I skipped a couple pages, so correct me if I misunderstand this, but your players are attacking the giants, encounter a giant, try to communicate with a giant they stumble onto, and then the paladin doesn't allow them to kill their fleeing foe. Does that about sum it up?
Ruling: paladin is a crap character that needs retired.
Explanation: a paladin is a warrior. A soldier of God (or order or concept.) Watching your deadly foe who has not been ransomed or otherwise committed to abstain from the conflict retreat without persecution is stupid. Find a soldier who feels that shooting their fleeing foes is against a moral code anywhere in the world and get back to me. If the prisoner was restrained, injured, swore to leave, etc then the Paladin has grounds to spare him, but as you explained it I see none of that.