Legal experts say the ruling, handed down by a three-person tribunal in Washington, DC, is believed to be the first legal victory favoring a US investor under the 1994 North American Free Trade Agreement. It could also force the Mexican government to do a better job of sticking to written contracts and international laws, which at times have been broken by local officials in Mexico.

"This is a groundbreaking decision in international law," says Jack J. Coe Jr., a lawyer for plaintiff Metalclad who also teaches law at Pepperdine University in Malibu. "It's huge. The NAFTA system appears to be working."

Metalclad is a Newport Beach, CA-based provider of construction services and specializes in handling toxic material. The case began in 1993, Coe says, when Metalclad began building a $20-million landfill for hazardous waste about 250 miles northwest of Mexico City.

After Metalclad finished the project, the state's governor said the company had not obtained the proper permits and declared a large area near the dump an ecological preserve. Metalclad sued, citing a NAFTA provision that guarantees all investors "fair and equitable treatment."

The world tribunal heard the case last year and the decision was announced late yesterday. Though Metalclad CEO Grant D. Kesler welcomes the decision, he notes that the $16.7-million damage award is far short of the $90 million the company expected to earn over the dump's 20-year life.

Nonetheless, Metalclad's victory should hearten many other American developers. Some builders over the years have suffered huge financial losses after Mexican officials simply stopped their projects in midstream or essentially confiscated their property using questionable legal tactics.