Best of the Week

An international rip-off or an innocent abroad

After a week of highly contradictory evidence in the High Court at Auckland, Justice Sarah Katz must decide whether a Chinese-born, Opotiki kiwifruit grower conspired to sell one of our super varieties of the fruit off to China - and thus deny Zespri and New Zealand untold millions in export sales.

On the face of it, kiwifruit exporter Zespri appeared to have Haoyu Gao bang to rights for contracting to supply its prized gold G3 kiwifruit plants to an orchardist in China who could then spread it across the entire Middle Kingdom, forever.

In their view, the possible damages to Zespri, and New Zealand, could be huge. Even the trial judge mentioned a nominal "hundreds of billions of dollars" if Zespri's form of calculations were ever applied to possible kiwifruit plantings of its special G3 and G9 gold fruit across all the orchards of China.

Crucial DNA tests ruled out

But one key strand to Zespri's argument - that the fruit now growing in four orchards in Chinese provinces has been proven by DNA tests to be the varieties Zespri developed here with NZ scientists - was notably knocked out in the High Court hearing after objections from Gao's lawyers.

The DNA tests of leaf and fruit material cut from Chinese vines by Zespri's private eyes were ruled inadmissible as evidence because those who conducted the testing were not in court to testify directly to that fact. Zespri only had its executives saying what those French experts had said - and that meant the critical evidence was deemed "hearsay". 

Zespri's lawyer Laura O'Gorman agreed to leave aside all evidence about that DNA testing but argued her client's main point - that Gao signed a document agreeing to supply the gold kiwifruit to a Chinese grower - still stood and that in itself was an infringement of Zespri's rights under the Plant Varieties Rights Act.

It also maintained a series of trips to China and visits to orchards by Gao - plus grafting tools and an unknown powdery brown substance found on him at Auckland airport - and social media chat group communications built a strong case he followed through on his signing of the supply agreement.

In evidence, Gao claimed he signed the 2012 so-called False Licensing Agreement supplied to him from his chat group associate from China, Changqing Shu, but when he travelled to China he did not take the kiwifruit budwood with him. He did not tell Shu in advance that he wouldn't take the crucial plant material because he worried that if he had "torn the face" of Shu, his airfare would not be paid for.

"Although I had told him I would bring G3 and G9 materials, after further consideration I decided against it."

He accepted he also told another China grower in chat group communications that he could supply G3 but that grower pulled out after worrying about Gao's authority to provide the varieties. Gao explained his own comments as being "dazzled" by "vanity and money" but leading nowhere. "I did not want to bring him G3 and in the end it did not occur." 

Gao's lawyer Eugene St John, assisted by Samuel Moore, attacked not only Zespri's attempt to use the DNA test results but also its estimates of the size of the four orchards it alleges grow its prized varieties and even whether the New Zealand fruit are there at all.

St John told Justice Sarah Katz: "There's simply a lack of evidence related to G3 or G9 in all of the orchards."

He said Zespri had taken every reference by Gao or others in Chinese chat groups to "exclusive" or "foreign" varieties of kiwifruit to mean G3 or G9. "But there are thousands of kiwifruit varieties."

The evidence that Gao had not provided G3 or G9 to China was compelling. His Opotiki orchard did not even grow G9, St John said. There had been no profit to Gao. "Zespri has been all over the defendant's bank accounts and they have not found anything which would suggest any proof in relation of any of these actions."

Shu himself had been to New Zealand, as had some of his associates and any, or all, of them could have taken kiwifruit budwood back to China before Gao was ever contacted.

The lawyer suggested police had never believed there was a criminal fraud but had acted in concert with Zespri to obtain more information through a search warrant - a claim challenged by Justice Katz who called it a "bold assertion" that police would spend their limited resources in that way.

Phone and chat group records

Zespri's O'Gorman repeatedly complained in the hearing that once police returned Gao's phone to him he had "destroyed" communications including "critical email documents"; Gao said when police told him he would not face charges he wanted to be rid of the exchanges with Shu and others from his phone and his life and start again.

But other versions of communications located by Zespri had turned up the contract signed by Gao "purporting" to grant Shu the right to spread the gold kiwifruit plant material and sell the fruit all over China in perpetuity. The infringing conduct could not simply be calculated by any benefit to Gao but "to Shu or anyone else because of the infringing conduct in this proceeding".

She said the damages figure of $30 million Zespri was seeking represented the 2016 price for the fruit multiplied by the land area of the orchards Zespri had investigated - what she called a "realistic minimum" and a "very small subset of the actual land area Mr Gao has purported to license under the False Licensing Agreement - which is the entirety of China".

Zespri private eyes from Hong Kong talked to Shu in China and he told them he had a contract conferring on him the right to the gold kiwifruit plants, but he did not provide them his copy. Gao's copy had just Gao's signature.

O'Gorman said: "We have not been able to obtain any evidence from Mr Shu. There's no other version of the False Licensing Agreement."

On the issue of the inadmissible DNA tests, she said Zespri believed it was irrelevant whether Shu had successfully established its G3 and G9 plants. "In all scenarios, Shu believes he is authorised to exploit G3 and G9. That is the conduct that has caused the damage and clearly constitutes infringing conduct."

Zespri claimed references in Chinese chat groups to "disease free seedlings" were code for its G3 and G9 varieties, with their resistance to PSA - and the code extended to discussions of "technology" when what was meant was the Zespri varieties themselves.

But Gao's evidence, read to the court in English by his lawyer Samuel Moore before a cross examination of Gao with help from a translator, was that he had technical skills to offer Chinese orchardists via WeChat and QQ chat groups, having worked as a contract kiwifruit worker before buying the Opotiki orchard with his wife Xia Xue. 

When Shu asked Gao if he could help get him a licence for G3 and G9, Gao was told the written contract he was given to sign would only be used in China for marketing purposes. Gao, who accepted in court that he had embellished his own CV, went along with it.

"I signed the contract and the receipt but never performed any of the terms of the contract and have not received any money related to the contract," Gao told the court."I have not received a copy of the contract signed by Shu. I just thought I was doing a friend a favour."

When Shu eventually told Gao that Zespri's investigators had come calling in China, Gao had written a message back saying Shu could not "frame" him.

The aftermath

Gao and Xue had their domestic growing licence withdrawn by Zespri when the police inquiry began, were banned from harvesting their crop that 2017 season and had to cut out all their G3 plants. They have since sold the orchard and moved to Hamilton, where Gao works as a carpenter. 

He told the court he felt great shame for having had the thoughts about supplying G3 and G9 to Chinese growers. 

"I have a perfect family and I would not allow myself to do things that put my family in jeopardy. I came to New Zealand with nothing and ended up owning my own orchard. I would not have risked it all for this small profit."

For its part, Zespri is certain the varieties are growing in these orchards in different provinces in China. As it stands, China is already the company's highest revenue earner at more than half a billion dollars a year, just overtaking Japan. And the selling price for New Zealand's gold kiwifruit varieties in China is far higher than local fruit.

Win or lose, Zespri will probably only be shutting the orchard door after the plants, and fruit, have bolted.

Newsroom is powered by the generosity of readers like you, who support our mission to produce fearless, independent and provocative journalism.

Become a Supporter

Comments

Newsroom does not allow comments directly on this website. We invite all readers who wish to discuss a story or leave a comment to visit us on Twitter or Facebook. We also welcome your news tips and feedback via email: contact@newsroom.co.nz. Thank you.

With thanks to our partners