Legal battle between Newlab, Futuresoft heats up

In May, 2006, Newlab Plastics Ltd., a wood-plastics composites (WPC) start-up in St. John’s, Nfld., won a $6.5 million lawsuit against machinery supplier Futuresoft Technologies Inc., of Mississauga, Ont., after a judge ruled that Futuresoft, and its director Dr. Weining (Wayne) Song, had failed to supply the equipment and technical services outlined in a contract with Newlab.

Now, Futuresoft has filed an application of its own seeking to set the judgement aside.

The duration of Newlab’s lawsuit had been characterized by Song’s failure either to acknowledge the suit or attend the court hearings where the judge decided in Newlab’s favour.

NEWLAB’S LAWSUIT

The legal battle between the two companies began in March 2006, when Newlab filed its lawsuit against Futuresoft in Newfoundland and Labrador. Newlab’s suit outlined allegations of fraudulent misrepresentation against Futuresoft, which was then based in Mississauga, Ont.

According to its lawsuit, Newlab received a quote from Song in April 2004 that detailed the costs associated with setting up a small, state-of-the-art, turnkey WPC plant for the production of composite deck boards.

Futuresoft’s quote included operational and logistical requirements for the WPC plant’s operation, according to the suit, including details about the facility’s height, and electrical, mechanical, fuel and raw material requirements for the proposed business. Additionally, the quote included technical details about the equipment Futuresoft would supply including extrusion machinery, auxiliary equipment, dies and embossers. Futuresoft had calculated the total start-up cost at slightly more than $500,000.

According to Chris O’Brien, Newlab’s COO, the firm received the equipment and items it had ordered from Futuresoft between October 2004 and August 2005.

O’Brien said Newlab paid Futuresoft just upwards of $475,000 for the equipment to manufacture WPC decking boards, as well as materials and almost $250,000 more for mechanical and electrical setup.

From the start, however, the transaction went awry, O’Brien said.

Shipments from Futuresoft began arriving in Halifax, rather than St. John’s, as agreed. These errors resulted in extra shipping time and costs. And once the equipment was received, Newlab discovered it was not only not the same gear it had ordered, O’Brien said, but the devices were unsuitable for manufacturing WPC decking.

“The [extrusion] equipment we received [from Futuresoft] had mold and rust on it,” O’Brien told Canadian Plastics. “It was corroded and obviously very old.”

For example, Newlab had ordered two new dies from Futuresoft, with the belief that they would be manufactured in Futuresoft’s Ontario facility. Instead, according to Newlab’s lawsuit, the dies had been obtained used from China, and were defective. A heating plate on one of the dies, in fact, had the word ‘Bad’ written on it. (see photo)

Other faulty equipment included dryer controls that had to be rewired; wiring from China that was old, worn and not CSA approved; and a burner that leaked diesel fuel.(see photo)

Newlab hired experts to examine the equipment, and they concluded that an extruder shipped from Futuresoft was actually pieced together by components of several old extruders. In addition, the extruder had been shipped without any manuals or schematics, and the tech staff Furturesoft dispatched to assist in the set-up of the machinery didn’t have any manuals either, and were unable, in three months, to get the equipment running.

According to its lawsuit, Newlab was forced to pay an additional $500,000 on material and personnel to render the WPC equipment functional and the plant operational, but were ultimately unsuccessful. “At no point did the full system work at any one time,” O’Brien said. The company also alleged the plant’s failure cost them $300,000 in leased space.

By the time Newlab launched its suit in March 2006, O’Brien told Canadian Plastics that he himself had a hard time believing what had happened.

When the court ruled in Newlab’s favour two months later, Newlab’s president Dean Payne said that the company would pursue all legal avenues in order to collect the $6.5 million award. At present, the company has halted production.

FUTURESOFT’S COUNTERSUIT

But Futuresoft — which has relocated to Manalapan, N.J. — hasn’t take the court’s ruling sitting down, and launched a counter-suit on June 6.

“Before and after [Newlab’s] projects, Futuresoft has successfully installed and operated WPC systems in China and France…[and] all are happy about Futuresoft and its technology and machinery. The WPC system delivered to [Newlab] works well. Futuresoft can show how to operate it to any interested parties,” the company said in an accompanying statement.

“Some of the WPC equipment that we sent Newlab became corroded during the ocean shipment from China, but we had it sanded and repainted. But [the equipment] is supposed to be operated by engineers, and they are supposed to follow the equipment manuals. Newlab did not do that,” Song told Canadian Plastics. “Newlab never had any industry background…didn’t have a marketing plan and ran out of money. Their expectations were too high, too soon.”

Futuresoft’s suit alleges that Newlab’s difficulties were the result of the company’s own negligence, and that it still owes Futuresoft over two hundred thousand dollars.

The suit also alleges that Futuresoft was not given sufficient time to respond to Newlab’s original lawsuit and that Song was unable to attend the initial hearings in St. John’s because his professional travel schedule had kept him out the country.

Newlab, meanwhile, has entered into discussions with a New England law firm to seek damages, and the company plans to register its suit in Ontario, as well as New Jersey, where Song resides, to collect its $6.5 million.