Mr Schellenberg, 70, withdrew his High Court action against The Guardian and the Sunday Times five weeks into the hearing, in a move that will cost him �750,000.

Yorkshire-born Mr Schellenberg, now of Killean Estate, Tayinloan, Argyll, said the action had lasted much longer than expected and he did not want to risk losing at the end.

He said he had been "virtually forced out" by the islanders

The trial focused around two articles in the Sunday Times and a July 1996 article in The Guardian.

The Guardian article, entitled "Lairds of Misrule", depicted Mr Schellenberg as a "playboy" who used the remote isle as a playground for himself and his friends, leaving behind a legacy of ruin and disintegration.

It claimed that the millionaire businessman, who owned the island from 1975 to 1995 before selling it to a German artist for �1.6m, had been an "appalling" landlord.

But during the case, Mr Schellenberg said that when he left the island it was in better shape in terms of conservation, economy and the welfare of islanders than when he bought it.

He had left because he was "virtually forced out" by a group of islanders who "disapproved of the island having an owner and were intent on acquiring the island for themselves", he said.

Islanders now own Eigg

The Guardian said after the trial that Mr Schellenberg has "learnt the hard way of the dangers that people face when they attempt to use the libel laws to close down free speech."

Judge Mr Justice Morland, who had suggested to Mr Schellenberg during the hearing that he should consider the merits of his case, told the jury he had had the "courage and graciousness to accept reality".

Meanwhile, the councillor responsible for the tiny island said its inhabitants will be "rather pleased" with the outcome.

Islanders' stake

Charles King, who represents Mallaig and the Small Isles on Highland council, said: "They think the whole thing is stupid.

"Everyone has things printed about them in the newspapers, and you can't react to every criticism."

Last year the islanders, who number about 70, formally took possession of their 7,400-acre domain when a �900,000 anonymous donation enabled them to buy the island from creditors from the German artist.

The deal meant that the islanders, as part of a trust that includes the Highland Council as well as wildlife and heritage bodies, have a stake in their home for the first time in generations.