So, why isn't he in jail?

I don't know, but I suspect it might be reasonable to assume that someone has to press charges in order for someone else to be prosecuted. Given that Z speaks of no repercussions, I was willing to assume that there was a greater context to the argument.

It was certainly quoted as "abnormal behaviour"by Z. But I also consider it a particularly "baiting" description of the event. Where a more reasonable version might exist including both parties being engaged in an exchange.