Georgetown, Delaware - A Delaware judge on Tuesday ruled that Elon Musk's $56 billion compensation package from Tesla was unfair.

Judge Kathleen McCormick found that Tesla boss Musk had too much influence behind the scenes when the plan for share awards was agreed in 2018 for it to be regarded as a fair process.

McCormick ruled in favor of the plaintiff, a group of shareholders led by Richard Tornetta, who wants to cancel the agreement with Musk.

"The defendants bore the burden of proving that the compensation plan was fair, and they failed to meet their burden," the judge wrote in the ruling.

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McCormick left open what will happen next, but she instructed the plaintiff and Tesla to work out a solution. She emphasized that, although the deal would not automatically be cancelled as a result of the ruling, "the plaintiff is entitled to rescission."

The electric car manufacturer and Musk can still appeal.

According to the 2018 plan, Musk would receive stock options in 12 stages with a maximum value of up to $55.8 billion if Tesla's stock market value and business figures grew at certain minimum values.

McCormick ruled that Tesla's shareholders had not been correctly informed about how the huge package was negotiated. Musk had close connections with some of the people involved in the negotiations on Tesla's side.

Musk initially gave no indication whether he intended to appeal, but he did post on X, saying: "Never incorporate your company in the state of Delaware."

He added: "I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters."