James Murdoch appears to have given misleading parliamentary testimony about a key phone-hacking cover-up, according to evidence obtained by the Guardian.

Rupert Murdoch's son sought to deny that "astronomic sums" had been secretly paid out to a hacking victim as hush-money. He told MPs the company's legal advice was that the likely award of damages was £250,000, and that this explained the size of a confidential payout he agreed could be paid in 2008 to hacking victim Gordon Taylor, chief executive of the footballers' union the PFA.

But full details of the legal negotiations obtained by the Guardian show that in fact Murdoch's company executives paid far more than that to buy Taylor's silence. After consulting James Murdoch, they eventually agreed to pay £425,000 damages, almost twice as much as the alleged likely award.

With Taylor's legal costs at £220,000, and their own solicitors' fees of some £300,000, the total cost to the News of the World to keep the case out of court amounted to almost £1m.

This huge confidential settlement succeeded in concealing the fact, detailed in the lawsuit papers, that Neville Thurlbeck, the paper's chief reporter, was implicated by an email referring to "Neville". Police had been forced to hand over a copy of this email to the other side's lawyers.

James Murdoch further claimed to the MPs that this email had been concealed from him by two company executives, the lawyer Tom Crone and the editor Colin Myler, when he was persuaded to sign off the secret deal.

Had the email come to light at the time, it would have destroyed the News of the World's public stance that phone hacking was the work of a single "rogue reporter" who had already been jailed.

The details of the negotiations between Taylor and the News of the World also show that James Murdoch was incorrect in assuring MPs that the confidentiality deal was normal.

Sources familiar with the negotiations say that not only was the size of the settlement to be kept confidential, but that News International also got an agreement that the very fact of a confidential settlement was also to be kept confidential.

This was so unusual that a special court hearing by a judicial figure, Deputy Master Mark, had to be held in September 2008, before it was agreed that the court file could be sealed, because it possibly contained evidence of criminal behaviour.

James Murdoch was accompanied by his father, Rupert, at the culture, media and sport committee hearing. Rupert told the MPs his son had only been in charge of the News of the World for a few weeks when he was persuaded to agree to the secret payoff. Crone and Myler have since lost their jobs. Neither responded last night to requests for comment.

James Murdoch told MPs that Myler and Crone told him "outside legal advice had been taken on the expected quantum of damages … the amount paid rested on advice from outside counsel on the amount we would be expected to pay in damages, plus expenses and litigation costs … we had senior distinguished outside counsel to whom we had gone to ask, 'If this case were litigated, and if the company were to lose the case, what sort of damages would we expect to pay?' The company received an answer that was substantial … Their advice was that the damages could be £250,000 plus expenses and litigation costs, which were expected to be between £500,000 and £1m."

James did not explain to the MPs why he was willing to pay far more than the going rate in damages to keep the case out of the public courtroom. On his version of events, the company ended up paying just as much to stop the case as if they had gone on to make a fight of it and lost. In commercial terms, the deal apparently made no sense.

The history of the negotiations was as follows, according to the Guardian's evidence. It appears to show the News of the World was willing to pay almost any price to hush up the case.

• In early 2008, Taylor's lawyers obtained evidence of the "Neville" email. NoW, which had been refusing to pay up, immediately offered to settle. By 9 May 2008, NoW raised its £50,000 offer to £150,000. This contrasted with the previous highest comparable award of £14,600 to Catherine Zeta Jones.

• By 9 June, the offer was increased to £350,000. Taylor refused. By now Crone and Myler had approached James Murdoch and orally asked permission to offer more, saying counsel had advised the case could be worth £250,000. Murdoch says they never told him of the "Neville" email.

• By mid July, the offer was raised to £400,000, making £610,000 in total, including costs. NoW wanted a draconian confidentiality clause, however.

On 24 July 2008, the Max Mosley privacy case was won, with an award of only £60,000. On the same day, according to James Murdoch's office, Taylor's lawyers decided to accept the £400,000 offer in principle. It would have looked huge.

Nevertheless, sources familiar with the deal say the Taylor payout was eventually further slightly increased by the final settlement which came around 8 August 2008.

The company said last night: "News Corporation's management and standards committee has looked in detail at the Gordon Taylor settlement. In response to media inquiries, the MSC can confirm that News Group Newspapers and Mr Taylor agreed final financial terms on 10 July 2008, two weeks before the Max Mosley decision.

"In June 2008, James Murdoch had given verbal approval to settle the case, following legal advice. He did this without knowledge of the 'for Neville' email. All other details, including any confidentiality clauses, are bound by a confidentiality agreement."