Ostensible/Apparent Authority

Question 1

What is Ostensible authority?

Answer 1

Ostensible authority is different from actual authority. It does not result directly from the consent of the principal, express or implied, to the agent, but from the words or conduct of the principal towards a third party.

It involves the principal intentionally or negligently holding out (or representing) another to be their agent.

The words or conduct of the principal lead a third party to believe that the ‘agent’ is authorised when, in reality, the agent has no authority at all or the agent has exceeded their authority. Where the third party acts to their detriment in reliance upon the holding out, the principal will be bound notwithstanding the fact that the ‘agent’ had no actual authority to perform the act.

Question 2

What are the key case authorities?

Answer 2

Thus, ostensible authority arises where a person represents to a third party by words or conduct that another is his or her agent:

Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503;

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 at 78;

Di Bello v De Costi Seafoods (Holdings) Pty Ltd [2005] NSWCA 267 at [24]–[25].

Question 3

Ostensible authority requires P to have made a representation to 3rd party. How can a representation be made?

Answer 3

The representation may be made ‘by conduct, that is, by permitting the agent to act in some way in the conduct of the principal’s business with other persons’: Freeman & Lockyer at 503 per Diplock LJ.

Question 4

Where is the scope of authority sourced for Directors and partners in partnership?

Answer 4

The precise scope of the authority extended to particular categories of agents (for example, directors and partners) is dealt with in legislation. Usually, the specific legislative provisions embody the common law concepts. For example, under partnership legislation, which is relatively uniform in all states and territories, a partner has ostensible authority to act as agent for the other partners but only with respect to conducting business of the kind usually carried on by the partnership: Lederberger and Scheiner v Mediterranean Olives Financial Pty Ltd [2012] VSCA 262 at [41]; Crouch and Lyndon (a firm) v IPG Finance Australia Pty Ltd [2013] QCA 220.

Question 5

How have the courts determined the extent of OA? (Solicitor, Practice Manager, Mediator, joint business owners)

Answer 5

The extent of ostensible authority will depend upon the width of the representation made: for example, a person holding someone out to be his or her solicitor in a particular matter amounts to no more than a representation that the solicitor has from the client all the authority that is ordinarily to be implied in favour of a solicitor acting under a retainer in such a matter: Nowrani Pty Ltd v Brown [1989] 2 Qd R 582.

Similarly, holding out someone as practice manager or mediator does not carry with it any ostensible authority to give legal advice, undertake conveyancing matters or establish corporations and trusts: Taylor v Gould [2011] QSC 203 at [34].

In Rosecell Pty Ltd v JP Haines Plumbing Pty Ltd [2015] NSWSC 1238 (upheld on appeal in Haines Bros Earthmoving Pty Ltd v Rosecell Pty Ltd (2016) 92 NSWLR 47), the court held that the alleged representation, that the principal was an entity jointly owned and operated by Mr Doughty and Mr Abboud (the alleged agent), went no further than that Mr Abboud had authority to act in the ordinary course of the business carried on by him and Mr Doughty. It did not justify the assumption that Mr Abboud alone had authority to sell: at [49]. The same applied to representations made by leaving Mr Abboud in possession of the premises and giving him access to the records of the principal: at [50].

Question 6

Can there be OA if A knows of an actual limitation of authority? Is this always strictly applied?

Answer 6

If the agent knows of an actual limitation of authority in the agent, there can be no ostensible authority because the third party will not have relied upon the representation: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 559 and 567– 8.

It has been held that this principle may not be strictly applied where, in view of the principal’s conduct as a whole in the particular circumstances, it would be inequitable to allow a principal to resile from a holding out: Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd (2007) 14 ANZ Ins Cas 61-732; [2007] VSC 158 at [203].

Question 7

Why is the principle underlying OA Estoppel?

Answer 7

The principle underlying ostensible authority is estoppel: Freeman & Lockyer at 503; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451.

The purpose of the ostensible agency concept is to remedy the injustice that would flow if one person who represented another to be his or her agent were able to resile from that representation: Pacific Carriers at [39]–[40].

Another rationale for the concept of ostensible agency is that contracting parties should be held to the objective appearances of intention they create: Reynolds, ‘The Ultimate Apparent Authority’ (1994) 110 LQR 21 at 22.

Question 8

What if P has precisely defined what the authority of A is? Will this prevent OA?

