The Supreme Court of Canada says a bankrupt company doesn't have to pay to clean up the environmental mess it left at a mill in Newfoundland and Labrador.

The case concerns Resolute Forest Products, formerly known as AbitibiBowater.

The provincial government expropriated the company's assets after it closed a pulp and paper mill in central Newfoundland in early 2009.

'Subjecting such orders to the claims process does not extinguish the debtor’s environmental obligations any more than subjecting any creditor’s claim to that process extinguishes the debtor’s obligation to pay a debt.'—Supreme Court of Canada

But the province had argued the company should still pay the $100-million cleanup cost.

In a 7-2 decision issued Friday morning, the Supreme Court upheld a prior ruling from a judge in Quebec.

The decision means the Newfoundland and Labrador government must now get in line with other creditors of AbitibiBowater.

The province had argued that its environmental protection cleanup orders were not “claims” under insolvency laws, and thereby fell outside that process.

The company disagreed.

The top court sided with Abitibi.

“Subjecting such orders to the claims process does not extinguish the debtor’s environmental obligations any more than subjecting any creditor’s claim to that process extinguishes the debtor’s obligation to pay a debt,” the majority decision noted.

“It merely ensures that the province’s claim will be paid in accordance with insolvency legislation.”

The justices wrote that full compliance with such cleanup orders that are found to be monetary in nature would shift the costs of remediation to third-party creditors.

That would replace the polluter-pay principle with a “third-party-pay” principle, they concluded.

For its part, the company formerly known as AbitibiBowater was buoyed by the top court's ruling.

"We are pleased with the decision released from the Supreme Court of Canada today,” Seth Kursman, a spokesman for Resolute Forest Products, said in an emailed statement.

“The decision of the court speaks for itself."

The majority decision, written by Justice Marie Deschamps, sought to allay concerns that companies would restructure in order to rid themselves of their environmental liabilities.

“Reorganization made necessary by insolvency is hardly ever a deliberate choice, and when the risks corporations engage in materialize, the dire costs are borne by almost all stakeholders.”

Bitter conflict between province, company

The Supreme Court decision marks another milestone in a bitter, years-long dispute between the Newfoundland and Labrador government and Abitibi.

The company closed its paper mill in Stephenville, on Newfoundland’s west coast, in 2005.

When Abitibi announced three years later that it would shutter its Grand Falls-Windsor facility, the province passed legislation seizing the company's assets.

The AbitibiBowater paper mill in Grand Falls-Windsor, pictured in a 2008 file photo. (CBC)

That included timber and water rights, along with a hydroelectric generating station.

The expropriation bill went through the provincial legislature in just hours.

But the government later learned it had accidentally expropriated the former mill property in central Newfoundland — and its environmental liabilities — as well.

The province then went to court, insisting Abitibi should remain on the hook for those cleanup costs.

In a March 2010 decision, Quebec Superior Court Judge Clément Gascon questioned whether the province could force the company to clean up areas it no longer owns — lands that were expropriated against its will.

Another legal tussle

Gascon wrote that the province's position was "at a minimum, rather awkward" and that "some would go as far as to say that it is preposterous."

He said a cleanup order from the province to AbitibiBowater is "as unenforceable as it is unjustifiable."

The Newfoundland and Labrador government dismissed that decision, insisting that Gascon — dubbed “the Great Gatsby” by then Premier Danny Williams — was wrong.

“The honourable judge in Quebec obviously has no time for Newfoundland and Labrador, and what he has done has gone beyond his constitutional competence,” Williams told the provincial legislature on May 3, 2010.

“He did not have the statutory or constitutional competence to do what he did, and he made palpable and overriding errors of fact.”

In Friday’s majority ruling, the top court sided with Gascon.

Province's reaction to ruling

The environmental cleanup case was not the only legal tussle related to the expropriation of Abitibi’s central Newfoundland assets.

The company filed a $500-million NAFTA challenge, settling two years ago for a $130-million payout from Ottawa.

Newfoundland and Labrador Attorney General Tom Marshall said the government wasn’t seeking financial compensation, but simply wanted Abitibi to clean up its mess.

“We’re obviously disappointed,” Marshall told reporters.

He defended the decision to expropriate, saying it did not change the outcome of the Supreme Court case.

Environment Minister Tom Hedderson said the province must still do assessments for any necessary cleanups, but Hedderson would not be drawn into a discussion on timelines.