Hey Catwoman,
Sorry to hear about this! It's not good enough! But please don't think that all us designers are the same!
David has given you some really good advice here - make sure you try to work with them rather than against them because you don't want to make the situation worse.
For the future, always read everything in detail when deciding on a designer - normally they will provide you with a proposal (quote) that will explain who, what, when, why and how much. Accompanied by the proposal should be some terms and conditions (whether they are attached or there is a link to a webpage where you need to read them). I know with most things these days people just click 'agree' or just sign on the dotted line but when it comes to big money and/or tight timeframes (and working with someone you don't know), we need to be extra careful and read everything. If you don't like something or don't understand something in the terms and conditions, don't be afraid to ask BEFORE signing.
In terms of what I would do now, I would go over the terms and conditions of the project agreed to in the beginning and see them face to face with these to explain the problem and make sure they understand. Explain that you don't want to have to take it further but will if you need to. Work out some sort of agreement for a short timeframe to have it finished (if you are happy with the quality of what they have shown you so far), write that up and have both parties sign it. You could include in there that they are liable for paying all fees and associated costs if you need to take it further.
Before you go to see them, talk to your lawyer. If you don't have a lawyer, call your local BEC (
http://www.becaustralia.org.au/) as they generally have lawyers who provide 1 hour sessions for free.
Alternatively, ask them to provide any work they have done so far and give you copyright. Then find a designer that has good reviews (either on Flying Solo or another site), give them the files and have them finish it off. I'm sure many designers would be flexible in helping you out considering the situation you are in.
Hope this helps in some way - I have never had a dispute with a designer (or a client) but I wanted to give my opinion/advice as I feel bad for you and hope it all works out
Good luck and please let us know how you go with it all!
Regards,
Donna