The judge presiding over the Colin Craig defamation case says a "miscarriage of justice has occurred".
Justice Sarah Katz said in a decision released today that damages awarded against former Conservative Party leader Craig were "well outside the range that could reasonably have been justified in all the circumstances of the case".
In an emailed statement, Jordan Williams said: "The judge has offered the choice of her resetting the damages, having another jury trial, or we can go to the Court of Appeal. Over the coming days, my lawyers and I will be making those decisions."
Craig was ordered to pay $1.27 million in damages to Taxpayers Union founder Jordan Williams after he was found to have defamed him.
Justice Katz said the jury's verdict must be set aside and a retrial ordered, unless both parties were willing to have a new damages award substituted in place of the jury's award.
"It is not possible to have a new trial solely on the issue of damages, as any assessment of damages must necessarily be based on the jury's overall factual findings."
Craig told the Herald this afternoon that Justice Katz had "got it right".
"It clearly was a mistrial and a retrial is the next step."
In a statement made just before 5pm, Craig said the judgment had "accurately summarised ... that Williams attacked me and that I was entitled to respond".
"It has also accurately identified that Mr Jordan Williams made claims to other people that were simply not factually true".
Craig added Williams is entitled to appeal the decision.
"That however is a matter for him to decide. In the meantime I am comfortable that we have the right decision and look forward to further clearing my name as matters progress."
Justice Katz ordered both parties to file memoranda by 3pm next Wednesday advising whether they consented to the court substituting its own award of damages.
If confirmation was not received by the date, Katz ordered that the jury's verdicts be set aside and the proceedings be set down for a retrial on the first available date.
Qualified privilege entitles a person to reply to an attack on their character or reputation, even if what they say in response is defamatory.
Justice Katz wrote that Craig's actions "must be viewed in the broader context that his own character and reputation were under sustained attack from Mr Williams".
"The law therefore conferred a privilege on him, for important reasons of public policy ... here, the importance of the privilege was particularly significant because the category of speech involved is one that is deserving of a high level of protection in a free and democratic society, namely political speech.Both men were politically active, she said.
"Given this broader context, it is difficult to see how Mr Craig's actions can objectively justify an award of damages that it is significantly higher than any other
previous damages award for defamation."
Justice Katz also found there was at least one misdirection in the summing up, but it was not necessary for her to consider that in any detail as Craig had already established he was entitled to a retrial on the basis that the damages awarded were excessive.
"Given my other findings it was not necessary to decide whether that misdirection was material."
The defamation trial unfolded after Craig's press secretary, Rachel MacGregor, resigned suddenly just 48 hours before the 2014 general election.
The resignation was high profile and there was much speculation about why she left.
Weeks later MacGregor turned to Williams for support, and told him she had made a complaint to the Human Rights Commission alleging that Craig had sexually harassed her.
She shared letters and poems the politician had sent her. Williams then revealed the details to other Conservative Party members.
When Craig found out, he publicly claimed Williams was part of a group of "culprits" determined to have him removed as party leader through a "campaign" of "false accusations".
Williams then filed defamation proceedings in the High Court, saying he did not lie about Craig.
Following an almost four-week trial, a jury found that Conservative Party founder Craig had defamed Williams. But Immediately following delivery of the jury's verdicts Craig's counsel requested asked her to defer entering judgment as Craig intended to apply to set the jury's verdicts aside, Justice Katz wrote in today's judgement.
In his application to set the verdicts aside, arguments were made on Craig's behalf that the jury could not have properly reached its verdicts. His principal arguments were that the jury's damages award was excessive, and that there was no evidence, or no sufficient evidence, to support the jury's finding that Craig was motivated predominantly by ill will towards Williams,"as a result, his defence of qualified privilege should have succeeded," Craig also argued There were material misdirections in the summing up on the issue of qualified privilege, it was argued.
The $1.27m damages awarded were "significantly greater" than any previous defamation damages awarded in New Zealand, Justice Katz wrote. The previous highest was $825,000 in a 2008 decision, which equalled $930,000 when adjusted for inflation.
Colin Craig defamation development Q & A
Who set aside the jury's verdict awarding Jordan Williams $1.27 million?
Justice Katz, the same judge who presided over the case.
Was she sitting on an appeal to her own case?
No. Any trial judge can set aside a jury's verdict and order a new trial if it is in the interests of justice - and if the judgement has not been formally lodged. As soon as the verdict was delivered by the jury, Colin Craig's lawyer asked that entering the judgment be deferred because he was going to apply to have the verdict set aside. He did, she heard both sides and agreed to set it aside.
On what grounds could she set aside the verdict?
If there was insufficient evidence to support the verdict, if the damages were too great or too small, or on a point of law - for example if the judge had got the law wrong in directing the jury in the summing up.
Which applied in this case?
The judge decided the damages were excessive, or more precisely "that the damages award is well outside the range that could reasonably have been justified in all the circumstances of the case. The consequence is that a miscarriage of justice has occurred."
Is it rare for a judge to set aside a verdict?
It is uncommon. It is especially uncommon in defamation trials because most defamation cases in New Zealand don't get to court and many of them are judge-alone cases, not jury trials. But it is not uncommon for cases to be appealed to a higher court on a point of law, or if new evidence emerges.
What happens next?
A retrial will be ordered unless both of the parties allow Justice Katz to set new damages in place of the jury's award.
Why was $1.27 million deemed excessive?
There are some legal arguments about whether Colin Craig was entitled to say some of the things he did in his own defence (exercising qualified privilege) but in the end it boiled down to relativity with other damages awards and the amount of punitive damages awarded against him.
What have other damages been in defamation cases?
The judgment sets out the five previous highest damages awards (with inflation-adjusted figures in brackets) are:
(a) Korda Mentha v Siemer (2008)27 - $825,000 ($930,434) (includes aggravated and punitive damages);
(b) Television New Zealand Ltd v Quinn (1996)28 - $650,000 ($955,034) (includes aggravated and punitive damages);
(c) Columbus v Independent News Auckland Ltd (2000)29 - $500,000 ($702,719) (includes aggravated and punitive damages);
(d) Karam v Parker (2014)30 - $350,500 against Mr Parker ($353,423) and $184,500 against Mr Purkuss ($186,038) for a total damages sum of $535,000 ($539,462) (includes aggravated and punitive damages); and
(e) Truth (NZ) Ltd v Holloway (1960)31 - £11,000 ($478,381). 
The judge noted that the damages award in Siemer ($825,000), was not only the highest award to date for defamation, the Court of Appeal described it as the worst case of defamation that it could find in the British Commonwealth.