The newspaper, the shopkeeper and the April Fool that went horribly wrong

The Wall Street Journal is not renowned for its sense of humour. So when Mohamed al-Fayed, the chairman of Harrods, announced he was going to launch a version of the upmarket store on a boat on the Thames, the esteemed journal, despite its meticulous fact checking, did not spot it was an April Fool.

The telltale signs were missed. Such as that the announcement for the "float" would only appear on Mr Fayed's personal website alfayed.com until 12 noon on 1 April. Such as the name of the Harrods contact for the story Loof Lirpa – which, as The Wall Street Journal now knows, is April Fool spelt backwards. Instead, the newspaper printed an item in its US edition announcing Harrods was "to float" – although not on the Thames but on the London Stock Exchange. The newspaper says it picked up the item from news wires provided by the Reuters news agency.

And there, with an ensuing correction, the matter may have ended. Except it didn't. The journal, perhaps irked by the trick played upon it, printed a follow-up story four days later – on 5 April – headlined "The Enron of Britain?" in which, alleges Harrods, it likened the Knightsbridge store to the bankrupt American energy giant that is mired in financial scandal.

Mr Fayed is no stranger to the libel courts. He has resorted to legal action in the past, and is currently suing The Sunday Telegraph for libel over a story he claims links him to a conspiracy with Osama bin Laden.

Harrods has now served a High Court writ for libel on The Wall Street Journal's owners, Dow Jones & Company.

"There were loads of clues it was an April Fool," said a Harrods spokesman yesterday. "But obviously The Wall Street Journal, through one of the news agencies, picked up on it but wrote its piece without realising the whole thing was a joke.

"Four days later they printed a piece under the headline 'The Enron of Britain?'. All of this was hot on the heels of the Enron affair, and needless to say we, like any other organisation compared to Enron, were not best pleased. We asked for an apology and a retraction and they chose not to publish one, and subsequently we issued proceedings against them, which are ongoing."

Harrods' solicitor, Laurence Harris, said: "The original press release was sent out as a joke, and signing it Loof Lirpa should have given it away, but clearly The Wall Street Journal had a sense of humour failure. Now they are accusing us of being like Enron, which is a very serious matter and well beyond a joke."

The Wall Street Journal, meanwhile, is baffled. The contentious follow-up on 5 April "was meant to be a humorous comment on the bogus press release", said a spokeswoman, adding: "It is plainly light-hearted commentary that explains how it happened."

The Wall Street Journal launched its own legal action in a New York court, calling on a judge to rule the article non-defamatory and strike it out of court. But Harrods has launched its claim in the UK, where libel laws favour the litigant.

Of course, that does not mean the claimant is a cast-iron bet. Neil Hamilton, the disgraced former Tory MP, famously sued Mr Fayed for libel over claims that he had accepted cash to ask parliamentary questions – and lost. Mr Hamilton was declared bankrupt a year ago.