One reason to continue the test could have been that it might not have been a fail on that ground if the examinee would have corrected the error by changing the altimeter setting before the exam came to an end.
Perhaps it is taken to small claims court and you don't have to pay much if you loose?
I wonder what your purpose is of bringing the CAA and the examiner to court? Have you tried to get compensation from the CAA for the loss of revenue and aircraft hire for the second test? Claiming compensation for defamation of character and suing the examiner seem a little "far out". As you probably won't get more compensation by going after the examiner as well it seems like you just want to use the court system to retaliate.
Please keep in mind that the purpose of the exam is to determine if the examinee meets certain standards for the issue of in this case a CPL licence. That's it. The CAA didn't ask employers to check if someone passed the first time or not. It's not a pre-employment test, therefore it doesn't matter if you passed the first time or not other than that it might cost you time and money to retake the test.
Have you considered dropping the claim of defamation of character and letting the lawsuit against the examiner on hold until you have tried the case against the CAA? I don't see any reason to go after the examiner when you can go after his employer other than for retaliation.
I personally wouldn't have initiated a lawsuit in this case but it does sound sensible that you claimed the CAA for the compensation of the aircraft hire and loss of income to retake the exam - if - the outcome is that the exam wasn't conducted properly (because the examiner couldn't have determined the altimeter setting used by 1 mb or that 1 mb is an acceptable error on a VFR CPL test). But defamation of character, how do you substantiate that one?