I'd go down the small claims court route for the out of pocket expenses. It really costs you little to do and can seriously mess up his credit rating when the CCJs (County Court Judgements) start turning up.
However the issue of stating that you were/are not fit to fly and damaged his aircraft is more worrying as it is a direct attack on your business and proffesionalism. As much as I detest them I'd get an ambulance chaser er... lawyer involved. Sort of fire and forget. You never know he may settle out of court and give you the Cat
