Lessons from Laing O’Rourke v Shepperton Studios on Payment Notices and Pay Less Notices
May 2026The decision in Laing O’Rourke Delivery Limited -v- Shepperton Studios Limited [2026] EWHC 612 (TCC) is the latest judgment which explores the requirements for Payment Notices and Pay Less Notices to set out the basis of which the sums considered due have been calculated under a construction contract.
We frequently encounter issues on construction projects where one party has not followed the contract during an interim payment cycle and the financial consequences of this can be quite severe and disruptive to the wider project, particularly if it creates a short to medium term cashflow problem.
This latest judgment is particularly interesting because it considered the implications of a Pay Less Notice being based on a Gross Valuation that was included in an invalid Payment Notice. At stake was the employer’s ability to make significant deductions in order to pay less than the notified sum.
Background
Laing O’Rourke Delivery Limited (“LOR”), the contractor, applied to enforce an Adjudicator’s decision against Shepperton Studios Limited (“SSL”) in the sum of £5,627,275.11 plus VAT.
SSL tried to resist the enforcement on a number of grounds, with the main argument being that the Adjudicator was wrong to find that SSL’s Pay Less Notice was invalid.
The Payment Notice
SSL’s Payment Notice contained a Gross Valuation of £367,137,528.39 with a balance of £2,420,516.84 plus VAT to be paid.
The Payment Notice did not include a breakdown of how the Gross Valuation had been calculated. There was also no spreadsheet exhibited to the Payment Notice itself nor was there any reference to a separate document containing the breakdown.
The Pay Less Notice
The Pay Less Notice relied upon the Gross Valuation that had been included in the earlier Payment Notice as the starting point to make deductions. It did not provide any further clarity on how the Gross Valuation had been calculated. Instead, it applied the following deductions:
- £1,791,983 in liquidated damages;
- £539,512.88 which related to the provision of utilities to LOR; and
- £97,018.59 relating to temporary catering arrangements which LOR had agreed to reimburse.
For each of the three items referred to above, SSL had appended a document to the Pay Less Notice explaining how the deductions had been calculated. LOR did not dispute that SSL had properly set out how it had calculated these deductions.
LOR argued that, because the Gross Valuation stated in the Pay Less Notice was based on the Gross Valuation that had been included in the invalid Payment Notice, it must follow that the Pay Less Notice was also invalid.
Adjudicator’s decision
When the dispute was referred to adjudication, the Adjudicator found that SSL’s Payment Notice and Pay Less Notices were both invalid, on the basis that neither set out how they calculated the sums SSL considered were owed to LOR. The Adjudicator decided that SSL must pay the sum of £5,627,275.11 plus VAT, together with the contractual interest rate, being the full amount applied for.
LOR subsequently made an application to the Court applying to enforce the Adjudicator’s decision.
Enforcement proceedings
SSL’s position
SSL argued that its position in parallel Part 8 proceedings, which challenged the Adjudicator’s decision, was so compelling that it would be “unconscionable” for the Adjudicator’s decision to be enforced, without the Court having regard to the arguments that SSL had raised as part of those proceedings.
SSL also argued that, even if the Payment Notice did not contain a detailed breakdown of the Gross Valuation, that does not, in and of itself, invalidate SSL’s Pay Less Notice. The Pay Less Notice provided a clear breakdown of what SSL was intending to deduct from the notified sum. This should have reduced the sum payable to LOR from £5,627,275.11 to £2,420,516.86.
It argued that there had already been five previous adjudications which had determined the ‘true value’ of LOR’s claims and that, if SSL had to pay the notified sum, around 90% of the sums would eventually need to be repaid by LOR.
SSL requested a stay concerning payment of any sums payable on the basis that the LOR entity in question was insolvent. If the decision was enforced, LOR would not be in a position to repay.
LOR’s position
LOR argued that there was nothing about this dispute that made the Court’s usual approach to dealing with adjudication enforcement proceedings “unconscionable”. It noted that:
- It was not for the Court to assess the contractual validity of a Payment Notice in an adjudication enforcement hearing.
- There was no issue regarding the solvency of LOR or any other exceptional circumstance that should override the ‘pay now, argue later’ nature of adjudications.
- There was not a “clear error” or even an error which would be unconscionable for the Court to ignore, because the Adjudicator decision was correct in any event.
Court’s decision
In respect of the Payment Notice, the Judge found that the building contract contained a requirement for SSL to set out how its Gross Valuation had been calculated. The breakdown underpinning the Gross Valuation was missing from SSL’s Payment Notice and it was not sufficient for SSL to point to spreadsheets which had been prepared for previous interim payment cycles. If the intention was to rely on these spreadsheets, SSL should either have appended these to the Payment Notice, or it should have referred to them on the face of the notice.
As to the Pay Less Notice, the Judge found that SSL had properly set out the basis of the calculation for the sums it intended to deduct. The fact that the Gross Valuation was not supported by an earlier valid Payment Notice (because it was invalid) did not automatically invalidate the Pay Less Notice. The Court therefore reduced the amount awarded in the Adjudicator’s award to reflect the deductions included in the Pay Less Notice, before it enforced the decision.
The stay on enforcement sought by SSL was not granted given that a parent company guarantee had been provided at the point the parties entered into the building contract.
Beale & Co’s observations
This case acts as another (timely) reminder as to the importance of understanding the agreed payment provisions and carefully following the contractual requirements on projects to avoid subsequent disputes or a ‘smash and grab’ type of claim. Specifically, and subject to the contract terms, it will be important to explain the sum considered due and how the sums included in either a Payment Notice or a Pay Less Notice have been calculated.
We have seen a number of payment disputes where it is alleged that a contractor has failed to issue a valid Payment Notice or a Pay Less Notice. When we are instructed on these types of matters, we will investigate:
- Whether the payment terms in the building contract comply with the requirements set out in the Housing Grants, Construction and Regeneration Act 1996 (if not, we consider the implications of this)
- Whether there has been a valid application for payment
- Whether the various deadlines for an interim payment cycle have been correctly calculated
- Whether any Payment Notice and/or Pay Less Notice has been issued by the deadline
- If a Payment Notice/Pay Less Notice was issued, whether it properly set out the basis on which the valuation or deductions had been calculated in sufficient detail
- Whether there is anything else about the parties’ conduct which may be relevant to the issues in dispute
Most issues, in our experience, arise from the parties not following the terms of the building contract or not fully understanding what has been agreed. If there is any doubt or disagreement as to what the building contract requires or what it takes to issue a valid notice which complies with the requirements, independent legal advice should be sought and the project delivery teams should be briefed accordingly.
We appreciate that managing payment cycles on busy construction projects can be challenging at times. However, in an industry where contractor insolvencies caused by short-term cashflow issues are becoming more prevalent, the consequences of incorrectly managing an interim payment cycle can be fatal for both the business and the project.
This article was prepared with contributions from Kayleigh Rhodes.
If you are interested in understanding recent case law decisions and what these may mean for your contracts, live project management or dispute resolution processes, please contact the authors
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