I don't understand how the family courts work because if i hold parental responsibility for my Daughter then how can a stranger/judge opose my choices as the parent? Unless I'm proven a criminal or bad parent then i think it's a breech of my human rights and like i said i agreed the contact she has with my elder daughter but i don't feel it was the right decision. Relations have broken down too much.
Your first mistake is thinking that family court children matters are about you, or any other adult. The fact is that they are all about the best interests of the child(ren).
It's not a breach of your human rights, but it is, or could be, a breach of your second child's right to know who her paternal family are (including her father). The court will be interested in knowing for her sake and as such may well order DNA testing on the basis that there is a strong possibility that the child is the full sibling of the child that gets to see the grandmother.
Your second mistake is to contemplate preventing the court ordered contact. If you want to stop contact, you must make an application to the court to vary the order, otherwise you will likely be finding yourself in court facing an enforcement application. If, as you have said, you have valid and convincing evidence that contact is detrimental to your older child, then you should have no issues persuading the court of this. However, it'll have to be compelling as you've now allowed the grandmother to have a lengthy relationship with the child and it is likely to be detrimental to the child to just stop it dead at this juncture.
It sounds as though the grandmother is proceeding with court action - so you'll be able to raise the issues you have with the current contact and put forward your case for your second child at the same time.