Zespri Group Limited v Gao

[2020] NZHC 109

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-436-00094

[2020] NZHC 109

UNDER

The PLANT VARIETY RIGHTS ACT 1987

BETWEEN

ZESPRI GROUP LIMITED

Plaintiff

AND

HAOYU GAO

First Defendant

SMILING FACE LIMITED
Second Defendant

XIA XUE

Third Defendant

Hearing:

5, 6, 7, 8, 9 and 12 November 2018

(final submissions received 10 July 2019)

Counsel:

L A O’Gorman, A N Birkinshaw and H H K Yeldizian E St John and S Moore for defendants

Judgment:

10 February 2020

JUDGMENT OF KATZ J

This judgment was delivered by me on 10 February 2020 at 12:30pm pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Buddle Findlay, Auckland

Yu Lawyers, Auckland

Counsel:            E St John, Barrister, Auckland

S Moore, Barrister, Auckland

ZESPRI GROUP LIMITED v GAO & ORS [2020] NZHC 109 [10 February 2020]

Table of Contents

Introduction.......................................................................................................... [1]

Background and overview of Zespri’s claims................................................... [4]

Zespri’s development and commercialisation of the G3 and G9 varieties        [4]

Haoyu Gao and Xia Xue  [9]
Zespri’s concerns that the G3 and G9 varieties were being grown in China  [11]
Overview of Zespri’s claims  [13]

Infringement of PVR rights - the legal framework........................................ [16]

The Plant Variety Rights Act 1987 [16]

Cropmark Seeds Ltd v Winchester International (NZ) Ltd  [23]
Issues of Extraterritorial Application  [26]

Witness credibility.............................................................................................. [42] Circumstantial evidence.................................................................................... [46]

Alleged licence and supply of G3 and G9 to Mr Shu..................................... [49]

Hearsay issues - Mr Shu  [50]

Mr Gao’s dealings with Mr Shu in 2012  [52]
Mr Gao’s ongoing relationship with Mr Shu  [63]
Zespri’s interactions with Mr Shu  [68]

Key factual findings  [85]

Alleged joint venture with Mr Yu through Liangshan Yi  [87]

Mr Gao’s initial dealings with Mr Yu  [88]

The Liangshan Yi Co-operation Agreement  [90]
Mr Gao’s investment in the joint venture  [93]
Other evidence relating to the Liangshan Yi orchard  [95]

Key factual findings  [99]

Alleged joint venture with Mr Yuan, and offer to sell G3 to Mr Li            [100]

Mr Gao’s dealings with Mr Li  [101]

Alleged joint venture between Mr Yuan and Mr Gao  [106]

Key factual findings  [112]

Alleged dealings with Jiashang Agriculture and Mr Yang  [114]

The evidence  [114]

Key factual findings  [118]

First cause of action:  Did Mr Gao breach Zespri’s PVR rights?               [119]

Mr Gao’s relevant acts within New Zealand  [120]

Can Mr Gao and Smiling Face be concurrently liable for the same

conduct?  [125]

Can the export of a protected variety infringe PVR rights?  [128] Can an offer to sell a protected variety infringe PVR rights?  [131] What consequences have flowed from Mr Gao’s relevant acts within

New Zealand?  [134]
How have these consequences impacted Zespri?  [138]

Conclusion  [143]

Second cause of action: Did Smiling Face breach Zespri’s PVR Rights

under the PVR Act in G3 and/or G9?............................................................ [144]

What damages are appropriate for the breaches of the PVR Act by

Mr Gao and Smiling Face?............................................................................. [148]

Extraterritorial application and damages issues  [149]

What approach should be taken to quantifying damages?  [153]
What quantum of damages should be awarded to Zespri?  [161]

Third cause of action: Alleged breach of G3 licence agreements                [172]

The G3 licence agreements  [173]

Did Mr Gao breach the licence agreements?  [177]

Is Ms Xue jointly liable for Mr Gao’s breaches?  [179] What consequences flowed from Mr Gao’s breaches of the G3 licences? [181] Are “user principle” damages appropriate?  [184]

What quantum of damages should be awarded to Zespri?  [187]

Summary and conclusion................................................................................ [188]

Key factual findings  [192]

The first and second causes of action  [196]
The third cause of action  [199]

Result................................................................................................................ [201]

SCHEDULE – HEARSAY RULINGS.............................................................. [1]

Hearsay rulings.................................................................................................... [1]

Background.......................................................................................................... [4]

Should I determine the defendants’ admissibility challenges?  [11]

Statements allegedly made by Zespri’s investigators..................................... [17]

The challenged evidence  [17]

Is the challenged evidence hearsay?  [18]
Are the hearsay statements of Zespri’s investigators admissible under
s 18 of the Evidence Act?  [21]

Statements allegedly made by Mr Shu to Zespri’s witnesses  [30]

The challenged evidence  [30]

Is the challenged evidence hearsay?  [31]
Are the hearsay statements of Mr Shu to Zespri witnesses admissible
under s 18 of the Evidence Act?  [32]
The defendants’ reliance on hearsay statements made by Mr Shu                  [44]

DNA evidence..................................................................................................... [45]

Introduction

[1]    Zespri  Group  Limited  (“Zespri”)  controls  all  kiwifruit  exports   from New Zealand to countries other than Australia, on behalf of New Zealand growers.1 Zespri accounts for around 30 per cent of global kiwifruit sales and has sales and marketing capacity in 53 countries. In 2015, kiwifruit was New Zealand’s second largest horticultural export after wine, earning export receipts of $1.2 billion.

[2] In 2016, Zespri’s China-based staff started hearing industry rumours that two of its gold kiwifruit varieties, G3 and G9, were being planted in China. Zespri holds the exclusive rights to those varieties under the Plant Variety Rights Act 1987 (“the PVR Act”). As a result of its investigations, Zespri believes that from 2012 onwards the first defendant, Haoyu Gao, exported G3 and G9 to China, purported to license those varieties for the whole of China, and engaged in other conduct that breached Zespri’s exclusive rights. As a result, Zespri brought this proceeding against Mr Gao, his wife Xia Xue, and their company Smiling Face Limited.

[3] Zespri’s first two causes of action allege that Mr Gao’s actions, either in his personal capacity or on behalf of Smiling Face, breached the PVR Act. The third cause of action alleges that Mr Gao’s supply of G3 to Chinese growers (and related activities) breached the G3 licence agreements that Zespri granted to Mr Gao and Ms Xue in relation to their own kiwifruit orchard, which they purchased in 2013.

Background and overview of Zespri’s claims

Zespri’s development and commercialisation of the G3 and G9 varieties

[4]    In the early 2000s, Zespri commercialised a golden variety of kiwifruit known as Hort16A which became extremely popular, particularly in Japan and China. Hort16A, however, was particularly susceptible to a vine-killing disease commonly known as Psa, which was identified in New Zealand in 2010, causing widespread damage to the kiwifruit industry.

1      Pursuant to the Kiwifruit Industry Restructuring Act 1999.

[5]    Fortunately, Zespri had invested heavily in research to identify new varieties of kiwifruit. By mid-2010 more than 50,000 potential new varieties had been examined as part of Zespri’s research programme. More than 10,000 varieties made the initial short list, 40 went to initial growing trials, four made it to on-orchard trials and underwent on-orchard, storage, shipping and taste tests, and three reached the stage of the pre-commercial trials. Those three included the G3 and G9 varieties.

[6]    With the arrival of Psa in New Zealand, Zespri’s plans to commercialise  these new varieties became both critical and urgent. Zespri accelerated its commercialisation of the G3 variety (also known as SunGold), which proved to have tolerance to the Psa virus. This quality of Psa resistance received particular attention and publicity worldwide, because of the very damaging effect of Psa to orchard growers and the lack of any other known high-quality gold varieties that are effective at overcoming these problems.

[7]    In early 2012, Zespri offered licences to enable its Hort16A growers to switch to the G3 variety. The recovery programme for the kiwifruit industry through G3 has been very successful. The G3 variety has proved to be attractive to new consumers and has achieved significant market premiums, at much higher volumes. It has extended storage characteristics, it is a cost effective and environmentally friendly product to grow and pack, and it has driven grower returns and orchard values to record levels.

[8] Zespri holds the exclusive rights to commercialise G3 and G9 under the PVR Act. In June 2009, Zespri applied for registration of its rights for G3 and G9 in the USA, and in 2010 it applied for registration in various other overseas countries, including China. All those rights have now been granted.

Haoyu Gao and Xia Xue

[9]    In 2010 Mr Gao and Ms Xue (who had immigrated to New Zealand from China a few years previously) set up a kiwifruit contracting business through Smiling Face, servicing a number of orchards around Opotiki.

[10]   After the Psa outbreak in November 2010, many of the orchards serviced by Smiling Face switched over to the G3 and/or G9 varieties. The disruption to the kiwifruit industry caused by the Psa outbreak impacted on the couple’s workflows, however, putting them under significant financial pressure. They considered moving away from the Opotiki area in pursuit of other work. Ultimately, however, they were able to not only weather the storm, but even purchase their own kiwifruit orchard in 2013.

Zespri’s concerns that the G3 and G9 varieties were being grown in China

[11]   After hearing industry rumours that G3 and G9 were being planted in China, Zespri engaged private investigators. Based on information received from those investigators,2 in December 2016 Zespri sent two senior managers, Shane Max and Sheila McCann Morrison, to China to make their own enquiries. They met with Shu Changqing (Mr Shu), a kiwifruit grower identified by Zespri’s private investigators. Mr Shu openly admitted that he was growing G3 and G9 on four orchards and took Mr Max and Ms McCann Morrison to see three of those orchards. He declined to tell them, however, where he had obtained G3 and G9 from.3

[12]   Zespri subsequently laid a complaint with the police, who executed search warrants at the premises of Mr Gao and Smiling Face. Zespri subsequently obtained copies of various documents seized by the police, pursuant to a request under the Official Information Act 1982. Zespri also later obtained court orders for the cloning and search of Mr Gao’s computer. Found on that computer, and elsewhere, were a number of documents that Zespri alleges link Mr Gao and Smiling Face to commercial kiwifruit activities in China including, in particular, in relation to the G3 and G9 varieties.

2      I have found the evidence of Zespri’s witnesses as to what the private investigators told them (orally or in writing) to be inadmissible hearsay, to the extent that it is relied on for the truth of its contents, for the reasons set out in the annexed Schedule.

3      I have found Mr Shu’s statements to Mr Max and Ms McCann Morrison to be admissible hearsay, for the reasons set out in the annexed Schedule.

Overview of Zespri’s claims

[13]   Zespri alleges that from 2012 onwards Mr Gao and Smiling Face engaged in four categories of conduct that infringed Zespri’s plant variety rights (“PVRs”) in the G3 and G9 varieties. Specifically, Zespri alleges that:

(a)Infringement grouping 1 — Licence and supply to Mr Shu: Mr Gao and Smiling Face entered into  a  written Authorization Agreement  dated 8 August 2012 (the “False Licence Agreement”) with Mr Shu in China, purporting to grant Mr Shu exclusive rights to exploit G3 and G9 in the whole of China. Mr Gao supplied G3 and G9 to Mr Shu, following which it was planted on four different orchards.

(b)Infringement grouping 2 — Joint venture with Mr Yu through Liangshan Yi: In April 2014, Mr Gao and Yu Heming (Mr Yu) agreed, via the WeChat messaging app, to engage in a joint venture to exploit and sell G3 and G9 in China. This led to a Co-operation Agreement dated 21 September 2014, signed on behalf of Smiling Face, for the business to be conducted through a company called Liangshan Yi, including planting a 6 ha “demonstration park” in Xichang (Sichuan, China), on which G3 has been planted (the “Liangshan Yi Orchard”).

(c)Infringement grouping 3 — Joint venture with Mr Yuan: Mr Gao and Yuan Yun  (Mr  Yuan)  agreed,  in  a  Co-operation  Agreement  dated 1 November 2015,  to engage in a  joint venture  to exploit and sell  G3 and G9 in China, starting with a 90 mu/6 ha4 area in Shanggao (Jiangxi, China) (the “Shanggao Orchard”). Although Mr Gao alleges that it is unrelated, at around the same time Mr Gao admits that he agreed to sell G3 to Li Xiangyong (Mr Li) via WeChat.

