a level 50 civilian ID, regardless of ship is a reportable offense. if he did a transfer, he should have got a trader ID. Of course, you should be nice to him and let him get one, but you can still pirate him before that.
an engagement is a fight, I have always said. I see no reason that anyone should have to leave the system if you never attempted to fight, but i may be at odds to the server rules here... its kind of sketchy.
basically:
Nobody likes a rule lawyer if it isnt needed. If you can solve the problem in role play, its far better then blabbing ooc in system about the rules. The rules are there to help role play, not vice-versa.