The Enforcement Challenges of Chinese Notarial Debt Instruments in Common Law Jurisdictions: A Case Study of China Minsheng Trust Co., Ltd. v. FU KWAN

Abstract

This article examines the significant challenges faced in enforcing Chinese notarial debt instruments(公证债权文书) in common law jurisdictions, including Hong Kong, the United States, the United Kingdom, Canada, Australia, and Singapore. Using the case of China Minsheng Trust Co., Ltd. v. FU KWAN ([2024] HKCFI 590) as a focal point, it highlights the institutional barriers that prevent these instruments from being recognized and enforced abroad. The article analyzes the legal framework governing notarial debt instruments in China, the specifics of the case, and the broader implications for cross-border enforcement. It also proposes solutions, such as adjusting domestic execution procedures and optimizing contractual terms, to mitigate these challenges.

1. Introduction

In the People’s Republic of China (PRC), notarial debt instruments have become a cornerstone of financial transactions due to their streamlined enforcement process. Governed by Article 241 of the Civil Procedure Law and the Supreme People’s Court’s Provisions on Several Issues Concerning the Enforcement of Notarized Debt Instruments, these instruments allow creditors to obtain execution certificates from notarial offices, enabling direct enforcement by people’s courts without litigation. However, when creditors seek to enforce these instruments in common law jurisdictions such as Hong Kong, the United States, the United Kingdom, Canada, Australia, and Singapore, they encounter significant institutional obstacles. The case of China Minsheng Trust Co., Ltd. v. FU KWAN ([2024] HKCFI 590) exemplifies these challenges, where the Hong Kong High Court refused to register a Mainland Chinese court’s ruling related to a notarial debt instrument, highlighting the incompatibility of these instruments with Hong Kong’s legal framework. This issue extends beyond Hong Kong, affecting other common law jurisdictions with similar standards for recognizing foreign judgments. This article analyzes these enforcement challenges, using the aforementioned case as a case study, and proposes potential solutions to facilitate cross-border enforcement.

2. The Chinese Notarial Debt Instrument System

2.1 Legal Framework

The enforcement of notarial debt instruments in the PRC is governed by Article 241 of the Civil Procedure Law and the Supreme People’s Court’s Provisions on Several Issues Concerning the Enforcement of Notarized Debt Instruments. These provisions allow creditors to apply for an execution certificate from a notarial office, which authorizes direct enforcement by a people’s court without initiating litigation. The execution certificate empowers creditors to request compulsory enforcement, streamlining the debt collection process and reducing judicial resource demands.

2.2 Characteristics of the Execution Process

The primary advantage of the notarial debt instrument system is its efficiency, as it bypasses formal litigation. Upon a debtor’s default, the creditor applies for an execution certificate, which the notarial office issues after verifying the debt’s validity. The creditor then submits this certificate to a people’s court, which issues an execution notice or assistance notice, compelling the debtor to fulfill their obligations. Judicial intervention is limited to exceptional circumstances, such as:

1. The court refusing to accept or dismissing the enforcement application, requiring the creditor to pursue litigation.
2. The notarial office refusing to issue an execution certificate, prompting the creditor to seek a court judgment.
3. The debtor applying for non-enforcement or the court determining that enforcement violates public order or good morals, leading to a ruling against enforcement.

This streamlined process typically generates procedural documents, such as execution notices, rather than judicial judgments. Consequently, creditors often lack a judicial document that meets the requirements for recognition as a “foreign judgment” in common law jurisdictions.

3. Case Analysis: China Minsheng Trust Co., Ltd. v. FU KWAN

3.1 Background of the Case

In China Minsheng Trust Co., Ltd. v. FU KWAN ([2024] HKCFI 590, HCMP1943/2022 to HCMP1946/2022), the Plaintiff, China Minsheng Trust Co., Ltd., entered into four loan agreements with New China United Holdings Limited, totaling RMB 4.4 billion, with the Defendant, FU KWAN, providing guarantees. FU KWAN, the founder of New China United Holdings, agreed in the guarantee agreements to accept compulsory enforcement without litigation in the event of default. Following the borrower’s default, the Beijing Chaoyang Notary Office issued an execution certificate on January 13, 2020, authorizing enforcement. The Beijing Third Intermediate People’s Court issued an execution notice on January 14, 2020, but terminated the proceedings on January 20 and December 1, 2020, due to a settlement and insufficient assets. The court issued four rulings confirming FU KWAN’s ongoing obligation to perform. On November 25, 2022, the Plaintiff applied to register these rulings as “Mainland judgments” under the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”). The registration was initially granted on March 7, 2023, but FU KWAN sought to revoke it, arguing that the rulings did not constitute a “payment order” under Article 5(2)(e) of the Arrangement.

