I once had a client decide to change creative direction and hire another company half-way through a project I was doing for them, but the CD didn't have the courage to tell me, so I kept working. It was an hourly job so the billing was piling up. When I delivered the final, they informed me that I had not been needed for some time and didn't want to pay. I got the CEO involved (through my CC-ed email response) and he started communicating with me directly. He wanted me to take 50% payment for what I did since they wouldn't use any of it. I was professional, however, and pointed out the obvious that they should have informed me right away of any change in direction - I would have stopped work immediately and bill them for work to date. I told him I still require full payment, but that I would credit them that 50% amount on the NEXT project they do with me. He thought that was a very professional way of handling it because they still would get that value of work. FWIW, I have yet to do another project with them but I did get full payment quickly.
Professionalism is the key.
Andrew Johnson
iMed Design, Inc.