The report is out. The Government will try and spin it to be a vindication of Mr McCully but if this is a vindication then we are in big trouble. Because the report highlights a number of problems in the handling of the Saudi Sheep deal.
Murray McCully has got over the first hurdle in that his actions have been determined by the Auditor General to not be corrupt. But there has to be the prospect of a Privileges inquiry into what he said to Parliament.
From Question time on May 27, 2015 (yes that long ago):
The Hansard for the exchange includes this text:
Hon MURRAY McCULLY: As I indicated in my primary answer, the agreement that was struck between officials and the Al Khalaf group included all of the intellectual property associated with shifting the Awassi sheep breeding operation from New Zealand to a new location in Saudi Arabia. Also in the minds of officials would have been the fact that the Al Khalaf group had taken legal advice and could mount a legal claim against the Government for an amount estimated to be up to $30 million. It is a bit rich for members of the former Government, who exposed New Zealand to the risk of a $30 million claim, to berate members of this Government for resolving the issue for one-third of that amount.
Hon David Parker: Given that his Government renewed the customs export prohibition order on animals for slaughter in 2010, and that it is perfectly legal for New Zealand to have a policy banning live sheep exports, how can he justify paying millions of dollars to settle a hollow legal threat?
Hon MURRAY McCULLY: I agree that the customs export prohibition order was renewed by the current Government. What was different was that we did not mislead the Saudi investors about the consequences of the roll over of that order. We fronted up and told them the truth, when the previous Government had actively misled them over many years and exposed the New Zealand taxpayer to a claim of up to $30 million.
Hon David Parker: Was the real reason the first $4 million was paid to pay off people whose influence in Saudi Arabia was getting in the way of the Gulf free-trade agreement?
Hon MURRAY McCULLY: I made it clear that one of the consequences, sadly, from this whole saga was that the relationship between New Zealand and Saudi Arabia was poisoned, and that poisoned relationship spilled over into the wider Gulf Cooperation Council. But I have also made it clear that the officials negotiating this matter had to consider the fact that there was a looming claim for up to $30 million, resulting from the actions of a Government of which the Hon Mr Parker was a member.
…
James Shaw: What legal advice did the Government receive as to the likely success of the potential claim by Mr Al Khalaf?
Hon MURRAY McCULLY: As I have made clear, the Government did not wish to proceed down that path, and it entered into talks with the parties to try to avoid such an outcome. I am satisfied that we would never have done so had we not been advised that the claim had some prospect of success. The member may wish to look at the Cabinet paper and see that there is a redaction there, which is a reference that would have been disadvantageous to the interests of the New Zealand taxpayers.
Get that? McCully claimed that there was some sort of advice given that the Saudi claim had some prospect of success. And it was all Labour’s fault.
The Auditor General has reached a contrary view.
As to whose fault it was the report says this:
2.35 From March to May 2009, domestic and international animal welfare groups lobbied the Government to ban the trade in live sheep for slaughter, expressing animal welfare concerns and opposing any resumption of shipments. This lobbying included 5750 letters and emails received by the Prime Minister’s office between 2008 and 2009 (and an additional 4551 “campaign” emails and letters).
2.36 The Ministry and MAF considered the competing issues involved in exporting live sheep, including the relationship with Saudi Arabia, animal welfare concerns, and the legality of a ban on the export of livestock for slaughter. In May 2009, the Ministry advised MAF to continue negotiations on the Memorandum of Understanding (and retain the animal welfare and monitoring requirements).
2.37 Negotiations on the Memorandum of Understanding proceeded at a slow pace. In August 2009, Mr Carter made public statements that he did not think Saudi Arabia would be able to meet the standards he would require for the transportation and treatment of sheep exported for slaughter.
2.38 The Al Khalaf Group and the Saudi Arabian Government were surprised and disappointed at what they perceived as a change in the Government’s position on the export of sheep for slaughter. They considered that this change had not been communicated directly to them previously.
2.39 On 17 November 2009, Mr Carter met with the then Saudi Arabian Minister of Agriculture in Rome during a Food and Agriculture Organisation of the United Nations World Summit on Food Security.Mr Carter outlined the conditions about animal welfare in the Memorandum of Understanding for live exports with Saudi Arabia. The then Saudi Arabian Minister of Agriculture responded that Saudi Arabia could not accept those conditions and that, accordingly, there could be no resumption of the live sheep trade. Ministry officials’ records show that the diplomatic relationship between New Zealand and Saudi Arabia deteriorated after this meeting.
2.40 In 2009, Sheikh Hmood and his companies’ representatives also confirmed that they were not amenable to New Zealand’s imposition in the Memorandum of Understanding of what they considered unacceptable extraterritorial requirements.
I know we live in a post truth era but this passage is impossible to reconcile with McCully’s statement to the house.
And what about the advice that the claim had some sort of prospect of succeeding?
3.42 The intention behind Mr McCully’s early negotiations with Sheikh Hmood was to find a “commercial solution” to address Sheikh Hmood’s sense of grievance. However, we did not find evidence of officials’ real analysis of other options. We also did not find evidence of Ministers or officials requesting or receiving internal or external legal advice on the extent of the risk of a claim for compensation from the Al Khalaf Group against the Government.
3.44 Mr McCully told us that it was unfair to criticise the Cabinet paper for failing to analyse the consequences of a litigation or a compensation negotiation process that it had expressly ruled out.
If the paper had expressly ruled the risk out then why did McCully tell Parliament repeatedly that there was litigation risk?
Not only are there these issues but McCully’s competence as a Minister has to be questioned. The Auditor General said this about his cabinet paper:
I found some significant shortcomings in the Cabinet paper, including that it:
- did not clearly explain that the Al Khalaf Group would own the goods and services costing the New Zealand Government $6 million;
- did not identify how the $10 million figure was arrived at (a figure that has since risen to $11.5 million);
- signalled the risk of a claim against the Government based only on the $20-$30 million figure that the Cabinet paper said was suggested by the Al Khalaf Group (there was no assessment by Ministry officials of the substance of that legal risk);
- did not include any analysis about whether there were any other potential obstacles to the signing or ratification of the free trade agreement, apart from the concerns of the Al Khalaf Group about the export of live sheep or the assertion by the Gulf Cooperation Council that this was the only obstacle to the free trade agreement; and
- identified that New Zealand exports could double to $3 billion in five years if a free trade agreement was signed with the Gulf Cooperation Council, without including any analysis.
Based on these significant shortcomings, I am concerned at the lack of robust analysis and the quality of information that was provided to Cabinet on this matter.
The Auditor General’s concerns deserve to be repeated.
… I share many New Zealanders’ concerns about the arrangements. I found significant shortcomings in the paper put to Cabinet in support of the decision to enter into the Saudi Arabia Food Security Partnership. The contract’s benefits to New Zealand were unclear in the Cabinet paper, the business case, and its subsequent implementation.
McCully’s days as a Minister should be numbered. At least in a properly functioning democracy.
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