(d)Infringement grouping 4 — Jiashang Agriculture’s orchard, beneficially owned by Mr Gao: Mr Gao and Yang Qian (Mr Yang) agreed to operate orchards through Jiashang Agriculture (a company

4      1 mu = 1/15 hectare.

owned 99 per cent by Mr Gao and 1 per cent by Yang Qian). Mr Gao alleges that the only relevant orchard in this category is the Shanggao orchard associated with Mr Yuan. However, Zespri believes there are other Jiashang Agriculture orchards and that it is a fair inference that Mr Gao intends to exploit G3 in this business.

[14]   Zespri further alleges that Mr Gao and Ms Xue have breached the terms of the G3 licences granted to them by Zespri in 2013 (and subsequently) pursuant to which they were licensed to grow G3 on their own orchard in New Zealand.

[15]   Zespri claims damages in excess of $30 million. It also seeks an injunction against future infringements.

Infringement of PVR rights - the legal framework

The Plant Variety Rights Act 1987

[16] The PVR Act was passed in 1987 to bring New Zealand’s plant variety rights regime into line with the 1978 version of the International Convention for the Protection of New Varieties of Plants (“the UPOV Convention”). Amongst other things, the PVR Act established a registry of plant variety rights.

[17]   The development of a new plant variety can be a long and expensive process. PVRs provide plant breeders with the exclusive right to control the commercialisation of a new variety. This incentivises growers to invest in plant breeding and development, by giving them an opportunity to make a return on their investment in breeding new varieties.5 Under the UPOV Convention, equivalent PVR rights are granted in a large number of countries throughout the world.

[18]   PVRs may be granted in respect of varieties of any kind of plant other than algae and bacteria.6 The word “variety” is used in the sense of a cultivar or cultivated

5      See the Foreword of the Review of the Plant Variety Rights Act 1987: A Discussion Paper (Ministry of Economic Development, Discussion Paper, March 2002). See also Ian Finch Intellectual Property Law in New Zealand (online ed, Thomson Reuters) at [3.1], referring to the Second Reading of the Plant Variety Rights Bill 1985, per the Minister of Science and Technology.

6 Plant Variety Rights Act 1987, s 2.

plant clone, hybrid, stock or line capable of reproduction, and not in the sense of a botanical variety.7 A PVR will be granted if the variety is new, distinct, uniform and stable.8

[19]   Provisional protection applies from the day an application is made.9 A PVR lasts for 23 years from the date of grant of the PVR in the case of woody plants and their rootstocks (including kiwifruit varieties) and for 20 years for all other plant varieties.10 PVRs are considered personal property and can be sold, licensed or assigned. The holder of a PVR may bring civil action against anyone infringing it.11

[20]   The holder of a PVR may license others to produce fruit, flowers and other products for sale, and to sell propagating material of the protected plant variety.12 Rights-holders commonly collect royalties from the commercialisation of their protected plant varieties. Non-commercial use of a protected variety is legal, including propagation of that variety.

[21] The exclusive rights of a PVR grantee are set out in s 17 of the PVR Act, which relevantly provides:

17       Rights of grantees

(1)… a grantee shall have the exclusive right—

(a)to produce for sale, and to sell, reproductive material of the variety concerned:

(b)if that variety is a plant of a type specified by the Governor- General by Order in Council for the purposes of this paragraph, to propagate that variety for the purposes of the commercial production of fruit, flowers, or other products, of that variety:

(c)subject to any terms and conditions that grantee specifies, to authorise any other person or persons to do any of the things described in paragraph (a) or paragraph (b).

….

7 Section 2.

8      Section 10.

9      Section 9.

10     Section 14.

11 Section 17(4).

12     Section 19.

(4)The rights of a grantee under a grant are proprietary rights, and their infringement shall be actionable accordingly; and in awarding damages (including any exemplary damages) or granting any other relief, a court shall take into consideration—

(a)any loss suffered or likely to be suffered by that grantee as a result of that infringement; and

(b)any profits or other benefits derived by any other person from that infringement; and

(c)the flagrancy of that infringement.

[22] Vegetatively propagating13 fruit-producing plants (such as kiwifruit) have been specified by Order in Council for the purposes of s 17(1)(b).

Cropmark Seeds Ltd v Winchester International (NZ) Ltd

[23] The only previous infringement case under the PVR Act is Cropmark Seeds Ltd v Winchester International (NZ) Ltd.14 In that case Robert Winchester (a director of Winchester International) facilitated sales of Cropmark’s protected plant variety “Optic” by putting people who wanted to purchase Optic seed in touch with unauthorised sellers. Cropmark brought infringement proceedings against Mr Winchester and Winchester International under the PVR Act.

[24] The defendants argued that they had not breached the PVR Act because they had not directly sold the seeds themselves. The High Court and Court of Appeal both rejected this argument, holding that infringement of the proprietary rights granted to Cropmark under the PVR Act was not limited to direct involvement in sales. A person responsible for procuring breaches of Cropmark’s exclusive rights was also captured.15 Otherwise, a person “could blatantly organise sales of seed in clear breach

13 Vegetative propagation is any form of asexual reproduction occurring in plants in which a new  plant grows from a fragment of the parent plant, including the grafting and budding of fruit trees.

14   Cropmark  Seeds  Ltd  v   Winchester  International  (NZ)  LtdHC  Timaru  CIV-2003-476-8,    28 September 2004; and Winchester International  (NZ) Ltd v Cropmark Seeds Ltd  CA226/04,  5 December 2005.

15 Winchester International (NZ) Ltd v Cropmark Seeds Ltd CA226/04, 5 December 2005 at [30] and [47].

of the plaintiff’s proprietary rights but escape all forms of action from the holder of the proprietary right”.16 The Court of Appeal held that:17

The clear purpose of s 17(1) is to state the nature of the grantee’s right and the fact of its exclusivity. Necessarily implicit is that infringement referred to in subsection 4 entails any conduct having the effect of diminishing the grantee’s enjoyment of its exclusive right. The section does not attempt any description of what kind of conduct may have that effect: it is left to the courts to make that judgment as a matter of fact.

(Emphasis added.)

[25]   The Court of Appeal found that although the vendors of the Optic seed had infringed  Cropmark’s  exclusive  right  by  depriving  it   of   potential   royalties, Mr Winchester and his company had also diminished Cropmark’s enjoyment of its exclusive right, by helping to arrange the relevant sales.18

Issues of Extraterritorial Application

[26]   The Winchester case involved solely domestic conduct. This case, however, raises difficult issues of territoriality, as Mr Gao and Smiling Face are alleged to have engaged in infringing conduct that is cross-border in nature. Some of the relevant acts occurred in New Zealand, whereas others took place when Mr Gao was visiting China.

[27]   It is a well-established common law principle of statutory interpretation that all  statutes  are  considered  territorial  unless  expressly  or  impliedly  designated  as extraterritorial.19 This is known as the presumption against extraterritorial application. An enactment will therefore generally only apply to actions and people in the territory to which it extends, and no further. The presumption against extraterritorial application is underpinned by considerations of international comity.20

16   Cropmark  Seeds  Ltd  v   Winchester  International  (NZ)  Ltd   HC  Timaru  CIV-2003-476-8,    28 September 2004 at [32]. See also Winchester International (NZ) Ltd v Cropmark Seeds Ltd CA226/04, 5 December 2005 at [30].

17 Winchester International (NZ) Ltd v Cropmark Seeds Ltd CA226/04, 5 December 2005 at [40].

18 At [43],[44] and [47].

19   In New Zealand, Governor of Pitcairn and Associated Islands v Sutton [1995] 1 NZLR 426 (CA) at 438 per Richardson J and Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300 at [15]; in the UK, Al Sabah v Grupo Torras SA [2005] UKPC 1, [2005] 2 AC 333, para 13, per Lord Walker of Gestingthorpe for the Privy Council and Lawson v Serco Limited [2006] UKHL 3, [2006] ICR 250 at [6], per Lord Hoffmann; in the United States, Morrison v National Australia Bank Ltd, 561 US 247 (2010).

20 See Poynter v Commerce Commission  [2010] NZSC 38, [2010] 3 NZLR 300 at [36], [37] and [41].

Courts will not (in the absence of clear statutory authority) impose liability on someone for conduct outside the jurisdiction, or in respect of property overseas, in a way that may create a risk of conflict with the law of another country or an actual or likely determination of a court in that other country.21

[28]   It is rare for intellectual property legislation to be expressly or impliedly designated as extraterritorial. As a result, any intellectual property protections a country grants generally end at that country’s border.22 To ensure that its intellectual property owners’ interests are protected abroad, it is usually necessary for a country to enter into bilateral or multilateral treaties with other countries, with reciprocity and minimum standards being key features.

[29]   The PVR Act does not include any indication (express or implied) that it was intended to apply extraterritorially. Rather, the framework established by the UPOV Convention (which now extends to 74 member countries)23 provides for parallel plant variety protection in UPOV Convention countries on the acceptance of an equivalent application made under the relevant laws of that country.

[30] Mr St John (for the defendants) submitted that if the presumption against extraterritorial application is correctly applied in this case, then there is no basis on which Mr Gao and Smiling Face could be held liable for breaching Zespri’s PVR rights, even if Mr Gao did all the things that Zespri says he did. Because Zespri’s exclusive rights under the PVR Act are limited to the territory of New Zealand, Mr St John argued, they cannot be breached by cross-border conduct.

[31]   Mr St John submitted that the reasoning of the United States (“US”) Ninth Circuit Court of Appeals in Subafilms v MGM-Pathe Communications applies, by analogy, in this case. In Subafilms the Court considered whether a claim for copyright infringement could be brought under the relevant US copyright statute “when the

21   Ludgater Holdings Ltd  v  Gerling  Australia  Insurance  Co  Pty  Ltd  [2010] NZSC 49, [2010] 3 NZLR 713 at [25].

22 See for example Atkinson Footwear v Hodgskin International Services Ltd [1994] 31 IPR 189 at 190, citing Jonathon Cape Ltd v Consolidated Press Ltd [1954] All ER 253; [1954] 1 WLR 1313 and Def Lepp Music v Stuart-Brown [1986] R.P.C 273. See also Kalman v PCL Packaging (UK) Ltd [1982] F.S.R 406.

23 Including the People’s Republic of China, which  has enacted  Regulations on the Protection of New Varieties of Plants based on the 1978 version of the UPOV Convention.

asserted infringing conduct consists solely of the authorisation within the territorial boundaries of the United States of acts that occur entirely abroad”.24 Declining to follow one of its own earlier decisions, the Court concluded that there could be no liability under US copyright laws for authorising an overseas act that itself was not actionable under those laws, because acts abroad are not illegal under US copyright law, due to the application of the presumption against extraterritorial application.

[32]   Applying this reasoning, Mr St John submitted that Mr Gao’s New Zealand based acts, such as purporting to authorise Mr Shu to grow G3 and G9 in China could not constitute an infringement of Zespri’s PVR rights.

[33]   As Zespri pointed out in its submissions, however, the Subafilms decision has been heavily criticised in a number of subsequent US court decisions, and by academic commentators. At best, the United States law in this area could be described as unsettled.

[34]   I  find  the  critique   of   the   Subafilms  decision   by  Paul   Goldstein   and P Bernt Hugenholtz in their text International Copyright – Principles, Laws and Practice to be persuasive.25 The authors argue that Subafilms rests on a deceptively simple syllogism: acts occurring outside the United States do not constitute infringement under the US Copyright Act; there can be no contributory infringement without direct infringement; therefore there can be no contributory liability for acts of direct infringement occurring outside the United States. The authors observe that:

The flaw in this logic is that, for the purposes of the territoriality principle, all that matters is that some independently actionable conduct occurs inside the territory of the protecting country, and defendant’s actions of authorization presumably met this criterion.

