One of the quest objectives is "Speak with the Dryad". If you enter the cavern in which the Dryad [Salix - Gate Warden] is located and kill the War Hounds before 'speaking with the Dryad' the 'test battle' begins. Once the 'battle' has started it is impossible to then 'Speak with the Dryad'; thus making the quest incompletable.
Has been submitted as bug report.