Sometimes, justice doesn't carry out fully. Cases fail for a variety of reasons. We sometimes fail to charge the guilty. The reason why it works this way is simple : it's better than charging the innocent.
What should happen in this case IMO is that they should charge him with whatever they have right this moment, and if it fails, release him. Infinite detaining of individuals should be impossible, no matter what. This is dangerous.
I agree that indefinite detention of individuals without charge is dangerous, and I would not advocate for that. However, it's important to understand the precendence that would be set by the case you describe. Assuming that the evidence outside of what's stored on the encrypted hard drive is flimsy, and the charges are dropped, are we then open to the idea of untouchable criminals?
If all it takes to be a criminal that can't be charged for their online behaviour is to encrypt a hard drive, what ramifications does that have for our legal system?
In addition to what kortex said, the man here could be charged for a variety of things. The police already have damning evidence of the crime, apparently, through the presence of hashes (the dubious validity of their claims notwithstanding)
Refusing to comply is not a valid reason to lock someone up forever. You can charge him with contempt to court if you need to.
What should happen in this case IMO is that they should charge him with whatever they have right this moment, and if it fails, release him. Infinite detaining of individuals should be impossible, no matter what. This is dangerous.