The Court of Appeal has overturned a €900,000 damages award against the Sunday World, describing the jury's decision in the case as "perverse".
The award was made following a 2008 High Court jury finding that Martin McDonagh was libelled in a Sunday World article describing him as a "Traveller drug king".
The newspaper had appealed against the award and Mr McDonagh was paid €90,000 pending the appeal.
In a judgment today, the three-judge appeal court unanimously allowed the appeal of the newspaper against the entirety of the verdict.
It found an allegation of drug dealing was true and dismissed that part of his claim.
However, it found there should be a retrial in relation to a second allegation of him being a loan shark.
In his judgment on behalf of the court, Mr Justice Gerard Hogan said it was clear the jury verdict, so far as it concerned the drug dealing allegation, cannot be allowed stand.
"Viewed objectively, the evidence overwhelmingly pointed to the conclusion the plaintiff [McDonagh] was, indeed, a drug dealer associated with the drugs seizure in Tubercurry", he said.
If the allegation was correct, he said, the newspaper had a constitutional right to publish this information and that right cannot be compromised by a jury verdict "which was, in essence, perverse".
The evidence in relation to the loan shark allegation was much more limited, he said. It might have been open to a properly instructed jury to find for Mr McDonagh from Cranmore Drive, Sligo, on that allegation and a new trial was ordered, he said.
The case returns to the appeal court next month to deal with costs and other matters.
Sunday World Editor Colm MacGinty said: "The Court of Appeal decision today is welcomed by the Sunday World, not only for itself, but for all media organisations and outlets in Ireland.
"The court's finding that a verdict which was handed down by a jury almost seven and a half years ago, was, in essence, perverse, highlights the entirely unsatisfactory system of dealing with claims involving the press and media.
"The court recognised that the Sunday World, as with any newspaper, had and has a constitutional right to publish the information that Martin McDonagh was a drug dealer.
"Over the past eight years, following the decision of the jury which has now been overturned, that meant that this constitutional right had been denied with potentially severe and serious consequences if the award of damages of €900,000 stood," Mr MacGinty said.
"The fallout from that flawed verdict was not limited simply to this story or this newspaper. It was a threat to the fundamental constitutional rights of press freedom and free speech.
"This case demonstrates the total failure of the political system to deal with the complex defamation laws of Ireland which are outdated, overly complex and among the harshest in Europe.
"While communications, media and the Internet expand and develop more rapidly than ever, media law must keep pace with this demand, changes and global reach," he said.
"The laws must be reformed as a matter of urgency - not least that jury trials be dispensed with as they have been in the rest of Europe and that the delays and costs of dealing with claims involving media be reduced and to avoid excessive threats to the freedom of the press."
