A jury has found a report by Fairfax Media defamed former Kings Cross nightclub owner Lili Chel by suggesting she engaged in disgraceful conduct by allowing onstage sex at her nightclub.
Ms Chel sued Fairfax in the NSW Supreme Court over an article published in The Sun-Herald in December 2010, headlined "On stage sex at city nightclub sparks battle over licence", about Land and Environment Court proceedings regarding her club, The Rouge.
She alleged there were several defamatory imputations in the story and that they were false. She claimed the article hurt her feelings, damaged her reputation and ruined her business.
Fairfax Media denied the article was defamatory, and argued each of the alleged imputations were substantially true.
On Thursday, a jury of four found Fairfax did not have a defence of substantial truth for the imputation Ms Chel engaged in disgraceful conduct by allowing onstage sex at her nightclub.
Further, the publisher could not use the defence of substantial truth for the defamatory imputation that she was a menace to patrons because she did not prevent drink spiking on the premises.
However, the jury found Fairfax could, on the grounds of truth, defend the defamatory imputation that Ms Chel breached both her liquor licence and the council's development consent, because she hosted a party at her club that involved strippers, dildos, whips and on-stage sex.
The jury also rejected Ms Chel's claim that the article imputed she allowed bikie gangs to frequent her nightclub and permitted drunk persons to order more drinks. The jury found the article did impute that violent altercations took place at The Rouge but did not consider it to be defamatory.
The jury agreed with Fairfax's argument that the article conveyed the imputation that Ms Chel conducted a nightclub that was targeted by police as part of a crackdown on bikie gangs.
But the two men and two women jurors found the article was not a fair report of the Land and Environment Court proceedings.
The jury will return to court on Friday for further deliberation. They will decide whether Fairfax can claim that the two false and defamatory imputations do not further harm Ms Chel's reputation because of the substantial truth of the contextual imputations.
