In this case, the following would have happened:
Tap in at Paddington NR, no tap out - maximum fare
Tap in at Paddington LU, tap out at Paddington LU - min flat fee per journey
Tap in at Paddington LU, tap out at Buckhurst Hill - correct fare charged
Doesn't seem too far off from the present day if you ask me.
Also what you said is vastly similar, even almost identical to the system in Singapore.
It does seem that if one mistake is made it sets off this type of chain of events even if corrected immediately as this journey on Sunday shows
Rayners lane gates open and evidently didn't register touch in
Corrected at Liv St on Oyster machine
13:20 - 14:07 Liverpool Street [National Rail] to Turkey Street £3.10 £16.50
13:18 Topped up, Liverpool Street [London Underground] +£20.00 £19.60
13:18 Pay as you go balance adjusted, Liverpool Street [London Underground] +£2.30 -£0.40
???? - 13:17 Incomplete journey[No touch-in] to Liverpool Street [London Underground] £5.40 -£2.70
I have requested refund of £3.10 for the last journey that should have been a continuation as OSI
Update
TFL usual excellent customer service Response to email
Note they will issue cheques
Thanks for email of 3 July about your recent journey on the 2 July using Oyster card number ending 5696.
I am sorry you have been overcharged on your recent journey from Liverpool street Station to Turkey Street Station. You are correct, in that you should have been charged for your full journey Rayners Lane Station to Turkey Street Station via Liverpool Street.
I have now processed a £3.10 refund via Web credit to your Oyster online account.
Username
To use web credits, place an order through your online account. Your web credits will be automatically applied against the total amount of your order.
You will then be asked to nominate a station. This is where you will collect your purchase. To do this you will need to touch in at your nominated station as part of a journey.
Alternatively, you can receive your web credits as a payment to your bank account or by cheque. After signing in to your Oyster online account at:
https://oyster.tfl.gov.uk/oyster, please follow the instructions below:
Click Web credits
Click Redeem cash credit only
Choose how you would like to receive your web credits
Amend any details as necessary
Click Submit
Once submitted, please allow up to 10 working days for the payment to show on your bank account or for the cheque to be received.
Thanks again for contacting us. If there is anything else we can help you with, please reply to this email. Alternatively, you can call us on 0343 222 1234 and well be happy to help you.
Kind regards
Customer Service Adviser
Transport for London Customer Services