April 2009 saw the first reported case of the PRC courts granting enforcement of an ICC award made in the PRC (see Legal update, First reported case of China ICC award being enforced in China). There has long been uncertainty over whether an ICC award made in the PRC will be recognised and enforced by the PRC courts. This is because, under the PRC Arbitration Law, the prevailing view is that an arbitration agreement is valid only if it provides for arbitration under the auspices of one of the PRC's "arbitration commissions" (for example, CIETAC). This requirement has been widely interpreted to mean that PRC law does not recognise the validity of arbitration agreements designating a foreign arbitration institution (such as the ICC). Despite this, ICC arbitrations have been seated in the PRC and there has been considerable interest as to whether the PRC courts will recognise and enforce such awards. In this case, the Ningbo Intermediate Court decided that the PRC ICC award before it was "not considered as [a] domestic award…" under Article I of the New York Convention. On this basis, the court recognised and enforced the ICC award, by applying the New York Convention.

Although some commentators have argued that the decision of the Ningbo Intermediate Court is a helpful step in the right direction in terms of demonstrating the court's pro-enforcement stance, the basis for the court’s decision is somewhat doubtful. It remains to be seen, in any event, if other PRC courts will take a similar approach; if they do, this will be a very significant development indeed.

In recent years, bilateral investment treaties (BITs) have increasingly been seen to be a source of protection for foreign investors, allowing qualifying investors to bring arbitration claims against a signatory state for violations of protections offered by BITs. China has been particularly active in signing BITs, and in recent years, has moved towards signing BITs that deal in greater detail with the protections granted to foreign investors.

Many of China's BITs, particularly the older ones, allow for the arbitration of claims with China that relate to "a dispute involving the amount of compensation for expropriation" (or other similar wording). In comparison, China's newer BITs typically contain wording along the lines that "any dispute concerning" qualifying investments shall, at the request of a qualifying investor, be submitted to arbitration.

A question that has frequently been discussed is whether provisions under the older BITs are broad enough to allow qualifying investors to bring arbitration claims dealing both with liability and compensation for claims of expropriation. In addition, a related question is whether it is possible for investors to invoke most favoured nation (MFN) clauses found in older BITs, to rely on more generous arbitration clauses contained in newer BITs entered into by China.

Two recent cases, Renta 4 S.V.S.A. et al v. The Russian Federation (SCC No. 24/2007) and Tza Yap Shum v The Republic of Peru (ICSID Case No. ARB/07/6) have considered both questions above, with the Tza v Peru case dealing specifically with a BIT entered into by China.

In the Tza v Peru case, which arose from a dispute between a Chinese national and the Republic of Peru over certain Peruvian tax laws which allegedly "destroyed" investments made in a Peruvian company, the arbitral tribunal construed the words "involving the amount of compensation for expropriation" as covering both a dispute over the amount of compensation, and also a determination of other important matters related to the alleged expropriation. Such matters included the question of whether an expropriation had taken place, whether the expropriation met the requirement of public interest, and whether there had been discrimination.

In the Renta 4 case, (involving an indirect investment by Spanish investors in Yukos, the Russian oil company) the tribunal found that the words "relating to the amount or method of payment of the compensation due under [the article dealing with nationalisation and expropriation]" covered both a disagreement over quantification, and also one over the "the basic predicate of a remedy" (ie, liability).

Both decisions therefore suggest that it may be possible to similarly construe the words in some of China's older treaties as conferring jurisdiction on a tribunal to determine both liability for and the quantum of compensation payable, arising from an expropriation.

Both the Tza v Peru and Renta 4 cases also considered the possibility of invoking the MFN clause as a means of relying on more generous arbitration clauses contained in other BITs. In both cases, attempts to do so were unsuccessful, based on the wording of the particular treaties before the respective tribunals. In the Renta 4 case, the tribunal found that the specific MFN clause in the Russia-Spain BIT only established a right to enjoy a "no less favourable level of fair and equal treatment", which did not necessarily include access to international arbitration. In the case of Tza v Peru, the tribunal stated that it would not allow the MFN clause (which, like that in Renta 4, also covered the right to fair and equitable treatment) to override the specific wording of Article 8(3) of the BIT, which limited the disputes which may be submitted to international arbitration to "expropriation disputes" and other disputes as expressly agreed by the parties.