Lawyers for Mr Fayed accused Dr John Burton, the coroner to the royal household, of acting "unlawfully and unreasonably" in refusing him permission to be represented at the hearing as "a properly interested person".
The court had been told of Mr Fayed's "genuine desire" to discover exactly what brought about the accident that killed his son, Dodi, and the Princess in Paris in August 1997. But a judge ruled that Dr Burton had acted within his powers under the 1984 Coroners' Rules.
During an hour-long application, Michael Mansfield QC, appearing for Mr Fayed, accused Dr Burton of misinterpreting the Coroners' Rules when he decided last April that Mr Fayed lacked sufficient basis to be treated as an "interested person" at the Princess's inquest, even though he was the father of one of the people who died with her. The QC argued that Mr Fayed was clearly "properly interested" in the questions of how and why the accident occurred and the coroner had applied the law far too narrowly.
Refusing permission to seek judicial review, Mr Justice Hidden rejected arguments that Mr Fayed was entitled to representation because of his son's relationship with the Princess.
The judge, sitting in London, said these were not matters that should have led the coroner to come to a different conclusion than the one he did. "I can find no basis on which to say the coroner's decision was wrong in law or unreasonable," he said. "There was nothing unlawful, irrational or procedurally improper about the method in which he came to his decision, or the decision itself."
Mr Fayed's lawyers will now consider whether to renew their application before the Court of Appeal.