Why would the nonpaying client, or future potential clients, care what the developer does with his property? If they wanted it, they could have bought it from him. (I'm assuming that the developer didn't sign any IP assignments upfront, or is violating any NDAs or similar agreements about this code.)

If I was a sculptor and a client commissioned me to create a work of art, then didn't want it, surely nobody would fault me for donating the work to a local school instead of destroying it.