You must punch him until he surrenders. I guess you must punch him enough to damage his health, which happens after you have knocked his fatigue to 0. It takes quite a bit of skill. I had to train to 50 to be able to complete the quest.
Just mark the place, cast almsivi intervention, take the silt to ald ruhn, train in the ald ruhn temple and get back with a recall to punch the crap out of the stubborn skaal.
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Never attribute to malice that which can be ascribed to sheer stupidity
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