3.2 Hong Kong Court’s Judgment

The Hong Kong High Court, presided over by Deputy High Court Judge Au-Yeung, revoked the registration. The court held that the execution certificate, issued by a notarial office, did not qualify as a “Mainland judgment” under the Arrangement, as it was not a court-issued document. The Plaintiff attempted to circumvent this by registering the Beijing court’s rulings, but the court found that these rulings merely terminated the enforcement proceedings and confirmed the Defendant’s ongoing obligations without containing an explicit payment order, as required by Article 5(2)(e). The Plaintiff’s argument that the execution certificate and rulings together constituted a payment order was rejected, as this would distort the rulings’ effect. The court further noted that allowing such registration would improperly extend the two-year limitation period for registration under Article 7, contrary to the Arrangement’s legislative intent.

3.3 The Dilemma Revealed by the Case

The case reveals a systemic challenge in enforcing Chinese notarial debt instruments in Hong Kong. The execution certificate, being non-judicial, is excluded from the Arrangement’s definition of a “Mainland judgment.” Even when creditors rely on related court rulings, these often lack the specific payment orders required for recognition. This creates a paradox: successful enforcement in China produces procedural documents that are unenforceable abroad, while failed enforcement may lead to judicial judgments that could be recognized, but only after additional litigation. This “curse of smooth domestic enforcement” limits the cross-border utility of notarial debt instruments.

4. Reflection

4.1 The Root Causes of the Enforcement Dilemma in Hong Kong

The enforcement challenges in Hong Kong stem from three core issues:

1. Nature of the Documents: Notarial debt instruments and execution certificates are issued by notarial offices, not courts, and thus do not meet the Arrangement’s definition of “Mainland judgments” as court-issued judgments, rulings, mediation agreements, or payment orders. Procedural documents like execution notices, while enforceable in China, lack judicial character abroad.
2. Lack of Explicit Payment Orders: The Arrangement requires Mainland judgments to explicitly order payment of a sum. In China Minsheng Trust, the Beijing court’s rulings merely described ongoing obligations, failing to meet this requirement.
3. Procedural Efficiency vs. Enforceability: The efficiency of China’s non-litigious enforcement process, which avoids judicial judgments, creates documents that are incompatible with foreign recognition standards. Conversely, enforcement failures may lead to judicial judgments that are recognizable abroad, creating a paradoxical incentive for domestic enforcement obstacles.

4.2 Similar Challenges in Other Common Law Jurisdictions

The enforcement difficulties are not unique to Hong Kong but extend to other common law jurisdictions, where recognition of foreign judgments requires a court-issued, final, and conclusive judgment with an explicit payment obligation. The following table summarizes these challenges:

Table 1: Challenges to Enforcing Chinese Notarial Debt Instruments in Common Law Jurisdictions

Additionally, common law jurisdictions often require that foreign judgment procedures adhere to natural justice principles, such as notice and opportunity to be heard. The Chinese notarial process, which allows debtors to waive litigation, may be perceived as lacking procedural fairness, further complicating enforcement.

5. Responses

To address these enforcement challenges, creditors can consider the following strategies:

1. Adjusting Domestic Execution Procedures: Creditors may initiate separate litigation in Mainland China to obtain a judicial judgment, which is more likely to be recognized abroad. However, this approach increases costs and may be rejected by Chinese courts if prior enforcement proceedings have commenced, citing existing enforcement as a bar to litigation.
2. Optimizing Contractual Terms: Including arbitration clauses in contracts allows creditors to pursue arbitration awards, which are enforceable internationally under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). This provides a viable alternative to notarial enforcement for cross-border transactions.
3. Legislative Reforms: Amending Chinese law to allow courts to issue judicial judgments in standard notarial enforcement proceedings could enhance cross-border enforceability. However, this would require significant legislative changes, balancing domestic efficiency with international compatibility.

6. Conclusion

The case of China Minsheng Trust Co., Ltd. v. FU KWAN underscores the systemic challenges of enforcing Chinese notarial debt instruments in common law jurisdictions. The non-judicial nature of these instruments and the lack of explicit payment orders in related court documents render them incompatible with foreign recognition standards. This creates a paradox where domestic efficiency undermines international enforceability. Creditors must strategically balance these factors, potentially opting for litigation to obtain judicial judgments or incorporating arbitration clauses to leverage international enforcement mechanisms. Long-term solutions may require legislative reforms to align China’s notarial system with global standards, enhancing the cross-border utility of these instruments.