Trial losses could have topped pounds 1m

Neil Hamilton and Ian Greer, who are many thousands of pounds the poorer after their disastrous encounter with the law of libel, might reflect that it could have been much worse.

The costs of losing after a three- to four-week trial could have easily topped pounds 1m.

As the hard reality of the trial drew near, signs of doubt appeared. Mr Greer approached the Guardian in the middle of last week offering to reduce his claim of pounds 10m special damages for loss of business to pounds 2.5m.

Mr Greer and Mr Hamilton had not at that stage fallen out - which they duly did in spectacular fashion by the end of the week. But there were growing expectations that Mr Greer was seeking a way out. There were also rumours that one or more of Mr Greer's former staff had turned against him.

Crunch point was looming by Thursday night after the newspaper obtained a court order for the Treasury solicitors to deliver a bundle of government documents relevant to the case. Among them was a minute of a telephone conversation between Michael Heseltine, the Deputy Prime Minister, and Mr Hamilton during which Mr Heseltine (then president of the Board of Trade) had asked the then trade minister whether he had ever received money from Mr Greer. Mr Hamilton said he had not.

Mr Heseltine did not, apparently, make a note of the conversation, but Sir Robin Butler, the Cabinet Secretary, is understood to have drawn up a minute. It appeared to contradict information in documentation obtained from Mr Greer. The conflict of interest was crystallised and the breakdown in trust complete. Mr Hamilton was beside himself. Richard Ferguson QC, the pair's leading counsel, approached the newspaper over possible settlement.

One consolation, though Mr Hamilton might not think so now, is that the ticking time-bomb was revealed before the trial began and clock up even more costs. Fighting the action would probably have been an uphill battle in any event, with a significant part devoted to attempting to discredit witnesses which the newspaper would have called to corroborate statements by Mohammed al-Fayed.

Mr Hamilton tried to put a brave face on it yesterday after attending court to formally discontinue the action. "A man is innocent until proven guilty, except in the columns of the Guardian," he said.

Sir Gordon Downey, the Commissioner for Parliamentary Standards, confirmed that he would carry out an investigation into the allegations and Mr Hamilton pledged to co- operate with him. But Sir Gordon, and the recently createdcommittee, lack the probing power of a court of law.

Labour and the Liberal Democrats called for the Government to ensure that all the papers supplied to the Guardian for the purpose of the libel case would now be passed to Sir Gordon. Mr Hamilton accused the Guardian of doing a "hatchet job" on him, insisting that he would be "vindicated within a matter of weeks" by Sir Gordon. Alan Rusbridger, the Guardian's editor, declared that claim as Mr Hamilton's "final act of bluff".