Can A Defective Payment Notice Invalidate A Pay Less Notice?

In Laing O'Rourke Delivery Ltd v Shepperton Studios Ltd [2026], the Technology and Construction Court (TCC) has provided important clarification on the interaction between payment notices and pay less notices. Amongst other things, the decision considers a point on which there was previously no clear authority: does a defective payment notice invalidate or "contaminate" a subsequent, otherwise compliant pay less notice?

We outline the background to the dispute and the TCC's judgment on this point below.

Background to the dispute

The dispute concerned the validity of payment and pay less notices issued under a building contract between Laing O'Rourke Delivery Limited (LOR), the contractor, and Shepperton Studios Limited (SSL), the employer.

The contractor had commenced an adjudication, seeking payment of £5.6 million as set out in its Application for Payment (AFP) 45.

The adjudicator found that the employer's payment notice 45 was defective, because it failed to explain the basis on which the employer's gross valuation of the sum it considered to be due had been calculated.

The adjudicator went on to conclude that this defect also rendered the employer's subsequent pay less notice invalid and awarded the contractor the full sum applied for in AFP 45.

The employer resisted enforcement, arguing that even if the payment notice was defective, the pay less notice remained valid because it clearly and properly set out the deductions being made.

Can a defective payment notice "contaminate" a later pay less notice?

The key question was whether a failure in a payment notice can "contaminate" a later pay less notice, such that both notices are invalid. The Court noted that no authority had been identified addressing this specific point.

The TCC's decision

The payment notice

The Court agreed that the employer's payment notice 45 was invalid, because it failed to provide a breakdown of the gross valuation figure the employer considered to be due, instead merely stating a lump sum without showing how it was calculated.

This was contrary to the requirements of clause 4.7.5 of the building contract, which required the employer to give a payment notice stating the sum it considered to be due 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".

An unexplained reference to earlier spreadsheets was insufficient; the detail must appear in the notice itself or in documents expressly incorporated by reference, as per S&T (UK) Ltd v Grove Developments Ltd [2018].

The pay less notice

However, the Court disagreed with the adjudicator's finding that this deficiency contaminated the pay less notice and held that the invalidity of the payment notice did not render the pay less notice invalid.

The key reasoning was as follows:

• the contract provides a distinct remedy for a defective payment notice: where a payment notice is invalid, the contractor's applied-for sum becomes payable. However, this is expressly made subject to any pay less notice;
• the pay less notice serves a separate informational purpose, namely to explain what deductions are being made and why, not to justify or restate the underlying gross valuation; and
• where the deductions are sufficiently detailed, the pay less notice stands.

LOR accepted that each of the three deductions in the pay less notice was sufficiently detailed. The Court held that the ability to deduct does not fall away merely because the pay less notice starts from a figure derived from a defective payment notice.

The contractual wording thus produced a result that the Court considered both textually sound and commercially sensible: the contractor received the benefit of the default payment mechanism triggered by the invalid payment notice, but the employer retained the right to make properly notified deductions.

The Court therefore held that the pay less notice was valid and effective, notwithstanding the earlier defect in the payment notice.

Practical takeaways for employers and contractors

• Employers must ensure that payment notices contain a sufficient breakdown of the gross valuation. A bare statement of a gross valuation figure, without showing how it is calculated by reference to the relevant contractual provisions, will not be sufficient.
• If relying on external documents for detail, employers should expressly incorporate them by reference on the face of the notice. The court drew a clear distinction between a notice that incorporates documents by reference (as in S&T v Grove Developments) and one that simply assumes the recipient has access to the information elsewhere.
• Contractors should be cautious about assuming that a defective payment notice automatically invalidates a related pay less notice.
• Employers should ensure that pay less notices are self-contained and properly detailed, regardless of any deficiency in the underlying payment notice.

Read the original article on GowlingWLG.com

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