Christopher Derry, who served in the Royal Australian Navy from 1971 until 1993, developed a benign lump in his right breast shortly after joining the service and was advised to have it surgically removed. The procedure was a success but left him with a 10-centimetre surgical scar.

Mr Derry said he initially regarded the defect as a badge of honour and it did not bother him, despite his comrades poking fun at his appearance.

More than a decade later, Mr Derry dislocated his right shoulder during a services football match. He underwent three operations on the dodgy joint between 1986 and 2010 after he continued to suffer recurrent dislocations.

He took up swimming on the advice of a physiotherapist and swims 60 laps at a pool twice a week.

He told the Administrative Appeals Tribunal that the therapy led to increased muscle bulk in his shoulders, which caused the surgical scar to become deformed and a source of embarrassment.

He said he first noticed the change in appearance after his second shoulder reconstruction in 1994.

In 2011, Mr Derry applied to have the deformity surgically corrected, citing numbness and scarring on his right pectoral. But the Repatriation Commission rejected the claim and refused a second the following year.

The tribunal heard the commission had accepted the shoulder injury as Defence-caused, but rejected Mr Derry's application because the scarring had not been aggravated by the exercise and it was not classified as a disease or injury under the Veterans' Entitlement Act.

Lawyers for the commission argued if the scar had become more obvious, it was due to weight gain and not post-surgical exercise.

But the tribunal overturned the commission's decision. In a judgment published last week, the tribunal found the disfigurement could be classified as an ailment or defect under the act.

But it also found it did not have sufficient medical evidence to determine if the scar was Defence-caused.

''Having considered the state of the evidence in so far as it assists the tribunal to determine the precise nature of Mr Derry's condition and whether it is Defence-caused, the tribunal is not satisfied that it has sufficient relevant medical opinion to safely decide the issues at hand,'' tribunal member Dr Kerry Breen wrote. ''On the basis of the foregoing analysis, the tribunal has decided to remit Mr Derry's claim to the [commission] for further consideration, with the request that the matter be further investigated.''

The tribunal ordered the commission to advise Mr Derry of the outcome by late September.