Cost risk and settlement in construction litigation: when an action pays off

The first item is the court fees. They arise as a flat fee under the Court Fees Act (GGG) and are based on the amount in dispute. The higher the sum claimed, the higher the fee. It is payable when the action is filed and forms the entry point into the cost risk.

Then there are the lawyer costs. They are calculated under the Lawyers’ Tariff Act (RATG) or under a fee agreement. Here too the amount depends largely on the value in dispute and the scope of the proceedings. Every brief, every hearing and every session is reflected in the costs.

The often largest block of costs in construction litigation is the expert opinion. Building defects, their causes and the cost of remediation usually have to be clarified by a court-appointed expert. Their fees are based on the Fees Entitlement Act (GebAG) and can be substantial where extensive on-site assessments are required.

The basic principle is set out in section 41 ZPO: the losing party reimburses the winning party’s procedural costs. Anyone who wins in full is therefore not only awarded the main claim but also has the necessary procedural costs reimbursed. Anyone who loses bears their own costs and those of the other side.

In practice a party rarely wins one hundred per cent. Where success is only partial, section 43 ZPO applies: the costs are set off against each other or apportioned in proportion to the degree of success. Anyone who prevails with half their claim often remains liable for a corresponding share of the costs, including part of the expert fees.

This point in particular is underestimated. An overstated claim can mean that, despite partial success, you bear considerable costs yourself. A realistic assessment of the amount in dispute and the prospects of success is therefore the first step in any litigation planning.

In construction litigation much stands or falls with the expert opinion. The court appoints an expert who establishes the defects, their causes and the remediation costs neutrally. This taking of evidence is usually indispensable, but it is also the most expensive part of the proceedings.

The advance payment for the expert fees is initially borne by the party adducing the evidence. So anyone who alleges a defect and must prove it has to deposit the advance. Only at the end of the proceedings is it decided, through the cost ruling, who ultimately bears these costs. Until then the advance must be paid up front.

How court opinions and private opinions interact is explored in our article on the expert opinion in a construction dispute. How to secure the condition before it is built over is covered in the article on preserving evidence before construction litigation.

A settlement is a consensual agreement that ends the dispute. It can be concluded out of court, for instance after an exchange of lawyers’ letters, or during the proceedings as a judicial settlement before the court. In both cases the risk of an uncertain judgment falls away.

The judicial settlement has a particular advantage: it is an enforcement title. If the other side does not abide by the agreement, you can enforce it directly without first having to obtain a judgment. The out-of-court settlement also ends the dispute, but in the event of non-performance it would first have to be sued upon.

The decisive advantage is predictability. You know what you will receive or pay, and you save yourself the often lengthy procedural times and the ongoing expert costs. Particularly where the evidence is uncertain, a settlement can be the economically best outcome.

Beyond the pure costs there are further risks that belong in the balancing exercise. Construction litigation can drag on for years, especially where opinions have to be supplemented or an appeal follows. During this time advance payments must be deposited and the capital committed is tied up.

A further risk is recoverability. Even a full win is of little use if the other side is insolvent or becomes insolvent. The awarded sums and the cost reimbursement then remain irrecoverable. Before bringing an action, the question of whether there is anything to be had from the opponent at all should therefore be clarified.

These two factors often favour a swift agreement. A settlement that is partly performed today can be worth more than a judgment that, in a few years, meets an asset-less debtor. The sober weighing of these points belongs at the start of every litigation decision.