Answer 8

The principal may have gone so far as to prohibit expressly a particular action by the agent. This will not, however, stand in the way of ostensible authority. It is not relevant that the extent of the authority represented to the third party conflicts with an actual limitation of authority placed upon the agent where the principal knows that the agent was acting as though their authority was unlimited: International Paper Co v Spicer (1906) 4 CLR 739 at 750. 10

Further, if an agent has been placed by their principal in a position where their ostensible authority exceeds their real authority, the principal is not entitled to be relieved against any contract entered into merely upon the grounds that they had previously instructed their agent not to enter into a contract except under certain circumstances, these circumstances not being known to the other party: Bowman v Bacon (1897) 18 LR (NSW) 12.

Question 9

What was the principle decided in Robinson v Tyson (1888) 9 LR (NSW) 297 re ‘usual authority;’?

Answer 9

If a particular act is within the usual authority of a person occupying a particular position, then the public is entitled to assume that that person has authority to do all that is usually authorised, notwithstanding that it might conflict with private instructions given to the agent by the principal: Robinson v Tyson (1888) 9 LR (NSW) 297.

Question 10

If A abuses his/her OA and the purpose of their action was to benefit them, and to defraud P - is P still bound?

Answer 10

If a transaction is within the ostensible authority of the agent then it is irrelevant that the agent’s purpose was to act for their own benefit and to defraud the principal, unless the third party had notice: Tobin v Broadbent (1947) 75 CLR 378 at 401 per Dixon J.

If the third party can be taken to be aware that the agent acted for their own benefit, then the conduct of the agent will not bind the principal:

Combulk Pty Ltd v TNT Management Pty Ltd (1993) 41 FCR 59; 113 ALR 214;

Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421.

On the other hand, an innocent third party may hold an employer bound by the fraudulent act of a servant or agent, even though committed solely for the servant’s benefit: Lloyd v Grace, Smith & Co [1912] AC 716; Kooragang Investment Pty Ltd v Richardson & Wrench Ltd [1981] 2 NSWLR 1 at 5.

This form of authority can be difficult at times to distinguish from actual implied authority, particularly where the basis of the representation alleged is the conduct of the principal in acquiescing to a particular course of dealing by the ‘agent’: Hely-Hutchinson ;

Question 11

What are the 3 elements of OSTENSIBLE AUTHORITY?

Answer 11

The following are the essential elements of ostensible authority:
a representation by the principal to the third party that the agent has the principal’s authority to do a certain act;

reliance upon that representation by the third party; and

detriment suffered by the third party as a consequence of such reliance.

Question 12

What issues can arise in respect of element 1 - representation by P?

Answer 12

Issues that commonly arise when considering a representation by the principal to a third party that an agent has the authority of the principal to do a certain act include:

the manner in which the representation is made;

what conduct can constitute a representation of authority;

who can make the representation; and

to whom the representation must be made.

Question 13

Representation - what is the question to be addressed when tackling this element?

Answer 13

The representation can be made by words or conduct.

The question to be addressed is: did the principal represent, one way or another, to the third party, that the agent had authority to do what they did?

The representation may be made in many different ways: by the principal appointing the agent to a particular position known to the third party, or describing the agent in a particular way (for example, appointing and describing them as ‘chief executive officer’).

It may be made by a course of dealings between a third party and a principal. For example, a development company over time sells a number of residential lots to a particular purchaser, each time executing the contract as vendor by the signature of Mr Smith, a director of the company. The development company could not, after a number of contracts, argue the single director had no authority to bind the company, because by its conduct it has represented that Mr Smith alone as a director had such authority.

The representation may also be made by the principal standing by mute while someone deals with a third party, apparently on behalf of the principal.

Question 14

How does Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 illustrate the first element - Representation? How was it explained further by Mason CJ in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146?

Answer 14

One of the directors of the company (Kapoor) had acted as managing director with the knowledge of the board of directors, despite never having been formally appointed to the position.

Kapoor, as opposed to the board, engaged a firm of architects to help apply for planning permission to develop an estate owned by the company and to do other related work. The architects did the work and then claimed their fees. The company refused to pay, claiming that the director was not authorised to enter into the arrangement with the architects.

The case is explained by Mason CJ in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 159:

The company was a property company and the act of engaging architects fell within the ordinary scope of the authority of such a managing director so that the plaintiffs were under no necessity of inquiring whether the person with whom they were dealing was properly appointed or was authorized to enter into the contract; it was enough that the directors had allowed him to act as managing director, there being power under the articles to appoint him to that position and power to delegate to a managing director all the powers of the board of directors.

