Kate and Gerry McCann giving evidence at the Leveson Inquiry over coverage of their daughter Madeleine's disappearance. News of the World made a confidential payment for publishing Kate's private diaries. Photograph: Pool/Reuters
The News of the World paid £125,000 to the fund supporting the search for Madeleine McCann as part of an apology for publishing Kate McCann's diaries – on condition that the terms of the deal remained secret.
The payment was made after the missing girl's parents expressed their outrage at the story, which Kate McCann said made her feel "mentally raped". All the parties involved in the negotiations over the payment, which was agreed in September 2008, were asked to sign a confidentiality agreement hiding the scale of the newspaper's culpability.
The payment was made despite claims by the defunct newspaper's editor at the Leveson inquiry last week that he believed he had had the full support of the McCanns to publish. Colin Myler, who edited the NoWfrom 2007 until it closed this year, told the inquiry he had received repeated assurances from his head of news, Ian Edmondson, that the McCanns' spokesman, Clarence Mitchell, supported publication – a claim which has been strenuously denied.
Myler told the inquiry that he subsequently ran an apology and paid a "substantial sum" because "he felt very bad that she didn't know". However, the Observer has learned that the NoW initially tried to minimise the compensation. A source at News International, the owner of the newspaper, said there were hours of negotiations between the newspaper's lawyers and Carter-Ruck, the solicitors hired by the McCanns, in the days following publication of the story on 14 September 2008.
A deal was finally struck in which a £125,000 payment was agreed, but all parties were obliged to sign agreements that they would not talk about the size of the compensation. Last night Kate and Gerry McCann's spokesman declined to comment on the revelation.
The Leveson inquiry into the media will hear this week from former NoWsports journalist Matt Driscoll, who was awarded almost £800,000 for unfair dismissal in April 2007 while on long-term sick leave for stress-related depression following a campaign of bullying provoked by the newspaper's then editor, Andy Coulson.
It will also hear via video link from Piers Morgan, former editor of theDaily Mirror and the NoW, who now works for CNN in New York. At 28, Morgan was appointed editor of the NoW, making him the youngest tabloid newspaper editor in history. He was editor of the Daily Mirror for more than 10 years, but was sacked in 2004 after the newspaper conceded that photos it published apparently showing British soldiers abusing an Iraqi were fake.
Morgan claimed in a GQ magazine interview in 2007 that phone hacking was "widespread" and that "loads of newspaper journalists were doing it" when Clive Goodman and Glenn Mulcaire were jailed in January of that year.
Asked in the interview whether he knew about voicemail interception while he was editor of NoW, Morgan said: "Well, I was there in 1994-95, before mobiles were used very much, and that particular trick wasn't known about. I can't get too excited about it, I must say. It was pretty well known that if you didn't change your pin code when you were a celebrity who bought a new phone, then reporters could ring your mobile, tap in a standard factory setting number and hear your messages. That is not, to me, as serious as planting a bug in someone's house, which is what some people seem to think was going on."
In 2006 Morgan wrote an article for the Daily Mail claiming that he was played a tape of a message Paul McCartney left on the mobile phone of Heather Mills. "The couple had clearly had a tiff, Heather had fled to India, and Paul was pleading with her to come back," he wrote. "He sounded lonely, miserable and desperate, and even sang We Can Work It Out into the answerphone."