Haoyu Gao v Zespri Group Ltd - [2021] NZCA 442

Date of Judgment

07 September 2021

Decision

Haoyu Gao v Zespri Group Ltd (PDF 466 KB)

Summary

Appeal allowed to extent that damages reduced from NZD14,894,100 to NZD 12,081,150.  Appeal otherwise dismissed.  Orders at [202(b)–(c)] of the High Court judgment quashed.  Orders that Mr Gao is to pay damages to Zespri in the sum of NZD 12,081,150 in respect of the first cause of action and that Smiling Face is to pay damages to Zespri in the sum of NZD 12,081,150 in respect of the second cause of action are substituted.  No order for costs. 

Zespri holds plant variety rights (PVRs) for G3 and G9 varieties of golden kiwifruit in New Zealand under the Plant Variety Rights Act 1987 (PVR Act).  Mr Gao and Ms Xue, through Similing Face, grew G3 kiwifruit under licence from Zespri beginning in 2013 on an orchard in New Zealand.  In 2016 Zespri became aware G3 was being grown in China.  Zespri engaged private investigators who located a Mr Shu in China who admitted to growing G3 and G9 on orchards in China – namely the Chibi, Xianning 1, Xianning 2 and Wuhan orchards.  Two Zespri employees, Mr Max and Ms McCann Morrison, travelled to China to meet Mr Shu and visit three of those orchards.  Zespri alleged Mr Gao (acting for Smiling Face) sold G3 and G9 budwood to Mr Shu when he travelled to China to meet Mr Shu in August 2012.  Mr Gao admitted to agreeing to sell Mr Shu G3 and G9 budwood, as well as signing a False Licence Agreement with Mr Shu in October 2012.  The False Licence Agreement provided for supply of the budwood in August 2012 by Smiling Face, as well as the purported grant of property rights to G3 and G9 throughout China in exchange for RMB 10 million.  Mr Gao also admitted to agreeing to sell G3 budwood to a Mr Li in China though Mr Li later pulled out of the sale.  Zespri also alleged Mr Gao entered a joint venture with a Mr Yu in China to develop the Liangshan Yi orchard in China to which Mr Gao allegedly supplied G3.  Zespri brought proceedings against Mr Gao and Smiling Face for breaches of its New Zealand PVRs under the PVR Act and proceedings against Mr Gao and Ms Xue for breaches of their G3 Licence Agreements with Zespri.  The High Court held Mr Gao and Smiling Face breached Zespri’s New Zealand PVRs and awarded Zespri damages of NZD 14,894,100 on the basis of a notional licence fee for the orchard areas in China, discounted by 50 per cent.  The High Court also held Mr Gao and Ms Xue breached their G3 Licence Agreements with Zespri and awarded Zespri NZD 10,824,300 – again on basis of a notional licence fee for the orchard areas in China discounted by 50 per cent.  Mr Gao, Smiling Face and Ms Xue (the appellants) appeal that judgment. 

Evidence – Hearsay.  Did the Judge err in finding hearsay statements made by Mr Shu to Mr Max and Ms McCann Morrison were admissible.Held:  No.  Mr Shu’s statements as to the quantities of G3 and G9 his orchards produced and the size of the Wuhan Orchard were clearly assertions he was growing G3 and G9 and relied on by Zespri to prove he was doing so.  The statements were hearsay.  The Judge did not err in assessing the statements’ threshold reliability.  The statements were spontaneous admissions against interest and corroborated by personal observations of Mr Max and Ms McCann Morrison, the photographs and video they took, the False License Agreement, the messages between Mr Shu and Mr Gao, and Ms McCann Morrison’s evidence of the context in which the orchard visits took place.  The absence of contemporaneous documentation, including translator notes, is a matter going to weight.  The medium of translation does not itself clothe a translated statement with a hearsay character.  Proof of accuracy of translation can be assessed against the circumstances and goes to weight.  That the translated statements were amply corroborated suggests the translation, at least on significant matters, was sufficiently accurate.  No specific examples of potential mistranslation were offered.  The Judge could find Mr Shu was unavailable.  Mr Shu was compellable but outside of New Zealand and Ms McCann Morrison’s (corroborated) evidence properly established he was unwilling to give evidence.  

