Technically there is no hard or fast rule stating that a challenge has to be accepted. If the challenge is turned down, then nothing prevents the challenger from just shooting them in the face. There's a loss of honour, sure, as a Mandalorian by rights shouldn't back down from a fight, but that could
also lead to an escalation to a higher form of combat, IE warfare. Maybe it could've been handled better, but from reading this thread the entire situation could've been handled better by all involved parties. I think, all things said and done, things work when examined from the right point of view.
Also, the Mandalorian culture supersedes the faction; if such were the case, the Deathwatch faction would not be allowed the 'Mandalorian' tag. It's not just a case of one faction any more - there are two discrete factions vying for power in the same culture.
(also what up fellow beer baron
)