A judgment handed down Laing O’Rourke v Shepperton Studios in March 2026 has answered a key question concerning construction payment disputes: if a payment notice is defective, does it automatically bring the pay less notice down with it? The Technology and Construction Court (TCC) said no, but its reasoning explains exactly why, and the case carries important lessons for those responsible for managing payments on a construction project.
In summary the TCC held that:
- The employer’s payment notice was invalid because it did not adequately set out the basis upon which the sum stated as due had been calculated.
- The payment notice did not incorporate valuation spreadsheets circulated in previous payment cycles. Such documents would only be incorporated by express reference.
- Contrary to the adjudicator’s decision, the employer’s pay less notice was sufficiently detailed and so was valid and was not tainted by the lack of detail in the payment notice.
The TCC also considered the issues of set-off between adjudicators’ decisions and the grounds for ordered a stay of enforcement.
The background
The dispute arose out of the expansion of Shepperton Studios in Surrey, home to one of the world’s most prominent film production complexes, under a JCT design and build contract worth around £331 million. Laing O’Rourke Delivery Limited (LOR) was the contractor; Shepperton Studios Limited (SSL) was the employer.
The dispute concerned an interim payment application submitted by LOR for approximately £5.62 million. SSL’s employer’s agent responded with a payment notice valuing the works at around £2.42 million, then followed it up with a pay less notice arguing that once deductions for liquidated damages, utilities and catering costs were factored in, the net sum owed was nil.
LOR referred the dispute to adjudication. The adjudicator found both notices were invalid. The payment notice failed because it did not explain the basis on which the £2.42 million figure had been calculated. Then, because the pay less notice derived its starting figure from the defective payment notice, it concluded that the pay less notice was also invalid.
Consequently, LOR’s payment application became the notified sum payable by SSL regardless of whether it reflected the true value of the works.
LOR was awarded £5.62 million and sought to enforce that decision in the Technology and Construction Court (TCC). The TCC agreed with the adjudicator on the payment notice but reached an entirely different conclusion on the pay less notice.
Why the payment notice failed
The Court had little difficulty confirming that the payment notice was invalid as critically, it failed to explain the basis on which the sum stated as due had been calculated.
Whilst SSL’s payment notice stated a gross valuation figure of approximately £2.42 million, it did not set out the calculation behind it. SSL’s position was that the basis for the figure was evident from earlier spreadsheets and valuation documents that had been shared with LOR during the previous payment cycles. The Court rejected that reasoning.
Drawing on the earlier decision in S&T (UK) Ltd v Grove Developments Ltd [2018], the TCC confirmed that external documents can only supplement a payment notice if they are expressly referred to. It is not enough that the recipient has seen them before, or that a diligent reader could piece the calculation together from materials already in circulation. The notice itself must either contain the calculation or make clear that a specific identified document is being relied on to provide it. Since SSL’s payment notice did neither, it failed.
Why the pay less notice survived
The more significant part of the judgment concerned the pay less notice, and specifically whether the adjudicator had been right to treat it as contaminated by the defective payment notice.
LOR’s argument was straightforward. The sum stated as due in the pay less notice was derived from the figure in an invalid payment notice and accordingly the pay less notice must also be invalid. The Court did not accept that logic, and its reasoning turned on the distinct functions that each notice performs within the payment cycle.
A payment notice answers one question: what does the employer consider the gross value of the works to be at the due date, and how has it calculated that figure?
A pay less notice answers a different question entirely: what deductions does the employer intend to make from whatever sum is otherwise due, what is the basis of these deductions and what is the sum considered to be due at the date of the notice? These are separate informational obligations.
The validity of each notice turns on whether it fulfils its own particular function, not on whether the notice that preceded it was compliant.
This position is supported by both the Construction Act and the JCT payment mechanism, whereby a payer may still give a pay less notice even if it does not give a payment notice; the payer effectively has two (separate) bites at the cherry.
In this case, SSL’s pay less notice contained a detailed schedule of deductions. LOR did not dispute that each individual deduction was sufficiently explained. The Court therefore held that the pay less notice was valid and effective. The correct approach was therefore to take LOR’s applied-for sum of £5.62 million and apply the valid deductions from the pay less notice, leaving a balance of approximately £3.2 million. That was the sum the TCC ordered SSL to pay, rather than the full £5.62 million the adjudicator had awarded.
Payers may therefore breathe a (qualified) sigh of relief: a valid pay less notice protects the right to make deductions even where the payment notice that preceded it has failed. But that protection only holds if the pay less notice itself is properly drafted. Had SSL’s schedule of deductions been inadequate in any respect, the outcome could have been very different.
What about the other adjudications?
In the enforcement proceedings, SSL also sought to reduce the enforced sum further by reference to the outcomes of other adjudications between the parties. In 5 separate adjudication decisions LOR had been refused extensions of time and various deduction values had been determined in SSL’s favour. SSL argued that those findings should be set off against the sum due to LOR.
The TCC rejected that approach reiterating that the adjudication regime operates on a “pay now, argue later” basis. Its purpose is to keep cash moving on projects and to prevent disputes from becoming a reason to withhold payment while parties fight out the underlying merits.
The TCC therefore held that the setting off of one adjudicator’s decision against another requires separate enforcement proceedings for each decision.
The Stay Application: Financial pressure and the parent company guarantee
SSL’s final line of argument was an application for a stay of execution, to suspend the obligation to pay while related Part 8 proceedings continued. SSL argued that LOR was financially weak, and if SSL paid now but then succeeded in the ongoing proceedings, it might find itself unable to recover the money from LOR.
Under the principles set out in Wimbledon Construction Company Vago Ltd [2005] EWHC 1086 (TCC), a stay will usually be granted where a claimant is in insolvent liquidation or where there is no real dispute that the claimant is insolvent. LOR’s financial position was not straightforward: it was dependent on ongoing support from its parent group, and its evidence of improving prospects relied partly on future projections and unaudited management accounts rather than verified financial information. In isolation, those factors pointed towards a stay being granted.
The decisive factor, however, was a parent company guarantee if favour of SSL provided by Laing O’Rourke Corporation Limited, that unconditionally guaranteed the performance of LOR’s obligations under the building contract. The TCC held that the existence of that guarantee provided a solid and enforceable route to recovering any sum paid out if the position later changed. On that basis, the stay was refused.
What this means in practice
There have been numerous court decisions over the years concerning the validity or otherwise of payment notices and pay less notices. This demonstrates the need to “get it right”. The court has emphasised that it will not take an overly legalistic approach, but if the payer does not get the fundamental requirements right both in terms of content and timing, it can have significant implications particularly on complex high-value projects. Ultimately, the notices that govern payment are not administrative box-ticking. They are legally and contractually significant documents with strict requirements. Errors can have consequences that are immediate and often substantial. Getting them right at the time costs a fraction of what it costs to deal with the fallout.
Buckles’ Construction team advises employers, contractors and professional teams on payment disputes, adjudication, enforcement and contract administration. If you have questions about payment notices, pay less notices or the adjudication process, we would be glad to help.
