What If A Client Cancels A Project Halfway Through?

Mia runs a small design studio in Wellington. Halfway through a website project, her client emails to say they have changed direction and don't want to continue.

Mia has already completed the strategy work, drafted wireframes, booked a contractor and turned away other work to keep the project moving. The client asks for the deposit back and says there's no need to invoice because the website was never finished.

If this feels familiar, you aren't alone. When a client cancels work in progress, the real question is usually what your contract says about cancellation, payment, deposits, milestones and expenses.

The good news is that this can be managed clearly with the right service agreement. The tricky part is that small wording differences can change the outcome.

Can A Client Cancel A Project Halfway Through?

It depends on the contract. A client can usually cancel if your agreement gives them a right to do so, but they may still need to pay for work done, costs incurred and any agreed cancellation fee.

If your contract has a termination for convenience clause, the client can end the project even if you have done nothing wrong. That clause should explain:

• how much notice the client must give
• whether notice must be in writing
• what fees are payable up to the termination date
• whether deposits are refundable
• what happens to expenses, committed costs and third-party charges
• whether any project cancellation fee applies

If your contract doesn't let the client cancel for convenience, a mid-project cancellation may be a breach of contract. In practical terms, that means you may have a stronger position to claim unpaid fees or losses caused by the cancellation.

The Contract and Commercial Law Act 2017 sits in the background for contract cancellation and remedies in New Zealand. However, for most service providers, the day to day answer will come from the wording of your quote, proposal, terms and conditions or service agreement.

This is why vague wording can be painful. A line saying either party may cancel at any time doesn't tell you whether you can invoice for the half-built project, keep the deposit or recover the contractor you booked.

Can You Charge For Work You've Already Done?

Yes, you can usually charge for work you have already done if your contract says the client must pay for it. The clearer your payment terms are, the easier this is.

For fixed-fee projects, your agreement should say whether payment is tied to milestones, dates or deliverables. For example:

• 30% deposit on signing
• 30% after strategy and concept approval
• 30% after draft delivery
• 10% on final handover

If the client cancels after you have completed the strategy and concept stage, you can point to the milestone that has been reached. This is usually much easier than trying to explain the value of unfinished work after the fact.

For hourly or day-rate work, your agreement should say that the client must pay for time worked up to the termination date. You should also keep good records, such as time entries, task lists, emails and meeting notes.

For retainers, your contract should explain whether the retainer is a fee for access to your availability, a prepayment for a set number of hours, or a monthly amount for ongoing services. Those are different things, and they can lead to different outcomes if the client cancels part way through the month.

Example: Milestones Make The Answer Clear

Say Aria runs a marketing agency in Auckland. Her client signs a $12,000 marketing service agreement with three milestones of $4,000 each. The first milestone covers research and campaign strategy. The second covers creative production. The third covers launch support.

The client cancels after Aria has delivered the strategy and started booking freelancers for production. If the contract says each completed milestone is payable and approved third-party costs are reimbursable, Aria has a clear basis to invoice for the first milestone and recover the committed production costs.

If the contract only says payment is due on completion of the campaign, Aria may still have arguments available, but the conversation becomes harder. The client may say the campaign was never completed, so no final fee is due.

What Is A Termination For Convenience Clause?

A termination for convenience clause lets a client end the agreement without needing to prove that you did anything wrong. It's common in service agreement termination clauses, especially for ongoing services and longer projects.

For you as the service provider, the key isn't just whether the client can cancel. It's what they must pay when they do.

A balanced termination for convenience clause often covers:

• Notice: common notice periods are 7, 14 or 30 days, but the right period depends on your project and how much work you schedule in advance.
• Fees To Date: the client pays all fees for work completed up to the termination date.
• Work In Progress: the client pays a fair amount for partially completed work, or the next milestone if that's what you agreed.
• Committed Costs: the client reimburses approved or unavoidable third-party costs.
• Handover: you only need to hand over completed deliverables once outstanding amounts are paid, if your contract says so.
• Surviving Clauses: confidentiality, IP ownership, payment obligations and privacy obligations keep applying after termination.

Without this kind of detail, a termination clause can create more confusion than clarity. The client may think cancellation means they can walk away cleanly. You may think cancellation means they must pay everything left on the quote.

The right position usually sits somewhere in the wording you agreed at the start.

Can You Keep A Deposit Or Charge A Project Cancellation Fee?

It depends on what the deposit or cancellation fee is for, how clearly you disclosed it, and whether the amount is reasonable in the circumstances.

A deposit can be used to secure your time, cover upfront work or reduce the risk of a client walking away after you have started. If your contract says the deposit is non-refundable, that helps, but the label alone may not be enough.

In New Zealand, courts can refuse to enforce a clause that operates as a penalty. In plain English, a fee is more likely to be a problem if it's designed to punish the client rather than reflect a genuine business cost or loss.

A project cancellation fee is more likely to be reasonable where it reflects things like:

• time already spent onboarding the client
• lost capacity where you reserved staff or contractors
• administration involved in closing the project
• discounts you gave because the client committed to a larger project
• non-refundable supplier or platform costs

A cancellation fee is more risky where it's very high, hidden in fine print, or applies even when you have done very little work and have suffered little loss.

You should also think about the Fair Trading Act 1986. If your terms are standard form terms offered on a take it or leave it basis, the unfair contract terms regime may apply to consumer contracts and small trade contracts. A small trade contract generally involves parties in trade where the trading relationship doesn't exceed $250,000 per year when the relationship first arises.

If a term is declared unfair, you can't include, apply or enforce it. A one-sided cancellation fee that gives you broad rights while giving the client very little protection can attract risk, especially if it wasn't clearly explained.

