It promised to be one of the highest-profile court cases of the year, pitting the billionaire owner of Topshop against a national newspaper over its right to report claims of sexual and racial harassment. Instead, Sir Philip Green chose to duck a head-on fight with the Daily Telegraph at the last minute, avoiding a high court trial and leaving the businessman with a hefty legal bill and a battered reputation.

The decision by Green and his business empire, Arcadia, followed months of legal wrangling, which have left the former BHS owner fighting to stop news outlets from reporting on accusations made by former employees.

The saga began in October when judges at the court of appeal temporarily barred the Telegraph from identifying the Topshop tycoon or revealing “confidential information” relating to allegations of misconduct made by five former employees who had signed non-disclosure agreements.

The Telegraph responded by running a front-page story about an anonymous “prominent businessman” accused of wrongdoing, shortly before the former cabinet minister Peter Hain used parliamentary privilege to name Green in the House of Lords, resulting in the widespread reporting of the allegations.

After this the floodgates opened. Former employees made further claims about the businessman’s behaviour, at one point prompting a last-ditch attempt by Green’s lawyers to stop the Guardian distributing its print edition to shops after it ran a front-page story detailing the enormous payouts handed to Arcadia staff by individuals who had made accusations of inappropriate behaviour against Green.

This was then followed by further accusations by a US-based former store manager, who claimed Green would repeatedly grab her by the waist and slap her bottom, make regular comments about her breasts and tell her that she needed to lose weight.

Green issued a denial, saying: “To the extent that it is suggested that I have been guilty of unlawful sexual or racist behaviour, I categorically and wholly deny these allegations.”

Despite much of the information already being in the public domain, Green and Arcadia continued with the privacy case against the Telegraph, running up enormous legal bills before a planned trial, which was due to last two weeks. But on Monday they did a U-turn. Arcadia said it would drop the case against the Telegraph, which had been due to go to trial next week and could have caused further embarrassment to the businessman.

“After careful reflection, Arcadia and Sir Philip have therefore reluctantly concluded that it is pointless to continue with the litigation, which has already been undermined by the deliberate and irresponsible actions of Lord Peter Hain, the paid consultant of the Telegraph’s lawyers Gordon Dadds, and risks causing further distress to Arcadia’s employees,” the company said.

“Consequently, Arcadia and Sir Philip will be seeking the court’s permission to discontinue these proceedings on Monday.”

Despite ending the legal action, Arcadia accused the Telegraph of conducting a campaign to “knowingly facilitate the breach” of confidentiality agreements, exposing individuals who signed them and causing “untold disruption” to 20,000 staff.

“The Telegraph has repeatedly contacted and harassed staff and former staff of Arcadia and BHS. Its reporters have doorstepped many individuals, often at night, causing distress and concern to their families, even as recently as last weekend,” the company said, confirming a complaint had been made to the press regulator Ipso.

Green was represented by the libel firm Schillings, whose lawyers were criticised in a pre-trial hearing at the high court last week for charging up to £690 an hour for its work on the case.

Mr Justice Warby ordered the lawyers to reduce their costs, noting Schillings had already run up a bill of £470,000 for work on witness statements alone, compared with £80,000 spent by the Telegraph for the same work.

Green could be left with a legal bill of millions of pounds, having said he had already spent £500,000 on the case by October 2018.

Lorna Caddy of Himsworth Scott, a law firm that was recently founded by several ex-Schillings staff, suggested Green had taken a major financial hit by abandoning the case to avoid further negative media coverage.

“The cat is essentially out of the bag,” she said. “Once the anonymity order falls away, it just continues to breathe oxygen into the issue.

“The only reason to keep matters going and to continue to trial is for the recovery of costs and damages but there is big downside to that approach: keeping the matter in the public eye for longer with continuing scrutiny and potential for further reputational damage.”

If the Telegraph had lost the case it could have been left with a bill of almost a million pounds, she said. Instead Green could now be left picking up the bill for both sides, subject to any agreement to the contrary with the newspaper.

Green’s decision to abandon the trial also protects the principle of parliamentary privilege, since the businessman’s lawyers had argued that the Telegraph was “directly or indirectly responsible” for supplying Green’s name to Hain – and therefore the paper was responsible for the damage caused by the peer’s speech in parliament.

The judge in the case had already written to the Lord Speaker, Norman Fowler, because of concerns that the free reporting of parliamentary proceeding guaranteed by the Bill of Rights 1689 could be undermined.

Hain is thought to be under investigation by the Lords’ commissioner for standards over his conduct because he worked as a consultant to the Telegraph’s lawyers, Gordon Dadds.

On Monday Hain insisted Green’s decision had vindicated his action, insisting he was “completely unaware” Gordon Dadds was working on the case.

“Parliamentary privilege has always been resented by the rich and powerful when it is used as I did in this case to defend human rights and justice when under attack. It is of fundamental constitutional importance as the only absolute right to free speech cemented in our law.”