In Laing O’Rourke Delivery Ltd v Shepperton Studios Ltd EWHC 612 (TCC), the Court looked at a familiar but important payment issue under the Construction Act: if a Payment Notice is defective, does that mean a later Pay Less Notice also fails?
The answer is no, not if the Pay Less Notice itself is properly done.
What happened?
Laing O’Rourke made an interim payment application for £5.62 million under a £331 million design-and-build contract for Shepperton Studios. Shepperton responded with a Payment Notice stating that £2.42 million was due, but the notice did not properly explain how that figure had been calculated. Shepperton then served a Pay Less Notice, deducting a further sum of c.£2.42 million and setting out the deductions in detail. In practical terms, Shepperton said nothing was left to pay.
The dispute centred on whether the flawed Payment Notice meant the Pay Less Notice also failed. Laing O’Rourke said that the invalid Payment Notice “contaminated” the Pay Less Notice, whereas Shepperton argued that the two notices were independent and its Pay Less Notice was valid because it clearly set out the deductions and the basis for them.
What did the TCC decide?
The Court accepted that Shepperton’s Payment Notice was defective, but rejected the argument that the defect automatically carried over to the Pay Less Notice. The Judge held that the Pay Less Notice stood on its own feet because it clearly explained the deductions being made, and granted summary judgment for £3.2 million rather than the full £5.6 million claimed. So, although the first notice failed, the second one survived.
What can we learn from this?
Payment Notices and Pay Less Notices are not one and the same, and a problem with one does not necessarily poison the other. For anyone dealing with payment notices, the practical lesson is to get each notice right, explain the calculations clearly, and never assume that a flaw in the first notice will decide the whole dispute.
Have concerns or need more clarity on payment issues? Don’t hesitate to get in touch. Our team is on hand to offer clear and commercial legal support.
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This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.
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