TWO hard-up North-East councils are locked in a £12m winner-takes-all "divorce" row that is destined to end in a costly legal battle.

And local council tax payers - already facing double figure increases this year - will have to foot the loser's huge legal bill.

The extraordinary dispute has simmered between Darlington Borough Council and Durham County Council since 1997.

It began shortly after Darlington split from the county council in a local government shake-up.

Darlington claims that it is owed £2m from a £12m local development fund.

It also wants some of the shares the county holds in Teesside and Newcastle Airports plus shares in Premier Waste Management, the one-time council department that is now a private company responsible for much of the region's waste disposal.

Financial experts believe the share holdings could be worth at least £10m.

After years of wrangling, the two authorities have been unable to come to an agreement and have had to start a costly arbitration case to sort it out.

This could cost up to £500,000, which one or both of the councils will have to pay for, depending on the ruling.

Darlington is angry with the county council which it accuses of dipping into the disputed development fund.

The cash pot - a mixture of government grants and council tax - was set up to help improve the county.

Darlington council's director of corporate services, Paul Wildsmith, said: "Durham has said that this £12m fund has been set aside purely for the future requirements of Durham, but we say we should have our share, which is £2m."

Darlington also argues that it is entitled to a share in the region's two airports. The county council is a major shareholder in both.

"The shares in Teesside and Newcastle airports and Premier Waste Management were for everyone in Durham," argued Mr Wildsmith.

"Durham county is saying they are going to keep those shares with nothing for Darlington."

Council officers have already spent a lot of time trying to sort out the dispute and have had to seek specialist legal advice, but now it has had to go to arbitration the councils will have to present their cases to a leading counsel.

Mr Wildsmith said: "It could cost up to half a million pounds.

"We haven't budgeted to cover these costs, but one way or another it will have to come out of local government funds. The arbiter will make a ruling as to who will pay."

A Durham County Council spokesman said that during the reorganisation in 1997, about one-sixth of its services were transferred to Darlington.

He said: "Virtually 99 per cent of the transfer went smoothly, or has since been settled through discussion and negotiation.

"It is not surprising, given the scale of things, that there should remain some sticking points."

The case is expected to be completed by the summer