[35]The authors further criticise the Subafilms decision on two practical grounds:

First, wherever the direct infringements occurred, the acts of authorization in the United States clearly caused economic injury in the United States as measured by lost foreign revenues coming into the country. Second, by immunizing an alleged contributory infringer who orchestrated infringing conduct worldwide and be effectively requiring the copyright owner to pursue

24     Subafilms v MGM-Pathe Communications Co 24 F 3d 1088 (9th Cir 1994).

25     Paul Goldstein and Bernt Hugenholtz (eds) International Copyright – Principles, Laws and Practice (3rd ed, Oxford University Press, Oxford, 2012) at 129.

separate actions against infringers in every other protecting country, the decision eliminated an opportunity for efficient control of international infringement.

[36]   Such criticisms of the reasoning in Subafilms are equally apt in the context of the PVR Act.

[37] In this case Zespri has the following exclusive rights pursuant to s 17 of the PVR Act:

(a)to produce for sale, to offer to sell, and to sell, G3 and G9 reproductive material;

(b)to propagate G3 and G9 for the purposes of the commercial production of kiwifruit; and

(c)to authorise any other person or persons to do any of those things.

[38]   Any acts or conduct, within New Zealand, that diminish Zespri’s enjoyment of those exclusive rights will be infringing, even if the relevant act forms part of a chain of conduct, some of which occurred outside of New Zealand. That is not because any subsequent activities in relation to G3 and G9 in China are governed by New Zealand law, or are within the jurisdiction of the New Zealand courts. Rather, liability may arise as a result of Mr Gao’s conduct within New Zealand diminishing the value of the express exclusive rights that have been conferred within New Zealand, which proprietary rights are also recognised in overseas Convention countries, including China.

[39]   Exercising jurisdiction in such circumstances does not require this Court to rule on the defendants’ liability for any actions committed in China – that is entirely a matter for the Chinese Courts. Nor does such an approach offend the sovereignty of other nations, or jeopardise international comity. A claim is not “extraterritorial” simply because it involves foreign acts or parties. Coverage of acts that commence or take place in part within the borders of the country whose law is applied is not

“extraterritorial” in the sense that is relevant for the purposes of the presumption against extraterritorial application.26

[40]   It is possible that at least some of Mr Gao’s alleged conduct might also constitute infringing conduct in China under its equivalent PVR legislation. The availability of two possible forums is not unusual with cross-border conduct. Such issues can be dealt with under well-established forum non conveniens principles. In this case, however, the defendants have never suggested that China is an available, let alone a more appropriate, forum. Mr Gao and Ms Xue are well settled in New Zealand and there is no evidence that they ever intend to return to China to live.

[41] In my view, recognising acts within New Zealand as potentially infringing, even when they form part of a chain of actions that include cross-border elements, accords with a purposive interpretation of the PVR Act, viewed in its wider international context. The approach advocated by the defendants, on the other hand, would likely result in potentially infringing conduct with cross-border features being beyond the jurisdiction of both the New Zealand and Chinese Courts. Such an approach would undermine the effectiveness of the PVR Act and the UPOV regime and create large gaps in the multi-lateral minimum standards of protection that are intended to be afforded for PVRs across all UPOV member states.

Witness credibility

[42]   Before turning to assess the evidence and make factual findings, I make some general observations regarding Mr Gao and Ms Xue as witnesses.

[43]   English is not the first language of either Mr Gao or Ms Xue. Mr Gao gave evidence through an interpreter. Ms Xue, however, speaks fairly good English. Nevertheless, Ms Xue had an interpreter available to assist if required. I take into account that giving evidence through an interpreter, or in a language that is not your first language, can be challenging. This can result in misunderstandings and miscommunication. Even taking this into account, however, I found Mr Gao to be a

26     Jane C Ginsburg “Extraterritoriality and Multiterritoriality in Copyright Infringement” (1997)  37 VA J Intl L 587 at 588.

very unimpressive witness. On his own evidence, Mr Gao revealed himself to be a person who lacks a moral compass and does not place a high value on honesty.27 Mr Gao’s evidence was often evasive and implausible. At times he contradicted both his own previous evidence and  contemporaneous  documents.  Overall,  I found  that  Mr Gao’s evidence lacked credibility on most of the contentious issues. I make specific credibility findings below, as required. As a general comment, however, I treat Mr Gao’s evidence with considerable caution.

[44]   Ms Xue came across as both intelligent and articulate. I note that she has a university degree in chemical engineering. On non-contentious issues, Ms Xue was forthright, and I found her evidence to be credible. On contentious issues, however, Ms Xue’s explanations often lacked credibility. When pressed by Ms O’Gorman on some issues, Ms Xue gave evidence that was implausible and lacked “the ring of truth”. Her evidence was often self-serving and, in my view, lacking in veracity. Overall, however, relatively little turns on Ms Xue’s evidence, which is peripheral  to most of the key issues,  particularly  in  relation  to  the  PVR  causes  of  action (in respect of which Ms Xue is not a defendant). Zespri lays the blame for the alleged PVR infringements squarely at the feet of Mr Gao, not Ms Xue.

[45]   For completeness, I note that I had no concerns regarding the credibility of any of Zespri’s witnesses. The key issues that arose in relation to their evidence was that their witness briefs contained considerable hearsay evidence. In the annexed Schedule I set out my findings in relation to the various hearsay issues that arose during trial, and my reasons for those findings.

Circumstantial evidence

[46]   Zespri’s case against each defendant turns, to a significant extent, on circumstantial evidence. In a circumstantial case, the Court must look to the combined effect of a number of independent items of evidence when considering whether a particular allegation is proved. While each separate piece of evidence must be assessed as part of the inquiry, the ultimate decision will turn on an assessment of all

27 See for example the admitted conduct set out at [48] below.

items of evidence viewed in combination. The underlying principle is that the probative value of a number of items of evidence is greater in combination than the sum of the parts. The analogy that is often drawn is that of a rope. Any one strand of the rope may not support a particular weight, but the combined strands are sufficient to do so.28 The logic that underpins a circumstantial case is that the defendant has either done what is alleged, or is the victim of an implausible, unlikely series of coincidences.

[47]   When assessing the evidence in a circumstantial case, it is not sufficient to evaluate each separate strand of evidence in isolation and then stop. Having considered each strand of evidence separately, it is necessary for the decision-maker to then stand back and assess the cumulative effect of all of the different strands of evidence. Consideration of the onus and standard of proof only occurs at the second stage of the process. The individual strands of evidence do not have to be proved to the requisite standard (here, on the balance of probabilities).29 The onus and standard of proof only comes into play once the combined weight of all of the strands of evidence is being considered.30

[48]   I consider the evidence in detail below, in relation to each infringement grouping. Given the circumstantial nature of the case, however, I also keep in mind when assessing Mr Gao’s evidence that he has admitted engaging in a range of dishonest conduct in relation to G3 and G9. Those admissions were made in circumstances where plausible denial was not an available option, in light of the contemporaneous documents. In particular:

(a)Mr Gao agreed to a request from Mr Shu in August 2012 to take G3 and G9 budwood31  to  China  with  him,  for  delivery  to  Mr  Shu  (as discussed at ([98] to [101] below).

(b)In October 2012 Mr Gao signed two  documents  at  the request  of  Mr Shu. The first was the False Licence Agreement, which purported

28     R v Guo [2009] NZCA 612 at [49]–[50]; and R v Hoto (1991) 8 CRNZ 17 (HC) at [21].

29     See Thomas v R [1972] NZLR 34 (CA) at 38–39 and R v Puttick (1985) 1 CRNZ 644 (CA) at 647.

30     R v Puttick (1985) 1 CRNZ 644 (CA) at 647; applied in Ngarino v R [2011] NZCA 236 at [26].

31     Budwood is short lengths of young branches with buds, used for grafting onto either seedlings or mature stumps.

to give Mr Shu full intellectual property rights to the G3 and G9 varieties in the whole of China. The second was a receipt for the payment of the first instalment of the licence fee in the sum of RMB 1 million ($200,000). Mr Gao’s explanation for these documents was, in essence, that they were fraudulent documents aimed at deceiving prospective investors in Mr Shu’s orchard into believing that Mr Shu had a valid licence to grow G3 and G9 on his orchard which he had paid a (significant) licence fee for. (I discuss this further at [59]-[60] below).

(c)In  late  November  2015,  Mr  Gao  entered   into   an   agreement over WeChat with Mr Li, a kiwifruit grower based in China, to sell him 1,000 G3 “sprouts” (budwood) for RMB 300,000 ($60,000). He subsequently told Mr Li that the budwood would be arriving in China at the end of January 2016. Mr Li withdrew from the deal, however, once he discovered (not from Mr Gao) that Mr Gao was not licensed to sell G3. Mr Gao was angry at Mr Li’s withdrawal from the agreement and (somewhat ironically) accused Mr Li of a lack of honesty. (Refer [101]-[104] below).

(d)In 2016 Mr Gao suggested to an associate that he steal a particular kiwifruit  variety  that  he  (Mr  Gao)  had  provided  to  an  orchard  in China and gave him detailed instructions on where to find it.  (Refer [94] below).

Alleged licence and supply of G3 and G9 to Mr Shu

[49]   Infringement grouping 1 relates to the alleged licence and supply of G3 and G9 to Mr Shu which, Zespri alleges, has resulted in Mr Shu subsequently propagating G3 and G9 and planting it on four orchards in China.

Hearsay issues – Mr Shu

[50]   Some of Zespri’s witnesses gave evidence of what Mr Shu had told them directly, or what he had told Zespri’s investigators (who had then passed on the

relevant information to Zespri). For the reasons set out in Schedule 1, I have ruled that:

(a)Statements made by Zespri’s investigators to Zespri’s witnesses are inadmissible on hearsay grounds, as to the truth of their content. This includes what Mr Shu allegedly told Zespri’s investigators.

(b)Statements made directly by Mr Shu to one or more of Zespri’s witnesses are hearsay, but are admissible as to the truth of their content pursuant to s 18 of the Evidence Act 2006.

[51]   My summary of the evidence relating to infringement grouping 1 below, and my factual findings, are made with reference to these rulings.

Mr Gao’s dealings with Mr Shu in 2012

[52]   In 2012, Mr Gao set up a chat group on the internet messaging platform QQ. The chat group was created for the purpose of recruiting young Chinese people who were coming to New Zealand on working holidays, to work on kiwifruit orchards.

[53]   In mid-2012  Mr  Shu  joined  the  chat  group.  He  said  that  he  was  keen to exchange ideas about best kiwifruit horticultural practices. At the time Mr Shu was the deputy general manager of Chibi Shenshan Technology Co.  Ltd  (“Shenshan Technology”), a relatively large-scale kiwifruit company based in Hubei Province, China.

[54]   Mr Shu invited Mr Gao to visit him in China and offered to cover his airfare for the trip. As New Zealand had just experienced the Psa outbreak, Mr Gao was worried about his future. He said that he saw Mr Shu’s invitation as “an opportunity to have a free trip to China and to look for work opportunities”.

[55]   Several days prior to his departure on 28 August  2012, Mr Shu messaged  Mr Gao, asking him to bring some G3 and G9 budwood to China with him. Mr Gao agreed, in writing, to that request. He claimed, however, that he subsequently changed his mind and did not take the budwood to China with him after all. When Mr Shu

subsequently asked him about the budwood, after his arrival in China, Mr Gao says that he told Mr Shu that he had left in a hurry and had unfortunately forgotten to bring it. Mr Gao said that: “At that time, I felt a bit sorry, because I didn’t even do him this little favour”. For reasons I explain further below, I have concluded that Mr Gao did provide G3 and G9 budwood to Mr Shu, during his visit to China, as he had agreed to do.

[56]   Mr Gao said that Mr Shu offered him employment, but he turned it down.  Mr Shu also took him sightseeing and to visit Shenshan Technology’s orchard. After returning to New Zealand, Mr Gao maintained contact with Mr Shu. He said that he learned, not long after his return to New Zealand, that Mr Shu had resigned from his position at Shenshan Technology and was preparing to open his own orchard.

