Well, people have matches all the time in private venues - MMA schools, for example, and it's certainly legal. Of course, there are tussles that go beyond that, but I think that automatically assuming that it's illegal would be mistaken.

FWIW - this kind of thing goes on all the time, I've seen it, I've even done it, and it's generally harmless. Ueshiba did it, Tohei did it, Shioda did it. Maybe it's not such a horrible offense after all...