Litigation Costs and Cost-Shifting in Germany

Litigation costs in Germany: the short answer

Litigation costs in German civil proceedings are calculated by statute and are therefore far more predictable than in common law jurisdictions. Court fees follow the Court Fees Act (Gerichtskostengesetz, GKG) and statutory lawyers' fees follow the Lawyers' Remuneration Act (Rechtsanwaltsvergütungsgesetz, RVG); both depend on the value in dispute, which is capped at EUR 30 million (§ 39(2) GKG, § 22(2) RVG). The losing party bears the costs of the proceedings and must reimburse the winner's necessary costs (§ 91 ZPO), but only the statutory lawyers' fees, not higher fees agreed by hourly rates. Claimants from outside the EU and the EEA must, on the defendant's request, provide security for costs (§ 110 ZPO).

This combination of moderate statutory costs and loser-pays makes it possible to assess cost risk at the outset, which is a major advantage of German litigation for businesses. However, companies that engage lawyers on hourly rates must expect a gap between the fees they pay and the amount they can recover.

Court fees under the GKG

Court fees are calculated as multiples of a basic fee that depends on the value in dispute under the table in § 34 GKG. For first-instance proceedings in general, a 3.0 fee is charged (no. 1210 of the schedule of costs), which the claimant must generally pay in advance when filing the claim. The fee is reduced if the proceedings end early, for example by withdrawal or settlement. Appeals incur higher multiples.

The figures in the table are our own calculations from the fee tables in § 34 GKG and § 13 RVG as currently published and are for illustration only. Additional costs include witness and expert fees, which can be substantial in technical disputes, and translation costs.

Statutory lawyers' fees under the RVG

The RVG sets statutory fees as multiples of a basic fee depending on the value in dispute. In first-instance proceedings, a lawyer typically earns a 1.3 procedural fee (no. 3100 of the schedule of fees) and a 1.2 hearing fee (no. 3104), plus a flat rate for postage and telecommunications of 20 % of the fees, up to EUR 20 (no. 7002), and VAT. A settlement adds a settlement fee (no. 1000). For a value of EUR 100,000, this amounts to about EUR 4,407.50 net per lawyer at first instance; for EUR 1 million, about EUR 13,775 net.

Lawyers and clients may agree on different remuneration, such as hourly rates, in a fee agreement in text form that meets the requirements of § 3a RVG. In commercial disputes, hourly rates are common, and the agreed fees often exceed the statutory fees considerably, especially for lower values in dispute and complex cases. Contingency fees are permitted only in limited cases, for example for money claims of up to EUR 2,000 or where the client would otherwise be deterred from pursuing its rights (§ 4a RVG).

The loser-pays rule for litigation costs

Under § 91(1) ZPO, the losing party bears the costs of the proceedings and must reimburse the costs necessary for the opponent's appropriate prosecution or defence. The statutory fees and expenses of the winning party's lawyer are always reimbursable (§ 91(2) ZPO); fees above the statutory level are not. Travel costs of a lawyer not based in the court's district are reimbursed only if necessary, and the costs of several lawyers only up to the costs of one, unless a change of lawyer was necessary.

If each party wins in part, costs are either set off against each other or divided proportionately (§ 92(1) ZPO). In the case of mutual set-off, each party bears half the court fees and its own lawyers' fees. The court may impose all costs on one party if the other party's excess claim was relatively minor and caused no or only slightly higher costs (§ 92(2) ZPO). After the judgment, the amount to be reimbursed is fixed in a separate cost assessment procedure (Kostenfestsetzungsverfahren) by the court registrar.

Illustration (simplified, based on the table above): in a case worth EUR 100,000 decided at first instance after a hearing, the loser's total statutory exposure is about EUR 3,594 in court fees plus two sets of statutory lawyers' fees of about EUR 4,407.50 each, totalling roughly EUR 12,400 before VAT, witness and expert costs. Its own agreed fees may come on top.

Security for costs

Claimants whose habitual residence is outside the EU and the EEA must provide security for the defendant's costs on the defendant's request (§ 110(1) ZPO). The obligation does not apply where international treaties exclude it or ensure that a cost decision would be enforced, where the claimant owns sufficient real estate in Germany, or for counterclaims (§ 110(2) ZPO). The court sets the amount at its discretion based on the costs the defendant is likely to incur (§ 112 ZPO). The defendant should raise the request at the outset, generally before the oral hearing on the merits, because a late request may be lost.

