It does underline the fact that we have no recourse with the CAA if they or one of their appointed officers acts inappropriately. Why do we have to take it to court before we get to have our complaint heard by an independent body?
Not really true. As the OP explained, he appealed and was granted a free re-test.
I can't easily check the current rules but it used to be regulation 6 of the CAA Regulations (or some similar title) that enabled anyone to appeal against a decision taken by the CAA (or an employee thereof). The appeal was usually heard by members of the CAA board and, in my experience, if there were any valid grounds for the appeal the result came down in favour of the appellant.
In reality, the grounds for appeal must be that some procedure was not followed, or not adequately explained - not just that you didn't like the result. It sounds like the OP went through this process and, at the very least, was given the benefit of the doubt.
Taking legal action is open to all of us...but following such a route needs careful consideration. It can be costly and can get one a bit of a reputation - such a reputation. Whether deserved or not, the reputation can stay with you for far longer than any interest in a failed flight test. As to the costs, if you lose your case you can easily end up having to pay the other side's costs and, trust me on this, the CAA doesn't use cheap barristers.
As to the original question of whether the licensing people are holding up the work on your licence - well, I'd be surprised if this were the case, except as Genghis pointed out, they may be making sure that they do everything absolutely by the book because they're dealing with a demonstrably litigious individual. And that's assuming the person dealing with your new licence even knows or cares about your legal action.
To the OP, I'm all for everyone getting a fair hearing but as I approach the twilight of my career, my advice to you would be to stop wasting everyone's time. There's probably more to this whole business than meets the eye, whether you recognise it or not, but as/if you progress through you career you will probably come to understand that your reputation with your peers is based far more on your competence, credibility and reliability rather than whether you got one over the CAA....and that there are better things in life than winning arguments.