The National Government's claim that a threat of legal action prompted its controversial eleven million dollar sheep farm deal with a Saudi Arabian businessman is in tatters. Labour's David Parker says it's a "perversion of democracy".

Government claims a controversial Saudi sheep farm deal was necessary to avoid the risk of being sued have been rejected, RNZ reports.

The deal involved spending $11.5 million on establishing an agribusiness hub and sheep farm in Saudi Arabia in partnership with influential Saudi businessman Hmood Alali Al-Khalaf.

Al-Khalaf owned the farm but it was established to be a showcase for New Zealand agribusiness.

MARION VAN DIJK/STUFF Labour's David Parker said the "sad cover up" was in "tatters".

Al-Khalaf's business partner reportedly described the farm fit-out by the Government as "compensation" for New Zealand's ban on live sheep exports for slaughter.

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Cabinet papers released in 2015 showed Saudi businessmen wanted to sue the Government for $20 to $30m in compensation.

Supplied Influential Saudi businessman Hmood Alali Al-Khalaf owned the farm but it was established to be a showcase for New Zealand agribusiness.

But instead of being a "party to such discussions" the Government decided to spend millions on the Saudi agribusiness hub.

The Government claimed it received legal advice from the Ministry of Foreign Affairs and Trade (MFAT) regarding the deal.

However in response to an Official Information Act request by RNZ, MFAT 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".

Labour foreign affairs spokesman David Parker said the National Government and outgoing Foreign Minister Murray McCully "sure as hell" misled Parliament.

"For two years they forced MFAT to cover-up this fact... This sad cover-up is now in tatters," he said.

Parker said National relied on the claim the information was commercially sensitive to avoid answering questions about the deal in Parliament and Select Committees.

"It's scandalous that over $11 million was wasted on cash, equipment and sheep for Saudi businessman Hamood Al Khalaf when no debt was owed."

Parker said Bill English and John Key would have been aware no legal advice existed, and said National likely continued the cover-up as it would have been "deeply embarrassed" about the "wasted expenditure".