Well another way around is write a good TOS that outlines that the deposit isnt refundable, hosting is available for free when all final work is complete, and other formalities such as variations so this doesnt happen again.
In this case i would just to be fair to yourself is to keep the deposit and explain that work had been carried out and to produce a design. Hosting can be available say for $20 per month.
Client x would probably say $20 per month is too much and part ways. If he still wants his deposit back just say 'no'