WPP is to pay the full £1m legal cost of a libel case bought by its chief executive, Sir Martin Sorrell.

Sir Martin sued WPP's Italian country manager Marco Benatti, whom he fired in January last year, his colleague Marco Tinelli and the Italian media company FullSix for libel and breach of privacy.

He settled the case in March by accepting £120,000 damages, while Daniela Weber, the chief operating officer of WPP Italy, accepted £30,000 in a final settlement for invasion of privacy.

WPP's 2006 annual report, to be published on June 2, will contain a "related party disclosure" noting that a total of £800,000 was paid to cover Sir Martin's court costs - net of settlement money.

However, WPP is understood to be covering a further £200,000 in costs relating to legal action bought by Ms Weber. This brings the total bill to around £1m.

The company does not have to report these costs in its annual results because Ms Weber is not listed as a director of the company.

WPP, the world's second largest advertising group, had suggested legal costs from March's libel action might be split between the company and Sir Martin in a proportion determined by the board.

However, following a recommendation from WPP's audit committee, chaired by Paul Spencer, the board has approved WPP paying the entire bill because the company and its clients were affected. Sir Martin did not participate in the decision.

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