What happens if there's an aircraft failure that's beyond the expected capacity of a student at that level
In theory there shouldn't be such a thing. They're are or are about to me licensed on said class, and hold a document which states they are ready for this (170). So they should be able to handle any situation safely (notice I never set correctly)
Real emergencies are meant to be handled by the applicant in the test.
In fact one applicant I know had a partial engine failure and had to do a precautionary landing at the nearest airfield.
If the applicant does not handle the emergency appropriately - they will have failed that section of the test. Cue the projection well I would have passed the test if the emergency hadn't occured - but it comes down to you have to be able to prove you can handle these situations - and you couldn't.