A dispute emerging from the long-running talc litigation against Johnson & Johnson has spilled into a new front, as a plaintiffs’ law firm has filed suit against its own litigation funders in a high-stakes funding battle tied to the baby powder cases.

An article in Reuters reports that the firm, which represents claimants alleging that Johnson & Johnson’s baby powder products caused cancer, has sued multiple litigation funders over the terms and enforcement of its funding agreements. The complaint centers on allegations that the funders are seeking repayment amounts the firm contends are excessive or otherwise improper under the governing contracts. The lawsuit underscores the financial strain and complex capital structures underpinning mass tort litigation, particularly in sprawling, multi-year proceedings like the talc cases.

According to the report, the firm argues that the funders’ demands threaten its financial stability and ability to continue representing clients in the ongoing litigation. The case reflects the high-risk, high-reward nature of funding large portfolios of mass tort claims, where returns can hinge on bankruptcy proceedings, global settlements, or appellate outcomes. Johnson & Johnson’s use of bankruptcy maneuvers to resolve talc liabilities has already added further uncertainty and delay, complicating recovery timelines for plaintiffs’ firms and their capital providers.

The dispute highlights the intricate dynamics between law firms and funders in contingency-heavy practices. Funding arrangements in mass torts often involve layered investments, staged drawdowns, and complex priority waterfalls. When case timelines stretch or resolution values shift, tensions over repayment multiples and control rights can quickly surface.

A recent Australian decision has delivered an important reminder on the limits of recoverable damages in funded litigation, ruling that a successful party cannot pass on its litigation funder’s commission to the defendant as part of a costs claim.

An article on McCullough Robertson's website outlines how the court determined that a funder’s commission does not constitute recoverable damages, even where the underlying claim succeeds. The plaintiff had sought to recover not only its legal costs, but also the commission payable to its third-party funder, arguing that this expense flowed directly from the defendant’s wrongdoing and should therefore be compensable.

The court rejected that argument, drawing a clear distinction between traditional heads of damage and the commercial cost of obtaining litigation finance. While acknowledging that funding arrangements are now a well-established feature of the litigation landscape, the court concluded that a funder’s commission is not a loss caused by the defendant’s conduct in the requisite legal sense. Rather, it is a voluntary commercial arrangement entered into by the plaintiff to manage risk and cashflow. As such, it falls outside the scope of damages recoverable from the opposing party.

The decision reinforces a broader judicial trend in Australia of treating litigation funding as legitimate, but carefully delineated. Courts have generally upheld the enforceability of funding agreements and recognised their role in promoting access to justice. However, this ruling makes clear that the economic burden of a funder’s return remains with the funded party, absent specific statutory provision or contractual basis shifting that risk.