What Would You Do? SEO Client Issue.

This question is for those of you who do SEO work for clients. It may get a little long as I try to explain the whole situation so please bear with me...

I have (actually had) an SEO client that is a business near me. They sell their products locally but they aren't actually a "local" business in the traditional sense of the word. Their website sells their products globally.

They came to me through a mutual acquaintance back in June 2011. They were just getting their website started and really their business was pretty much just getting started too, although it had technically been around for a little while.

Anyway, they wanted SEO work done and they hired me to do it.

As a side note, I should maybe point out that I gave them an amazing deal on price considering the scope of the project and the fact that I was starting from scratch with no ranking base to build on, going after global keywords, in a fairly competitive niche. And we were targeting 20+ keywords. So it was pretty substantial undertaking.

I also did not design or build their site and it is not a great site by any means. There are a lot of areas where it could be improved both for SEO purposes and for converting traffic into sales.

Also, I never guaranteed them top rankings or any specific date for which any specific results would be achieved. I've been doing this long enough to know that there are no guarantees when it comes to SEO work. But I did say I was confident that I could get them to the top 5 for at least some of their keywords and it would probably take 6-12 months to do so.

I also never guaranteed how long the rankings would last or anything else specific like that. And no contract was ever signed between us.

For a while everything was going along as planned...

By month 6 almost all of their keywords had at least some ranking. Some were even in the top 10. When I started they had no rankings at all. At least not in the top 200 which is as far as I ever check.

By month 10 the rankings had risen even more pretty much across the board. At that point only a couple of the 20+ keywords still didn't have a ranking. Several were top 10. And they had held a #1 or #2 ranking for their top keyword for the past 4 months at that point.

Then, came the Penguin update and completely wiped out their rankings. That was at the end of month 10.

At that time, I explained the situation of what the update did and told them I would continue working to try and get their site revived, which I have not been successful at yet.

It was also at that time when they stopped paying me, which I totally understood given the situation.

As another side note, I didn't do anything shady to get their rankings in the first place. Everything I did was standard accepted SEO practices before Penguin. I am not a b1ack hatter and never have been.

Now, 8 months later they are coming to me and asking for a refund.

I don't blame them for asking, but at the same time, I don't think I should have to give them one. What happened was completely unexpected and out of my control. Everything I said I would do was happening exactly as planned until Penguin hit.

Furthermore, I never made any hyped up promises or guarantees. I told them like it was based on the knowledge, experience, and information I had available to me at the time. I also didn't hunt them down and "sell them" on becoming my client. They came to me via someone we both knew who was a partner in their company at the time.

I spent a lot of time, effort and resources doing the work I was being paid to do. And to a certain extent, I still am long after the fact as I try to figure out ways to bring their rankings back. And that is without having received a check in the past 8 months. So what I am doing now is simply out of kindness to try and help them out.

So, my question(s) for all of you here on the WF is...

What would you do?

And do they have any legal ground to stand on if it came to that?

Thanks in advance for all of your help!