Good Afternoon,
Upon reading your story and going over what happened, with my extent knowledge in media law I have come to the conclusion that you will run into some legal troubles. You are looking at a defamation lawsuit. Firstly, I think it is important to understand what exactly that is, some possible defense options and as well as ways to avoid a lawsuit like this in the future.
Understanding Defamation: According to Canadian law defamation can take two forms, slander and libel. Slander is defined as the defamation of a person, group, organization, product, government or country that was in the form on spoken words, sounds, sign language, or gestures. Libel is the same thing but the defamatory statement was made in written or printed words or in pictures. You are currently dealing with a defamation case in the form of libel. In legal terms; "The publication of any false imputation concerning a person, or a member of his family, whether living or dead, by which (a) the reputation of that person is likely to be injured or (b) he is likely to be injured in his profession or trade or (c) other persons are likely to be induced to shun, avoid, ridicule or despise him. (White, A Primer on the Law of Defamation in Ontario)
Basically Peter Reid Graham has the ability to sue for defamation because the statement referring to the pedophilia was a false statement made as if they were true and referring to him. The information may have been factual but the implications were that the man in the picture (Peter Reid Graham) was the one being accused, which is false. In addition it caused damages to this mans reputation (the damage does not need to be proven) The victim will just have to state that he is being accused of a crime he did not commit. Now his name was not used but his picture was which still falls under the category of libel defamation. “The plaintiff must be able to prove that the words identify him as the person defamed. It is not necessary that he should have been specifically named.” (White, A Primer on the Law of Defamation in Ontario) If he can show the court that a reasonable person would take the words to refer to him, he will probably have a good case. He needs to be able to prove publication which in legal terms means that the words or pictures must have been heard or seen by a third person. “The first person is the one talking or writing (you), the second person is the person being talked or written about (the plaintiff), the third person is anyone else who may hear or read the offending matter” (White, A Primer on the Law of Defamation in Ontario) In your case since it was a newspaper, there is no difficulty in proving this; the contents of the paper are published to everyone who receives a copy.
To summarize; defamation is to spread bad reports about someone which could cause them harm. (White, A Primer on the Law of Defamation in Ontario) If Peter Graham Reid can prove that the words and pictures had a defamatory meaning, identified him (through the picture he was identified) and was published (which it was) that is defamation. In regards to retrieving this information from an unidentified website, that was not published in the article really makes no difference.
In the future as a publisher there are ways to avoid defamation and these guidelines should be followed when publishing stories similar to this. The guidelines are as follows: The guidelines are enumerated in the following list: Borden Ladner Gervais LLP Lawyers • Patent & Trade-mark Agents www.blgcanada.com Legal Affairs: Avoiding Defamation Suits Can Be a Tricky Business By David A. Crerar 3 (Risks Associated With Publication)
(1) The seriousness of the allegation: the more serious the charge, the more the public is misinformed and the individual harmed if the allegation is false.
(2) Relevance: The nature of the information, and the extent to which the subject matter is a matter of public concern.
(3) The source of the information: reliance on hostile, biased, interested or ignorant sources can misinform the public. *** ( The website used should have been verified)
(4) Due diligence: Did the media outlet try to verify the controversial information in the story. (referring to website, further research should have been conducted)
(5) The status of the information: the allegation may have already been subject of an investigation which commands respect.
(6) The urgency: How important is it to communicate the information as quickly as possible?
(7) Seeking balance: Whether comment was sought from the plaintiff, although this may be unnecessary, impractical, or obviously futile.
(8) Reflecting balance: Whether the story contained the plaintiff’s side of the story.
(9) The tone of the story: A publication or broadcast outlet can raise queries or call for an investigation without adopting allegations as statements of fact.
(10) The overall circumstances of the story, including the timing of publication.
Several judges have cited the case’s factors. The guidelines were found in Defamation Suits Can Be a Tricky Business By David A. Crerar
Now in regards to dealing with a a libel defamation case, there are defences you can take and they are as follows; (White, A Primer on the Law of Defamation in Ontario)
a) Truth: The first defense is the defense of truth, meaning that if a statement made is attacked as being defamatory, the defence can be made that the statement was truthful and therefore there was nothing false about the statement, meaning therefore, that the statement was not defamatory. (White, A Primer on the Law of Defamation in Ontario)
b) Fair Comment: The second defense to an allegation of libellous statement is that the statements made were made as a fair comment. The defence of fair comment would be considered by the Court in situations where, by looking at the statement made, the facts and the situation, a conclusion can be made that the statements made were in actuality a fair commentary on the situation at hand and that the comments were fair and were not malicious. (White, A Primer on the Law of Defamation in Ontario)

