Yes, that's what the Harper government would have done:  

*  Rejected legal advice on a.) the likely results of litigation on the quantum of damages, and b.) a recommendation to settle. 

*  Fully litigated the issue on damages before the trial judge. 
 
*  Appealed the trial judge's decision to the Federal Court of Appeal.

*  Applied for leave to appeal to the SCC.

* If given leave, appeal at the SCC.

Then they could say:  "See? We didn't do it; that mean Court did it."

And for the that exercise in shirking responsibility, the Canadian Treasury will have paid for the court time, the federal lawyers' time, and costs to Khadr.