Magistrate Margaret Quinn dismissed one charge of common assault against Mr Russell at Sydney's Downing Centre Local Court on Monday.
Inconsistencies in the accounts of the alleged victim and others at the party meant it was not possible to find beyond reasonable doubt that the alleged assault occurred, she said.
Mr Russell and others attended the party in Sydney's inner-eastern suburbs on January 2, 2022 following a Yacht Social Club event on Sydney Harbour.
An argument during the party led to some "pushing and shoving" at a time when the ex-commando had already consumed half a bottle of tequila, the court heard previously.
Mr Russell, who pleaded not guilty to the charge, said he had learned from the incident and was looking forward to putting it behind him.
"There's a lot of personal lessons for me to take away in my own conduct," he told reporters outside court.
"I allowed myself to become too intoxicated.
"There was a miscommunication at a party. I'm very sorry it came to this in the court."
Mr Russell denied throwing a punch at another man at a party. (Flavio Brancaleone/AAP PHOTOS)
The 38-year-old, who now manages a veteran-support charity, reported hearing somebody say "no one cares about you and your veteran mates killing yourself".
He admitted to telling a group of men at the party words to the effect of, "if you keep coming at me, I'm going to throw you off the balcony".
Mr Russell denied throwing a punch and said his close proximity to the group would have prevented him from doing so.
His lawyer, Michael Bowe, told the court his client was an "elite individual" who had risen to the rank of major in the Special Air Service Regiment and he understood how to control himself in stressful situations.
"I must say these are some of the best attributes of character that I've ever seen," he said.
"The man's just an amazing individual."
In October, a Federal Court judge ordered the ABC pay Mr Russell more than $400,000 after finding he was defamed by a series of articles relating to alleged war crimes.
The reports alleged members of the platoon he led in Afghanistan executed a prisoner because the detainee would not fit on a helicopter, based on the account of a US marine.
Mr Russell unsuccessfully ran for a senate seat at the 2022 election for his Australian Values Party.
Prosecutor Alex Borg argued Mr Russell was so intoxicated at the party he could not remember what occurred and only found out about the alleged assault by reading about it in the newspaper the next day.
But Mr Bowe said Mr Russell could not remember an assault because none had occurred.
"He doesn't remember a punch he didn't throw," he said.
"There was push and shove, there was this movement of arms around, but it wasn't just from Mr Russell. It was from all of them."
On the night of the party, Mr Russell kissed a man, Nathan Johnston, whose boyfriend was also at the party, the court previously heard.
Mr Russell told an earlier hearing he met the man at the day-time boat party and kissed him on one of the vessels, although Mr Johnston said they only kissed at the later pool party.
The host, who appeared as a witness, said he vividly recalled Mr Russell complaining that a group of guys were "having a go" at him at the party.
Alleged victim Steven Pate gave evidence that he felt a strike to his face, while Mr Johnston's boyfriend, Christopher Hicks, was the only witness who reported seeing the punch occur.
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