By permitting Kapoor to act as the managing director, the board had effectively represented that he had authority to enter into contracts of a kind which a managing director would in the normal course be authorized to enter into on behalf of the company. The company would not have been bound had the contract not been one of that kind. In that event there would not have been a representation by the company that Kapoor had authority to enter into the contract.

Question 15

How is Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451an example of a representation by P of the OA of A? What defence did the Bank mount?

Answer 15

A representation of ostensible authority will often flow from the principal equipping an officer with a certain title, status and facilities. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 , the charterer of a ship suffered loss when sued by the financiers of the purchaser of goods because delivery of the goods had been delayed.

The charterer sought indemnity from the seller of the goods and the seller’s bank, both of which (the charterer contended) had executed an indemnity in the charterer’s favour.

The seller was undoubtedly liable, but the banker argued that, upon the proper construction of the document relied upon, it had not granted an indemnity (merely witnessed the seller’s signature) and that, in any event, the officer who executed the document had no authority to bind the bank to an indemnity.

Question 16

How did the court decide in re the Bank in Pacific Carriers? What authority, if any, did the bank officer have?

Answer 16

The court held that on the proper construction of the document the bank had granted an indemnity.

The issue then became whether the officer who had executed the document and affixed the bank’s stamp had authority to bind the bank to an indemnity.

It was not contested that the officer lacked actual authority, but the charterer argued there was ostensible authority.

The court accepted that contention.

The court regarded as important the fact that the officer had affixed the stamp of the bank, that she had signed the document, that the bank permitted the officer to sign and stamp documents in an unqualified form (that is, not qualifying the bank’s execution as a verification of the seller’s signature only), and that there was nothing in the public documents of the bank inconsistent with the possibility that the officer might have had actual authority to bind the bank.

Question 17

How did the court explain Estoppel in the context of Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480?

Answer 17

Where an officer is held out by a company as having authority, and the third party relies on that apparent authority, and there is nothing in the company’s constitution to the contrary, the company is bound by its representation of authority.

‘The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract’ [ Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503 per Diplock LJ].

It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company [ Northside Developments at 187 per Brennan J].

Question 18

If per Brennan J in Northside the representation must come from the Principal Company, is the actions of the officer then irrelevant? How can a company make representations to 3rd parties?

Answer 18

That does not mean that the conduct of the officer is irrelevant to the representation, but the company’s conduct must be the source of the representation.

In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company’s constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon an assumption that company officers have the authority that people in their respective positions would ordinarily be expected to have.

In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal’s conduct as a whole [ Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36 at 41 per Browne-Wilkinson LJ].

The representation itself must be fairly narrowly focused; that is, the representation must be directed to a particular person or a particular class of people: Leipner v McLean (1909) 8 CLR 307 at 315.

Question 19

What CONDUCT can constitute a representation of authority?

Answer 19

A representation made directly to the third party constitutes evidence of actual authority: International Paper Co v Spicer (1906) 4 CLR 739 at 747.

It may also form the basis for a representation as to ostensible authority. If the communication of authority is not made directly to the third party, then the issues are whether the principal so conducted themselves as to enable the ‘agent’ to hold themselves out to be the principal’s agent for the purpose (for example, of entering into a particular contract) and whether the third party, in dealing with the ‘agent’, believed them to be so authorised: International Paper at 747.

In Bowstead and Reynolds on Agency it is stated that: [T]he representation seems to occur in three main ways. It may be express (whether orally or in writing); or implied from a course of dealing; or it may be made ‘by permitting the agent to act in some way in the conduct of the principal’s business with other persons’.

There are many different ways in which it might be argued a principal has made a representation of authority in respect of another. One occurs when the principal allows the agent to act in a particular way indicative of authority without taking steps to dispel an assumption of authority thereby reasonably induced in the third party: Thompson v Palmer (1933) 49 CLR 507 at 547 per Dixon J, cited in Papantoniou v Stonewell Hotel Pty Ltd [2018] NSWCA 85 at [51].

Question 20

If A holds the title to property, what authority does that create? What can A do with the title?

Answer 20

The mere entrusting of indicia of title to land to a person for safekeeping does not of itself create any ostensible authority to dispose of or mortgage the land; nor does it prevent the true owner from denying the supposed agent’s authority to do so: Daniell v Paradiso (1991) 55 SASR 359 at 363 per King CJ.

