Case: Sullivan v Secretary, Department of Defence [2005] FCA 786 
Outcome: referred to
the costs issue, the applicant referred the Court to the following principles in a case of discontinuance for futility and their application in the present case: (1) When a party, for its own reasons, discontinues a proceeding with leave pursuant to O 22 r 2(1)(d) of the Rules, the respondent is not automatically entitled to have the applicant pay his or her costs. Rather, costs are in the discretion of the Court under s 43(2) of the Federal Court of Australia Act 1976 (Cth) ( Inground Constructions Pty Ltd v Federal Commissioner of Taxation (1994) 27 ATR 513 ; Sullivan v Secretary, Department of Defence [2005] FCA 786 at [13] (Stone J)). The 'conduct of the parties in the matter and the reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs' ( O'Neill v Mann [2000] FCA 1680 at [13] (Finn J); Sullivan at [13] (Stone J)). (2) A fortiori the significance of discretionary considerations in a case where the discontinuance is merely the procedural vehicle to terminate the dispute, and any futility in the proceedings has not been brought about by an external event, or the applicant's change of heart (cf., Smith v Airservices Australia [2005] FCA 997 ; (2005) 222 ALR 464 at [58] [59]), but by the opposing party's change in position. (3) Minister for Immigration and Ethnic Affairs; ex parte Lai Qin [1997] HCA 6 ; (1997) 186 CLR 622 at 624 625 suggests a structure for the exercise of a broad discretionary power. It does not lay down a rule which substitutes for the discretion of the Court. The critical considerations were stated by McHugh J as follows: In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council ; Ex parte Raysun Pty Ltd [[1971] QWN 13], the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried... But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. (4) Without a hearing on the merits, the Court is unable to be guided by the general rule as to costs. The difficulty cannot be resolved by embarking on a hypothetical consideration of which party would have been successful had the action proceeded. But the Court may consider the reasonableness of the conduct of the respective parties until the discontinuance ( Smith v Airservices at [46] [47]).