The Ministry of Foreign Affairs and Trade did not provide legal advice to the government on the risk of being sued by a disgruntled Saudi Arabian businessman, documents reveal.
The admission that no legal advice on the lawsuit threat ever existed directly contradicts comments in 2015 by then-Foreign Minister Murray McCully that the ministry had taken advice on the issue.
The National government did an $11.5 million deal with Saudi businessman Hamood Al Ali Al Khalaf after Cabinet was advised in February 2013 that the Al Khalaf Group was threatening to sue New Zealand for $20-$30m. Mr Al Khalaf had invested heavily in New Zealand and believed New Zealand's 2003 ban on live exports had left him misled and out of pocket.
The deal included using taxpayer funds to build Mr Al Khalaf a $6m agrihub farm in the Saudi desert, as well as flying in over 900 sheep and handing over $4m in cash.
The government argued that the deal saved New Zealand from the risk of being sued for a much larger amount.
However, MFAT and Mr McCully have long refused to release any legal advice it relied on in doing the deal.
In a 2015 interview on TV3's The Nation, Mr McCully was asked repeatedly what the advice said and whether he would release it.
He replied "it's the ministry's advice" and "I'm not going to release the ministry's advice". When asked if there was any legal basis for a lawsuit, he said "the advice was that those circumstances did provide such a basis".
Yet an Official Information Act response from MFAT "following discussion with the Chief Ombudsman" has revealed "it did not seek or provide advice on the extent of the risk of a claim in the New Zealand courts for compensation from the Al Khalaf Group against the government".
"Effectively, the minister had misled the public," said Labour's David Parker.
"This confirms that the $4m cash payment was never legitimate and thanks to disgraceful covering up by MFAT and McCully it has taken more than two years to get an answer."
MFAT's confirmation goes one step further than the Auditor General's report into the deal, which concluded "we saw no evidence of internal or external advice being sought on the extent of the risk of a claim for compensation from the Al Khalaf Group against the government".
The Auditor General's report found no evidence of corruption, but criticised "significant shortcomings" in the government's process.
Last year, Mr Al Khalaf's business partner George Assaf acknowledged they had sought a legal opinion on their chance of successfully suing New Zealand but never intended to act on it.
"We may get a legal opinion but we had no appetite, no ambition to take any government to court let alone New Zealand," he said.
MFAT's statement comes two years after this reporter first asked MFAT for "all and any legal advice" on the Saudi sheep deal. The Ombudsman has acknowledged legal advice on other aspects of the deal does exist, but has endorsed MFAT's refusal to release that advice on the grounds it may prejudice New Zealand's international relations.
Judge Peter Boshier wrote:
"I am also extremely conscious of the importance of transparency and accountability, particularly where significant amounts of money have been expended. However, where section 6 [of the Official Information Act] applies, that is conclusive reason to withhold."
Mr McCully said he did not want to comment until he had seen the documents.