers. Also, it would have continued support for the pensions of some 12,000 people until the end of September, and it would have given up to $3,000 dollars each to another 7,000 former workers with claims such as severance.

Groups representing all the workers had agreed to the deal on behalf of those affected, but the critics said the deal gave up too much, especially the right to sue former Nortel executives.

Don Sproule, head of the Nortel retired and former employees group, told CTV News that he "does not like what the judgement says, and we had hoped the judge could work his way around it (the deal)."

He says he just received the lengthy decision late on Friday and was reading it over, and wanted to talk to lawyers before deciding the next step.

Sproule was not even sure that an appeal could be launched. He and others who supported the deal said it extended benefits, and gave everyone more time to fight to have bankruptcy laws changed so that employees move to the top of the creditor list.

In the decision, the judge said he realizes that his ruling comes just five days before a deadline when Nortel plans to put a halt to health and other benefits, so the judge offered to help the various groups negotiate another deal.

The judge accepted the arguments of lawyers who said the deal is unfair to other creditors, because it effectively gives special treatment to another group of creditors --  that is the former workers.

He did accept many of the provisions in the deal. Lawrence Clooney of Ottawa, an LTD worker, told CTV News today that "in a roundabout way we won, the deal is stopped, even though the judge did not support our reasons."

He feels ending benefits will cause "an accelerated race to death" for many LTD people.

Joel Rochon, the lawyer representing the LTD workers opposed to the deal, will be in court on Wednesday to ask that all benefits be extended while negotiations continue.

It is important to get this resolved because it is part of the whole process to wind up Nortel and divide up over $3 billion in assets.