20 In One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at [6] Burchett J, after considering Lai Qin, said:
In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.
21 The distinction between the two types of cases - a surrender case and a supervening event case - was adopted in Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 at [10] (White J) and Kiama Council v Grant (2006) 143 LGERA 441 at 457 - 458 at [80] where Preston CJ summarised the principles as follows:
The principles that emerge from these cases are that in a civil enforcement or judicial review case where there has been no hearing on the merits:
(a) where one party effectively surrenders to the other party by:
(i) discontinuing without the consent of the other party; or
(ii) giving undertakings to the Court or submitting to the Court making orders against the party substantially in the terms or to the effect claimed by the other party;
the proper exercise of the costs discretion will ordinarily be to make the usual order as to costs, unless there is disentitling conduct on the part of the other party; and
(b) where some supervening event or settlement so removes or modifies the subject of the dispute that no issue remains except that of costs, the proper exercise of the costs discretion will ordinarily be to make no order as to costs unless:
(i) one of the parties has acted so unreasonably that the other party should obtain the costs of the action; or
(ii) even if both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried so that the party should obtain the costs of the action.
22 The principle concerning costs where proceedings are discontinued, expressed in Kiama v Grant at [80(a)(i)], may require further consideration in light of the majority view in Fordyce v Fordham (2006) 67 NSWLR 497 (CA) at [84] and [87]. The Uniform Civil Procedure Rules relating to costs on discontinuance of proceedings (r 42.19) and on dismissal of proceedings (r 42.20) provide that "unless the court orders otherwise" the plaintiff must pay the defendant's costs. Uninstructed by authority, I would have thought those rules create a rebuttable presumption that the plaintiff should pay the defendant's costs. However, the majority in Fordyce held that they do not create such a presumption; that the costs discretion is unconfined; and that the matters referred to in Lai Qin are pertinent although not necessarily determinative. In contrast, the third judge, Santow JA, at [3] considered that the fact of discontinuance is likely to be a factor of some weight in exercising the discretion and the onus is on the discontinuing party to justify why it should not pay the other party's costs.