Right-wing independent MP Mark Latham was found in September 2024 to have defamed Sydney MP Alex Greenwich in an explicit tweet during the 2023 state election.
The tweet - which described a sex act - responded to a news article in which Mr Greenwich described Latham as a "disgusting human being".
The Federal Court found the post exposed Mr Greenwich, who is gay and a vocal LGBTQI advocate, to hatred and ridicule.
It ordered Latham to pay $140,000 in damages and an estimated $400,000 to cover a large portion of Mr Greenwich's legal costs.
The former NSW One Nation leader appealed, claiming calling someone gay or saying gay men have sex was not defamatory.
But three Federal Court appeal judges on Wednesday found most people would not interpret Mr Latham's tweet as saying that.
"The ordinary reasonable reader would quickly have been left with the impression that Mr Greenwich engages in disgusting sexual acts," Justices Michael Wheelahan and Wendy Abraham wrote in their published reasons.
"We do not accept that the words used were merely some proxy to describe Mr Greenwich as a homosexual."
They dismissed Mr Latham's appeal, also knocking back a cross-appeal filed by Mr Greenwich to increase the damages he's owed.
The former federal Labor leader's words were not a genuine attempt to engage Mr Greenwich in debate, Justice Craig Colvin wrote.
"It was no rhetoric. It was a blatant attempt to denigrate by making an unrelated statement about Mr Greenwich's sexual activities," he said.
Justices Wheelahan and Abraham agreed Mr Latham's tweet was a disproportionate response to the left-wing MP's comment.
"The primary tweet was not an answer to that attack but was retaliation on a different front," they wrote.
"To disparage Mr Greenwich on the basis that he engaged in a disgusting sexual act was not a relevant response."
The judges described the post as aggressive, intimidating, shocking, graphic, profane and arresting, and credited it for provoking a vile social media response that seriously harmed Mr Greenwich.
There was no merit to Mr Latham's bid to reduce the damages he owes, the judges wrote.
That means he's still on the hook for more than $500,000.
"Today, justice prevailed ... it makes clear there is no place in Australian civil discourse for the kind of conduct Mr Latham engaged in", Mr Greenwich said in a statement.
Mr Latham was contacted for comment.
The decision comes weeks after the former prime-ministerial hopeful was directed to pay the maximum $100,000 penalty to his fellow MP for inciting hatred based on Mr Greenwich's sexuality.
Mr Latham slammed the decision, which concerned the same defamatory tweet, as a "woke, leftwing political judgement" in a post on X.
He and Mr Greenwich were ordered on Wednesday to confer on the costs of the appeal and submit to the court by June 17.
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