Free trade rather than a legal threat of up to $30 million was front of mind when a deal was cut to make a payment to a Saudi businessman and spend millions more on his private farm, Foreign Minister Murray McCully says.

Labour went after the embattled Mr McCully in a select committee this afternoon, with the meeting at times becoming a shouting match as their questions were overruled by National MP and chair Mark Mitchell.

A visibly angry David Parker, who as Labour's trade spokesman has been pursuing Mr McCully over the deal, labelled Mr Mitchell's rulings outrageous.

The key question Mr Parker sought to have answered was whether a legal threat by Saudi businessman Hmood Al Khalaf was assessed by Crown Law.


Mr Al Khalaf lost millions of dollars when New Zealand banned live exports of sheep for slaughter under the previous Labour Government, with the ban rolled-over under National.

In explaining why about $11.5 million of taxpayer money was subsequently spent on a deal to set-up Mr Al Khalaf's Saudi farm, Mr McCully has said it was partly done to diffuse a legal threat of up to $30 million.

It would also act as a demonstration farm to showcase Kiwi agribusiness, and remove a major obstacle, in the form of Saudi displeasure over the sheep ban, to a regional free trade agreement.

Documents show Mr Al Khalaf was frustrated with negotiations with both Labour and National, but Mr McCully has blamed Labour entirely for antagonising the businessman, saying former trade minister Phil Goff misled him about the prospect of exports resuming.

Mr Parker believes no proper advice was sought on Mr Al Khalaf's legal threat, that it was obviously hollow and cynically used by National to justify its deal.

In today's meeting, first Mr McCully and then Brook Barrington, chief executive of the Ministry of Foreign Affairs, Defence and Trade, declined to reveal whether Crown Law advice was sought, citing legal privilege.

That saw tempers boil over. Mr Parker attempted to ask the question again, before an interjection from Mr Mitchell as chair.

Labour's David Shearer, sitting to Mr Mitchell's left, loudly protested, and accused the chair of being obstructive to help cover-up for the foreign minister.


"This is outrageous, this is actually outrageous," Mr Shearer said, before Mr Mitchell ruled out further questions on the matter.

"I was prepared to allow some questioning on this. But the fact of the matter is this estimates hearing is about forward looking in relation to the appropriation," Mr Mitchell said.

"I'm sorry, but the behaviour here is completely unacceptable, and so you can ask another will not relate to the Saudi sheep deal. Sheep will not be a part of it."

"You are joking me. You are trying to shut this down for the Government. I have never seen anything like this," Mr Shearer responded.

After the meeting and before an appointment at the dentist, Mr McCully downplayed the importance of the legal threat in the farm deal.

"That was not our big problem - that was a $20 or $30 million problem. The big problem was the risk to our existing trade with Saudi Arabia, the risk to our existing trade with the Gulf countries, and the risk to the GCC free trade agreement, which was brought to a halt.

"And still remains at a halt. Although we are making steps at the moment to reignite that negotiation."

In April Prime Minister John Key visited Saudi Arabia and other countries in the Gulf Cooperation Council (GCC). Being invited was a sign that relations with the Saudis had improved, Mr Key said, but it still wasn't clear if a deal would get over the line.

Mr McCully said his own view was that a free trade agreement would be signed.
He said publicity around the Saudi farm deal had not helped, but would not be fatal.

"Fortunately most people that I deal with overseas don't read New Zealand newspapers or watch New Zealand television...but it's fair to say that the whole purpose we had in trying to conclude these arrangements rather than simply walking away from the Gulf market, was to heal a relationship and I'm sure that the publicity it has achieved has not helped that process at all."

Asked whether allowing more sheep exports would be necessary to remove Mr Al Khalaf's resistance to a free trade deal, Mr McCully said, "we don't deal with Mr Al Khalaf on issues of free trade, we deal with governments of the gulf countries directly and the GCC organisation secretariat".

Mr Parker said he was deeply disappointed in what happened in select committee.

"The chair of the committee allowed the minister to read out a prepared statement...the moment that the opposition members tried to hold him to account for that flubber, which doesn't address the real issue as to whether there was a legal cause of action against the Government to justify the multi-million dollar payment, the chairman ruled us out of order and wouldn't allow us to ask those questions. It was outrageous."