Sometimes a contract will cease without the default of either party because it becomes incapable of being performed due to a change in circumstances that renders its performance impossible or radically different from what was contemplated at the time of contracting. This happens through the legal doctrine of frustration.
However, as illustrated by the recent case of Stahl Matthew Ian v Brilliant Jet Limited [2025] HKCFI 2013, the doctrine of frustration is not to be invoked lightly.
Facts
The Plaintiff was employed by the Defendant (the “Company”) as a private jet pilot based in Shanghai. However, due to the COVID-19 pandemic, the Chinese authorities imposed certain entry restrictions which prevented the Plaintiff from re-entering Mainland China, despite him holding a valid Chinese business visa. He subsequently tried to apply for a China Crew visa (Type C Visa) to re-enter Mainland China but was unsuccessful.
Shortly after that, the Plaintiff gave three months’ notice to resign. His further application for the Type C Visa was also rejected.
As the Plaintiff was unable to obtain a valid visa to enter Mainland China, the Company placed him on unpaid leave, to which he objected.
During the Plaintiff’s notice period, the Company summarily dismissed him for (i) failing to obtain all necessary permits required for the performance of his duties, (ii) not being based in Shanghai and (iii) using the Company’s credit card for various travel expenses without authorisation.
The Plaintiff then sued the Company in the Labour Tribunal, claiming arrears of wages (in respect of the unpaid leave period), annual leave pay, reimbursement of expenses and three months’ wages in lieu of notice.
The Labour Tribunal found that the summary dismissal was not justified and awarded the Plaintiff all of his claims, except his claim for wages in lieu of notice. The Deputy Presiding Officer held that the Plaintiff’s contract of employment had been “frustrated” by the Mainland Chinese government’s change of entry restriction policies, which made it impossible for him to perform the contract. The issue of frustration had not been raised or argued at the trial before the Labour Tribunal.
The Plaintiff subsequently appealed to the Court of First Instance.
The law
In determining whether the Plaintiff’s contract of employment was frustrated, the Court of First Instance set out the following key legal principles:
- A party seeking to argue that a contract of employment has been frustrated must demonstrate that:
- there has been some outside event or extraneous change of situation, not foreseen or provided for by the parties at the time of contract, which either makes it impossible for the contract to be performed, or at least renders its performance radically different from what the parties had originally contemplated at the time of entering into the contract, and
- such outside event or extraneous change of situation and its consequences in relation to the performance of the contract, must have occurred without the fault or default of either party to the contract. The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it.
- The assessment of whether a contract has been frustrated is a fact sensitive exercise which requires the Court to consider:
- the terms of the employment contract and its factual matrix,
- the parties’ knowledge, expectations, assumptions and contemplations,
- the nature of the supervening event, and
- the parties’ reasonable and objectively ascertainable calculations regarding the possibilities of future performance under the new circumstances.
The Court also emphasised that the doctrine of frustration will not be lightly invoked and mere expense or delay or onerousness is insufficient. There must be a break in identity between (i) a contract as provided for and contemplated and (ii) its performance under the new circumstances.
The decision
In allowing the appeal, the Court of First Instance held that the Plaintiff’s contract of employment had not been frustrated.
Under the Plaintiff’s contract of employment, he was not only required to serve in any part of the world (and on any route operated by the Company), but could also be required to work at different locations, or even to relocate to another home base.
It was therefore not the case that his contract could only be performed if he could travel to and from Shanghai. In other words, there were alternative means to perform the contract.
In any event, the Court found no evidence to suggest that the performance of the Plaintiff’s contract was impossible or radically different from what had been contemplated by the parties, even if he were required to secure a Type C Visa.
The Court further found that it was not impossible for the Plaintiff to have ultimately succeeded in obtaining a Type C Visa. It was only uncertain whether he could have obtained the visa to continue his flying duties during the notice period.
Key takeaways
It is not easy to establish that a contract of employment has been frustrated.
Where an employee is required to obtain and maintain a visa to work in Hong Kong, a practical solution is to include a term in their contract of employment stating that the employee’s employment may be terminated if, among other things, they fail to obtain or maintain the required visa (a) without notice during the first month of probation, or (b) on 7 days’ notice after the first month of any probation period.
The judgment is available here.
