I can see the Palace was in a tricky situation. We know from other reporters that apparently Harry & Meghan launched this lawsuit against Palace advice. Perhaps because the Palace knew that the claim the couple was making wasn’t true?
Anyway, with all the emails and who knows what else evidence that Jason Knauf has to show this, their hand may well have been somewhat forced. If they come down hard with his contractual NDA and prevent him from offering evidence in the court case, they are knowingly complicit in the court being misled - and Jason has all the information he needs to blow the whistle on them for this.
Having just been burnt publicly by whistleblowers for covering up the bullying allegations, they may well have had little appetite for being exposed again for choosing not to do the right thing?