I found this fight much tougher than anything else in the game, even on normal, and it forced me to think really hard in order to devise a strategy that ended up working. But only just. I didn't have access to Gaze of the Adragan, which appears to have made things much easier for some people.
My party was at level 10: wizard PC, Eder, Kana, Sagani, Aloth, and Durance.
I equipped Eder with the heaviest protection I could manage (among other things, the Larder Door and corrode-proofed armor), because his function in this fight is primarily to attract and weather the dragon's breath attack. Eder also had lots of potions of major endurance, because he needs to stay alive: You simply cannot have the dragon turn around and inflict its breath attack on your weaker characters. Eder's secondary weapon was the pistol St Garam's Spark, so that he could switch to it in order to inflict some heavy damage to the dragon if it did turn away from him. I positioned him right up against it, at about 10 o'clock.
At 4 o'clock, outside of the range of the tail lash attack, but just close enough so that the dragon is in the range of arquebuses and arbalests, I placed the primary damage-dealing characters: Kana and Durance with exceptional arquebuses, Sagani with Aedrin's Wrecker, and my wizard PC. Kana's chant was set to the one that speeds up weapon reloads.
Halfway between this group of ranged attackers and the Xaurip party in the bottom-right of the area, I placed Aloth and Itumaak. These two are more than enough to keep the entire Xaurip party occupied, which is critical, because you don't want the priests to heal the dragon (it doesn't heal on its own). Aloth was equipped with the wurm figurine, and he could summon them to aid in keeping them at bay.
All this positioning is managed by striking a deal with the dragon to free it. Eder starts the fight with a shot from his pistol, then switches immediately to his sword and shield. The dragon promptly turns on its fear aura, which drastically lowers the accuracy of your ranged attackers, so Durance's first action should be to cast the first-level protection against fear spell (he has to periodically refresh this spell throughout the fight). Only after the fear aura is dispelled can the ranged attacks commence.
Summons are key. As soon as Kana accumulates 5 chants, deploy whatever 3rd level summons spell you chose for him. I had ogres, which I positioned at 2 o'clock. These ogres, together with Eder, have the dragon flanked, which improves your odds. The ogres also draw the dragon's breath attack if it disengages from Eder, and again, keeping your ranged attackers safe from this attack is key. With luck, when it decimates the ogres, Kana will be back up at 5 chants and you'll be able to resummon them.
The adragan on the top right of the map generally head towards Eder and perish with the first breath attack, so aren't really a problem. I used my wizard PC to cast debuffs on the dragon: blackened sight, expose vulnerabilities, and chill fog are particularly effective.
It took a while (much longer than 20 seconds), but it worked!
