Court of Appeal reduces damages to $12m against grower who smuggled Zespris kiwifruit into China

Damages awarded to Kiwifruit marketer Zespri have been reduced from nearly $15 million to just over $12m by the Court of Appeal after a variety of its product was smuggled into China and distributed to other growers.

The case stems from Zespri Group’s exclusive rights to sell reproductive material of, and to propagate for commercial production, the G3 and G9 varieties of golden kiwifruit under the Plant Variety Rights Act 1987.

Kiwifruit grower Haoyu Gao, his wife Xia Xue and their company Smiling Face, servicing a number of orchards around Bay of Plenty’s Ōpōtiki, grew G3 kiwifruit under licence from Zespri.

Zespri, however, alleged Gao sold and then exported G3 and G9 to China from 2012 onwards, purported to license those varieties for the whole of China, and engaged in conduct that breached Zespri’s exclusive rights.

The company said billions of dollars of future exports had been put at risk. Zespri accounted for about 30 per cent of global kiwifruit sales and in 2015 kiwifruit was New Zealand’s second largest horticultural export after wine, earning export receipts of $1.2b.

Legal proceedings were launched in July 2018 against Gao, Xue and their company, as Zespri sought an injunction against future infringements and damages of $31m.

A civil High Court trial was held in November 2018 and in a February 2020, Justice Sarah Katz held Zespri had proved Gao and Smiling Face supplied G3 and G9 to Shu Changqing, a kiwifruit grower identified by Zespri’s private investigators.

Justice Katz further found Gao and Smiling Face purported to license Shu to exploit the kiwifruit varieties throughout China. A joint venture with Yu Heming, organised via the WeChat messaging app, was also established, which included planting a 6ha “demonstration park” in Xichang — in Sichuan, China — on which G3 supplied by Gao was planted.

The judgment also ruled Gao and Smiling Face offered to sell G3 to another kiwifruit grower in China and found both Goa and Xue breached the terms of their G3 licence agreements with Zespri.

Justice Katz said Gao revealed himself to be a person who “lacks a moral compass and does not place a high value on honesty”.

“Mr Gao’s evidence was often evasive and implausible. At times he contradicted both his own previous evidence and contemporaneous documents,” she said in her judgment.

The judge awarded damages of $14,984,100 against Gao and Smiling Face for the acts which infringed Zespri’s statutory rights. She also awarded damages of $10,824,300 against Gao and Xue jointly for acts which infringed Zespri’s contractual rights.

To avoid double recovery, the total quantum of damages recovered by Zespri was not to exceed $14,894,100, Justice Katz ruled.

However, Gao, Xue and Smiling Face challenged the decision to the Court of Appeal in April, alleging Justice Katz had mistakenly ruled hearsay statements admissible.

The court yesterday released its judgment, quashing the damages awarded by Justice Katz but otherwise dismissing the appeal.

Reduced damages were ordered, with Gao and Smiling Face to pay Zespri $12,081,150.

This was a result of Justice Katz, though not erring in principle, fixing damages according to an incorrect notional licence area due to an error over the size of the Chinese orchards.

The Court of Appeal also declined to award costs.

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