In that case, King CJ relied on the principle set out by Lord Herschell LC in

Brocklesby v Temperance Permanent Building Society [1895] AC 173 at 180:

There can be no doubt that the mere possession of deeds of title, although that possession has been lawfully acquired from the real owner of them, will not of itself validate a security given by the person to whom the possession of the deeds has been committed where there was no authority given to him to use the deeds as security.

That is old law, and was distinctly laid down in the case of Martinez v Cooper [(1826) 2 Russ 198; 38 ER 309].

It is only if there has been on the part of the person who trusts the other with the deeds either fraud, or, as it has been sometimes said, such negligence as to be evidence of fraud, that the permitted possession of the deeds of another will validate a security given without the authority of the owner of the deeds.

Question 21

How can negligence on the part of P result in OA being given to A, such that a 3rd party purchaser can rely on it?

Answer 21

In Egan v Ross (1928) 29 SR (NSW) 382, it was held that the principal had been negligent in giving signed memoranda in blank to his agent, who then completed them by inserting the name of a purchaser to whom the principal had stated he would not sell.

The principal was held to have clothed the agent with ostensible authority such that the purchaser was justified in treating the agent as having a general authority to find a buyer within the terms of the memorandum and the principal was therefore estopped from setting up any special instruction given to the agent that a particular person’s name was not to be inserted as purchaser.

This authority did not, however, extend to receipt of the deposit, which does not come within the implied authority of an agent, and the purchaser was therefore bound to pay the full purchase price without deduction of the deposit.

Question 22

What were the facts in Essington Investments Pty ltd v Regency Property Pty Ltd [2004] NSWCA 375? What did the 3rd party argue?

Answer 22

In Essington an independent property consultant, Mr Drummond, took on the role of intermediary between Regency (purchaser) and Essington (vendor).

Mr Drummond took a document that had been through a number of drafts to Regency and asked them to sign it so as to demonstrate they were interested in continuing negotiations. Regency signed it but on the basis it was not to be forwarded to Essington, only shown to it.

Mr Drummond told a director of Essington that he had the signed document but could not release it. A few days later he faxed it through to Essington without a covering letter, whereupon it was signed by the Essington director and returned to Mr Drummond.

Essington maintained that there was a concluded agreement on the basis that Mr Drummond had actual and ostensible authority.

Question 23

What did the court say in Essington Investments Pty ltd v Regency Property Pty Ltd [2004] NSWCA 375 re the actions of P?

Answer 23

In Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375, a case involving arming the agent not with the indicia of title but instead with the indicia of contractual intention (a Heads of Agreement signed by one party but on condition it not be released to the other side), the court said at [46]:

… in my opinion the principle in these cases is that the principal has created a substantial risk that other persons may be misled if the person entrusted with the relevant document does something unauthorised with that document.

If the principal has acted unreasonably in creating the risk and/or allowing it to continue, then it may be found that the principal has ‘permitted’ a representation to be made on the basis of the document in question.

Question 24

What did the courts decide in Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375? Did A have actual or OA?

Answer 24

Essington maintained that there was a concluded agreement on the basis that Mr Drummond had actual and ostensible authority. It failed on both grounds.

In relation to ostensible agency, the court said: 1. Essington knew Mr Drummond had a limitation on his authority (not being able to release the agreement) and that if, without enquiry, they relied upon him having authority to do that which they knew he needed authority to do, they did so at their peril. The subsequent fax of the relevant agreement was a representation by Mr Drummond, not the principal and could not be relied upon as a basis for assuming he had been given authority to release it.

2. The principal, Regency, had not made a representation by silence by arming Mr Drummond with the document and failing to take steps to prevent him from using it, in such a way as to amount to a representation that the document could be released with contractual effect.

The fact that the document forwarded to Essington was a facsimile copy as opposed to the original was a significant factor as to why the argument failed. In considering the effect of arming an agent with a copy as opposed to an original, Hodgson JA said at [53]:

In my opinion, the risk that an original will be misused so as to mislead third parties is a substantial risk, and is a risk which in many cases would be an unreasonable risk that could give rise to a finding that this misuse amounted to a representation permitted by the signer of the document. However, the risk that a copy would be misused so as to mislead other people is a much lesser risk, because the possession and use of mere copies does not suggest authority in the same way as does possession and use of originals, and copies are very readily made, and made available, to various people, and they are also readily falsified.

Question 25

Can a blank rental form, or a finance company’s application form create Agency relationship?

