Gary Raynor, chair of the Watermark building's strata committee, sued Patricia Murray over a May 2017 email to him, 15 other residents and her real estate agent in which she asked him to stop emailing her about locking her mailbox.

His NSW District Court lawsuit claimed he was defamed, contending the email implied he was a "small-minded busybody who wastes the time of fellow residents on petty items concerning the running of the Watermark building".

He said other meanings included that he unreasonably harassed Ms Murray and "acted menacingly" by consistently threatening her by email.

Judge Judith Gibson awarded Mr Raynor $120,000 in damages in May after finding the meanings were conveyed and that Ms Murray had not established a defence to any of them.

But the NSW Court of Appeal on Wednesday allowed her appeal, finding her defence of "common law qualified privilege" had been established.

Justices Robert Macfarlan, sitting with Justice Anthony Payne and Acting Justice Arthur Emmett, set aside the original orders and ordered Mr Raynor to pay Ms Murray's legal costs.

"An issue at the building at that time was a concern expressed by Mr Raynor about the security of mailboxes at the complex and whether by reason of Ms Murray leaving her mailbox unlocked theft from other mailboxes at the Watermark building was facilitated," Justice Payne said.

The court found the "occasion of privilege" was the communication to residents of Watermark on the topic of management of the building including the security of mailboxes.

The District Court judge concluded that the "privilege" had been lost because the reason for email had been "for the purpose of humiliating, belittling and insulting" Mr Raynor in the most hurtful way possible.

"This central finding cannot stand," Justice Payne said.

The court set aside the judge's finding that Ms Murray had been "well aware of the falsity of her allegations" and an alternative finding of "reckless indifference to the truth or falsity".

Ms Murray had been unfairly cross-examined about a document prepared by her lawyers and one she had never seen before.

"More troubling, numerous credit findings about the appellant were made on the basis of this unfair cross-examination."

At the appeal, Ms Murray's lawyers submitted the judge should have found she felt Mr Raynor was trying to get her evicted and she decided she needed to take steps to stop him from his campaign of harassment.

She genuinely believed his theory that thieves could make a master key by studying the lock mechanism of an open mailbox was "absurd" and his conduct amounted to threats and harassment, her lawyers said.

Australian Associated Press