The Instructional Flight could be regarded as an MOT for Pilots.
If your car is given an MOT and it crashes the next day, it might raise a few eyebrows, but the Testing Station is unlikely to find itself in court just because it crashed - but if the test was not carried out correctly, then they may well do so.
(For non-UK readers, the 'MOT' is a yearly safety check all road vehicles in the UK must pass).
But pilot skill, and more importantly pilot judgement, are not physical dimensions that can be measured precisely like the remaining tread on a tyre. A pilot may make the correct decision during one flight but not on the next flight even though the circumstances are similar. The Crown Prosecution Service would have to weigh up this fact when considering the wisdom of prosecuting any such case. Given the number of experienced, competent, and fully current pilots who have flown into mountains, landed without the undercarriage down, and misunderstood ATC instructions, I doubt any such prosecution would ever be mounted. Worst I can see happening is being asked to give evidence to the accident investigation.
I think the place to put your energy, rather than worrying about spurious prosecutions, is to sell the benefit to the pilot of an hour of refresher training every two years.
You will fly with pilots that are going to have to have more than one hours training before you will be perfectly happy to sign their revalidation, but it is upto you to decide whether you will sign it after one hour. If not, you have to say to them, "I will not sign it, because I believe you are a liability to yourself and others".
My concerns with the current situation are that it unclear to all concerned where the standard lies (the AIC says the final standard reached must be "satisfactory", what is a satisfactory standard for a licensed pilot), and whether it is being applied in a consistent fashion. The second concern will hopefully be fixed by the passage of time, as pilot fly with various instructors and find that it is. The first part is the tricky one - To my mind somebody has to be absolutely and obviously lethal, for you to refuse to sign after one hour. They have to have shown NO judgement whatsoever, they have to have failed REPEATEDLY to learn what you have taught them, they have to have lost it completely. So, if on the approach they stall and lose 200 feet because they froze on the controls and it took you that long to force the nose down, and then after you have 'taught' them, and they full stall AGAIN but recover quickly & correctly, I would say that was satisfactory. They have demonstrated the correct actions - they know what a pilot should do if they stall on the approach. I realise that this is a lose interpretation of 'satisfactory' and it will be very hard for some instructors to stomach. Effectively you are allowing someone to continue flying when they have demonstrated a skill level at which you would not be happy putting them in for their Skill Test.
I also realise that may people will disagree with my view. I would say to them "Think how bad does someone have to be before an instructor can take away their license to fly?" And how does the instructor judge this reliably? Personally I think the only reasonable way is to set a low standard - if someone can't meet a low standard, then they probably should be grounded.