A border dispute erupted in 1902 over the right to use natural resources in the Churchill River basin between the then dominions of Canada and Newfoundland.

After lengthy delays, the case came before the Judicial Committee of the Privy Council in London, which in March 1927 delivered a win for Newfoundland and granted it the disputed land.

Officials from this province argue and publish maps to the effect that the area of Labrador between the drainage basin divide and the 52nd parallel belongs to Quebec.

At various times, the province's politicians alleged that the arbitration procedure was flawed and that the judges could have been biased, thus Newfoundland was awarded more territories than it specifically requested (ultra petita).

This necessitates negotiation over the extent of exploitation of the natural resources and sharing of profits, in particular in relation to the Old Harry oil field.

This border was also ambiguous as some islands were connected to the mainland at low tide, and thus the precise extent of the "Labrador shore" was unknown.

[13][14][15] The government in St. John's then repeated its offer after a favourable Privy Council decision, this time to Canada, asking $110 million (equivalent to $2.11 billion in 2020 dollars) for the land, but that deal was also rejected.

[16] When Newfoundland surrendered its autonomy to British authorities in 1934 due to the government's severe budgetary crisis, it was ready to sell Labrador again, but Quebec was not receptive.

As a result, he advised his superiors in St. John's that the border of Labrador was not clearly defined and urged them to settle it, but the issue was not considered a high-priority one and was left for later resolution.

[6] As the parties were unable to agree, Simon-Napoléon Parent, Quebec's minister of lands, mines and fisheries, asked the Canadian government to refer the question to the Judicial Committee of the Privy Council for arbitration.

[17] According to that set of rules, the Privy Council went on to determine "the location and definition of the boundary as between Canada and Newfoundland in the Labrador Peninsula under the statutes, orders-in-council and proclamations".

[2] The court was not tasked with drawing a new boundary, but only with issuing an interpretation of existing documents regulating Quebec's and Labrador's border to determine the possession of the Churchill River basin.

[6] That was despite the distance from Blanc-Sablon to the 52nd parallel (part of the frontier mentioned in the British North America (Seigniorial Rights) Act of 1825) being 39 mi (63 km).

Canada also presented no evidence to the court of its numerous geological expeditions it had done to estimate the riches of the area and of the settlements of its citizens in Labrador's hinterland.

It defined the frontier between Canada and Newfoundland as being: [...] a line drawn due north from the eastern boundary of the bay or harbour of Ance Sablon as far as the fifty-second degree of north latitude, and from thence westward along that parallel until it reaches the Romaine river, and then northward along the left or east bank of that river and its head waters to their source and from thence due north to the crest of the watershed or height of land there, and from thence westward and northward along the crest of the watershed of the rivers flowing into the Atlantic Ocean until it reaches Cape Chidley [...]The Privy Council ruled that the word "territory" (and not necessarily "coast"), as used in documents of the time, must have included a larger portion of the peninsula than Canada contended.

This made making the Council "recognize as Newfoundland's a territory bigger than it asked for, which in legal settings is called an ultra petita decision".

[26][27] Moreover, the area between the 52nd parallel north and the watershed is subject to an active dispute, as Quebec contends that the region was granted despite Newfoundland not requesting it (ultra petita).

Joey Smallwood, the premier of Newfoundland at the time it joined Confederation, stated that Quebec had nothing to do with the definition of the border as it was not a separate dominion of the British Empire.

Several theories and accusations have been put forward to explain the unfavourable ruling: the judges' alleged conflict of interest (either by favouring the colony of Newfoundland to the more autonomous Dominion of Canada, or by having financial stakes in mining companies), the lack of representation of Quebec, or the will to award more than was asked for, which resonate in Quebec's society.

[30] In 1966, just before signing the letter of intent to build the Churchill Falls hydroelectric plant, Premier Daniel Johnson Sr. claimed that Quebec still retained its sovereignty over Labrador, including its waters, on the grounds that during the 1926 hearing, Quebec was not duly represented and thus the procedure was flawed; he dismissed the border on the 52nd parallel as being "only recognized by the federal government".

[35] The controversy over the tacit recognition of the border was ultimately avoided as Newfoundland was in a weaker negotiating position, and Hydro-Québec and its owner, the provincial government, introduced several clauses favourable to Quebec.

While they said that ultra petita claims might have some merits and could therefore serve as a possible justification for partial adjustment of the border (though not through the court system), they state that the Privy Council decision is binding and has full legal force, dismissing allegations of conflict of interest or lack of representation of Quebec as unproven or not valid reasons to review it.

For the United States, the waters, just like the Northwest Passage, are of strategic importance, and are therefore not under Canadian sovereignty; the French also protest its assertion.

[47] That said, according to the federal government, which has pronounced more and more acts asserting sovereignty over the waters, the territories of Quebec and Newfoundland and Labrador end at the seashore.

[48] The federal government's position was confirmed by the Supreme Court of Canada in 1967 in Reference Re: Offshore Mineral Rights, in which the Court held that British Columbia did not have jurisdiction over the territorial waters or the continental shelf,[45] with the caveat, added in 1982, that for reasons unique to British Columbia (the Oregon Treaty), the province could nevertheless have jurisdiction over the Strait of Georgia.

[45] The federal government has a general agreement on profit sharing from the oil and gas resources near the shore of Newfoundland and Labrador and manages the exploitation via a federal-provincial petroleum board.

[49] In a 2003 speech, Newfoundland's minister of mines and energy, Ed Byrne, announced that the province intended to reach an agreement with Quebec, trying to strike a deal similar to the one its government had set with Nova Scotia.

That said, she expressed joy upon news that Quebec and Canada agreed on the terms of exploitation of the resources in the Old Harry oil field in 2011,[49] the exact shares of which were to be determined by arbitration.

[46][54] In fact, the provincial authorities, who initiated the 1964 and 1972 agreements on sea borders with New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador, consider them binding;[24] this was confirmed by two separate commissions, in 1966 and 1991, and determined to be the model should Quebec declare independence.