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From an "art of RP" standpoint, this is another example of why it's just not a good idea to play law enforcement, nobility, Hearers, or anyone who has any societal authority over other PCs in an MMO. Regardless of the situation, the fact of the matter is that such characters don't have any real authority; they can say they're arresting me all they want, but they have no ability to enforce that. That lack of enforcement power is what leads to situations like this one. 
It also complicates RP, because one player is asserting authority over another without their consent. In such a situation, you have only two options: accept it, or ignore it. There's no real way to RP around it unless you accept the assertion whole cloth. This causes real problems in situations like this one, where both characters are asserting what amounts to conflicting authority.
On the topic at hand, I don't really see a good way out of this. If nothing else, the two characters have conflicting authority and the two players have differing opinions on the legal rights that authority provides, so the only really viable option seems for them to just ignore each other.
It also complicates RP, because one player is asserting authority over another without their consent. In such a situation, you have only two options: accept it, or ignore it. There's no real way to RP around it unless you accept the assertion whole cloth. This causes real problems in situations like this one, where both characters are asserting what amounts to conflicting authority.On the topic at hand, I don't really see a good way out of this. If nothing else, the two characters have conflicting authority and the two players have differing opinions on the legal rights that authority provides, so the only really viable option seems for them to just ignore each other.
The Freelance Wizard
Quality RP at low, low prices!
((about me | about L'yhta Mahre | L'yhta's desk | about Mysterium, the Ivory Tower: a heavy RP society of mages))
Quality RP at low, low prices!
((about me | about L'yhta Mahre | L'yhta's desk | about Mysterium, the Ivory Tower: a heavy RP society of mages))