Help on fault finding on a C3-31 Hammer combination machine

[EddyCurrent]

I agree with m_c about which wires to remove, however it may be easier just to pull the connections from C1 and SP at the brake board.(insulate them after diconnecting)
I don't know about the switch enigma but as a starting point you should always check contacts with the wires disconnected to prevent feedback.
If it's okay in the saw position I suggest getting the machine running like that for a start.

Operation of the brake looks like this to me.

If there is voltage or has been voltage at terminal SP (even briefly) and there is a circuit from C1 through the motor winding back to L3 (i.e. contactor has just been de-energised) then brake.
If there is voltage at terminal SP (even briefly) and there is no circuit from C1 through the motor winding back to L3 (i.e. contactor energised) then do not brake.
If there is no voltage at terminal SP (or a brake operation has just completed) and there is a circuit from C1 through the motor winding back to L3 then do not brake.

This also explains why the brake will activate if 'start' is pressed while an e/stop is activated. Start button contact 23/24 apply voltage to SP briefly when pressed but the contactor is de-energised.

[m_c]

There is nothing in the diagram that indicates why the contacts 1 & 2 would show as having continuity, however the other two main contacts could, so it's probably a discrepancy between the diagram and the actual machine.
As Eddy says, you should only be testing for continuity with the wiring removed from the contactor.

[EddyCurrent]

The rotary switch (10) has 4 positions.
1. Saw
2. spindle moulder forward
3. spindle moulder reverse
4. planer

It's hard to see why there should be the difference in readings across the contactor as the assumption is that switch 10 just swaps motors.