Southern Electricity Power Distribution PLC v OCU Modus Limited

In a defective construction claim, the cost of reinstatement is ordinarily the measure of loss where reinstatement is a proportionate and reasonable response. The assessment is objective. A claimant relying on its remedial decision must prove both causation and reasonableness.

The defendant bears the burden of proving that the claimant acted unreasonably in failing to mitigate. It is insufficient to show that a cheaper response was available. Where more than one reasonable response exists, the defendant cannot dictate the claimant’s choice. However, if two alternatives are equally efficacious, the additional cost of the more expensive option will ordinarily be irrecoverable.

SEPD claimed the cost of replacing two defective underground electricity cable circuits installed by Modus under an adoption agreement. Modus accepted liability for interim repairs but disputed the extent of the defects and the reasonableness and recoverability of replacing the circuits along a new route while keeping the existing circuits live.

The contractual provisions required Modus to bear reasonable costs of correcting defects. The principal issues were whether complete replacement by the adopted methodology was reasonable and caused by Modus’s breaches, and whether the resulting costs were themselves reasonable.

1. Claim succeeded. SEPD recovered £2,642,237.71, subject to consequential directions on interest.
2. The normal measure for defective construction work is the reasonable cost of reinstatement. Under [1996] AC 344, that approach is displaced where reinstatement is disproportionate or unreasonable. Reasonableness is assessed objectively.
3. SEPD proved that the defects were widespread and likely to cause progressive degradation and premature failure. Replacing both circuits, rather than replacing some or all joints, was therefore a technically justified remedial response. Joint replacement would have increased the number of weak points and would not necessarily have addressed defects in the cables or sheath repairs.
4. Replacement in the existing or adjacent trench while a circuit remained live involved significant and incompletely mitigable safety risks. Complete replacement on a separate route allowed the existing connection to remain live and was objectively reasonable. The customer’s pressure, the public-interest context, SEPD’s statutory and business interest in maintaining the connection, and the customer’s £700,000 contribution were legitimate considerations. The absence of a legal duty to compensate the customer for lost revenue did not make the decision unreasonable.
5. Modus failed to prove that SEPD’s choice was an unreasonable failure to mitigate. The burden was on Modus to establish the cost of the alternative solution it advanced. A cheaper alternative was not enough where the chosen response was reasonable. The actual costs were also reasonable once the remedial methodology was established.
6. The failure to plead complete joint replacement as the positive mitigation case caused prejudice and would, absent the court’s substantive conclusion, have prevented Modus from advancing that case. The claim was accordingly awarded in full.