Abstract
The investor’s due diligence has become a significant factor in determining whether the legitimate expectations of an investor give rise to protection under the FET standard. This is especially relevant when an investor’s claim for the protection of its legitimate expectations is based on the stability of a regulatory framework. The investor’s due diligence in the context of the FET standard goes beyond the risk-based business due diligence performed by a foreign investor for its own benefit. It has implications for a state’s right to regulate in the public interest and a broader notion of business responsibilities. Investors are expected to conduct proper due diligence before investing in a host state by demonstrating their reasonable efforts to collect information about the rules and regulations that are pertinent to the proposed investment. In some cases, due diligence extends to an investor’s duty to assess the possible risks related to the broader economic situation and socio-political background of a host state. Focusing on the recent renewable energy awards, this article analyses and clarifies the role of due diligence in the context of the FET standard, as well as its potential application for asserting responsible business conduct in the broader framework of international investment law.
Highlights
Tribunals are increasingly referring to an investor’s duty to exercise due diligence in investment arbitral decisions
Investors are expected to conduct proper due diligence before investing in a host state by demonstrating their reasonable efforts to collect information about the rules and regulations that are pertinent to the proposed investment
A small number of tribunals have accepted that some type of formal written legal advice about the potential changes to a challenged regulatory framework was necessary to constitute acceptable due diligence
Summary
Tribunals are increasingly referring to an investor’s duty to exercise due diligence in investment arbitral decisions. Tribunals even provide that exercising due diligence is necessary in order for an investor to have his legitimate expectations protected under the fair and equitable treatment (FET) standard. The investor’s due diligence in the context of the FET standard goes beyond the risk-based business due diligence performed by a foreign investor for his own benefit It has implications for a state’s right to regulate in the public interest and a broader notion of business responsibilities. The article will address how a due diligence tool can be used by tribunals to ensure predictability and consistency in balancing the legitimate expectations of an investor under the FET standard and the state’s right to regulate. Several final remarks will be offered at the end of the article
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