The BBC's Joshua Rozenburg reports: "The Harrod's owner heard himself described as an habitual liar"

Mr al-Fayed is standing by allegations about the former Tory MP which he made in January 1997 in a Dispatches programme on Channel 4.

His defence was heard on Thursday morning, but in the afternoon, Desmond Browne QC, opened the case for Mr Hamilton.

Mr Browne said his client had fought a long battle to clear his name and said "a lesser man and certainly a guilty man would have abandoned the fight long, long ago."

Mr al-Fayed was a "phoney Pharaoh" who would be buried by the sheer bulk of his lies, the QC said.

"Mr Fayed, we say, is a classic Jekyll and Hyde figure - a man with a jovial side, a man with a thoroughly evil side," he said.

Neil Hamilton: Has been fighting for years to clear his name

Mr Browne said there were three aspects of Mr al-Fayed, who he described as the "Ali Baba of deceit", which gave the clue as to why he was telling "such appalling lies" about Mr Hamilton.

He said the business tycoon was a man for whom "lying has become a sickness", he was a "deeply vindictive man - a man ready to take his revenge on those who he sees as responsible for exposing the lies he tells".

Vengeance

The Harrods boss was also accused of ruling over his employees, "managing them through fear".

Mr Browne said Mr al-Fayed's vengeance on Neil Hamilton was traced back to one particular incident.

He cited the failure of the tycoon's legal action against the government over its critical report into his purchase of Harrods. It "triggered" his vendetta against former Home Secretary Michael Howard and Neil Hamilton, then a junior DTI minister, the QC said.

The report had been compiled by the Department of Trade and Industry.

Mr Browne also said he had to "regrettably" refer to the circumstances in which the Harrods chief's son Dodi and Diana, Princess of Wales, met their deaths.

Al-Fayed will face his first public cross-examination

Ordinarily no one would wish to raise such matters out of common decency and sympathy for individuals who have been bereaved, he said.

But Mr al- Fayed had lost the right to such sympathy and "forfeited the right" not to be asked questions about it.

He had brought the matter himself before the public over and over again in a way "which advocates a version of events he must know to be untrue".

'Accused Royals of racism'

"What Mr Al Fayed has said repeatedly is that to prevent the forthcoming marriage of Dodi and the Princess of Wales they were murdered by British intelligence on the direction of Prince Philip," Mr Browne said.

He said the businessman said Prince Philip's "actions" were motivated by "racism - he was a German racist", he said.

Mr Browne told the jury there was only one Christmas present Mr Hamilton wanted this year, and that was to "have his name cleared by you of this slur that he took cash for questions.

"So, please be his Father Christmas," he added.

The case was adjourned until Friday morning when Mr Al Fayed is due to take the witness stand.