"This money will play a major part in implementing the band's business development plan, which we are confident will result in a much stronger economic situation for our people," said Chief Daniel Paul of the Paul Band said in a news release issued Friday afternoon.

Band members will get a cash payment from a portion of the $10 million settlement, he added.

About 800,000 litres of fuel oil and pole-treating oil were spilled in August 2005 during a train derailment.

Due to the prevailing winds at the time, much of the oil wound up on the east side of the lake where the Paul Band reserve is located.

The band launched a lawsuit against CN (TSX:CNR) alleging the oil permanently damaged the plants and animals its members use for food, medicine and spiritual ceremonies.

The agreement, recently approved by a Court of Queen's Bench justice, requires the band to drop its legal action against CN, the Government of Canada and the Government of Alberta.

Jim Vena, senior vice-president for CN's western region said in the news release that company officials "acknowledge the concern of the Paul Band over cultural impact that has occurred along the lakeshore on their lands."

"We are satisfied with the manner in which the Paul Band negotiated a fair and equitable settlement that will allow them to move forward on projects for the collective benefit of the entire Paul Band First Nation."

The oil spill west of Edmonton forced 20 people from their homes and cottages, killed hundreds of birds and fish, polluted beaches and shoreline and forced authorities to truck clean drinking water into the area for 18 months.

In May 2006, the lake was declared safe for swimming and boating, but not for washing dishes, watering vegetables and showering.

But in summer 2007, people reported seeing oil on the surface of the lake and the local health authority warned the public to watch for visible oil, tar balls and oily aquatic vegetation on the beach or in shallow water by the shoreline.

A January 2007 report by environmental consultants hired by CN suggested the lake wouldn't suffer permanent damage because of the spill.

Tests showed no spill-related contaminants present in the lake's fish. Nor was there evidence that any remaining oil contamination was any threat to human health, the report said.

CN offered about $7.5 million in compensation to the area's 1,600 residents. The payments ranged in size from $1,500 to $27,000 for those closest to the spill.

The railway is also facing charges by the Environment and Oceans and Fisheries departments.