A former Gurkha soldier living in Wales has lost his fight to claim equal pay and pension from the British Army - in a test case which could have cost the UK Government �2bn.

Retired Lance Corporal Hari Thapa, who lives in Cwmbran, south Wales, claimed racial discrimination against the Ministry of Defence because he was paid substantially less than British soldiers.

We deplore the fact he has had to wait four years only to be told that he cannot proceed with his complaint

Tribunal chair Dr Rachel Davies

If the British-born 41-year-old had won, it could have opened the door for similar actions by ex-Gurkha servicemen and widows, costing the UK Government up to �2bn.

But on Wednesday, the tribunal ruled it had no juristiction to hear his complaints, because he served most of his 15-year army career in the jungles of Belize in Central America.

He intends to appeal against the decision to the Army Board.

MoD lawyer Rabinder Singh QC told the hearing: "Mr Thapa worked mainly outside Great Britain with 80 per cent of his period of service overseas.

"The tribunal has no jurisdiction to hear the complaint because it falls outside the protection of the Race Relations Act of 1976."

Mr Thapa claims payments were discriminatory

Chair of the tribunal, Dr Rachel Davies, criticised the MoD for the way they had handled the case.

"Mr Thapa presented his complaints in 1998," she said.

"Had the MoD dealt with it xpeditiously he would have known where he stood.

"We deplore the fact he has had to wait four years only to be told that he cannot proceed with his complaint."

Disparity

It is not known whether Mr Thapa - who lives with wife Nicola, a nurse, and three-year-old daughter Tamsin - will try other legal challenges in his fight for equality.

At present, he receives a pension of �58 a month - while a British ex-soldier of similar service would receive �500.

The tribunal did agree jurisdiction on some points.

Mr Thapa - a British national with a Nepali father - was given exemplary discharge from the Army five years ago.

Gurkhas are respected for their fighting prowess

In the 15 years he served, he was paid �43,000 less than other soldiers.

A British passport holder stationed at Brecon, he was angered by the MoD's basic salary rate of �17.50 per month during his service and the �58 pension he received after discharge in 1997.

He was recruited to the armed forces under a 1947 tripartite agreement between the UK, India and Nepal, which links Gurkhas' pay and pensions to those in the Indian Army.

But the MoD has always insisted the payments were adequate because most Gurkhas retired back to Nepal, where the cost of living was considerably less than in the UK.

After Wednesday's hearing, MoD spokesman Lieutenant Colonel Barry Hawgood said the Army considered its treatment of Gurkhas had always been fair.

"It has always been part of the employment of troops from Nepal that they are employed under different terms," he said.

But he accepted the MoD's handling of the case was "unfortunate and regrettable."

Speaking after the verdict was delivered, Mr Thapa said he was disappointed - but vowed to continue his legal battle.

He said: "I will appeal against the decision to the Army Board.

"I still feel very strongly about it."

Mr Thapa's case was backed by the Commission for Racial Equality, which said the Ministry of Defence's responsibilities under the Race Relations Act 1976 outweighed the terms of the tripartite agreement.

But the MoD claims the Act does not cover the Gurkhas as they are recruited and discharged in Nepal.

Mr Thapa's setback came as three former Gurkhas leanred they would receive �10,000 in compensation after winning their test case against the UK Government.

The Second World War veterans had challenged a Ministry of Defence ruling which prevented them from claiming compensation for the brutality they suffered at the hands of the Japanese.

In the High Court their lawyers successfully argued the soldiers - who fought for Britain - had been the victims of unequal treatment and racial discrimination by the UK Government.

To be acknowledged for this at my age of 81 is very important to me Pahalman Gurung, one of the three ex-Gurkhas.

After winning their case the three ex-soldiers are now eligible for "ex-gratia" payments of �10,000 from a fund set up to benefit surviving British prisoners-of-war.

The former Gurkhas were excluded from the fund - set up two years ago - because at the time of their service the regiment formed part of the Indian Army.