If your client is a consumer, the Consumer Guarantees Act 1993 may also matter. If your client is acquiring your services for business purposes, you may be able to contract out of the Consumer Guarantees Act, but this needs to be in writing, between parties in trade, and fair and reasonable.

Can You Recover Expenses And Committed Costs?

Yes, you can recover expenses and committed costs if your contract allows it, or if the client clearly approved those costs. The more specific your records are, the better.

Expenses and committed costs might include:

• stock, materials or printing ordered for the project under a goods and services agreement
• contractor, freelancer or subconsultant fees you're committed to pay
• venue, travel or equipment bookings
• software licences or subscriptions bought for the client project
• advertising spend or media bookings
• specialist reports, photography, copywriting or production costs

Your contract should say whether expenses need pre-approval, whether estimates can change, and whether the client must pay costs that can't reasonably be cancelled.

For example, if you run an events business under a service agreement and the client cancels after you have booked a photographer with a non-refundable deposit, your position is much stronger if the client approved that booking and your terms say non-refundable supplier costs are passed on.

You should also try to reduce avoidable costs after cancellation. If you can cancel a supplier without charge, reallocate materials or use a contractor on another job, that may reduce the amount you fairly claim from the client. This isn't just about legal risk. It also helps keep the commercial conversation sensible.

What If You Don't Have A Written Contract?

You may still have a contract, but proving the terms can be much harder. A contract can be formed through emails, accepted quotes, messages, conduct and payment, not only through a signed document.

If there's no signed service agreement, look for evidence of what was agreed, such as:

• the quote or proposal you sent
• the client's written acceptance
• emails discussing scope, price and timing
• deposit invoices and payment records
• messages approving work or expenses
• drafts, files, meeting notes and time records

You may be able to invoice for work the client requested and received, especially where they accepted the quote or benefited from the work. You may also be able to claim a reasonable amount for services performed.

However, cancellation fees, non-refundable deposits and committed cost clauses are much harder to rely on if they were never clearly agreed. Without a written agreement, you may struggle to recover unpaid invoices or show that the client accepted your cancellation terms.

This is where tailored documents make a real difference. Templates can be a helpful starting point, but they often miss the details that matter for your exact pricing model, workflow and project risks.

What Should Your Service Agreement Say About Cancellation?

Your service agreement should explain what happens if the client pauses, cancels or changes the project before it's finished. The goal is to remove the awkward guesswork before money is on the line.

Useful clauses include:

• Scope Of Work: what is included, what is excluded, and how changes are approved.
• Fees And Payment Dates: deposits, milestones, hourly rates, retainers, due dates and late payment consequences.
• Cancellation And Termination: when either party can end the agreement, how much notice is needed and what must be paid.
• Deposits: whether the deposit is refundable, partly refundable or applied against future invoices.
• Work In Progress: how partially completed work is valued if the client cancels.
• Expenses: what costs are reimbursable, whether approval is needed and how supplier costs are handled.
• Project Delays: what happens if the client misses deadlines, fails to provide feedback or puts the project on hold.
• Intellectual Property: when ownership or a licence transfers, and whether transfer depends on full payment.
• Confidentiality: how sensitive business information is protected after the project ends.
• Privacy: how personal information is handled under the Privacy Act 2020, especially if you access customer lists, staff details or analytics data.

For IP, many service providers choose to say that ownership or a final licence only passes to the client after all invoices are paid. If you want this protection, it needs to be clearly drafted. Otherwise, you may end up arguing about whether the client can use unfinished drafts, source files or campaign assets.

Your agreement should also match how you actually work. A video production studio, software developer with an IT services agreement, architect, marketing consultant and training provider won't need identical cancellation terms.

What Should You Do When A Client Cancels Mid-Project?

You should pause, check the contract, confirm the cancellation in writing and work out the amounts owed before you respond emotionally. A calm paper trail can protect your business and preserve the relationship.

A practical process looks like this:

1. Confirm The Cancellation: ask the client to confirm the cancellation or pause in writing, including the date it takes effect.
2. Review The Contract: check the termination, payment, deposit, expenses, IP and handover clauses.
3. List Work Completed: note the deliverables completed, milestones reached and time spent.
4. List Work In Progress: record drafts, planning, booked resources and partially completed tasks.
5. Gather Expense Records: collect supplier invoices, receipts, booking confirmations and approvals.
6. Reduce Avoidable Costs: cancel what you can and keep evidence of any non-refundable amounts.
7. Prepare A Clear Invoice: separate fees, expenses, cancellation charges and credits so the client can see the basis for each amount.
8. Keep The Tone Professional: explain the contract position without overstating your rights or making misleading claims.

The Fair Trading Act 1986 also applies to how you deal with clients. Avoid saying a fee is legally unavoidable if that isn't clearly true. It's better to point to the clause, explain the calculation and invite the client to raise any genuine questions.

If the client is unhappy, the next step depends on the amount involved, the contract wording and your commercial relationship. Sometimes a negotiated commercial outcome is better than spending time and energy arguing about every line item. If the amount is significant, get advice before making concessions or agreeing to wording that may affect your rights later.

Key Takeaways

• A client can cancel mid-project if your contract allows it, but they may still need to pay for work done, expenses and agreed cancellation fees.
• Milestones, deposits and expense clauses make it much easier to work out what is owed after a cancellation.
• A termination for convenience clause should say exactly what happens to notice, work in progress, committed costs and handover.
• Cancellation fees and non-refundable deposits should be clear, reasonable and not operate as a punishment.
• Without a written service agreement, you may still have rights, but proving the terms and recovering cancellation fees can be much harder.
• Your cancellation terms should match how your business actually prices, schedules and delivers projects.

If you'd like help with your service agreements, cancellation clauses, deposits and milestone payment terms, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.