Settling a long-running legal battle out of court this week has allowed Telecom to dodge a court order that could have forced it to disclose the contents of Theresa Gattung's inbox.

In 2000, i4free - a now defunct internet provider - sued Telecom for $18 million over its decision to charge for local internet calls and the case had dragged on ever since.

i4free's founder, Annette Presley, now chief executive of Slingshot, said Telecom made the approach to settle out of court just as it was looking likely it would be forced to hand over forensic computer evidence.

"Theresa Gattung's emails were all going to be recreated," Presley said.

The Wellington High Court had already approved i4free's right to seek forensic evidence, although Telecom was appealing that decision.

Presley, who said the settlement was confidential, added: "It was enough to remove the grimace from my face, but not to have me breaking into laughter."

While i4free closed in 2001, Presley said she continued the legal fight on principle and had invested almost $1 million in the court costs.

"When you start down the track on something, you don't give up when the going gets tough," she said.

Telecom yesterday confirmed that a confidential settlement had been reached.