Ontario Superior Court Justice John Macdonald ruled Thursday that the plaintiff, restaurant owner George Foulidis, failed to meet the "essential aspects" required for a libel claim.
In the 15-page decision, Macdonald wrote that Foulidis did not prove that the comments in question made by Ford were directed at him or that they were defamatory.
"His action fails on this basis and must therefore be dismissed," wrote the judge.
In a statement, the mayor says the court's decision is "welcome."
"I will continue fighting to represent the best interests of Toronto taxpayers at city hall," said Ford. "There is still a lot of work to be done and I will continue to focus on this."
Foulidis sued Ford alleging that the mayor suggested a sole-sourced, untendered, 20-year leasing deal between Foulidis's company, Tuggs Inc., and the city was corrupt and that it "stinks to high heaven."
Ford made the comments during a meeting with the Toronto Sun editorial board in the middle of his 2010 mayoral campaign bid.
He told the newspaper that he suspected "corruption and skulduggery" in the closed-doors deal, saying: "These in-camera meetings, there's more corruption and skulduggery going on in there than I've ever seen in my life. And if Tuggs isn't then I don't know what is."
Ford testified in court that at the time, he wasn't suggesting that the deal was illegal, just that it didn't follow the proper tendering process.
"I can't pinpoint it, but even to this day people still say the deal stinks to high heaven, but it's hard to pinpoint and prove, but I'm not the only one saying that," he told the Sun editorial board at the time.
"I've never seen a deal like this and it just didn't add up to me. I still feel that way."
During the trial, Foulidis's lawyer told the court that Ford's comments were "opportunist" at a time where the now-mayor was trying to win votes.
He also argued that his Foulidis's reputation as a businessman, and the owner of the Boardwalk Pub in the Toronto Beach neighbourhood, was damaged because Ford's remarks were made without proof.
In the ruling, Macdonald agreed that Ford made the comments in question, but a reasonable person would not have linked them to Foulidis instead of the company in general.
The judge also pointed out that Ford didn't know Foulidis by name, and when questioned by the newspaper about the businessman, he had remarked: "I can't accuse anyone..."
Ford's lawyer argued that the mayor's comments were opinion and that they were not defamatory because they were not intended to harm Foulidis.
The mayor also argued that he was talking about the company, not Foulidis himself, and that companies can't be defamed.
A lawsuit Foulidis launched against Toronto businessman, Bruce Baker, over similar comments was also dismissed by Macdonald.
Lawyer Brian Shiller said in an email that Foulidis is disappointed in the decision and is considering his options.
Meanwhile, Ford will return to court on Jan. 7 to appeal an unrelated decision.
In late November, Ontario Superior Court Justice Charles Hackland found that the mayor had violated conflict of interest laws by voting on an issue in which he had a financial interest. The judge ordered that Ford be removed from office.
A stay was granted until the appeal could be heard, and Ford has vowed that he will run in the byelection for his job if one is called. He argued that his decision to vote was an error in judgment.
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