Frustration of Contract: Insights for Hong Kong Employers

Employment contracts typically end through giving of notice (by either party), payment in lieu of notice, the natural expiry of a fixed term or (occasionally) summary dismissal. In exceptional cases, a contract may automatically end under the doctrine of frustration where an unforeseen event so fundamentally changes the nature of the contract that it becomes impossible to perform or deviates radically from what was originally intended.

In the recent case of Stahl Matthew Ian v Brilliant Jet Limited [2025] HKCFI 2013, the Hong Kong Court of First Instance clarified how this doctrine applies in the employment context.

Background facts and decision of the Labour Tribunal

Mr Stahl, a private jet pilot employed by Brilliant Jet Limited under a contract of employment dated 17 December 2019, was contractually required to obtain necessary work visas (including those required to work in Mainland China) with Brilliant Jet’s assistance and initially to be based in Shanghai, subject however to the right of global deployment.

In March 2020, Mr Stahl was prevented from re-entering Mainland China due to the COVID-19 entry restrictions. He was unable to re-enter despite multiple visa application attempts. In mid-May 2020, Mr. Stahl resigned with three months’ notice but continued trying to apply for the necessary visas. However, Brilliant Jet refused to assist.

Before the notice period ended, Brilliant Jet summarily dismissed Mr Stahl for failing to obtain visas, absence from Shanghai and alleged misconduct (specifically, misuse of a company credit card).

Mr Stahl filed a wrongful termination claim in the Labour Tribunal. While the Tribunal found that summary dismissal was not justified, it dismissed Mr Stahl’s claim on the basis of frustration of contract despite neither party raising that issue at trial. The Tribunal concluded that the changes in Mainland China's entry policies had fundamentally altered the parties' obligations, rendering the original terms of the employment contract unperformable.

Mr. Stahl appealed to the Court of First Instance in Hong Kong.

(To pre-empt a question: although this is not stated in the judgment, we infer that the employment contract was governed by Hong Kong law, either expressly or by inference.)

Decision of the Court of First Instance

The Court of First Instance allowed the appeal, ruling that Mr Stahl's contract had not been frustrated. In reaching the decision, the Court applied several key principles:

• Proof of Frustration: Frustration is not lightly invoked. The party asserting frustration must prove 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 at all or at least renders its performance radically different from what the parties had contemplated when they made it. Mere expense or delay is not sufficient.
• Absence of Fault: Frustration must occur without either the fault or the default of either party to the contract.
• Alternative Means of Performance: Frustration cannot be claimed if any alternative performance method exists.
• Fact-Sensitive Assessment: The assessment of frustration is a fact-sensitive exercise. It requires examining the contract's terms, context, and the nature of the supervening event, alongside the parties' expectations and calculations regarding future performance.

The Court found that Mr Stahl's contract had not been frustrated because the contract allowed for global deployment, meaning there were alternative means of performance beyond Mainland China. Further, while there was uncertainty surrounding visa applications, obtaining the necessary visa was not always impossible: some of Mr Stahl’s colleagues had succeeded in doing so.

Takeaway for employers

Employers should exercise caution when terminating contracts based on frustration as the threshold is high. Wrongful termination can expose employers to both civil and criminal liabilities (e.g., where statutory restrictions on termination apply).

In addition to work permits, which are essential for employees without the right to work in Hong Kong, certain industries, such as asset management, require specific accreditations or registrations. It is crucial for employers to draft employment contracts carefully to protect their interests. For example, the contracts may include terms that mandate employees to obtain and maintain necessary work visas, licences and registrations as conditions precedent to both the commencement and continuation of employment. Contracts should also clearly stipulate that employment will cease automatically, or allow for a shortened notice period, if any of these conditions are not fulfilled. This approach ensures clarity and reduces the risk of disputes and potential liabilities.

Full judgment can be found here.