With respect, what you are missing here is that both Mr. Khadr and your grandfather (i.e., the people suffering) are Canadian citizens entitled to the protection and benefit of the law.
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The previous government vastly increased the size of the settlement because its conduct was clearly grounds for an enormous exemplary damages claim - where the damages are no longer measured by the victim's loss but rather by the magnitude of the high-handed and contumelious behaviour of the defendant.
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Canada should be seeking recovery of the money from the persons who decided to act in such a callous manner.  Clearly, that behaviour was outside the legitimate bounds of their duties as public servants, and constituted misconduct for which they should be held personally accountable.  They decided to act outside the law, so they should pay, not Canadians.  It's about personal accountability, usually a favorite Conservative topic.
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This is the price of lawless pandering to the rabid conservative base.