The TCC recently issued a decision in Laing O’Rourke Delivery Limited v Shepperton Studios Limited containing helpful reminders for those in the construction industry. The first reminder concerns adjudication enforcement when one party is insolvent, which we discussed in this article. The second concerns the validity of payment notices – lessons which are continuously being learned by parties to building contracts as they battle over sums due. We discuss this second aspect here.
Background - previous adjudication
The parties were Laing O’Rourke Delivery Limited (“LOR”) and Shepperton Studios Limited (“Shepperton”). The parties entered into a building contract under which LOR was to expand and redevelop Shepperton Studios. The works were carried out, and payment was sought by LOR.
LOR applied for payment of £5.6M. In response, Shepperton issued a payment notice 45 dated 30 July 2025 (the “Payment Notice”) which identified a gross valuation of £367m and stated that the sum due was £2.4M. The Payment Notice did not provide a breakdown of how the gross valuation was calculated, nor did it include reference to any other document showing how the gross valuation was calculated.
On 18 August 2025, Shepperton issued a pay less notice making £2.4m of deductions (the “Pay Less Notice”). It used the same gross valuation as in the Payment Notice. Appendices were incorporated in support of the deductions. Under the Pay Less Notice, the sum due was zero.
LOR raised adjudication proceedings against Shepperton challenging the validity of both notices and seeking payment of the sum of £5.6m sought in its application for payment. The Adjudicator found in favour of LOR and awarded LOR the principal sum of £5.6M and interest. He concluded that Shepperton’s Payment Notice and Pay Less Notice were invalid as they did not set out the basis on which the sum considered due to LOR had been calculated. The Pay Less Notice used that same gross valuation as the Payment Notice which was not broken down, and no document was enclosed showing any breakdown. In short, the invalidity of the Payment Notice caused the Pay Less Notice to be invalid; the mistake has been repeated.
Shepperton refused to pay the £5.6m awarded by the Adjudicator and LOR sought to enforce the award at the TCC.
Court proceedings
The issue at stake for the court was whether the Payment Notice and the Pay Less Notice had been issued validly under the contract, each leading to very different sums having to be paid. The relevant clauses deliberated upon are:
Clause 4.7.5 - “Not later than 5 days after each due date the Employer shall give a notice (a 'Payment Notice') to the Contractor, stating the sum that he considers to be or have been due to the Contractor at the due date, calculated in accordance with clause… 4.13 and clause 4.14, and the basis on which that sum has been calculated.”
Clause 4.9 - (as amended by the Schedule of Amendments incorporated into the building contract) provides:
“.1The final date for payment of each Interim Payment and the final payment shall be 28 days from its due date.
.2Subject to any Pay Less Notice given by the Employer under clause 4.9.5, the Employer shall pay the sum stated as due in the Payment Notice on or before the final date for payment.
.3If a Payment Notice is not given in accordance with clause 4.7.5, the Employer shall, subject to any Pay Less Notice under clause 4.9.5, pay the Contractor the sum stated as due in the Interim Payment Application.
On the Payment Notice, Shepperton argued that the calculation of the gross valuation was known to the parties, it had been discussed between them and has been included in four previous applications for payment. The court rejected this: the calculation had not been expressly incorporated into the Payment Notice and so the notice was invalid. In the judge’s words: “One purpose of the payment notice is to identify how the sum said to be due is built up. The parties have agreed what is to be provided. The commercial sense in providing a contractor with that information, so he can see on which elements of the breakdown any disagreement lies, is obvious. To that end, there should generally be no need to look beyond the document itself or…. documents incorporated by reference.” Therefore, it does not matter if the detail of a calculation is passed between parties, if this is not contained within the Payment Notice then the Payment Notice is invalid.
On the Pay Less Notice, LOR did not dispute the calculation of the deductions made by Shepperton, but rather argued that the starting point was incorrect. Shepperton made the deductions from the same gross valuation used in the Payment Notice and since that notice was invalid, the balance of zero brought out by the Pay Less Notice must necessarily be wrong. In short, the Payment Notice was invalid, therefore, the Pay Less Notice has to be invalid.
LOR’s argument that the Payment Notice contaminated the Pay Less Notice was rejected by the court. A Pay Less Notice only needs to (i) state the sums being deducted and (ii) explain how those deductions are calculated. If the deductions are clearly explained, they remain effective - it does not matter that the deductions started from an incorrect gross figure. The ability to make deductions was not lost just because of an incorrect starting point. The Pay Less Notice was not invalid.
The court went further, making it clear that the parties contract allowed LOR relief from an invalid payment notice. LOR’s remedy was under clause 4.9.3 which meant that the £5.4m in the application for payment became payable. However, that was subject to any pay less notice issued. And so, the court decided that the sum of £3.2m was to be paid by Shepperton to LOR – being the £5.4m less the Pay Less Notice deductions of £2.4m.
Reminders for the construction industry
There will undoubtedly always be arguments as to the sums due or the validity of payment notices. However, key elements will remain: the need to show how a sum has been calculated.
A party should always include a calculation or a clear reference where this can be found: show your working. It is irrelevant that the parties may know how the sum has been calculated, if the detail is not referred to in the notice, then the notice is not valid.
It is always worth checking the payment terms of your building contract. They may provide more or they may provide less than thought. In this case, the parties’ contract allowed the application for payment to determine the gross valuation; the defective Payment Notice was therefore immaterial and there was no contamination of the subsequent Pay Less Notice. Therefore, the employer was allowed to make deductions.
If you have any concerns or questions please do not hesitate to contact our construction and engineering team or your usual Brodies Contact.
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