Two things occur to me about the original post.
The first is that I have been "guilty" of exactly the same scenario several years ago, when the 2 yearly instructor flights were first introduced. This was not because of any known fault on my part, but simply because the FBO concerned did not themselves know the correct paperwork procedure! The second is that I think personally it is a little unfair of the CAA to insist on a retest given the purely technical nature of the fault. ( I certainly didn't do one myself) On the other hand in the early days even the CAA were confused by the whole business and I suppose there is less excuse for ignorance these days.