James Murdoch 'had to sign off hacking payouts over £250,000'

He has previously told MPs he was not aware of the details behind the Taylor deal

News International's lawyers needed the personal approval of James Murdoch to go beyond an official ceiling of about £250,000 when they were trying to settle the first major phone-hacking case with the football union boss, Gordon Taylor, it is claimed.

The lawyer NI instructed during the Taylor case, Julian Pike of the London firm Farrer & Co, will be asked about the ceiling today by MPs investigating the News of the World phone-hacking scandal.

Mr Pike will also face questioning about a conversation alleged to have taken place between himself and Mr Taylor's lawyer, Mark Lewis. During discussions on the Taylor settlement, Mr Pike says he does not recall telling Mr Lewis that he was "negotiating with Murdoch" – a reference Mr Lewis understood to mean James, and not Rupert Murdoch, the head of the global media company. Mr Lewis, who represents a large number of phone-hacking victims seeking damages from NI, will also appear before the committee today.

The ceiling is significant because it suggests that James Murdoch, chief executive of News Corp's European division, was required to be aware of the full details behind the deal, which eventually resulted in a £725,000 out-of-court settlement for Mr Taylor. Mr Murdoch has previously told MPs that he was not aware of the details behind the Taylor deal.

News International sources insisted last night that approval of substantial legal settlements was not personally restricted to Mr Murdoch.

But The Independent has been told that "6th floor approval" was needed for any settlement above £250,000. This was an understood code that meant NI's lawyers needed the approval of Mr Murdoch. Mr Pike was scheduled to appear before the Commons Culture Committee before the announcement last week that NI had ended its relationship with Farrers as the law firm primarily dealing with the legal fallout from the illegal activities within NOTW.

An NI spokeswoman said a voluntary compensation scheme would be announced before the end of this month.