[57]   About a month after Mr Gao had returned to New Zealand, Mr Shu sent him a document headed “Development and Management Scheme for High-end Sightseeing Kiwifruit Orchard”, dated 8 October 2012. The document is, in essence, a marketing pitch from Mr Shu to prospective investors in his new orchard. I will refer to it as the “Marketing Proposal”. The proposal outlined is to develop a 200 mu (about 13.3 ha) “high-end horticultural sightseeing base” of which “half of the land will be planted with the world’s best new kiwifruit variety, and the other with other fruits, trees and flowers”. The Marketing Proposal records, amongst other things, that:

I have already introduced the world’s best kiwifruit variety from New Zealand, which cost me 1 million yuan. Since I have chosen instalment payment, a total amount of 10 million yuan is to be paid in the future.

[58]   On or about 13 October 2012, Mr Shu sent Mr Gao an agreement headed “Kiwifruit Variety Authorization Agreement” between Smiling Face and Mr Shu (this is the False License Agreement), together with  the  Receipt,  which  was  for the stated deposit of RMB 1 million (approximately $200,000). Copies of both documents were found during a search of Mr Gao’s computer, signed by Mr Gao on behalf of Smiling Face.  The typewritten date on the  False  Licence Agreement is  10 August 2012.

[59]   The False Licence Agreement purports to grant Mr Shu exclusive rights to exploit the “Jin Shan” and “Jin Jiu” kiwifruit varieties in the whole of China, for a fee

of RMB 10 million (approximately $2 million) of which RMB 1 million was to be paid immediately and the rest paid out of profits. Smiling Face was required to provide Jin Shan and Jin Jiu and the matching scions32 of the male plants to Mr Shu in August 2012, by delivery in China. Mr Max, the Global Production Manager of Zespri, gave evidence (which I accept) that Jin Shan and Jin Jiu are common names for Zespri’s G3  and  G9  varieties  in  China.  Indeed,  Mr  Gao  accepted  that  the  False Licence Agreement related to the G3 and G9 varieties.

[60]   Mr Gao’s explanation for the False Licence Agreement and associated Receipt was that he signed those documents simply to help Mr Shu. He described those documents as “gimmick” that Mr Shu generated for marketing purposes, to show    to prospective investors in his orchard. Although I reject the rather benign characterisation of the documents as gimmicks, I accept Mr Gao’s evidence that they were likely created in or about October 2012 (and backdated to August 2012) for the primary purpose of inducing prospective investors to invest in Mr Shu’s orchard.33 In essence, the two documents were fraudulent devices aimed at deceiving prospective investors into believing that Mr Shu had a valid licence to grow the G3 and G9 kiwifruit varieties in China, when he did not.

[61]   Mr Shu was clearly in on the deceit, as evidenced by later message exchanges between Mr Shu and Mr Gao (refer [68] below). Further, it is inconceivable that someone of Mr Shu’s background and experience could have believed that a fairly low-level kiwifruit contractor from New Zealand, whom he had contacted through an internet chat group for prospective Chinese orchard workers, would have the authority to licence G3 (a world-leading kiwifruit variety) and G9 to Mr Shu, for the whole of China.

[62]   It is a reasonable inference that Mr Gao was paid (or received some other form of consideration) for his services in providing G3 and G9 budwood to Mr Shu, and also signing the False Licence Agreement and Receipt. This is consistent with the

32 The “scion” is a short length of a branch from a plant containing at least one growing point (bud) which will grow to produce the upper aerial portion of the plant. The scion wood contains copies of the same genetics from the seedling from which it was cut. This is therefore a cloned copy of the original seedling.

33 The October 2012 date is also supported by the document’s metadata.

subsequent ongoing business relationship between the two men, and also the documentary evidence that shows that when Mr Gao subsequently agreed to provide G3 to Mr Li (as discussed further at [101] to [105] below) he negotiated a fee of RMB 300,000 ($60,000) for doing so. However, there is no documentary evidence, such as bank statements, confirming the precise quantum of consideration paid by Mr Shu for the provision of G3 and G9. The payment may have been in the sum of RMB 1 million (the amount stated on the Receipt) or possibly something less than that.

Mr Gao’s ongoing relationship with Mr Shu

[63]   In March and April 2014, Mr Gao returned to China with his family. He said that, having recently purchased a kiwifruit orchard himself, he was keen to acquire more knowledge on kiwifruit management. I found this evidence to be implausible, given that the best sources of knowledge on the management and cultivation of the G3 variety, which Mr Gao was growing on his orchard, would clearly be found in New Zealand.

[64]   While in China, Mr Gao again visited Mr Shu, who took him to visit Shenshan Technology’s orchard and Mr Shu’s own orchard, which he had established following Mr Gao’s previous visit.

[65]   Several months later, on 11 July 2014, Mr Gao emailed Mr Shu a document headed “New Zealand Kiwifruit  Industry  Business  Module”.  Mr  Gao  said  that he drafted this document, at Mr Shu’s request.  It  records  that  “until  now”  the New Zealand kiwifruit industry’s business module (possibly a misinterpretation of “model”) still remains the leading module in the world:

Now I would like to introduce New Zealand kiwifruit industry’s business module with the hope of inspiring Chinese counterparts with the following writing and so they will “overturn” the leading position of New Zealand kiwifruits industry’s business module and improve China’s kiwifruit industry.

[66]   The document refers to various aspects of the production, packing and sales of New Zealand kiwifruit, including the G3 variety.

[67]   Mr Shu and Mr Gao were both members of a WeChat social media group called the “Jianxi ecological high value kiwifruit group”. WeChat messages recovered

by the police  from  Mr  Gao’s  phone  included  messages  posted  by  Mr  Shu  on  5 and 8 September 2016 in which he posted pictures of kiwifruit he was growing and/or selling, identified by Zespri as G3 and G9. (Mr Gao noted that there were almost 200 members in that chat group and claimed that he had not seen the relevant messages).

Zespri’s interactions with Mr Shu

[68]   In 2016 Zespri engaged private investigators. They made contact with Mr Shu, following which Mr Shu and Mr Gao had the following message exchange (between 22 and 24 November 2016):

22 November 2016

Shu: Today someone from Zespri came and found me: They seem to have investigated and discovered something about you. Currently I have refused to admit it and revealed nothing to them.

24 November 2016

Gao: You know how serious it is for me. I helped you so don’t do anything harmful to me.34

Shu: I won’t reveal anything, but they have investigated several domestic places and introduced some details to me. You should be careful

Gao: You see what a big trouble you’ve got me in.

Shu: Places that he knew were not told by me. They only knew that I had it as well.

Gao: You are the only one who is promoting it. Shu: They also knew places such as Liangshan.35 (Emphasis added.)

34 The defendants’ translator offered a different interpretation of the italicised passage (“You know how serious it is for me, I have helped you, you can’t frame me up”). Both interpreters gave evidence and were cross-examined. The defendants’ translator accepted that “I helped you, you can’t bring trouble to me” would also be a valid translation. That alternative translation is similar in meaning to the interpretation offered by Zespri’s translator. Taking into  account  the  evidence of both translators, and the broader context, I accept the evidence of Zespri’s translator (as set out above) as correct.

35 This appears to be a reference to the Liangshan Yi orchard, which is discussed further at [92] and [95]-[98].

[69]   As a result of reports received from its investigators, Zespri believed that G3 and/or G9 were being grown by Mr Shu at four different locations (with the most significant orchard being located at Wuhan). Zespri therefore turned its mind to how it might go about addressing this issue, which included doing nothing, attempting to eradicate G3 and G9 in China, or exploring the possibility of a commercial resolution with Mr Shu.

[70]   Zespri’s New Zealand based staff decided to visit Mr Shu in China. Initially Ms McCann Morrison and Zespri’s investigators met with Mr Shu in a hotel lobby in Wuhan, on 30 November 2016. Ms McCann Morrison explained to Mr Shu that Zespri’s board and senior management were extremely concerned about the fact that he was growing G3 and G9 in China without Zespri’s authorisation. Ms McCann Morrison said that Mr Shu did  not  seem  at  all  worried  by this.  He  responded that he had a licence to  do so from  New  Zealand, which he had  already shown  (but not provided) to Zespri’s investigators. Mr Shu also said that he had documents of sale and “tickets” as proof of purchase of G3 and G9 from New Zealand, although he was not willing to provide these to Zespri at that stage. Ms McCann Morrison said, however, that Mr Shu appeared confident that he was not facing any legal risk because he was under the protection of the local authorities to whom he had shown his “licence”.

[71]   Ms McCann Morrison said that Mr Shu showed a lot of interest in being Zespri’s “man in China” and was keen to show Zespri his orchards. Zespri, on the other hand, was keen to assess Mr Shu’s technical abilities and also to view the sites where it believed G3 and G9 were growing so it could decide an appropriate way forward.

[72]   Following his meeting with Ms McCann Morrison on 30 November 2016,  Mr Shu sent Mr Gao the following message:

Today the general manager of global supply of Zespri came and found me in Wuhan again. They have investigated you from somewhere else, said your name and asked me whether I got it from you. I didn’t tell them. You have to

be prepared because they said they would absolutely investigate who should be responsible for it.

[73]   Subsequently, on 10 and 11 December 2016, Mr Max, Ms McCann Morrison, and Samira Tang (the China Technical Development Officer for Zespri International Ltd) were taken by Mr Shu to visit three orchards he was associated with – the Chibi Orchard, the Xianning 2 Orchard, and the Wuhan Orchard. Mr Shu  confirmed to  Mr Max and Ms McCann Morrison that he was growing G3 and G9 at all of these orchards and gave them unrestricted access to look around. He also engaged in discussions with them of a technical nature about his approach to growing G3 and G9 at those orchards.

The Chibi Orchard

[74]    Mr Shu explained to Mr Max and Ms McCann Morrison that the Chibi orchard was originally his family farm. Ms McCann Morrison and Mr Max took a number of photographs. Mr Shu appears  in a number of those photographs (as confirmed by  Mr Gao). The evidence of Mr Max and Ms McCann Morrison was that Chibi is a relatively small orchard of about 1.3 ha, based on their own physical observations, supported by the photographic evidence. They were not challenged on this evidence and I accept it as reliable.

[75]   Mr Max and Ms McCann Morrison also gave evidence (presumably based on what Mr Shu told them) that the Chibi Orchard was established in 2012. This accords with the sequence of events outlined above.

[76]   Mr Shu told Mr Max (and the others present) that in 2015 the Chibi orchard had produced eight tonnes of G3 and G9 and that there was a high yield of G3 and G9. According to Mr Shu, the G9 was harvested in September and the G3 from early to mid-October. Mr Shu explained to Mr Max that the high mineral content of the soil resulted in better tasting G9. Mr Max observed that the orchard was planted with approximately 60 per cent G3 and 40 per cent G9, and that the ratio of female to male plants was approximately 6:1.

The Xianning 2 Orchard

[77]   Mr Max and Ms McCann Morrison then visited the Xianning 2 orchard which they described  as a much more substantial commercial operation.   The Xianning     2 Orchard is located at Yazui Village, Guanbuqiao Town, Xianning City.

[78]   Mr Max said that one of the first signs he noticed at Xianning was a sign in Chinese promoting a strong New Zealand connection. It featured the “Kiwi 360º” tourist attraction from Te Puke, New Zealand, under which was printed a photo of what looked like G3 and G9 kiwifruit. Other signs “made clear that the kiwifruit growing there were G3 and G9”. Mr Max took photographs of the signs which had pictures, names, and descriptions that correlated with G3 and G9, as Mr Gao confirmed under cross-examination.

