Due Diligence in International Investment Law

Abstract

The obligation to exercise due diligence – which is commonly understood as the degree of care that is legally required or that is to be reasonably expected – emerged in international law in the seventeenth century to mediate inter-State relations. Due diligence then developed throughout the nineteenth and twentieth centuries in the context of the protection of aliens. Against this background, the article analyses the obligation to exercise due diligence in international investment law. The analysis shows that due diligence plays an important role in several aspects of the protection of foreign investments. First, it is accepted that investors should act with due diligence to: (1) benefit from the standards of protection set out in investment treaties; and (2) ensure compliance with host State law. Second, host States are expected to exercise due diligence with regard to substantive standards of protection, particularly the full protection and security (FPS) standard. While investment tribunals have clearly identified the scope of investors’ and host States’ due diligence, there is no conclusive indication as to the precise requirements to comply with the obligation to exercise due diligence. Due diligence, fair and equitable treatment standard, legitimate expectations, host State law, full protection and security standard