Plant Variety Rights – Findings of fact.  Evidence – Lay opinion evidence.  Did the Judge err in assessing the size of Mr Shu’s orchards.Held:  Yes.  The Judge transposed the sizes of the Xianning 1 and Xianning 2 orchards.  Mr Max’s affidavit evidence mixes personal observations with the hearsay statements of Zespri’s earlier investigators in China.  In the absence of evidence that the orchard sizes in his evidence were drawn from the Zespri investigators, the lack of explanation of how they were arrived at is a matter going to weight.  The appellants admissibility objection to the evidence as to orchard size was not taken in the High Court but the onus is on Zespri to adduce admissible evidence.  Mr Max and Ms McCann Morrison’s evidence as to size was not expert evidence but was admissible as lay opinion evidence.  There may be limits to how specific a statement of measurement can be, without an explanation of how that assessment was reached, before it can no longer properly be regarded as lay opinion evidence.  But that is unnecessary to decide as the exact size of orchards is only relevant to remedy which does not depend on exact measurement.  Little if any weight can be given to the satellite imagery relied on by Zespri as it contains no measurement or means to ascertain size. Mr Max gave no explanation how the size of the Chibi vineyard was determined but 1.3 ha could likely be observed by an average person and is corroborated by the photographic evidence.  The Judge did not err. The Judge relied on the reference in Mr Shu’s Marketing Proposal to a 13.3 ha orchard to set the size of the Xianning 1 orchard as being 13.3 ha.  The evidence suggests the Marketing Proposal refers to the  Xianning 2 orchard.  Mr Max’s evidence as to size is set aside as he never visited Xianning 1.  There is no evidence establishing the Xianning 1 orchard is 33 ha or any other size.  The translated sign at the Xianning 2 orchard stating it was 13.3 ha is inadmissible hearsay for the truth of its contents.  But it is evidence that Xianning 2 was described as covering 13.3 ha, meaning Xianning 2 is likely the Demonstration Park referred to in Mr Shu’s Marketing Proposal which is admissible for the truth of its contents.  Recourse to the satellite imagery is unnecessary.  The Judge did not err in assessing the size of Xianning 2.  The Judge did not err in assessing the size of the Wuhan orchard to match Mr Shu’s admissible hearsay statements to Mr Max and Ms McCann Morrison. 

Evidence – Credibility.  Did the Judge err in making adverse credibility findings.Held:  No.  Something in the nature of a material failure of process or evidence analysis apparent from the written record is needed to overcome the customary caution an appellate court must exercise in assessing the trial judge’s credibility findings.  The Judge’s view of Mr Gao’s credibility is amply justified on the evidence.  The Judge appears to have wrongly drawn on conclusions reached in relation to a Ms Xu in a contemporaneous criminal case and attributed Ms Xu’s qualifications to Ms Xue.  But the error is peripheral and the overall credibility finding was open to her to make.  An isolated peripheral error is insufficient to impugn the soundness of the judgment for delay. 

Plant Variety Rights – Findings of fact.  Did the Judge err in finding the G3 and G9 varieties would not have reached Mr Shu in China but for Mr Gao’s actions in New Zealand.Held:  No.  The Judge was entitled to reject that Mr Gao reneged on the admitted agreement to supply budwood to Mr Shu.  The False Licence Agreement and receipt of payment are documentary testimony to that effect.  Zespri could not locate the money Mr Shu is said to have paid Mr Gao despite having extensive access to his financial records, but that is not material given the ease with which money can be held in secondary banking and non-banking locations.  There was documentary evidence of Mr Shu visiting New Zealand in April 2012 but it was unlikely he obtained G3 or G9 budwood then – he gave no indication to Mr Gao of already having it. 

