Had an "interesting" experience last weekend (Monday 25th).
Departed Menorca (R01) with a clearance "not above 1000ft" consistant with the local controlled airspace (IFR). Menorca APP cleared me "stay below 1000ft, via point Echo (an easily identifiable point near to the Isles). A few minutes after takeoff the APP controller (obviously very concerned) ordered me to descend as he believed I was in the IFR class A airspace surrounding the region. His readout was reporting 2500ft
I assured him several times that I was definately at no more than 800ft agl, he eventually seemed to accept this although did continue to order me to descend. I could not have descended much further without unhappy consequences.
It turned out that my altitude encoder/transponder had failed. This was further verified by Perpignan APP - however their readout for me had reversed in error - I was at FL45 and their readout (secondary radar) was FL30. I flew the rest of the journey without mode C selected.