By Dan Satherley and Katarina Williams
Labour leader Andrew Little has labelled John Key's "teapot tape" settlement with camera operator Bradley Ambrose a "costly embarrassment" and is calling on the Prime Minister to apologise to both Mr Ambrose and the taxpayer.
Mr Key today conceded Mr Ambrose did not deliberately record a café conversation he had with former ACT leader John Banks during the 2011 election campaign.
Mr Ambrose decided to take the Prime Minister to court over his comments, which included comparing Mr Ambrose's actions to the discredited News of the World newspaper.
The two parties have now reached a settlement, meaning the case will not go to trial.
Mr Key has confirmed a "small settlement" was made from the parliamentary leader's budget, but won't say how much was paid. Mr Ambrose had sued for $1.25 million.
The Opposition leader believes the settlement should come out of Mr Key's pocket, and not taxpayer coffers.
"[Mr Key] should have the decency to apologise to both Mr Ambrose and the taxpayer," Mr Little says.
"Night after night, John Key smeared Bradley Ambrose's name on television in the middle of a high-profile political campaign. By attacking an innocent New Zealander for political gain, he made it difficult for Mr Ambrose to get work and undermined his character.
"He was yet again demeaned the office of Prime Minister."
Greens co-leader Metiria Turei didn't think using taxpayer money could be justified and says Mr Key should apologise.
"I think it’s poor form on his part because this is John Key’s own fault. He was withholding information from New Zealanders in order to help get himself re-elected and so he needs to take personal responsibility for the subsequent disaster he created."
Both Mr Key and Mr Ambrose issued a joint statement earlier today.
"These comments caused harm to Mr Ambrose personally and professionally. The comments reflected Mr Key's honestly held views at that time. Mr Key and Mr Ambrose have met to discuss the events of that day.
"Mr Key now accepts that Mr Ambrose did not deliberately record the conversation, or otherwise behave improperly.
"Mr Ambrose now accepts that Mr Key believed that the conversation had been deliberately recorded at the time Mr Key made his statements."
More than $8000 had been raised to help Mr Ambrose fight the defamation case in court through fundraising site Givealittle.
Mr Ambrose said it was a "big relief and time for a new start". He declined to comment further, but earlier today posted a picture of a cup of tea on Instagram.
"A small payment towards Mr Ambrose's costs will be made from the parliamentary leader's budget," a spokesperson for the Prime Minister said.
"The exact sum is confidential, but it is a pragmatic payment in the context of what it would have cost to defend in court."
The taxpayer has already forked out for the legal costs of the ongoing case.
If the settlement money can't come from the leader's budget, it would come from the National Party's own funds because he was in his role as party leader during the incident rather than Prime Minister.
"If I was acting as Prime Minister, Crown Law would have paid for it. We could have made an application to Crown Law to do that, but we chose to deal with it with me as leader of the National Party," he said at his post-Cabinet news conference today.
The pair met yesterday for a settlement conference and Mr Key considered the outcome was the end of the case.
He called the meeting "respectful", but did not say whether he apologised to Mr Ambrose because there was a confidentiality agreement signed.
During the 2011 election campaign, Mr Key and Mr Banks met for a highly publicised cup of tea at a café in Newmarket. The intention was to signal to voters in the wealthy electorate they should vote for Mr Banks, who led the ACT Party at the time.
After a short time the media were asked to go outside so the two leaders could talk in private, but Mr Ambrose inadvertently left a recording device on the table, which recorded the conversation.
The recording was passed on to the Herald on Sunday. TV3's 3 News also had a copy, which was surrendered to police under warrant.
It was leaked onto the internet a few months later, in early 2012.