The 2003 ban, implemented by the Labour Government and extended by National, had cost them hundreds of millions of dollars and the fallout was a reason for a stalled regional free trade agreement.
This afternoon in Parliament, NZ First leader Winston Peters said the payments were a "new low in our international relationships" and a "multi-million dollar bribe".
Labour MP David Parker asked Mr McCully why he was "the first minister in history to back a multi-million dollar facilitation payment, which in other jurisdictions is called a bribe?"
Mr McCully said that, before the farm deal was struck, the Al-Khalaf Group had indicated that they had received legal advice suggesting they pursue a claim for between $20 million and $30 million.
They had been encouraged by ministers in the previous Labour Government to purchase New Zealand farms in order to supply lambs for slaughter to the Saudi market, he said.
"Unfortunately the current Government inherited a serious problem in 2008. It appeared to the Government that the relationship with the Saudi Government was poisoned, that the relationship with the Gulf States had been poisoned, and that the New Zealand Government was also exposed to a legal claim of up to $30 million," Mr McCully said.
"One solution was for us to go on misleading people as the previous government had done, but we decided it was time to front up and try and resolve that situation."
Labour said the legal threat was hollow, and Green MP James Shaw asked Mr McCully what advice the Government had on the likely success of any legal action.
"The Government did not wish to proceed down that path and entered into talks with the parties to try and avoid such an outcome," Mr McCully responded.
"And I am satisfied that we would never have done so had we not been advised that the claim had some prospect of success."
Mr McCully avoided waiting media after question time.
