Not sure what the practise is in NZ, but in the UK (where I examine) the examiner is always the designated commander of the aircraft. I cannot see how a candidate can be PIC and carry a passenger (the examiner) if they have yet to gain a licence or rating.
To get back to your question.
I operate out of a strip which is below controlled airspace. I would ask a candidate what altitude they plan to cruise at 'when able', and tell them during the pre-flight briefing during which parts of the flight they are responsible for navigation and remaining clear of controlled airspace. I would also expect a candidate to know the local airspace situation if they decide to do a test there. Any subsequent attempt to bust controlled airspace (and put my licence on the line, since I am PIC) might well lead to a fail, but I would make sure that my briefing and instructions are watertight and the candidate can never claim I set them up.
Sounds to me like a fabricated story. Candidate failed, for some reason thought they were unfairly treated (or didn't want to face reality) and told the gathered crowds that they were stitched up be the examiner. It would be nice to hear the examiner's side of the story. It wouldn't surprise me if this airspace bust was just one of a number of items that came up during the de-brief.