The battle over how much former politician Colin Craig must pay to a man he defamed has reached the Supreme Court.

Craig's infamous alleged message saying he dreamt he was sleeping between his then-press secretary's naked legs has been resurrected in the argument over whether $1.27 million is too much to pay in damages.

The former Conservative Party leader was ordered to pay the amount to New Zealand Taxpayers' Union executive director Jordan Williams after distributing defamatory pamphlets to 1.6 million homes across the country, as well as defaming him in a press conference.

The pamphlets came as a response to Williams' allegation that Craig had sexually harassed his former press secretary Rachel MacGregor - who had told Williams that Craig had sent her unsolicited cards, letters, compliments and romantic poetry.

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She resigned just two days before the General Election in 2014.

Former Conservative Party leader Colin Craig and wife Helen Craig attend a media conference. Photo / File
Former Conservative Party leader Colin Craig and wife Helen Craig attend a media conference. Photo / File

After a nearly four-week defamation trial in the High Court at Auckland in 2016, a jury awarded Williams the $1.27m, which is the highest amount awarded in defamation damages in New Zealand's legal history.

Earlier this year the Court of Appeal said that award was "excessive or wrong" and ordered that it be set aside, saying a more appropriate amount would be up to $260,000.

Craig is today appealing that decision, while Williams is cross-appealing.

Craig's lawyer, Stephen Mills QC, told the Supreme Court about messages Craig was alleged to have sent to MacGregor, including: "I slept well because I dreamed that I was between your naked legs".

Mills said messages such as these were recorded from Williams' conversations with MacGregor and were used in the trial, despite no "assurance of accuracy" being given.

He said the notes were being taken as an "aide-memoire", or an informal note or book to aid memory, but had used it for an entirely different purpose.

He also said there were issues around confidentiality, including that MacGregor had not wanted to go public, but simply wanted a settlement.

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Mills said Craig honestly believed he did not "sext" MacGregor.

Craig is also awaiting a decision from a High Court defamation trial last May over the same issues with Whale Oil blogger Cameron Slater.

He and MacGregor are also counter-suing each other for defamation, and Craig has pursued defamation proceedings against former employee Jacqueline Stiekema and former Conservative Party board chairman John Stringer.