[79]   Mr Max and Ms McCann Morrison gave evidence that the stage one size of Xianning 2 is 200 mu (13.3 ha), as stated on a sign at the location photographed by them. That sign also recorded that stage two plans were in place for a 2,000 mu (133.3 ha) “high-standard” kiwifruit orchard. The English translation of the sign is as follows:

The building of the base will be in two phases. The first phase lasts 2 years, during which the main focus is to build a 200-mu “Two New One High” kiwifruit demonstration and promotion base. The innovative contents mainly include: 1. introduce, select and breed the newest best-quality golden-flesh kiwifruit variety in the world – Jin Shan, Jing Jiu Xiang…

[80]   Both the Chinese names of the varieties and the description of them as the “newest best quality golden-flesh kiwifruit variety in the world” confirms that the sign is referring to the G3 and G9 varieties.

[81]   Mr Max and Ms McCann Morrison made their own physical observations of this orchard and took photographs, some of which included Mr Shu. Mr Shu explained to them that he had sourced the G3 and G9 plant material for the Xianning 2 Orchard from the Xianning 1 Orchard. The two orchards were relatively close together and

had common ownership – Xinde Modern Agriculture Technology Company, a company in which Mr Shu is a shareholder.36

The Wuhan Orchard

[82]   The third orchard Mr Shu took Mr Max and Ms McCann Morrison to was the Wuhan Orchard, which is located at Wuhan Xinzhou, in Hubei, to the north of Xianning. Mr Max’s evidence was that the Wuhan Orchard is operated by Wuhan Guangdi Agriculture Technology Co Ltd (“Guangdi Agriculture”) and that Mr Shu is a consultant to that company.

[83]   Mr Max and Ms McCann Morrison described the Wuhan Orchard as a significant and substantial commercial operation. Mr Max took a number of videos as they approached the orchard, which show row after row of green houses on each side of a road running through the middle of the orchard. It was apparent to them that significant capital had been invested in the Wuhan orchard and that G3 and G9 had been planted there. They took a number of videos and photographs during their visit. Mr Shu can be identified in some of them (as confirmed by Mr Gao). One of the videos they took records a conversation between Ms Tang  and Mr Shu in which    Mr Shu explains that he had planted around 1 mu of Jin Shan (G3) seedlings in a particular field.

[84]   Mr Shu told Mr Max and Ms McCann Morrison that the Wuhan orchard was approximately 1,800 mu in size (approximately 120 ha). This assessment was consistent with the scale of the orchard as they observed it. Mr Max said that Mr Shu was in fact quite emphatic about the size of the orchard, which was a source of pride for him.

36     Although Mr St John submitted in Closing that this evidence is hearsay,  neither Mr Max nor    Ms McCann Morrison were challenged on it, nor asked for the source of their information on the topic. I note that the source could well have been Mr Shu himself (and therefore admissible hearsay). I further note that if the issue had been raised in a timely manner leave could have been sought (and most likely granted) for the admission of official Chinese business records to establish the shareholdings in Xinde. I find this evidence to be both admissible and reliable.

Key factual findings

[85] Based on the evidence summarised above, taken together with other circumstantial evidence in the case (including in particular that summarised at [48] above) I am satisfied that:

(a)Mr Gao agreed to provide G3 and G9 budwood to Mr Shu in August 2012. (This is not in dispute).

(b)Mr Gao, in accordance with that agreement, exported G3 and G9 budwood from New Zealand in August 2012 and provided it to Mr Shu in China.37

I reject Mr Gao’s evidence that he reneged on his promise to provide G3 and G9 budwood to Mr Shu. Mr Shu (then a senior figure in the Hubei kiwifruit industry) likely sought out Mr Gao for the specific purpose of obtaining G3 and/or G9 from him. Mr Gao, at the time, was concerned about his future, due to the Psa outbreak, and was looking to develop new business opportunities. The fact that Mr Shu reimbursed Mr Gao’s airfare, shortly after his arrival in China, is consistent with Mr Gao having done what was asked of him, as is the subsequent ongoing business relationship between the two men.

Shortly after Mr Gao’s visit, Mr Shu resigned from Shenshan Technology  to  focus  on  developing  his  own   orchard   interests (on which he freely admitted he grew G3 and G9, consistent with the observations of Mr Max and Ms McCann Morrison when they visited Mr Shu’s orchards). Although the False Licence Agreement is not a genuine licence agreement, I am satisfied that its reference to Smiling Face/Mr Gao providing G3 and G9 to Mr Shu in August 2012 was true. The Marketing Proposal also supports the conclusion that G3 and G9

37 I note that Mr St John raised the possibility that Mr Shu had obtained G3 and/or G9 budwood from a third party prior to August 2012. The evidence he relied on in support of that proposition, however, was inadmissible hearsay. Further, the fact that Mr Shu requested Mr Gao to bring G3 and G9 budwood to China with him in August 2012 (and Mr Gao agreed to that request) is not consistent with Mr Shu already being in possession of G3 and/or G9 budwood. Further, no effort appears to have been made by the defendants to obtain evidence from Mr Shu on the topic.

were established on an orchard  associated with Mr Shu  following  Mr Gao’s August 2012 visit. The somewhat panicked text message exchanges between Mr Shu and Mr Gao in November 2016 also support the conclusion that Mr Gao was the source of Mr Shu’s unauthorised cultivation of Zespri’s G3 and G9 varieties.

(c)Mr Gao (on behalf of Smiling Face) signed the False Licence Agreement and Receipt in October 2012 (as Mr Gao claimed) and not August 2012 (as Zespri alleged).

(d)The purpose of the False Licence Agreement and Receipt was to deceive prospective investors in Mr Shu’s orchard into believing that the G3 and G9 varieties being grown on that orchard were lawfully licensed. Mr Gao was aware of this purpose at the time he signed the documents.

(e)Mr Shu was clearly able to secure significant investment in the Xianning 1 orchard, and subsequently the Xianning 2 orchard, which are both owned by Xinde Modern Agriculture Technology Company, a company in which Mr Shu is a shareholder. I infer that the False Licence Agreement likely facilitated this investment, as was intended.

(f)Mr Shu showed the False Licence Agreement to local authorities in China to prove that he was lawfully authorised to grow G3 and G9.

(g)Mr Gao received some form of consideration for his provision of G3 and G9 budwood to Mr Shu and signing the False Licence Agreement and Receipt, but the precise quantum of that consideration is not known.

(h)Following Mr Gao’s provision of G3 and G9 budwood to Mr Shu in August 2012, Mr Shu facilitated the planting of those varieties at four different orchards, commencing with his family orchard at Chibi in 2012, and then spreading to Xianning 1, Xianning 2 and Wuhan. As at 2016 G3 and G9 was growing at all four of those orchards.

(i)The land area of the relevant orchards is:

(i)Chibi – 1.3 ha;

(ii)Xianning 1 – 13.3 ha;38

(iii)Xianning 2 – 33 ha; and

(iv)Wuhan – 120 ha.

[86]   I reject Mr Gao’s claim that his actions were “innocent” because he did not know, prior to acquiring a G3 licence for his own orchard in 2013, that Zespri held the licence for G3 and G9. Such a claim is implausible and inconsistent with the surreptitious nature of Mr Gao’s conduct. Mr Gao was a kiwifruit contractor working on a number of orchards during the height of the Psa crisis, which Zespri was proactively trying to manage. It is not credible that someone closely involved in the kiwifruit industry at that time (or possibly any time) could have genuinely believed that they were lawfully entitled to sell or export G3 and G9 to China. I further note that even after Mr Gao had signed his first G3 licence, he continued his efforts to sell G3 to growers in China, and to profit from its propagation in China, as set out below.

Alleged joint venture with Mr Yu through Liangshan Yi

[87]   Infringement grouping 2 relates to Zespri’s allegation that Mr Gao entered into a joint venture with Yu Heming (Mr Yu) to exploit and sell G3 and G9 in China, including planting 6 ha of land in China with the G3 and G9 varieties (2 ha of which Zespri alleges is currently planted).

Mr Gao’s initial dealings with Mr Yu

[88]   Mr Gao and Mr Yu met in an internet chat group towards the end of 2013. At the time, Mr Yu (who is now deceased) was the deputy director of the Liangshan State Fruit Development Research Institute, and an expert on kiwifruit.

38     This is based on the statement in Mr Shu’s Marketing Proposal, which he sent to Mr Gao, that the size of his “Demonstration Park” (Xianning 1) was 200 mu.

[89]   Between 24 and 26 April 2014, Mr Gao and Mr Yu exchanged messages about setting up a joint venture to breed “disease-free seedlings” on a 100 mu (6 ha) demonstration base in China. Mr Yu suggested that Mr Gao could invest funds in the joint venture, after he had come to investigate and an agreement to cooperate had been reached. Mr Gao’s role was identified as being to “pass on the advanced technology from New Zealand”. Mr Gao denied that the references to “disease-free seedlings” or “advanced technology” were references to G3.

The Liangshan Yi Co-operation Agreement

[90]   Mr Gao travelled to China in September 2014. While there he met with Mr Yu. Prior to the trip Mr Gao prepared an “itinerary” that included a plan of what he was going to do during the trip. The itinerary refers to a 100 mu (6.6 ha) demonstration park and, under the heading “work that I need to do”, states “grafting new varieties”. The plan also records that he will need to take with him iron wires, a wire tensioner, branch binder, and “fruit”.

[91]   While Mr Gao was in China he entered into a Co-operation Agreement with Mr Yu, dated 21 September 2014. The Co-operation Agreement referred to a 100 mu (6 ha) “demonstration park” in Xichang (Sichuan, China). The business was to be conducted through a company called Liangshan Yi Autonomous Prefecture Changxing Agriculture Technology Limited (“Liangshan Yi Ltd”). The Co-operation Agreement records that the parties’ aim was to build and improve a kiwifruit seedling base in order to provide the public (growers) seedlings that were free of Psa. The document records that the parties would introduce varieties from overseas and specifies Mr Gao’s role as being the Chief Technology Officer.39

[92]   On 18 October 2014, Liangshan Yi appears to have entered into an agreement (discovered by Mr Gao) which transfers management rights in 111.3 mu (7.4 ha) of land for purposes including “kiwifruit, vegetable planting and comprehensive industry development”. Mr Gao confirmed in evidence that this land was for the Liangshan Yi orchard, and that the size of that orchard is just over 100 mu (6.6 ha).

39 A handwritten document dated 28 September 2014 records the structure of the new entity that was to conduct the joint venture, and also refers to Mr Gao’s role as company member and deputy “CTO” (Chief Technology Officer).

Mr Gao’s investment in the joint venture

[93]   On 21 November 2014, Mr Gao emailed himself a copy of an unsigned investment agreement for the Liangshan Yi project. The  agreement  envisages  “Party A” and “Party B” jointly investing in the “Kiwifruit Orchard” project, with profits to be shared in proportion to their capital contributions.

[94]On 4 December 2014, Mr Gao transferred 100,000 RMB (approximately

$20,000) to Liangshan Yi Ltd. Subsequently, on 1 April 2015, Mr Gao transferred a further RMB 250,000 (approximately $50,000) to Liangshan Yi Ltd. Mr Gao’s evidence was that he had borrowed these sums from family members, and loaned it to Liangshan Yi Ltd.

Other evidence relating to the Liangshan Yi orchard

[95]   In June 2015, Mr Gao travelled to China to work on the Liangshan Yi project. Mr Gao again visited the Liangshan Yi orchard in January 2016 and took photographs of the orchard while he was there.

[96] In a WeChat message exchange with Mr Li on 27 November 2015 (referred to further at [103] below), Mr Gao offered (and subsequently agreed) to sell G3 budwood to Mr Li. Mr Gao explained to Mr Li that he had experience in such matters because he had a base in Xichang, but it was “half dead now” because his partner had no money. Mr Gao confirmed in evidence that this was a reference to the Liangshan Yi orchard. Mr Gao went on to invite Mr Li to invest in the Liangshan Yi orchard.

[97]   In  a  message  exchange  with  Sanlang  Yu  Zhongtao  on  15 May  2016   (as further explained by Mr Gao in cross-examination), Mr Gao told Mr Zhongtao    a “secret”, namely that the Liangshan Yi orchard had a kiwifruit variety that Mr Gao had introduced to the orchard which is “very nice”. Mr Gao encouraged Mr Zhongtao to steal that variety and gave him detailed instructions as to precisely where the variety could be found. (Zespri alleges that the variety referred to is G3).