c) Qualified Privilege: The defence of qualified privilege arises normally in situations where based on public policy, even where a person makes a statement that is considered defamatory, the individual, corporation or organization publishing these statements will escape any liability if it can be proven that the public good could be furthered in open debate. (White, A Primer on the Law of Defamation in Ontario)
d) Absolute Privilege: Situations where the defence of absolute privilege would apply would be comments made by civil servants, members of parliament, members of provincial parliament, federal government, ministers and the like who make comments that may be defamatory, but were made in the furtherance of investigations, fact finding missions, and reporting for the benefit of public policy. (White, A Primer on the Law of Defamation in Ontario)
e) Honest opinion: The statement was a viewpoint that was believed to be true based on evidence found in support of it. (White, A Primer on the Law of Defamation in Ontario)
f) Innocent dissemination: The statement was distributed without the knowledge that it was defamatory in nature as the person was not the originator of the content and had no editorial control over it. Innocent Dissemination is a defense available to a person charged for publishing a defamatory statement. The defense of innocent dissemination absolves a person from liability provided, s/he had no knowledge of the defamatory nature of the statement, and that his/her failure to detect the defamatory content was not due to negligence. (White, A Primer on the Law of Defamation in Ontario)

The defense involves three factors:
1. The defendant did not know that the publication complained of contained a libel;
2. The defendant had no grounds to suppose that it was likely to contain defamatory matter; and
3. The absence of knowledge was not due to any negligence on the defendant's part.. (Innocent Dissemination law and legal definition)
In your position I believe that Innocent dissemination would be a wise defense to take seeing that you can say that you were under the impression that the information being published was factual and the picture in fact was the man accused of the crime. The website publishes pedophiles in which you believed the picture was of the correct man. You had no malicious intent and it was simply a printing error. Similar to the Hunter and Swift v. Fotheringham et al (1986) 360 (B.C.S.C). case you have non consenual information that was published about someone else. Fotheringham wrote that Swift and Hunter, who he said were rising in the pecking order of Vancouver law firms, had been "cementing their connections through the lawn– tennis circuits and wife–swapping brigades.” Fotheringham later apologized for the remarks and said during the trial that the column was humorous and was not intended to defame Swift and Hunter. Peter Butler, lawyer for Swift and Hunter, argued during the trial that the column was defamatory because it suggested his clients were wife-swappers or associated with wifeswappers in which the two men later made clear that those remarks were compeltely untrue. They were unaware of this publication and there was no permission given to the paper to publish this sort of information, especially with no evidence. Similar to this case another suggestion to dealing with this issue would be to make amends. Generally a defamation suit will result in monetary damages or an injunction preventing any publication of material that will further damage the person’s reputation. (White, A Primer on the Law of Defamation in Ontario) However, a majority of cases are settled before a court trial through an offer to make amends. Making amends generally involves retracting the defamatory material by removing it, correcting it or by making a formal apology. In some instances an offer of money may also be made. A defamed person must carefully consider an offer to make amends as if the case goes to trial and the judge finds that the offer was a reasonable one, it can be used as a partial defence to the defamation action. (White, A Primer on the Law of Defamation in Ontario)

References:
Web. 4 Mar. 2015. .

"Cyber Libel and Canadian CourtsCanadian Internet Defamation Rulings." McConchie Law. Web. 4 Mar. 2015. .

"Defamation." Duhaime.org. Web. 4 Mar. 2015. .

"Innocent Dissemination Law & Legal Definition." Innocent Dissemination Law & Legal Definition. Web. 4 Mar. 2015. .

"Risks Associated With Publication." Risks Associated With Publication. Web. 4 Mar. 2015. .

White, Suzanne. "A. INTRODUCTION." A Primer on the Law of Defamation in Ontario. 27 Sept. 2007. Web. 4 Mar. 2015. .