Judge Sir Maurice Drake ruled yesterday that the MP for Torbay had suffered no financial loss over a Daily Mirror story claiming that 50 MPs had signed a Commons motion attacking Mr Allason.
The judge also decided that the MP had already reached a settlement with MGN over inaccuracies in the article, which included a published correction and a letter of "assurance" from Alastair Campbell, then political editor.
Though ruling against Mr Allason, Sir Maurice agreed there had been falsehood and malice in the Mirror story and said that as a witness Mr Campbell had not been "wholly convincing or satisfactory". The judge said: "He did not impress me as a witness in whom I could feel 100 per cent confidence."
Afterwards Mr Allason, 44, who writes under the name Nigel West, said he was disappointed at the verdict but pleased the judge had found malice and falsehood in the article and hinted he may appeal.
"This may not be the end of the story by a long chalk," he said. He also has two further libel actions outstanding.
Mr Campbell, who denied responsibility for the story and the Early Day Motion which caused it, said later that the case should never have been brought. "There never was a shred of evidence against me. I now intend to get back to doing what I do."
Mirror Group lawyer Martin Cruddace said costs for the case, awarded against Mr Allason, would be "up to pounds 250,000". Costs for two preliminary hearings, awarded to Mr Allason, were "insignificant", he said, though the MP later disputed the amount of damages he would have to pay.
The six day high profile case centred on what the MGN's barrister Charles Gray QC described as a "minor, very short little item" in the Daily Mirror on 20 November 1992.
It claimed that 50 MPs had "challenged" Mr Allason to hand over his estimated pounds 250,000 recent libel damages from MGN to struggling Maxwell pensioners.
The Mirror later published a correction, as only seven MPs had signed the motion, and Mr Campbell wrote to Mr Allason assuring him he had not been behind the EDM or the story.
However, the MP later sued for malicious falsehood, claiming that Campbell had been seen in the Commons "soliciting" MP's to sign the motion and that Daily Mirror journalist Andy McSmith, now on the Observer, was also responsible for the article.
The most colourful evidence came from the Labour MP George Galloway, who described how he had seen Mr Campbell - who was "generally up to no good" - with a hand-written EDM trying to get a MP to sign.
In his judgment Sir Maurice acknowledged the "utter contempt" Mr Galloway clearly had for Mr Campbell, who in turn disliked the MP. Though Mr Galloway had been an impressive witness he was the only one claiming to have seen the canvassing, said the judge, and on the evidence, including Mr Campbell's strong denial, the "scales tilted" towards the defendant's case.
The judge ruled that Mr Campbell played no part in the EDM or the story, and despite "strongly malicious" feelings towards Mr Allason was not linked to the malice and falsity of the published story. Mr McSmith was also not involved.
However, Sir Maurice said the Daily Mirror had been malicious because their employee David Bradshaw, Mr Campbell's deputy, had conceived the idea of the EDM, rushed into print without being able to check the number of signatures and had not approached Mr Allason.
The case failed because of the earlier settlement and the MP's failure to prove he lost a $100,000 book deal as a direct result of the story.
During the hearing, Mr Allason had introduced a lighter note when he asked Mr Campbell whether he had ever written soft porn articles under the name "Rowena Gigolo". In his youth, yes, but not using that name, said Mr Campbell.
For the MP it is his first legal defeat in 23 cases, with "one draw". But he disputes he is "litigious". "I get things wrong and I have to make a correction in my book - I just expect other people to do the same."
With a hefty legal bill likely - potentially bigger than the pounds 200,000 damages he won from MGN in 1992 - Mr Allason may be consoled that he represents himself and does not, as he puts it, "enrich lawyers".