Ms Kelliher, 60, resigned from the Rose Bay school in April after staff issued a vote of no confidence in her leadership, following claims that a significant number of staff had left as a result of changes she had brought to the school.

She is suing for defamation in the NSW Supreme Court over an email sent by head music teacher Mark Grandison to various parents, staff and former staff shortly after her resignation. Social sciences department head June Peake then forwarded it with the rest of the email chain to 200 staff.

Ms Kelliher says the email carried the defamatory imputations that she had waged a "vicious and tyrannical" campaign against the school, had acted unethically as principal and displayed a complete lack of interpersonal skills.

According to Ms Kelliher's statement of claim lodged with the NSW Supreme Court, the email was also defamatory in making her out to be so incompetent that there had been a chronic loss of staff, which would likely lead to worsening academic results for the school.

Kambala has denied the emails were capable of being defamatory, and argue they were incapable of further harming her reputation in any case because she had already lost the confidence of parents and staff.

But Ms Kelliher says the school should have warned staff not to make adverse comments on her performance in accordance with her deed of release, and should have issued an apology or retraction after the email was sent.

She is claiming aggravated damages because she claims the imputations are untrue. The claims published in the email had made her unemployable as a principal, and she had already failed to obtain even an interview for comparable position, she says.

According to her statement of claim, the school was $12 million in debt when she became principal in 2014.

But she uncovered the fraudulent misappropriation of school funds by its former business manager Ian MacCulloch, who later pleaded guilty to defrauding the school of $400,000, the statement of claim says.

School records also showed that the former principal Margaret White had charged the school $650,000 in expenses over four years, including for personal items such as clothes, jewellery and hair and beauty appointments, Ms Kelliher alleges in her statement of claim.

Meanwhile staff leave practices were "irregular at best", heads of department had "extremely light" teaching loads and staff enjoyed privileges such as travel with their spouses to international conferences that held little value for the school, there were gifts from the former principal and "extravagant" morning teas.

Department budgets were overspent, the physical assets of the school were run down and there was significant bullying and dysfunction among staff.

"Despite the school's Anglican tradition, not only was there little real Christian practice, but there was open mocking of religion by staff members."

But Ms Kelliher claims to have turned around the school's financial position, retained its academic position, improved anxiety and suicidal ideation among the girls, rebuilt a relationship with the Old Girls' Union and had overseen increased enrolments.

She alleges Mr Grandison was motivated by his personal dislike for her and his opposition to decisions she had made, such as refusing to buy a $300,000 Steinway piano when he sent the email.

This was even though she had requested the school council to continue a full scholarship for his daughter when the finance committee had questioned it, her statement of claim says.

It also says Ms Peake was motivated by "malice and spite" in circulating the email chain to 200 staff members, because she had been officially warned not to speak disrespectfully about senior staff, use an inappropriate nickname for a staff member or belittle and upset her colleagues.

Kambala and the two teachers deny in their defence filed with the Supreme Court that Ms Kelliher had suffered injury to her reputation as a result of the emails being circulated, but to the extent that the defamatory meanings were carried they were substantially true.

According to the defence, a large number of parents had complained about Ms Kelliher in the month before her resignation and more than 80 staff recorded a vote of no confidence in her in March.

They were concerned about the systems she had implemented, the loss of staff and the effect on Kambala as an educational institution, the defence says.

The day after a meeting of 100 staff and council members on April 7, Ms Kelliher was forced to resign.

Mr Grandison and Ms Peake published the emails in the belief that they were true and they were responding to an "attack" in a Sydney Morning Herald article that said she had resigned in response to a "nasty campaign", according to the defence.

They claim that the damage was mitigated because Ms Kelliher had a reputation for unethical and bullying conduct, causing a large number of staff to leave and mismanaging the school to such an extent its future academic performance was at stake.

Ms Kelliher said in a statement that she felt it necessary to sue over the email, which had been widely distributed.

"We will argue the statements are completely at odds with the evidence that exists regarding the school's academic record and my performance as Principal of Kambala," she said.

"To that end, I have been touched by the phone calls and emails I have received since I left the school and would like to take the opportunity to thank the staff, students and parents who continue to support me."

The school's legal representative did not return calls on Wednesday.