Plant Variety Rights – Infringement.  Did the Judge err in applying the PVR Act extraterritorially.Held:  Yes, in part.  The PVR Act does not create rights extraterritorially.  Section 17(1) concerns exclusive rights to produce for sale in New Zealand, sell in New Zealand, propagate for commercial production in New Zealand, and to authorise others to do those things in New Zealand.  The text and context of the PVR Act support this conclusion – in particular, the PVR Act gives effect to the 1978 UPOV Convention which establishes a framework of similar but independent territorial PVRs regimes which are linked only through (limited) rights of priority of registration.  Further, neither express words nor necessary implication suggest the PVR Act has extraterritorial reach.  The Judge erred in finding the signing of the False Licence Agreement breached Zespri’s New Zealand PVRs.  The False Licence Agreement contained two obligations on Mr Gao:  physical supply of G3 and G9 budwood to Mr Shu and transfer of PVR rights for those varieties in China to Mr Shu.  The first obligation was likely not operative as supply of the budwood preceded the False Licence Agreement.  The latter was a purported authorisation of propagation of the varieties in China, not New Zealand, and therefore could not fall within s 17(1)(c).  The Judge erred in rejecting the reasoning of the United States Court of Appeals for the Ninth Circuit in Subafilms Ltd v MGM-Pathe Communications Co.  The scheme of the PVR Act is consistent with the underlying premise in Subafilms:  the protected, exclusive rights granted by the PVR Act are confined to New Zealand.  But the Judge did not err in finding Mr Gao’s agreement to sell G3 and G9 to Messrs Shu, Yu and Li and preparation of G3 and G9 budwood for sale to Messrs Shu and Yu breached s 17(1).  These acts occurred in New Zealand in breach of Zespri’s exclusive right to sell its protected varieties, whether by way of export or otherwise.  Each involved “sale” to a third party in the sense defined in s 2 of the PVR Act. 

Plant Variety Rights – Damages.  Did the Judge err in fixing damages.Held:  Yes, in part.  The Judge did not err in principle in fixing damages.  Section 17(4) offers a broad suite of remedies – compensatory, exemplary and coercive – comparable to those in the Copyright Act 1994.  Compensatory damages fixed by the user principle lies within s 17(4) and is normal where there is an expropriation and use of intellectual property rights, and either plaintiff’s loss or defendant’s profit is elusive.  That was the case here, Zespri conceding it would suffer no loss due to lost sales.  But the appellants’ expropriation of Zespri’s rights disrupt its global strategy for the exploitation of its monopoly PVRs in G3 and exposes it to potentially uncontrollable competition as the material sold by the appellants proliferates in offshore jurisdictions.  User damages compensate for the expropriation of such rights.  That Zespri would not have willingly licenced the appellants is immaterial – absent a remedy the appellants would go free.  The user principle presumes a hypothetical negotiation.  Evidence as to a notional licence fee is necessary but a court may need to apply sound imagination and the practice of the broad axe.  The Judge did not err in using the licence fee for G3 propagation in New Zealand.  Applying the reasoning of the United States Supreme Court in WesternGeco LLC v Ion Geophysical Corp, infringing acts were undertaken in New Zealand.  Compensatory damages remain assessable here notwithstanding the export of the infringing material to China.  Payment of a notional licence fee for planting in China follows as a consequence of the appropriation of Zespri’s New Zealand PVRs in New Zealand.  Fixing damages by the acreage the appellants enabled to be planted was correct – that area would have been material to any hypothetical bargain.  As the period of actual infringement is material and the damages are compensatory in nature, mitigation of loss is required.  The Judge correctly applied a discount of 50 per cent.  This accounts for acreage not (yet) planted in G3 and G9, the expectation Zespri can take action to enforce its Chinese PVRs in China, and the degree of inexactitude in measuring the size of the four orchards.  For the same reasons the Judge did not err in fixing damages for Mr Gao and Ms Xue’s breaches of their G3 Licence Agreements.  Though not erring in principle, the Judge fixed damages according to an incorrect notional licence area due to the error as to the size of the Xianning 1 orchard.  Using the correct notional licence area reduces damages from NZD 14,894,100 to NZD 12,081,150.