LOR v Shepperton – defective notices, valid deductions, and the limits of “true value” defences
The Technology and Construction Court has again revisited the operation of payment and pay less notices under a JCT Design and Build Contract, together with the limits of resisting enforcement of an adjudicator’s decision. In Laing O’Rourke Delivery Ltd v Shepperton Studios Ltd [2026] EWHC 612 (TCC), the Court was required to consider whether a defective payment notice invalidated a corresponding pay less notice, whether parallel adjudications could be relied upon to reduce the sum payable, and whether insolvency justified a stay of execution.
The judgment provides a useful clarification of the distinction between payment notices and pay less notices, and reinforces the continued strength of the “pay now, argue later” principle.
Background
The dispute arose under a building contract dated 16 November 2021, under which Laing O’Rourke Delivery Limited (“LOR”) was engaged as contractor and Shepperton Studios Limited (“SSL”) as employer. The adjudicator determined that SSL’s payment notice and pay less notice issued in response to Interim Application for Payment 45 were invalid, with the consequence that the full sum applied for, £5,627,275.11, became payable.
LOR commenced enforcement proceedings. SSL resisted enforcement on four principal grounds: first, that the adjudicator’s decision was obviously wrong and should not be enforced in light of parallel Part 8 proceedings; secondly, that the pay less notice remained valid even if the payment notice was defective; thirdly, that five separate adjudications had determined the “true value” of the works and undermined LOR’s entitlement; and fourthly, that any enforcement should be stayed due to LOR’s alleged insolvency.
Validity of the payment notice
The central issue was whether SSL’s payment notice complied with the contractual requirement to state not only the sum due but also “the basis on which that sum has been calculated”. The payment notice identified a gross valuation exceeding £367 million and stated a net sum due, but provided no breakdown of how that valuation had been derived, nor did it incorporate any supporting material by reference.
SSL contended that the identification of a gross valuation figure was sufficient, and that LOR was already familiar with the underlying valuation from previous payment cycles. That submission was rejected. The Court held that the requirement to state the “basis of calculation” necessitates more than the provision of a headline figure. It requires the employer to identify, on the face of the notice or by express incorporation, how the valuation has been built up in accordance with the contractual valuation provisions.
The Court emphasised that the purpose of the payment notice is to enable the contractor to understand the elements of the valuation and identify areas of disagreement. That purpose would be undermined if the contractor were required to piece together the calculation from prior exchanges or historic documents. In the absence of any breakdown or incorporation, the payment notice was therefore invalid.
Validity of the pay less notice
The more significant aspect of the judgment concerns the treatment of the pay less notice. Although the adjudicator had concluded that the invalidity of the payment notice rendered the pay less notice ineffective, the Court disagreed.
The pay less notice in this case set out detailed deductions, including liquidated damages, utilities costs, and catering costs, each supported by a clear breakdown. LOR did not challenge the adequacy of that detail. Instead, it argued that because the pay less notice began with the same flawed valuation figure as the payment notice, it meant it arrived at the wrong net sum and was therefore invalid.
The Court rejected that analysis. It held that the contractual regime expressly provides that where a payment notice is invalid, the contractor’s application becomes the notified sum, but this remains subject to any valid pay less notice. The function of the pay less notice is to set out the deductions the employer intends to make and the basis for those deductions. Provided that those deductions are properly explained, the notice is effective.
The Court therefore concluded that the failure to provide a breakdown in the payment notice did not “contaminate” the pay less notice. The employer remained entitled to deduct the sums properly identified in that notice.
The resulting entitlement
Applying that analysis, the Court enforced the adjudicator’s decision only in part. From the sum applied for by LOR (£5,627,275.11), the Court deducted the sums properly set out in the pay less notice (£2,428,614.47). The resulting sum of £3,198,660.64, together with VAT and interest, was held to be due.
Part 8 proceedings and “obvious error”
SSL sought to rely on parallel Part 8 proceedings, arguing that the adjudicator’s decision was clearly wrong and that it would be unconscionable to enforce it without first determining the underlying issues. The Court considered the guidance in paragraph 9.4.5 of the TCC Guide, which permits such an approach only in limited circumstances where there is a short, self-contained issue that can be resolved without detailed evidence and which would be unconscionable to ignore.
The Court found that that criteria was not met. The issues of contractual construction were not straightforward and required substantial argument. In those circumstances, the usual approach applied. The Court decided enforcement should not be delayed by the existence of Part 8 proceedings.
Reliance on other adjudications
SSL also relied on five separate adjudications which, it argued, demonstrated that LOR had no substantive entitlement to much of the sum claimed. This was, in substance, an attempt to introduce a “true value” defence at the enforcement stage. That argument was rejected.
The Court reaffirmed that adjudication enforcement operates on a “pay now, argue later” basis. A party must comply with an adjudicator’s decision and may only seek to recover any overpayment through subsequent proceedings. Set-off between adjudication decisions is only permissible in limited circumstances, including where separate enforcement proceedings are brought in respect of each decision, which was not the case here. The Court therefore declined to take those adjudications into account.
Stay of execution
Finally, SSL sought a stay of execution on the basis that LOR was insolvent and would be unable to repay the judgment sum if SSL succeeded in subsequent proceedings. The Court accepted that, as a starting point, insolvency may justify a stay. However, that presumption can be displaced where there is adequate security.
In this case, LOR’s obligations were supported by a parent company guarantee from Laing O’Rourke Corporation Limited. The Court found that this guarantee provided sufficient protection to SSL and removed the risk of non-repayment. In those circumstances, no stay was granted.
Key Takeaway
This decision provides a clear reminder that payment notices must do more than state a figure; they must explain how that figure has been calculated. However, it also confirms that a defective payment notice does not necessarily undermine a compliant pay less notice. The two serve distinct functions within the contractual regime, and the validity of one does not automatically determine the validity of the other.
The judgment also reinforces the limited scope for resisting enforcement of adjudication decisions. Attempts to rely on parallel Part 8 proceedings or “true value” arguments will rarely succeed, and the presence of a parent company guarantee may be sufficient to defeat any application for a stay based on insolvency.
How CCC can help
Disputes of this nature frequently arise from failures to comply with the strict technical requirements of payment provisions under standard form contracts. At CCC, we regularly advise contractors and subcontractors on the preparation and review of payment and pay less notices, ensuring that valuation methodologies are properly documented and defensible. We also assist in adjudication proceedings and enforcement actions, including defending claims where notice validity, true value assessments, or insolvency risks are in issue. Early strategic advice can often prevent disputes escalating to enforcement proceedings and protect entitlement to payment.
