What is the Latin term "pace" used for when referencing other scholars?
So I checked with the author and he explained it as similar to option 3: He used it to indicate that he respects the arguments cited by Smith, while he gives more weight to other evidence leading to different conclusions. Since it is in part subjective to what evidence is given more weight, both positions are respected.
However, I can imagine that some authors simply use pace for variation from contrary to without this particular nuance. (As may be clear from my question, this was in the field of linguistics and written by an author with an exceptional sensitivity to the finer nuances of language.)