[98]   Finally, when Mr Shu alerted Mr Gao to the fact that Zespri was investigating, he alerted Mr Gao (amongst other things) to the fact that it was aware of the Liangshan Yi orchard

Key factual findings

[99] When the evidence relating to Mr Gao’s dealings with Mr Yu is viewed in totality, together with the other strands of circumstantial evidence regarding Mr Gao’s dealings with the G3 and/or G9 varieties (including my findings in relation to infringement grouping 1, and the circumstantial evidence summarised at [48] above) I am satisfied that it supports the following findings:

(a)Mr Gao entered into a joint venture with Mr Yu in relation to the development of the Liangshan Yi Orchard/demonstration park.

(b)Mr Gao invested funds in the joint venture, as envisaged in  the  (draft) Investment Agreement. Mr Gao’s evidence that that sum of RMB 350,000 ($70,000) that he advanced was simply a loan is implausible. The contemporaneous documents support the conclusion that Mr Gao was an investor with a proprietary interest in the joint venture (a “partner” – as he told Mr Li).

(c)The “Psa-resistant overseas variety” referred to in the Co-operation Agreement was G3. Mr Gao’s attempts to suggest in evidence that it could have been some other (unspecified) variety, possibly from a country other than New Zealand, lacked credibility, as did his attempts to minimise his knowledge of the Psa-resistant characteristics of G3, and hence its desirability.

(d)Mr Gao’s role as “technology officer” was to supply G3 to the joint venture, with the intention that it be subsequently produced, promoted and sold to third parties as a Psa-resistant kiwifruit variety. Mr Gao was the only party based overseas. He had ready access to G3 through his work in New Zealand and had previously offered to sell and/or sold G3 to others in China. Further, I note that Mr Gao at times used words such as “technology” or “techniques” as code words, to avoid expressly

referring to G3 in writing. For example, in the WeChat message exchange with Mr Li in November 2015 (referred to at [101] to [103] below), in which Mr Gao accepts that he offered to sell G3 to Mr Li, it was agreed that Mr Gao would talk about “technology” in messages to avoid expressly referring to the name of the variety of kiwifruit that he was offering to supply.

(e)Mr Gao did provide G3 to the joint venture, for planting on the Liangshan Yi orchard. In reaching this conclusion I have regard to the totality of the relevant evidence including that:

(i)The primary purpose of the joint venture was to introduce and develop a Psa-resistant kiwifruit variety for sale to third parties.

(ii)The joint venture proceeded, including acquiring an interest in land.

(iii)Mr Gao invested very significant funds in the joint venture, including funds borrowed from family members, which would have been unlikely to occur unless Mr Gao knew that the joint venture had access to the “raw material” (a Psa-resistant kiwifruit variety) that it needed to achieve its objectives.

(iv)In the context of an (admitted) offer by Mr Gao to provide G3 to Mr Li for the purposes of an orchard Mr Li wished to establish, Mr Gao advised Mr Li that he had experience in such matters due to his partnership in the Liangshan Li orchard, which he invited Mr Li to invest in.

(v)Prior to Mr Gao entering into the Liangshan Yi joint venture he had provided G3 to Mr Shu. A year or so after his investment in the joint venture he offered to supply G3 to Mr Li, and was angry when Mr Li withdrew from the deal when he discovered that Mr Gao was not licensed to sell G3.

Alleged joint venture with Mr Yuan, and offer to sell G3 to Mr Li

[100]   The evidence relating to infringement grouping 3 falls into two distinct categories:

(a)Mr Gao’s offer to sell G3 to Mr Li; and

(b)Mr Gao’s dealings with Mr Yuan and an alleged undisclosed orchard in the Jiangxi Province.

Mr Gao’s dealings with Mr Li

[101]   In November and December 2015, Mr Gao exchanged a number of WeChat message exchanges with Mr Li, a kiwifruit grower based in China. Mr Gao admits that that these WeChat message exchanges were about Zespri’s G3 variety and related to an offer by Mr Gao to provide Mr Li with G3 “sprouts” (budwood). Mr Gao offered to help Mr Li graft the G3 variety and provide support for one year, so as to ensure its success in a new climate.

[102]   After some negotiation, Mr Li offered to pay RMB 100,000 ($20,000) for  100 “sprouts”, with the prospect of significant future business. Mr Gao responded that the proposed quantity was “not worthy of my special visit” and “I have no confidence in our future cooperation”. Mr Li protested that he had bought land in anticipation of a deal proceeding. He offered to sign a contract and to give Mr Gao 30 per cent of the share in the venture on the basis that: “Once we succeed, this 30% will turn into a lot of money, and it is a huge number?” Mr Gao was not interested, however, in acquiring a share of Mr Li’s venture.

[103]   Mr Li then revised his offer to RMB 300,000 ($60,000) for 1,000 female sprouts – “Let’s work together for developing new varieties domestically”. Mr Gao agreed to the revised price on 27 November 2015, and informed Mr Li that he would be visiting China in late January. Subsequently, on 12 January 2016, Mr Gao messaged Mr Li to let him know that the G3 budwood would be arriving at the end of the month, and that Mr Li would need to prepare grafting tools. The following exchange occurred later the same day:

Li: Sorry, Mr Gao. Your sprouts are not authorized. We do not dare to use them after consultation.

Gao: Why didn’t you mention it earlier? Not honest!

[104]   Mr Gao admitted that he had agreed to sell G3 budwood to Mr Li and acknowledged that the reason that the transaction did not proceed was that Mr Li had withdrawn from the agreement.

[105]   Given the timing, Zespri suspects that there is  a link  between  Mr  Li  and the joint venture that Mr Gao entered into with Mr Yuan at about the same time (discussed further below). Ultimately, however, this is speculative. I therefore consider the evidence relating to Mr Gao’s involvement with Mr Li and his involvement with Mr Yuan to be discrete events.

Alleged joint venture between Mr Yuan and Mr Gao

[106]   Mr   Gao   and   Mr   Yuan   entered   into   a   Cooperation   Agreement   on  1 November 2015 (when Mr Gao was visiting China) to engage in a joint venture to exploit two exclusive kiwifruit varieties supplied by Mr Gao (which Zespri says were G3 and G9), starting with a 90 mu (6 ha) area in Shanggao (Jiangxi, China). Pursuant to the Co-operation Agreement:

(a)Mr Gao agreed to provide the venture with quality kiwifruit seedlings and guaranteed that the park would have more than two exclusive/proprietary varieties. 40

(b)In exchange for providing the “technologies, varieties and seedlings” Mr Gao would receive a 30 per cent shareholding.

(c)Mr Yuan would hold the remaining 70 per cent of the shares.

(d)The costs and profits were to be borne by both parties in proportion to their shareholdings.

40 The relevant Chinese word in the document included in the common bundle was translated as “proprietary”. During his evidence, however, Mr Gao (through the interpreter) used the word “exclusive”.

(e)Mr Gao was not to provide proprietary/exclusive varieties to anyone other than Mr Yuan.

[107]   On 20 December 2015, Mr Gao confirmed with Mr Yuan that he would visit him in Shanggao on 21 January 2016. During Mr Gao’s subsequent visit to China he met with Mr Yuan. Mr Gao said that Mr Yuan took him to see a number of properties that they hoped to develop for kiwifruit. Mr Gao said, however, that no suitable land was found, and the joint venture did not proceed.

[108]   On 26 April 2016, Mr Gao sent his curriculum vitae to Rock International Advisory. In that document he stated that in 2015 he had established a 100-acre kiwifruit orchard in the Jiangxi Province, which would be expanded to 300 acres in the next three years. Under cross-examination (as to why he had not disclosed that orchard to Zespri) he claimed that it did not exist, and that his statement in his CV to the contrary was untrue.

[109]   On 7 September 2017, Mr Gao was searched by the Ministry of Primary Industries on his departure from New Zealand, who identified a range of tools and implements in Mr Gao’s luggage that are capable of being used for grafting kiwifruit vines (but which could also be used for other agricultural purposes). On his return, on 1 October 2017, Mr Gao was again searched, and he had in his luggage a copy of the Co-operation Agreement with Mr Yuan.

[110]   When Mr Gao was asked in cross-examination what “exclusive” varieties he intended to provide to the venture he said:

A. I have many varieties to provide to him. I need to make selections because different varieties perform differently at that place. I have a few varieties that I can provide to him.

Q. Well the suggestion from Zespri is that reference to exclusive means G3?

A. Definitely not.

[111]   Zespri did not adduce any evidence of  a  joint  venture  orchard  involving Mr Gao and Mr Yuan. Rather, Zespri stated in its closing submissions that it “believes that the orchard exists, but the location of it has not been disclosed”.

Key factual findings

[112]   Mr Gao, when he was in New Zealand, offered to sell G3 to Mr Li, and an agreement was concluded for the sale of G3. Mr Li, however, subsequently withdrew from the deal once he discovered that Mr Gao did not have authority to sell G3 material to him.

[113]   I strongly suspect that the two exclusive kiwifruit varieties Mr Gao agreed to supply to his joint venture with Mr Yuan were intended to be G3 and G9. Further, an undisclosed orchard may well exist. There is insufficient evidence, however, to prove those facts, on the balance of probabilities.

Alleged dealings with Jiashang Agriculture and Mr Yang

The evidence

[114]   On 5 January 2017 Mr Gao incorporated Jiangxi Jiashang Agriculture Development Company Limited (“Jiashang Agriculture”) in China. The shareholders are Mr Gao (99 per cent) and Yang Qian (“Mr Yang”) (one per cent). Mr Gao was described as the legal representative of the company and its business scope is described as:

Fruit tree plantings: wholesale and sales of fruit, sales and processing of agricultural products and buying products.

[115]   Jiashang Agriculture operates an orchard in Jiashang, on land leased from  Mr Yuan. Mr Yang manages that orchard. Mr Gao’s bank statements show regular wage payments to Mr Yang from February 2017.

[116]   As I have mentioned above, on 1 October 2017, Mr Gao was searched by the Ministry of Primary Industries. When searched he had a number of documents relating to Jiashang Agriculture with him, including various maps, as well as a list of the capital expenditures for Jiashang Agriculture orchard.

[117]   Zespri was concerned that the Jiashang Agriculture orchard was established by Mr Gao solely to exploit Zespri’s G3 and G9 varieties. Not long before trial, however, Mr Gao (somewhat belatedly) made that orchard available for inspection. There is no

evidence that Zespri identified either G3 or G9 currently growing on that orchard. Zespri nevertheless remains concerned that Mr Gao intends to exploit G3 and/or G9 through his Jiashang Agriculture business “for the same reasons that he has advocated that strategy to others”.

Key factual findings

[118]   The evidence relating to this infringement grouping falls short of establishing, on the balance of probabilities, that Mr Gao has exploited (or attempted to exploit) the G3 and/or G9 varieties through Jiashang Agriculture.

First cause of action: Did Mr Gao breach Zespri’s PVR rights?

[119]   The key issue I must determine in relation to the first cause of action is whether Mr Gao’s acts or conduct in New Zealand have diminished Zespri’s enjoyment of its exclusive rights in the G3 and G9 varieties.

Mr Gao’s relevant acts within New Zealand

[120]   I have found some of Zespri’s allegations to be unproven (namely all of the allegations relating to infringement groupings 3 and 4, other than the allegations relating to Mr Gao’s offer to sell G3 to Mr Li). The allegations relating to infringement groupings 1 and 2, however, have been proven. Accordingly, the relevant findings for present purposes are those set out at ([85], [99], and ([112] above). Mr Gao’s potentially infringing conduct within New Zealand falls into two broad categories:

Licence Agreement for such purposes, including showing it to local officials in China, and also likely using it to secure significant investment in the expansion of his orchard interests.

