The scalp of Paula Bennett is being demanded if National is to avoid a lawsuit by NZ First Leader Winston Peters, Newstalk ZB understands. 

Lawyers for both sides met in Auckland last week where the National side expressed their interest in settling the case before it goes to the Auckland High Court on November the 5th.

National's lawyers, Bruce Gray QC and former Young Nat Peter Keily expressed their wish for the case to be settled out of court.

Peters' side, led by his longtime friend Brian Henry apparently asked what were they prepared to offer return.

During the discussion, mention was made of a "National Party body".

Newstalk ZB understands that was a clear reference to former Deputy Prime Minister Paula Bennett.

Bennett last week said she was resigning from her Upper Harbour electorate to become a list MP after being appointed National's campaign chair.

Henry's not commenting and Gray asked in response to a question about the meeting: "Who told you that?"

When it was put to him that he'd know that question couldn't be answered he said: "well we're about even then."

Gray said when they've got something to say about the case they'll say it.

Peters is suing Bennett, former State Services Minister, and former Social Development Minister Anne Tolley who were the only two to be told by their officials during the last election campaign that Peters had been overpaid his pension for the previous seven years, amounting to $21,000.

When the overpayment was made public by unnamed sources, Peters said it was a deliberate effort to discredit him, labelling it dirty politics of the worse kind.

Filed on the eve of the last election, his lawsuit is seeking $400,000 in damages for the breach of privacy.

Peters immediately paid the money back saying he had no idea he'd been overpaid.

Also named in the lawsuit are former Prime Minister Bill English, and National's longtime campaign manager Steven Joyce along with two staffers.

The legal costs of Bennett and Tolley are being paid by the Government following a long standing convention that legal expenses of ministers being sued in the course of doing their jobs shouldn't have to pick up the tab.

The decision to pay their fee was made on the recommendation of Attorney General David Parker and Peters took no part in the Cabinet meeting which made the decision.

A decision hasn't been made whether the taxpayer will be expected to meet any damages if they are awarded. If they were found to have leaked the documents then the indemnity could be withdrawn.

Bennett and Tolley have been approached for comment.