The court's proposal
In almost every German conciliation hearing, the judge asks whether the parties would like to settle (§ 278 ZPO). Often there is a concrete proposal: the defendant pays part of the claim, the claimant waives the rest, and costs are 'cancelled against each other'. Many parties agree because they assume a settlement is always cheaper. That is only partly true.
What changes in the fees
If the first instance ends with a settlement instead of a judgment, two things change. The court fee drops from 3.0 to 1.0 (KV 1211 GKG), so two thirds of the court fees disappear. At the same time both lawyers earn an additional settlement fee of 1.0 (VV 1000, 1003 RVG). The hearing fee remains; it also arises for a settlement concluded in writing.
At a €5,000 value it looks like this: with a judgment, both lawyers together cost €2,156.88 and the court €511.50, €2,668.38 in total. With a settlement, the lawyers cost €3,000.58 and the court €170.50, €3,171.08 in total. So the settlement makes the proceedings slightly more expensive overall, because the extra lawyer fee costs more than the court saves.
Why a settlement can still pay off
What matters is not what the proceedings cost overall but what you pay yourself. Here the settlement helps in three ways.
1. No risk of paying the other side's lawyer: under § 98 ZPO, settlement costs are deemed cancelled against each other unless agreed otherwise. Each side pays its own lawyer and court fees are split. At €5,000 you pay €1,585.54. If you lose in court, it is €2,668.38.
2. No second instance: a judgment can be appealed, a settlement ends the dispute for good. At €5,000, an appeal would more than double the cost risk to €5,760.36.
3. Certainty on the main issue: you know immediately how much money you receive or pay, instead of waiting months for a judgment with an uncertain outcome.
The maths from both sides
Whether a settlement pays off depends on your chances. If you are 90% sure to win, there is little reason to accept cancelled costs: if you win, the other side pays everything. If you realistically put your chances at half, your cost share by ratio is €1,334.19 (at €5,000), and with a settlement and cancelled costs €1,585.54. The costs are similar, but the settlement removes the risk of having to pay everything at the end.
Conversely, a defendant who is likely to lose almost always saves by settling. They pay only their own lawyer and half the court fees instead of the full costs of both sides, and usually less than the full claim.
Negotiate the cost clause
Cancelled costs are only the statutory default. The parties can agree any other split in the settlement, for example according to the settlement ratio: if the defendant pays €3,000 of €5,000, they can also bear 60% of the costs. This is particularly worthwhile for the claimant when their lawyer costs more than half the court fees. In the legal costs calculator you can compare both: choose 'Settlement' and set the cost clause to 'each side bears own' or 'by ratio'.
On appeal, too
On appeal the lever is bigger. With a settlement, the court fee drops from 4.0 to 2.0 (KV 1222), and the settlement fee there is 1.3 (VV 1004). If you already have an unfavourable first-instance judgment, settling on appeal at least limits the costs of the second instance.
Conclusion
A settlement does not make the proceedings cheaper overall, but it shares the costs predictably and cuts off the risk of also paying the other side's lawyer. Whether it pays off depends on your prospects and on the negotiated cost clause. Ask your lawyer to explain the figures before the hearing. This article is not legal advice.