The death duel challenge also known as the treasure tribunal challenge was an officiated battle between two factions who had a dispute over something and could not come to some sort of agreement, and the level of their dispute was high enough to the point they would come to death blows at any minute.
In such an event, they could fight it out amongst themselves without oversight or they could choose to involve the Order in the affair.
Fights between factions weren't illegal, and neither were fights over treasures. It only became illegal when innocents were dragged into the chaos of the battle between those factions, but as long as no innocents were affected, and the casualties were only from those factions, then the Order would not intervene. They upheld the unmentioned rules of the cultivation world.