Sorry you have to deal with this! I think you should build your fence , follow code, and do it in such a way that it adds value to your property (your win). Then all the time you are trying to be nice, take notes on your neighbors weaknesses - that may become useful. I seem to have always been a magnet for bullies ... at least in my youth .... the only thing that bullies understand is force. My usual tact is to set up a situation of community embarrassment for the bully. That is where your list of weaknesses comes in.
You are welcome to call me for ideas if you like. I live in Juneau Alaska so our time difference will be a bit off ... but if I can be of help, I would like to. I have dealt with people like this before. Don't do anything illegal - embarrassment can be a powerful tool.