Sydney's Kambala girls' school and its former principal have agreed to mediation over her defamation claim.
Debra Kelliher is suing her former employer and two of its teachers over emails she claims defamed her and have rendered her virtually unemployable.
In the NSW Supreme Court, Justice Lucy McCallum was told both parties wished to settle the dispute out of court to avoid media coverage.
Justice McCallum said a trial, which would be held in public, would cause "damage to the [Ms Kelliher] and damage to the school" because it would attract a lot of media attention.
Ms Kelliher resigned from the exclusive Sydney day and boarding school on April 10, three and a half years into the job, after staff took a vote of no-confidence over her alleged "tyrannical rule", "bullying" and "unethical behaviour".
She is suing the school for defamation over emails sent by head music teacher Mark Grandison and head social science teacher June Peake to various parents, staff and former staff in the days following her resignation.
Kambala has denied all claims against it and the teachers on their behalf.
It said the emails were not capable of being defamatory, however if they were Ms Kelliher's reputation was already sullied because she had so seriously lost the confidence of Kambala staff and parents.
It said Ms Kelliher "had a reputation" among staff and parents for "unethical, unprofessional conduct", mismanaging the school and creating a "culture of fear".
As well as losing her $650,000 annual salary, Ms Kelliher, 60, claimed the emails helped render her unemployable, so much so that she could not even get an interview for a principal position.
The email to 200 Kambala staff "would inevitably be widely circulated in private school circles throughout the country" and "substantially contributes" to her difficulty in gaining employment, she said.
She claimed she had suffered losses of up to $2 million.
The case will return to court next month, with mediation likely to begin in December.