Many treaties, such as the Hague Convention on Civil Procedure and bilateral agreements, exempt claimants from certain states. Defendants facing claims from non-EU claimants should check whether security can be demanded and request it at the outset.

Advances on costs and their effect on timing

The claimant must generally pay the court fee in advance before the court serves the claim. Delays in paying the advance can delay service and, where limitation periods are close to expiry, endanger the effect of filing, because the suspension of limitation relates back to filing only if service follows promptly (§ 167 ZPO). Companies should therefore arrange payment immediately after the court requests it. Similarly, the court usually makes the taking of expert evidence conditional on an advance by the party offering the evidence. Failure to pay can lead to the evidence not being taken. These advances are later included in the cost assessment and reimbursed by the losing party to the extent that the costs are borne by it.

Pre-action costs and their recovery

Before litigation, lawyers often send demand letters and negotiate. For out-of-court work, the RVG provides a business fee of 0.5 to 2.5 (no. 2300 of the schedule of fees), with more than 1.3 permitted only if the work was extensive or difficult. If litigation follows on the same matter, half of the business fee, at most a 0.75 rate, is credited against the procedural fee in court (preliminary note 3(4) of the schedule). Pre-action legal fees are not part of the litigation costs under § 91 ZPO, but they can often be claimed as damages, for example where the debtor was in default when the lawyer was instructed. Claimants should therefore include pre-action fees in the claim where a legal basis exists.

Budgeting litigation costs

A realistic budget for litigation costs combines the statutory figures with the expected actual fees. Companies should consider: the value in dispute and possible counterclaims; the number of instances likely to be needed; court-appointed experts, whose fees are advanced by the party offering the evidence; translations; witnesses' travel; and internal costs, which are generally not recoverable. For international claimants, security for costs and the cost of enforcing a cost order abroad should also be included. Updating the budget at key stages, for example after the first hearing or an expert report, supports settlement decisions.

Costs in appeals

Court fees and lawyers' fees increase in appeal proceedings. Before the Higher Regional Court, the court fee for appeal proceedings in general is a higher multiple than at first instance, and lawyers' procedural fees are also higher. Appeals on points of law to the Federal Court of Justice require specially admitted lawyers and incur further fees. A party considering an appeal should therefore calculate the additional exposure, including the opponent's costs if the appeal fails.

Legal expenses insurance and litigation funding

Companies can insure litigation costs through legal expenses insurance, although commercial disputes are often excluded or limited. Litigation funders finance proceedings in exchange for a share of the proceeds, typically for claims with high values and good prospects, such as antitrust damages claims. Because statutory costs are predictable, funders can calculate their risk precisely. Funding agreements should address control of the proceedings, settlement decisions and confidentiality. Where the funder bears the adverse cost risk, the funded party is protected against having to reimburse the opponent's costs if it loses.

Litigation costs compared with arbitration

Arbitration costs are not fixed by statute. They consist of the institution's administrative fees, the arbitrators' fees, often calculated on the value in dispute under the institution's table or on hourly rates, and the parties' own lawyers' fees. Tribunals usually allocate costs according to the outcome, but they may award reasonable actual legal fees rather than statutory fees. For high-value disputes, arbitration may be more expensive than litigation before German courts, while offering confidentiality and the choice of arbitrators. See our article on the DIS Arbitration Rules.

Litigation costs also influence strategy. Partial claims can reduce the court fee advance and cost risk while testing the legal position, although they may raise limitation issues for the remainder. Interim injunctions are cheaper than main proceedings because the value is usually lower. Settlement in court reduces court fees, which is one reason why many cases end in settlement.

The value in dispute is set by the court, generally according to the claimant's economic interest. Parties can comment on the court's provisional valuation, and an incorrect valuation can be challenged. For declaratory claims and injunctive relief, the valuation involves discretion, so parties should present arguments on the value early.

How TRW & Co helps with litigation costs

We assess litigation costs and cost risk before proceedings, explain the difference between statutory and agreed fees, and structure fee arrangements transparently. We apply for security for costs, handle cost assessment procedures and advise on litigation funding and insurance. Our work connects with our commercial litigation and disputes practices. See also litigation funding in Germany. To discuss a case budget, contact us.