I can understand why she was unable to kill him due to her conscience, but surely sparing him is an instant death sentence. I couldn't see a plausible reason why he didn't immediately have her killed, considering she knows -everything-.
This is because the show wants to depict that Emily is no less than the white haired man; a.k.a. Gordon murphy; as she almost wins her fight with him (and is about to kill him) but she decides to honor her father's memory by sparing him (setting him free). Please refer to the flashback scenes shown in which Emily (when she was a little girl) sets a bird free from the cage when she is with her father.