Should I report apparent conflict with handling editor during peer review? I have been dealing with an awkward situation regarding evaluation of my submitted paper. The publisher is one of the big well known OA, and the journal is one of their leading journals (in terms of niche visibility and impact factor). We were invited to submit a paper by a colleague who'd be preparing a special issue in that journal.

I have submitted a paper for their evaluation, providing few names of potential reviewers under request by the submission system. I eventually received the evaluation results by three reviewers. Two reviewers suggested structural and grammar adjustments, and one produced overly negative vague remarks which mostly missed the point of the paper. The managing editor (not our colleague) rejected the paper but offered the option to Revise &amp; Resubmit.

Fine: we applied changes suggested by reviewers and replied to all comments, in a politely manner. Through the new cover letter we raised concerns regarding the rather aggressive behaviour of a reviewer. After a while we received further comments. The two previous reviewers accepted the paper, and the one negative reviewer produced further negative vague remarks, unrelated to the previous ones. In short, this reviewer clearly ignored the goal and technical background of the paper. Two additional reviewers were added, who made further questions and structural suggestions. Editor recommended major changes, and gave a deadline of five days to respond.

We did respond within five days with the suggestions applied and a cold, technical rebuttal to the one negative reviewer. Again we appealed to the editor via submission system claiming a suspected conflict of interests.

After a while the paper was rejected, no specific reason given. We read the comments by the reviewers: the additional ones accepted the paper whilst the one negative reviewer made further vague, one-line derogatory remarks without any mention to our previous response.

I wrote to the colleague who had invited us and asked him to take a look into the situation. He said he gave instructions that the paper should be accepted. The managing editor now contacted us suggesting minor changes but now presenting personal concerns about our paper followed by general comments which are beside the main scope of the manuscript alongside a long list of cherry-picked typos and grammar suggestions. This person states: 


  "I suspect that the MS is peppered with more mistakes and great care should be taken to ensure that these are corrected before the MS gets published."


We are given three days to respond.

I have submitted dozens of manuscripts and never went through such an awkward situation. I now strongly suspect that the conflict of interests stems from the managing editor itself, and wouldn't be surprised if the resilient nonsensical reviewer proves a sock-puppet. 

I am not sure on what is the best to be done. I suspect the paper will get accepted ultimately, under request of of the inviting colleague. 

Regardless of the final decision which is certainly coming, should I later contact the EIC and report this situation and managing editor? In case an editor is playing games other authors might be affected.
You have not identified any conflict of interest in your post.  The managing editor can, and should, criticize your work.

It seems that the colleague who invited your paper mislead you by failing to clearly state they were not actually editing the special issue.

The reason you have not encountered this situation before is that most editors are not thorough enough to provide their own advice to the authors.  This is unfortunate.

Do not claim someone has a conflict of interest unless you have solid evidence.  The evidence needs to show that they have some way of directly benefiting from the rejection of your manuscript.  Unsupported claims of conflict of interest hurt your reputation.  Your negative reviewer is much more likely to be lazy, rather than a competitor.