Payment notices, pay less notices, and why “basis of calculation” really matters

On the 16 March 2026 the Technology and Construction Court (TCC) handed down judgment in the case of Laing O'Rourke Delivery Ltd (“LOR”) v Shepperton Studios Ltd (“SSL”) 16 Mar 2026 [2026] EWHC 612 (TCC), KBD.

The case arose out of an application to enforce an adjudicator’s decision and focused on a familiar issue in construction payment disputes: whether a Payment Notice and a Pay Less Notice complied with the contract’s notice requirements.

The decision is a strong reminder that (a) notice compliance is contractual, (b) a defective Payment Notice does not automatically invalidate a Pay Less Notice, and (c) parties should treat “basis of calculation” as a requirement to provide meaningful build-up detail, not just a bottom-line number. This case is a reminder to the industry of the importance of getting payment notices correct.

Background to the dispute

LOR submitted an interim payment application for circa £5.62 million. In response, SSL issued a payment notice which stated a gross valuation and a net sum due but did not explain how the gross valuation was built up, nor did it expressly incorporate a supporting valuation breakdown by reference.

SSL then served a pay less notice, setting out deductions for liquidated damages, utilities, and catering, reducing the balance to £0, and included detailed information explaining the basis of those deductions.

The Adjudicator found that both the payment notice and the pay less notice were invalid and ordered SSL to pay the full circa £5.62 million. The dispute then came to court in enforcement proceedings, alongside Part 8 declaratory proceedings challenging the adjudicator’s approach.

What was the court's decision?

The Court ultimately ruled that SSL’s payment notice was invalid due to its failure to detail the basis of calculation of the gross valuation, which was required by the contract. The contract required a Payment Notice to state (i) the sum the payer considered due at the due date, and (ii) the basis on which that sum has been calculated. The TCC held that this requirement meant more than stating a gross valuation figure and arriving at a net amount due.

The Court decided that the Pay Less Notice was valid, meaning that SSL was entitled to make the stated deductions. The Court held that the Pay Less Notice contained sufficient detail, and that it did not matter that the Payment Notice was invalid. Because the Payment Notice was invalid, but the Pay Less Notice was valid, the Court enforced the adjudicator’s decision only to the extent of the balance due after deducting the items in the Pay Less Notice.

Takeaway points

This judgment is a stark reminder of the importance of getting payment notices correct and following the contract.

1. “Basis of calculation” means real substance - do not assume that stating a single gross valuation and net figure is enough. Where the contract machinery requires a build-up (e.g., components of gross valuation), the notice should show it.
2. Incorporate supporting documents properly - If you rely on a valuation spreadsheet or prior cycle documents, make sure the notice expressly refers to them (and ideally attaches them). The court will not generally conduct a forensic exercise into historic exchanges to “rescue” a non-compliant notice.
3. A defective Payment Notice does not automatically kill a Pay Less Notice - a Pay Less Notice is not automatically invalid just because the Payment Notice is defective—provided the Pay Less Notice itself complies with the contract and clearly sets out deductions/basis.

Specialist construction advice

Holmes & Hills LLP supports developers, contractors, and consultants with payment disputes and defective notices. Speak to our Construction Law Team for specialist guidance.