The Treasury couldn't find evidence of threats of legal proceedings over the controversial Saudi sheep deal of 2013, newly released documents show.

Photo: AFP

The documents contradict assurances given by Foreign Minister Murray McCully and Prime Minister John Key that the deal was struck to stave off potential lawsuits.

The government said the $11.5 million deal - which included a $4m cash payment, livestock, and equipment for a desert "agri-hub" - was necessary, as a disgruntled Saudi businessman, Hamood Al-Khalaf, was threatening to take legal action.

Mr Al-Khalaf was angry at a ban on live sheep exports to Saudi Arabia enacted under Helen Clark's Labour government in 2007.

Mr McCully had expressed his concern that Mr Al-Khalaf, who has considerable weight in Saudi Arabia, could hold up a potential free trade agreement with the Middle Eastern nation.

Photo: RNZ

He justified the taxpayer-funded expense by claiming the government could otherwise face a lawsuit for up to $30m from Mr Al-Khalaf.

But the documents show Treasury staff were not told of any threat of legal action in briefings to them on the subject.

In a discussion between senior policy analyst Becky Prebble and an unnamed Treasury worker, Ms Prebble was told "at no time did any of our briefings refer to it [the sheep deal] being about pre-empting legal proceedings".

Ms Prebble was later told Treasury did not support the deal, and quoted a pre-Cabinet briefing as saying it was "unclear what the benefits of this proposal are or what the potential costs are".

Labour Shadow Attorney-General David Parker said this raised questions about the motivation for pushing through the deal, and the government had plenty of explaining to do.

"The government's defence was based upon the assertion that it was to settle a legal claim," he said.

"No legal claim was brought, no court papers were filed - this is just further evidence that those excuses were excuses and that the underlying reason for the payment was not as it was portrayed by the Prime Minister and the Minister for Foreign Affairs."

The Treasury was subsequently asked to monitor the project in conjunction with the Ministry of Foreign Affairs and Trade (MFAT), and New Zealand Trade and Enterprise (NZTE).

But in an email dated 4 February, an unnamed Treasury staffer said they had not heard from either MFAT or NZTE in six months.

The agri-hub project has been under investigation by Auditor-General Lyn Provost for almost a year, after more than 10,000 New Zealanders, Labour and the Greens formally called on her to do so.