In Poland where we have similar rules in place it's just purely theoretical principle. In practice precedent is very important and learning about what other courts ruled ("orzecznictwo") is what lawyers spend their time on. It's as important if not more than the letter of the law in practice.
Source: my ex was a lawyer and we have a number of lawyer friends (judges, attorneys, corporate lawyers).
There are indeed inconsistencies in the decisions of the lower courts, and in some cases (like defamation suits) with no clear geographic reference this can lead to forum shopping.
Edit: An important point that I forgot to make is that in cases where a lower court might deviate from the usual legal practice, it may be required to ask a higher court to decide in the matter precisely to avoid grave inconsistencies. So case law is never completely irrelevant in Germany.
Formalizing into law the system where a judge decides what is a reasonable amount of attorney's fees definitely sounds like an improvement! Though I can see where revamping the fundamental structure of a legal system could be challenging, time-consuming, and probably messy.
Edit: not that I support the legal status quo, I just don't see the public bipartisan will to make that level of systemic reform
Evolved law systems, like common law, do have some elegance that most people tend to overlook. Here's one article I found very interesting:
http://www.law.nyu.edu/sites/default/files/ECM_PRO_060886.pd...
1. They don't use precedent, judges rule based on legislation alone.
2. Germany criminal and administrative law uses an "inquisitorial" system where the judges perform fact-finding and question witnesses (in contrast to the "adversarial" system used in common law countries)
3. German lawyers have their fees set by the "RVG" (Act on the Remuneration of Lawyers) and even if the winner chose fancy lawyers that charge more than set by the RVG, the loser only pays the amount set by the RVG.
4. Contingency fees were completely banned until recently, and are very rarely used today.
5. There are no punitive damages awarded under the German legal system - only compensatory damages.
Between these factors, German trials cost a lot less - so legal fees don't ruin you financially even if you lose.