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Foreign Affairs Minister Murray McCully has been accused of misleading Cabinet over the Saudi Arabia sheep deal.
The Nation has obtained Cabinet papers from 2013 showing Mr McCully claimed the Government faced a $20-30-million lawsuit if it didn't resume livestock exports.
Prime Minister John Key has told The Nation: "The cabinet paper that I saw indicated that there was a risk, and so that’s what the cabinet paper said, and that’s the advice that we take."
Also in 2015, Mr McCully told Parliament: "Al Khalaf group had taken legal advice and could mount a legal claim estimated to be up to $30 million dollars."
However, Mr Al-Khalaf's business partner George Assaf has told The Nation they had no intention of suing the New Zealand Government.
"We have never taken any action or thought about this. We may get a legal opinion but we had no appetite, no ambition to take any Govt to court let alone NZ," he said.
"How can one man have an influence like this? It's impossible."
Former Labour Party President Mike Williams says Mr McCully appears to have misled Cabinet - a sackable offence.
"That to me is unforgiveable - that is, a Minister running his own agenda which in no way conforms to that of the Government. What was he doing? This is an end of career behaviour in my view."
While Mr McCully stands by his claim there was a legal risk, there are calls for him to prove this - or leave.
"It's impossible for John Key to continue to have confidence in Murry McCully. McCully appears to have misled Cabinet, Parliament and the public, in which case he should no longer be a Minister," says Green Party Co-leader James Shaw.
"The public has never seen any proof of this so-called legal action against the Government. Unless Murray McCully can produce the evidence now, he needs to go as Minister."