Three judges paved the way for aggrieved people unable to afford the thousands of pounds needed to launch a libel action - for which no legal aid funding is available - to bring claims for 'malicious falsehood', which does qualify for financial aid.
Mark Stephens, the solicitor in the case, welcomed the ruling as a 'victory for the poor'.
He said: 'The courts have remedied a great social injustice . . . they have finally recognised that poor people have the right to clear their names if newspapers recklessly lie about them.'
He was representing Linda Joyce, 34, of Stonehouse, Gloucestershire, a former maid to the Princess Royal, who wanted to sue Today newspaper over a front- page article which wrongly accused her of stealing the princess's personal mail. Miss Joyce had been advised she would need pounds 40,000 to start a libel claim against the newspaper which, as a former maid earning less than pounds 5,000 a year, she did not have.
Instead, she embarked on a claim for the rarely used common law of malicious falsehood, At the request of Today, the claim was initially thrown out by a deputy High Court judge, who ruled that it was, in reality, a disguised libel action and was an abuse of the court processes.
But yesterday Sir Donald Nicholls, the Vice-Chancellor, sitting with Lord Justice Butler-Sloss and Sir Michael Kerr, overturned the ruling.
He said: 'The plaintiff's main purpose in bringing this action is to clear her name. If she wins, she will succeed in doing so. Compared with a libel action, the amount of damages she may recover in malicious falsehood may be small, but there is no reason why she should not be able to pursue such a claim.'
It was, he said, 'as plain as a pikestaff that had legal aid been available for libel, this action would have been a straightforward defamation action'. The article had been 'grossly defamatory', he said.
'The newspaper did not publish any retraction or apology, although it had not sought to say that the assertions of fact were true,' he said.
But while malicious falsehood may provide some remedy for those unable to fund libel actions, it will be a more difficult and less lucrative course to follow. Complainants will have to prove an article or news item was false and that publication was prompted by malice - so that a news organisation which acted in good faith would not be liable. Further, the complainants will have to prove financial loss in order to recover damages. By contrast, in successful libel claims the injured party can win vast sums for damaged reputations.
Sir Donald said: 'Legal aid apart, there is no reason to suppose that in future, persons who are the subject of defamatory articles in newspapers will be queuing up to issue writs for malicious falsehood. It would make no sense for them to do so, and take on the burden of proving malice and, if successful, still not be able to recover damages for loss of reputation.'
Today had argued that the Legal Aid Board could now be flooded with applications for financial aid to pursue actions against newspapers for defamation - which was never intended by Parliament when it excluded libel from legal aid provision.
But the judges said the discretion about whether or not to grant aid rested with the Legal Aid Board. It would always be open to a defendant news organisation to take up unreasonable claims with the board.