Foreign Affairs Minister Murray McCully has conceded that Saudi businessman Hamood Al Ali Al-Khalaf was unhappy with the National Government when it did not lift the live exports ban in 2010.
In 2009, the National Government's Agriculture Minister David Carter said he was thinking about lifting the ban on live sheep exports that had been in place since 2003.
But a year later, he extended the ban.
Mr McCully was asked if Mr Al-Khalaf felt misled by the Government.
"Look, I think you'll find that the National Government did exactly the right thing by telling Mr Al-Khalaf what was going to be possible and what wasn't, what the rules were going to be, to the extent that he was disappointed with that," Mr McCully said.
"Fronting up and having a discussion with him - that's something the previous government hadn't done, and that's why he was taking legal advice about his remedies."
The Government has since struck a controversial deal with Mr Al-Khalaf, spending more than $11 million kitting out his Saudi farm, including flying 900 sheep there.
Mr McCully said the Government was trying to avoid a potential $30 million legal claim but continues to blame that on the former Labour Government, an allegation that is fiercely disputed by Labour.
However, Labour MP and former trade minister Phil Goff said Labour had also considered lifting the live sheep export ban in 2007 - if its concerns about the welfare of sheep while at sea could be met.
But Mr Goff said another problem became apparent.
"And that was the problem of inhumane slaughter.
"You'll recall there was coverage on television of Australian live exports to the Middle East ,where animals were having their tendons cut in order to immobilise them prior to slaughter, where animals were being slaughtered inhumanely.
"And Cabinet made the decision in 2007 that we could not tolerate that sort of thing," Mr Goff told reporters this week.
But as part of the deal Mr McCully made with Mr Al-Khalaf, taxpayers will be funding an abattoir on his farm and Saudi laws will apply when it comes to how livestock are treated and killed there.
Labour MP Damien O'Connor said Saudis often slaughtered animals in ways New Zealanders would find inhumane.
"To think that those animals would go and then be slaughtered in a way that we'd be horrified adds further fuel on the fire," Mr O'Connor said.
"It's pretty barbaric - we should not be in anyway allowing or condoning this."
Green MP Steffan Browning, said if New Zealand's funding the slaughterhouse, then this country's animal welfare standards should be met.
New Zealand First's Richard Prosser said he understood that while New Zealanders will pay for the abattoir, Mr Al-Khalaf will own it.
He said if that was the case, the Saudis would set the rules.
Yesterday, the Government blocked an attempt in Parliament by the Labour Party to make Cabinet papers from 2007 public.
Prime Minister John Key claimed the papers would reveal that Labour was considering doing a deal of its own with Mr Al-Khalaf.
Labour said he was bluffing, and worried that the Government will be shown to have paid a bribe to Mr Al-Khalaf to try to secure a free trade deal with the Gulf States.
Radio New Zealand has lodged an urgent official information act request for the four Cabinet papers.