The first and second causes of action

[196]          This Court only has jurisdiction over Mr Gao’s actions in New Zealand, and not his conduct (or those of his associates) in China. In Winchester, the Court of Appeal held that any conduct having the effect of diminishing the grantee’s enjoyment of its exclusive rights under the PVR Act will be infringing. In this case, I am satisfied that Mr Gao’s actions in New Zealand have diminished Zespri’s enjoyment of its exclusive rights in the G3 and G9 varieties. Mr Gao has accordingly breached Zespri’s PVR rights in those varieties. The first cause of action (the claim under the PVR Act against Mr Gao) has therefore been proved.

[197] Mr Gao’s acts in relation to both Mr Shu and Mr Yu were undertaken in the name of, or on behalf of his associated company, Smiling Face. Smiling Face and Mr Gao are concurrently liable for the damages to Zespri arising from acts undertaken by Mr Gao on behalf of Smiling Face. The second cause of action (the claim under the PVR Act against Smiling Face) has therefore been proved.

[198] The damages payable by Mr Gao and Smiling Face to Zespri in respect of the two PVR Act causes of action (the first and second causes of action), assessed on the basis of the “user principle,” are $14,894,100.

The third cause of action

[199]          As for the third cause of action, I have found that Mr Gao and Ms Xue are jointly liable for breaching the G3 licence agreements they entered into with Zespri, from 30 July 2013 onwards (when the first licence agreement was entered into). In particular, Mr Gao failed to disclose to Zespri that he had provided G3 to Mr Shu following which Mr Shu had planted it on several orchards in China. In addition, after Mr Gao had entered into the first G3 licence with Zespri, he supplied G3 to Mr Yu. This breached his contractual obligations under his G3 licence agreement with Zespri.

[200]          I have assessed the damages for this cause of action, based on the “user principle” at $10,824,300.

Result

[201]I find for Zespri on all three causes of action.

[202]I make the following orders:61

(a)Zespri is granted a permanent injunction against Mr Gao, Ms Xue and Smiling Face restraining them from further infringing, or procuring any further infringements of Zespri’s PVR rights in the G3 and G9 varieties;

(b)In respect of the first cause of action, Mr Gao is to pay damages to Zespri in the sum of $14,894,100;

(c)In respect of the second cause of action, Smiling Face is to pay damages to Zespri in the sum of $14,894,100;

(d)In respect of the third cause of action, Mr Gao and Ms Xue are jointly liable to pay damages to Zespri in the sum of $10,824,300.

[203]          If costs cannot be agreed between counsel, then leave is reserved to file memoranda. Any memorandum on behalf of Zespri is to be filed by 6 March 2020. Any response from the defendants is to be filed by 20 March 2020.

Katz J

61     For the avoidance of doubt, to avoid double recovery, the total quantum of damages recovered by Zespri from the defendants is not to exceed $14,894,100.

SCHEDULE – HEARSAY RULINGS

Hearsay rulings

[1]     At trial, Mr St John (on behalf of the defendants) objected to the admissibility of some of the evidence given by Zespri witnesses (Ms McCann Morrison, Mr Max and Ms McCarthy) on hearsay grounds. Zespri made a number of concessions regarding that evidence during trial. To the extent that Ms O’Gorman advised that Zespri did not rely on the challenged evidence for truth of its content, I have not relied on it for that purpose.

[2]     In terms of the outstanding objections (those which were highlighted orange on the relevant witness briefs) I make the following rulings:

a)Statements made by Zespri’s investigators to Zespri’s witnesses are inadmissible hearsay. Such statements cannot be relied upon for truth of their contents, but only as contextual or background evidence.

b)Statements made directly by Mr Shu to one or more of Zespri’s witnesses are admissible hearsay.

c)The evidence (broadly) relating to the DNA testing undertaken by Zespri summarised at [47] below is inadmissible hearsay. Such evidence cannot be relied upon for truth of its contents, but only as contextual or background evidence.

[3]My reasons for these rulings are set out below.

Background

[4]     It became apparent early in the trial that Zespri’s witness briefs contained extensive hearsay evidence. A hearsay statement is a statement made by a person

other than a witness that is offered in evidence to prove the truth of its contents.62 Subject to certain exceptions, hearsay evidence is inadmissible.63

[5]     The relevant hearsay evidence included, for example, Zespri senior managers summarising information provided to them by unidentified private investigators retained by Zespri in China. The reports provided to Zespri by those investigators, which formed the basis for such evidence, were not discovered by Zespri, apparently on the grounds of litigation privilege.

[6]     In addition, hearsay evidence was given by Mr Max as to the results of DNA testing on kiwifruit taken by Zespri’s investigators and sent to a laboratory (Tree Lab Limited) for testing. No witnesses from Tree Lab were called to give evidence.

[7]     The briefs of Ms McCarthy and Mr Max were served on 10 August 2018, and the brief of Ms McCann Morrison on 14 August 2018. Any challenges to the admissibility of their evidence should therefore have been made within 20 working days (by 3 September 2018 and 5 September 2018 respectively).64 It was not, however until the second day of the hearing, two months later, that Mr St John advised that he was intending to advance a hearsay challenge, but was reserving it for his closing argument. This was in response to a query from the Court.

[8]     When the hearsay issue was first raised, Ms O’Gorman acknowledged that extensive portions of Zespri’s witness briefs were hearsay, if relied on for truth of their contents. She initially addressed the issue by highlighting (in yellow) fairly extensive passages of the relevant briefs which she advised Zespri would not rely on for the truth of their contents, but merely for background context. This included DNA results of plant samples taken from various orchards in China and much of the evidence regarding what Zespri’s investigators had apparently reported to Zespri as a result of their investigations. Mr St John did not seek exclusion of this evidence, on the basis that it was not relied on for the truth of its contents. I have proceeded accordingly.

62     Evidence Act 2006, s 4.

63 Evidence Act 2006, s 17.

64     In accordance with rule 9.11 of the High Court Rules.

[9]     Mr St John did object, however, to further passages of the evidence of Zespri’s witnesses on hearsay grounds. He highlighted the relevant passages in orange. The objections fall into three main categories:

a)evidence relating to Zespri’s investigators;

b)evidence relating to Mr Shu; and

c)DNA evidence.

[10]    Zespri submitted that I should decline to entertain the defendants’ challenges to admissibility, given that they were not made within the timeframe provided for in the High Court Rules. Alternatively, Zespri submitted that the challenged evidence was either not hearsay or, if it was, it was admissible pursuant to s 18(1) of the Evidence Act. That section provides that a hearsay statement will be admissible if:

(a)the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and

(b)either—

(i)  the maker of the statement is unavailable as a witness; or

(ii)    the Judge considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.

Should I determine the defendants’ admissibility challenges?

[11]    The defendants acknowledge their failure, under r 9.11 of the High Court Rules, to challenge the purported hearsay evidence within 20 working days after receipt of the relevant briefs of evidence, but do not accept that this failure is determinative.

[12]    I accept the defendants’ submission on this issue. The failure to adhere to rule 9.11 does not displace the mandatory statutory criteria of ss 17-18 of the Evidence Act. Nor does the absence of a r 9.11 objection displace the plaintiff’s own obligation to comply with the Evidence Act.  Rule  9.14  expressly provides  that  nothing in part 9 subpart 1 of the Rules changes inadmissible evidence into admissible evidence. Issues of hearsay can be raised subsequent to the timeframe outlined in r 9.11. I note, for example, that the Court’s powers under r 9.7(5) to direct that parts of a brief not

be read (or to make any other appropriate order) may be exercised prior to or during a trial.

[13]    It is very unfortunate, however, that the defendants did not raise any hearsay objections prior to trial. If that was a tactical decision (which appears likely) then that is a matter of considerable concern. This could well be relevant in a costs context.

[14]    The need to deal with extensive evidential issues during the course of trial complicated the trial process (and subsequently the judgment writing process) and diverted counsel’s focus from the key trial issues. It became necessary for counsel for both parties to address hearsay issues at length in their closing addresses. Such issues should have all been resolved prior to trial.

[15]    That said, ultimately the responsibility lies on the party adducing evidence to ensure that it complies with the requirements of the Evidence Act. Most of the hearsay evidence included in Zespri’s briefs was obvious in nature, and some of it was double or triple hearsay. It should not have been included in the first place. As originally presented, the relevant evidence was clearly being relied on for the truth of its contents. It was only as a result of concessions made by counsel for Zespri during the course of the trial that the most obvious hearsay evidence was relegated to “background context” status.

[16]    For the reasons outlined, I reject Zespri’s submission that I should decline to entertain the defendants’ evidential challenges. I consider each category of challenged evidence below, in turn.

Statements allegedly made by Zespri’s investigators

The challenged evidence

[17]    The defendants challenge various passages of the evidence of Mr Max and Ms McCarthy as being based on information  provided  by Zespri’s  investigators and accordingly hearsay. The challenged evidence falls into the following main categories:

a)The visits by Zespri’s investigators to the Chibi, Wuhan, Xianning 1, Xianning  2  and  Liangshan  Yi  orchards,  and   what   they  found (or were told) on those visits.

b)Evidence of inquiries made by Zespri’s investigators in April 2016 with the Agricultural Bureau in Hubei, and the investigators subsequent meeting with employees of Shenshan Modern Agriculture at which those employees allegedly disclosed information about Mr Shu.

c)Zespri’s investigators conclusion (as a result of their research) that  Mr Shu was assisting Guangdi, a company located in Wuhan, Xinzhou (located in Hubei, to the north of Xianning) on technical aspects of its production of fruit and vegetables.

d)Mr Max’s and Ms McCarthy’s evidence that it was clear that sometime around 18 October 2014, Liangshan Yi and the other parties to the Liangshan Yi Agreement, were attempting to, or did enter into, a contract for the transfer of a land management right with the Tenth Villager Group of the Taoyuan Village, Lanhuan Township, in Xichang, Sichuan.

Is the challenged evidence hearsay?

[18]    To the extent that Zespri’s investigators are expressly identified as the source of the challenged evidence then that evidence is clearly hearsay (assuming that Zespri relies on it for the truth of its content). Some of the challenged passages, however, do not expressly identify Zespri’s investigators as the source of the relevant information. Rather, the defendants simply infer that to be the case. There is an insufficient factual foundation, however, to support such an inference. For example, Mr Max visited a number of the relevant orchards himself and had extensive discussions with Mr Shu and others in China. Zespri’s investigators were not the only source of information relied on by Zespri’s witnesses. In many cases the relevant witnesses were not cross-examined about the source of their information.

[19]    Accordingly, unless it is clear from either the relevant witness statements, or concessions made in cross-examination, that the relevant passages of evidence were

based on the investigators’ reports, I am not willing to infer that they were. For example, as I have explained in the main body of the judgment, there is admissible evidence as to the size of the various orchards (based on the personal observations of Mr Max and Ms McCann Morrison and documents discovered by the defendants). It cannot therefore be inferred that their evidence as to the size of the orchards is based exclusively (or at all) on hearsay information conveyed by Zespri’s investigators.

[20]    That said, the broad categories of evidence I have summarised at [17](a)-(c) of this Schedule are all, in essence, hearsay statements of Zespri’s investigators. The source of the evidence set out at [17](d) above, however, appears to be a document that was discovered by the defendants.

Are the hearsay statements of Zespri’s investigators admissible under s 18 of the Evidence Act?

[21]    Zespri submitted that, to the extent  that  the  evidence  of  Mr  Max  and  Ms McCarthy includes hearsay statements made by Zespri’s investigators, the relevant passages should be admitted pursuant to s 18 of the Evidence Act.

[22]    Zespri submitted that the circumstances relating to the investigators’ statements provide reasonable assurance that the statements are reliable, for the following reasons:

a)The investigators are employed by a reputable and well-established firm.

b)The investigators’ statements were based on their first-hand observations.

c)The statements were consistent with other evidence including the False License Agreement and the eye-witness accounts  of Mr Max  and  Ms McCann Morrison.

d)The New Zealand Police found the statements credible enough to rely on them for purposes of an application for a search warrant.

e)The investigators wanted to assist Zespri by providing witness statements. However, due to concerns about retribution from those affected by their evidence, they were unwilling to do so without a prior guarantee of confidentiality that Zespri, as a matter of law, was unable to provide.

