The R700's work only on versions 9.8 and above, hence when you connect this model to a ZD , the ZD too needs to be on version 9.8 or above, from your description I see that the ZD is still on version 9.7 which is why the connection from the AP is being refused. Kindly upgrade the ZD to version 9.8 and above , you will see the AP joining the controller with no issues.
Also if you are upgrading the ZD to more recent versions , kindly follow the upgrade path below:
Correct that you need your ZD on at least 9.8.x to support R700 model APs, ...but you may not need to upgrade further, especially if you currently have 7962/7762 model APs, which are not supported past 9.8.x releases. T300 and T301 model APs are also supported on 9.8.3.
If you wish to someday employ newer 802.11ac model R500/R600 model APs, your ZoneDirector will require 9.9+ system software. Always check the release notes for the version you consider upgrading to, for supported model APs.