Laing O’Rourke v Shepperton Studios — key lessons on payment & pay less notices

The recent TCC decision in Laing O’Rourke v Shepperton Studios is an important reminder of how costly mistakes in payment and pay less notices can be. The Court’s analysis shows just how quickly defects in notice drafting can shift the financial outcome — and why even a flawed payment notice doesn’t necessarily render a pay less notice ineffective.

The judgment offers practical clarity on what the courts expect, where the risks lie and how to avoid expensive missteps in the payment cycle.

Here, Georgina Rothwell and Jennie Jones explore what happened in the case, why the notices were treated differently and the key lessons for anyone administering construction contracts.

Background & the Court’s decision

The Court enforced an adjudicator’s decision only in part, reducing a £5.6m award to approximately £3.2m after upholding the employer’s pay less notice, despite defects in the payment notice.

The dispute arose out of a £331m design and build contract for the expansion of Shepperton Studios, including new sound stages, workshops and associated infrastructure. Laing O’Rourke submitted an interim payment application for around £5.6m. In response, the employer’s agent issued a payment notice valuing the works at roughly £2.4m, followed shortly afterwards by a pay less notice asserting that once deductions were applied, nothing was payable.

The matter was referred to adjudication. The adjudicator concluded that both the payment notice and pay less notice were invalid, with the consequence that Laing O’Rourke’s application became the ‘notified sum’ and was due and owing with no enquiry into the merits. Laing O’Rourke then sought to enforce that decision in the TCC where the Court took a more nuanced view of the effectiveness of the competing notices.

Why the payment notice failed

The Court agreed that the payment notice was invalid. A payment notice must state the sum due and the basis on which that sum had been calculated. The payment notice provided only a headline valuation figure, without setting out how that figure had been arrived at. Importantly, the Court rejected any argument that earlier spreadsheets or valuation documents — sent separately — could remedy the shortcomings in the notice. The Court’s stance was that unless those documents are clearly incorporated into the notice itself, they can’t be relied upon to satisfy the contractual requirement to explain the calculation. 

Why the pay less notice was valid

Where the Court parted from the adjudicator’s decision was on the status of the pay less notice. The Judge held that — notwithstanding the defective payment notice — the pay less notice was valid. Unlike the payment notice, it included a clear and detailed schedule of deductions, covering items such as liquidated damages, utilities and catering costs. That level of detail was sufficient to explain the basis of the reductions being made.

Crucially, the Court rejected the argument that a pay less notice is automatically undermined if it starts from a valuation figure contained in an invalid payment notice. Provided that the pay less notice itself properly explains the deductions being applied, it was deemed that it can still be effective. Those deductions were therefore upheld, with the effect that the enforceable sum was reduced to approximately £3.2m, rather than the full £5.6m awarded in the adjudication.

No set‑off from other adjudications

Shepperton Studios also attempted to reduce the amount payable by relying on the outcomes of other adjudications between the parties. That approach was firmly rejected. The Court reaffirmed the ‘pay now, argue later’ principle that underpins the adjudication regime in construction law. Unless and until other adjudication decisions are separately enforced, they can’t be used as a set‑off against a decision that’s before the court for enforcement. 

Practical takeaways 

This decision offers several important reminders for those administering construction contracts:

1. Payment notices remain a high‑risk document. They must clearly explain how the valuation has been calculated, either on their face or by expressly incorporating supporting material. A bare figure — even if consistent with earlier spreadsheets — is unlikely to be enough.
2. Pay less notices shouldn’t be treated as a mere afterthought. A properly drafted pay less notice, setting out deductions with sufficient clarity and detail, can significantly reduce exposure even where there are problems with the payment notice earlier in the cycle.
3. Parties shouldn’t assume that other adjudication outcomes can be used to ‘net off’ sums at the enforcement stage. The court continues to take a strict approach, prioritising cash flow and leaving substantive valuation disputes to be resolved later.
4. It remains crucial to get notice drafting right at the time. Errors can have immediate and expensive consequences, particularly on large‑scale projects with complex interim valuations.
    

The case clarifies that a defective payment notice won’t necessarily invalidate a carefully prepared pay less notice. For employers and contractors alike, attention to detail in payment documentation remains critical.

How we can help

Our construction team advises employers, contractors and consultants on managing payment risk and navigating adjudication and enforcement disputes. 

We regularly support clients with:

• Drafting and reviewing payment notices and pay less notices to ensure contractual and statutory compliance.
• Strategic advice on interim payment disputes, including ‘smash and grab’ adjudications.
• Acting in adjudication enforcement proceedings and resisting enforcement where appropriate.
• Proactive contract administration support to reduce the risk of costly payment disputes arising in the first place.

Talk to us by calling 0333 004 4488, emailing hello@brabners.com or filling in our contact form below.