[23]    Based on the fairly limited information before me, I have serious reservations as to whether the circumstances relating to the investigators’ statements provide reasonable assurance that the statements are reliable. I note that much of the challenged evidence is double hearsay and sometimes even triple hearsay. Although some of the challenged evidence is based on direct observations by Zespri’s investigators, other evidence is based on what they were told by often unnamed third parties (such as “employees of Shenshan Modern Agriculture”) who in turn sourced their information from others.

[24]    The definition of “hearsay statement” does not distinguish between first-hand or multiple hearsay. However, in cases of multiple hearsay, the Court must be concerned with the reliability of each statement in the chain.65 I have little or no information on which to assess the reliability of those who provided information to Zespri’s investigators. I am also concerned that Zespri elected not to disclose its investigators reports to the defendants, on the grounds of litigation privilege. As a result, Zespri has, in effect, disclosed selected portions of those reports in the evidence of its witnesses, without the defendants (or the Court) being able to review or test that evidence with reference to the investigators’ full reports. Given the quantum of Zespri’s claim (over $30 million) this is of particular concern.

[25]    In terms of the second limb of s 18, Zespri relied on the definition of “unavailable as a witness” set out in s 16(2) of the Evidence Act, namely that a witness is outside New Zealand and it is not reasonably practicable for him or her to be a witness.

[26]    There is no dispute that the investors are based outside of New Zealand. The key issue is whether Zespri has established that it is not “reasonably practicable” for

65     R v J Key [2010] NZCA 115 at [26].

them to appear as witnesses. Zespri submitted that this criterion is satisfied due to fears held by the investigators for their personal safety and that of their families, if they were to appear as witnesses in this proceeding.

[27]    Relatively limited information has been provided to substantiate that the fears of the investigators are well-founded. Further, their identity is presumably already known to a number of key persons in China, as a result of the inquiries the investigators have made there (including meeting with senior figures in the kiwifruit industry and visiting a number of orchards). I also note that the identity of the investigators has already been disclosed to the defendants in documents discovered in this proceeding, albeit the investigators only appear to have become aware of that during trial.66 Further, at least one of the investigators appears in video footage that has been discovered (and was shown at trial).

[28]    I accept that the investigators’ fears are genuine. Given the background I have outlined, however, it is my view that further efforts should have been made by Zespri to try and allay their concerns and secure their attendance as witnesses at trial. Comprehensive confidentiality orders could have been sought to protect their identity including, if appropriate, that they give evidence from behind a screen. Such measures may (or may not) have allayed their concerns. In the absence of such efforts having been made, however, I am not satisfied that the unavailability limb of s 18 has been met.

[29]    In conclusion, to the extent that this category of evidence is hearsay evidence (as set out at [19] of this Schedule) it does not meet the requirements of s 18 and is accordingly inadmissible.

66     I made confidentiality orders at trial prohibiting any further dissemination or publication of their identities.

Statements allegedly made by Mr Shu to Zespri’s witnesses

The challenged evidence

[30]    The defendants challenged various passages in the evidence of Zespri’s witnesses as being hearsay evidence of statements allegedly made to those witnesses by Mr Shu. The challenged evidence falls into the following main categories:

a)That in August 2016, Zespri’s investigators visited the Chibi and Xianning 2 orchards, at Mr Shu’s invitation.

b)That Xianning 2 is an orchard of 500 mu (approximately 33.3 ha).

c)Mr Shu told Mr Max and others that:

(i)in 2015, the Xianning 2 Orchard had produced 8 tonnes of G3 and G9 and that there was a high yield of G3 and G9. According to Mr Shu, the G9 was harvested in September and the G3 from early to mid-October; and

(ii)that the G3 and G9 plant material present at Xianning 2 had been obtained by him from Xianning 1.

d)That one of the videos taken on a subsequent visit with Mr Shu to his Wuhan orchard records a conversation between Ms Tang and Mr Shu in which Mr Shu explains that he had planted around 1 mu of Jin Jhan (G3) seedlings in a particular field.

e)That Mr Max understood the size of the Wuhan Orchard to be approximately 1800mu (approximately 120 ha), based on the scale of the orchard as he observed it and what he understood based on what Mr Shu had told him (quite emphatically) about the size of the orchard. (I note that only what Mr Shu told Mr Max is challenged as hearsay, not Mr Max’s conclusions based on his own observations).

Is the challenged evidence hearsay?

[31]    The above statements are relied on for the truth of their contents and appear to each relate to information sourced from Mr Shu (save for Mr Max’s own observations of the size of the Wuhan orchard as referred to in (e) above). They are therefore hearsay statements.

Are the hearsay statements of Mr Shu to Zespri witnesses admissible under s 18 of the Evidence Act?

[32] The first issue is whether the statements summarised at [30] above are reliable.

[33]    Although there can be no dispute that aspects of Mr Shu’s character are dishonest, he had no motive to lie to Mr Max and Ms McCann Morrison about the key aspects of the relevant statements, including that he was growing G3 and G9 on his orchards. Indeed, if he had wished to lie about this issue it is highly unlikely he would have been willing to take Mr Max and Ms McCann Morrison to visit his orchards to view his growing operation first hand.

[34]    The hearsay statements attributed to Mr Shu are wholly consistent with extensive other evidence in the case. For example, Mr Shu’s claim to have G3 and G9 at his orchards accords with the personal observations of Mr Max and Ms McCann Morrison, the photographs and video they took, the False License Agreement, the messages exchanged between Mr Shu and Mr Gao, the “sightseeing proposal” document and Ms McCann Morrison’s unchallenged evidence of the context in which the orchard visits took place. In particular, she said that Mr Shu was keen to show her and Mr Max his orchards, because he wanted to become Zespri’s “man  in China”  (in relation to the cultivation of G3 and G9).

[35]    Taking all of these matters into account, I am satisfied that the circumstances relating to the statements made by Mr Shu provide reasonable assurance that they are reliable.

[36]    I therefore turn to the second limb  of the s 18 inquiry, which is  whether  Mr Shu is unavailable as a witness. Zespri again relied on the definition of “unavailable as a witness” set out in s 16(2) of the Evidence Act, namely that a witness is outside New Zealand and it is not reasonably practicable for him or her to be a witness.

[37]    A person resident in China cannot be subpoenaed  to  give  evidence  in New Zealand. The key issue therefore is whether the evidence sufficiently establishes that Mr Shu was not willing to voluntarily give evidence for Zespri in this proceeding.

[38]     Ms McCann Morrison’s evidence was that in the absence of a commercial settlement pursuant to which Zespri “partnered” with Mr Shu in relation to his G3 and G9 growing operation in China, he was “unwilling to co-operate further with Zespri to give evidence against Mr Gao.” In a similar vein, Ms McCann Morrison gave evidence that Mr Shu refused to provide Zespri with copies of the False Licence Agreement and Receipt. When asked what Mr Shu’s response was to Zespri’s request for those documents, Ms McCann Morrison said:

He wouldn’t give it to us. He – because we weren’t willing to work with him he was not willing to work with us.

[39]    Zespri was unwilling to partner with Mr Shu for various reasons, including that his technical ability as a grower and orchardist seemed poor.

[40]    Also relevant in this context is a message exchange that took place between Mr Shu and Mr Gao on 22 November 2016, as set out at [64] of the judgment, in which Mr Shu assured Mr Gao that he would not reveal anything to Zespri about Mr Gao’s involvement and warned him that he should be careful. When cross-examined on this message exchange, Mr Gao acknowledged that he was telling Mr Shu not to hand over the False Licence Agreement and Receipt to Zespri, and that Mr Shu provided the reassurance he was looking for, namely that he would not co-operate with Zespri by providing them with those documents.

[41]    Mr Gao was also cross-examined on whether he had asked Mr Shu to give evidence for the defence. Mr Gao said that he had contacted Mr Shu and that:

He said he doesn’t want to come to New Zealand. He said that if it’s required for him to, to produce written evidence then he’s happy to - he’s happy to do that for me, to prove my innocence.

[42]    There is extensive evidence in this case that establishes that Mr Shu colluded with Mr Gao to surreptitiously obtain G3 and G9 plant material from New Zealand and subsequently propagate that material in China, in the full knowledge that he was not lawfully licensed to do so. Mr Shu created false documents to mislead both investors and local officials as to the lawfulness of what he was doing. Given this context, it is not surprising that Mr Shu was unwilling to give evidence for Zespri  (or provide it with copies of relevant documents) in the absence of a commercial agreement.

[43]    The contemporaneous documents clearly indicate that Mr Shu’s loyalty was to Mr Gao, not Zespri. If Mr Shu had been willing to give evidence in this proceeding at all, it is clear that it would have been for Mr Gao, not Zespri. I am accordingly satisfied that both limbs of s 18 are met and that the challenged evidence is admissible.

The defendants’ reliance on hearsay statements made by Mr Shu

[44]    Despite challenging the admissibility of statements attributed to Mr Shu in Zespri’s briefs, the defendants also sought to rely on various statements made by   Mr Shu as truth of their contents. To the extent that Zespri’s witnesses gave evidence of any statements made by Mr Shu I find them to be admissible, for the reasons outlined above. Similarly, any statements allegedly made by Mr Shu to Zespri’s investigators are inadmissible as truth of their contents, for the reasons outlined above.

DNA evidence

[45]    The DNA testing process undertaken by Zespri involved transfer of samples from China by courier to a laboratory in France for testing, followed by analysis of the results in New Zealand. A number of the samples apparently tested positive for G3 and G9. Zespri did not, however, call any witnesses from either the French or

New Zealand laboratories to prove the DNA results. Nor did it seek to include those results in an admissions statement under s 9 of the Evidence Act. Rather, Mr Max’s witness brief covered the relevant DNA evidence, including a table of the results of the DNA testing.

[46]    Such evidence was hearsay, as Zespri acknowledged at trial. Ms O’Gorman advised that Zespri would not rely on the DNA test results for the truth of their content, but instead rely on other evidence to prove its case.

[47]    As I have previously explained, counsel for Zespri highlighted in yellow the various passages in its witness briefs that it did not rely on for the truth of their contents, and I do not consider that evidence further. Mr St John, however, took the view that further passages relating to DNA evidence also contravened the hearsay rule. The challenged evidence falls into the following main categories:

a)That while at Xianning 1, Zespri’s investigators took sample leaves of the kiwifruit grown there in two separate locations. Specifically, Zespri’s investigators took two leaf samples from one vine and four leaf samples from another. In each case the vines were young, grafted vines.

b)That the DNA results (which are not relied on for the truth of their contents) are recorded in a table in Mr Max’s evidence, by reference to the relevant sample numbers (867-872) and the relevant report from The Tree Lab.

c)That Shenshan employees had told Mr Shu that the Xianning 1 orchard had been established in 2013. (I note that Mr Max reached the same conclusion based on his personal observation of the age of the vines at that orchard – which evidence is admissible).

d)That in August 2016 Zespri’s investigators took a number of samples from the Chibi and Xianning 2 orchards.

e)That in June 2017, Zespri’s enquiries led its investigators to a 30mu (approximately  2  ha)  orchard  associated   with   Liangshan   Yi  (i.e. Linagshan Yi Autonomous Prefecture Changxing Agriculture Technology. The Orchard was heavily fenced with metal gates and gave the impression of having an unusual level of high security.  On  2 June 2017, Zespri’s investigators obtained two kiwifruit samples (number 1056 and 1057), from the Liangshan Yi Orchard.

[48]    The key evidence on the DNA issues is Mr Max’s evidence establishing that the samples taken tested positive for G3 or G9, which Zespri does not rely on for truth of its contents. Given that concession, little, if anything, turns on the additional passages of evidence in this category challenged by the defendants. I accept, however, that if the relevant evidence is relied on by Zespri for the truth of its contents, it is hearsay. Further, it has not been sufficiently established that either Zespri’s investigators, or the employees of Shenshan, were unavailable to give evidence at trial. The evidence is accordingly inadmissible as evidence of the truth of its contents. To the extent that it is relevant at all, it can only be relied on as general contextual evidence.