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The pair have an acrimonious relationship at times and the settlement means the outcome may remain contentious.
Mr Cull said in a statement last night his defence was strong and "likely to prevail if the case had gone to trial".
Cr Vandervis described the case as "open and shut", and would have "yielded substantial damages as well as costs and an unreserved apology" from the mayor.
In July last year, Cr Vandervis sought $250,000 in general damages and another $250,000 in exemplary damages, plus costs from Mr Cull.
The claim followed a heated exchange during a Dunedin City Council meeting in 2015, when Cr Vandervis claimed to have paid a backhander to secure a council contract in the 1980s.
He was labelled "a liar" by Mr Cull and ejected from the meeting after suggesting he had given Mr Cull "personal evidence" to back his claim.
The reason for the settlement had two different readings.
Cr Vandervis said legal complications resulting in extra costs and a legal process delay until next year meant he could "no longer afford to keep paying".
"I have spent all of my last year’s councillor earnings on legal and court costs, and can no longer ask my hard-working wife to keep funding an unequal battle against rate-paid teams of lawyers and an Auckland Queens Counsel defamation specialist."
Mr Cull said the council’s insurers felt making a payment of $50,000 to Cr Vandervis to cover his costs to date would be less expensive for them than even a successful court outcome.
"I have to accept the insurer’s decision. I would not have offered any payment.
"The terms of settlement expressly state that the settlement is without any admission of liability by me, and I refused to apologise to Cr Vandervis, although he repeatedly demanded that I do so."
Cr Vandervis said "legal process absurdities" had conspired to keep the case out of court and make him settle for $50,000 and no apology.
"On the plus side I can now progress newer issues without having to fund further court costs and lawyer’s fees," Cr Vandervis said.
The settlement agreement said the money would be paid within seven days, and Mr Cull would forego any cost claims against Cr Vandervis.
Council strategy and governance general manager Sandy Graham said the council’s excess for its insurance was $50,000, which would be the cost to ratepayers for the action.
Ms Graham said legal costs would be paid by the insurer.