Al Fayed backs down on libel action against `Vanity Fair'

Mohamed Al Fayed, the owner of Harrods, has dropped his multi- million pound libel action against Vanity Fair. Although neither side would discuss the matter yesterday, Louise Jury says witnesses have been told they are no longer required to give evidence.

Michael Cole, Mr Fayed's smooth and often voluble spokesman, was staying silent. "He's got nothing to say on the matter," his office said. The public relations department of Vanity Fair in New York also refused to comment "at this point".

Lawyers on both sides of the Atlantic were unavailable. But letters from Biddle, the magazine's solicitors in London, told potential witnesses that the legal action which has been running since 1995 was over.

Faced with an appearance in court set to out-sleaze Jonathan Aitken and to rival Elton John and Jeffrey Archer in attention-grabbing headlines, Mr Fayed has backed down.

The irony is that when journalist Maureen Orth began her investigations, the starting point was the view in America that Mr Fayed had been victimised by the British establishment. But when the article came out in September two years ago, the portrait painted was much less sympathetic.

It detailed much of which has been widely reported about Mr Fayed - his battle for British citizenship, the critical Department of Trade and Industry report into his business affairs, and his feud with Tiny Rowland. But it also alleged racism and sexual harassment and accused him of being obsessed with personal hygiene and of ill-treating his employees.

Mr Fayed was furious and sued. But where others have conceded defeat in the face of determined litigation by the Harrods owner, Conde Nast, Vanity Fair's publishers, set about garnering further evidence. It is understood lawyers had taken interviews from dozens of people prepared or subpoenaed to give evidence of Mr Fayed's behaviour.

Private investigators were reported to have been engaged by both parties, and dark rumours circulated of the bugging and tracking of those who might have something to say.

About 10 days ago, the first indications emerged that Mr Fayed might be on the verge of discontinuing the action. The Independent on Sunday reported that negotiations between the two sides were at an advanced stage and that Mr Fayed was prepared to settle. A source said: "There's no shortage of witnesses. But I think they [Vanity Fair] take the view it's the practical thing to settle."

Meanwhile, Mr Fayed will be left with the worry of what was in the "evidence" gathered by Conde Nast. It is believed the magazine will refuse to hand over documents which would name those willing to testify.

But some British newspapers are understood to have interviewed the same witnesses and have been waiting for the resolution of the libel action before deciding whether to publish.