Answer 25

In Quikfund (Australia) Pty Ltd v Chatswood Appliance Spare Parts Pty Ltd [2013] NSWSC 646 the fact that Ms Seifor was given a blank rental form did not amount to a representation by the principal that she had authority to make representations on its behalf. As the court said, ‘the very form of the … rental agreement was that of an offer directed to [the principal] that it could choose either to accept or reject. It also expressly contained provisions about ownership of the rented equipment that contradicted the alleged representation’: at [21].

Similarly, giving a person possession of a finance company’s forms and the ability to fill in essential figures did not mean that person was an agent to receive a deposit on behalf of the finance company: Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at 557– 78; see also Hays International College Pty Ltd and Joshua Cheng v Quikfund (Australia) Pty Ltd [2014] NSWSC 869.

Question 26

Mere Possession of property - when will OA arise & a 3rd party obtain good title from A?

Answer 26

Ostensible authority also arises in the context of determining whether a third party who purchases goods in good faith from an ‘agent’ should get good title notwithstanding that the ‘agent’ lacked express authority from the owner to sell the property to the third party.

It is settled that mere possession of the property of another, without authority to deal with the thing in question otherwise than to keep it in safe custody, will not, in the event of a sale or pledge to a third party, divest the owner of his rights as against the third party: Johnson v Credit Lyonnais Co (1877) 3 CPD 32.

Question 27

What if property was held for purpose of sale? What did the court find in Motor Finance and Trading Co Ltd v Brown [1928] SASR 153?

Answer 27

It is different, however, if the property is held for the purposes of sale: Motor Finance and Trading Co Ltd v Brown [1928] SASR 153.

In that case, the owner was precluded from denying the ‘agent’s’ authority to sell.

The ‘agent’ had been permitted to hold the relevant vehicle, to all outward appearance, as an item of their stock-in-trade for sale in the normal course of their business.

The ‘agent’s’ possession of the car was a representation to any and everyone entering their showrooms that they had authority to sell it.

This representation was made with the owner’s approval, the third-party buyer acted upon it and the owner could not be allowed to deny the ‘agent’s’ authority.

There are provisions in the sale of goods legislation throughout Australia which provide for exceptions to the nemo dat principle (see Chapter 8 at 8.22 ) and which permit a third party in certain circumstances to obtain good title from a person who was not authorised to sell. The concepts of ostensible authority and ostensible ownership form the basis of some of those exceptions.

Question 28

Does occupancy y a person of a particular position give rise to actual or OA?

Answer 28

If a person holds a position which would usually entitle him or her to do certain acts on behalf of the principal, the third party is entitled to assume that that person had that authority: Robinson v Tyson (1888) 9 LR (NSW) 297.

In that case, it was held that the position of station manager did NOT give authority to sell cattle.

There must be direct evidence that the agent was employed in a particular position. Indirect evidence in the form of a business card and letterhead, while capable of giving rise to an inference, may not be sufficient.

Whether those documents amount to a holding out by a principal that a person has ostensible authority is a different issue: Taylor v Gould at [18].

Question 29

How did Diplock Jin Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 state the principle upon which that type of OA rested?

Answer 29

The principle upon which this type of ostensible authority rests was stated by Diplock LJ in Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503:

The representation which creates ‘apparent authority’ may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal’s business with other persons. By doing so the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has usually ‘actual’ authority to enter into.

Question 30

If representation by P consists SOLELY of fact that P has appointed A to a particular office (ie Managing Director, or secretary) then what is the ONLY representation a 3rd party can reasonably rely upon?

Answer 30

The only representation which the third party can reasonably rely upon is the representation that that person has the powers normally or usually enjoyed by a managing director or secretary, as the case may be.

Therefore, in such a case, the only relevant inquiry is as to the powers normally enjoyed by a person occupying that office, in general.

In British Bank of the Middle East v Sun Life Assurance of Canada (UK) Ltd [1983] 2 Lloyd’s Rep 9, the only representation by the principal was to invest someone with the title ‘Branch Manager’, which enabled that person to describe himself as such in correspondence relied upon by the third party. This, it was held, did not give the branch manager authority (actual or ostensible) to represent that another, more junior, employee had authority to make certain undertakings on behalf of their employer.

In Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2019] NSWSC 1352, holding a person out as chief executive officer was held not to amount to a representation that she had authority to exercise any option to renew or otherwise bind the defendant to any agreements in the nature of agreements for lease.

The position of CEO, it was held, does not ordinarily carry with it authority to make agreements of that nature: at [113].

Question 31

What if the conduct of P goes beyond merely describing A as holding a particular office? How have the courts considered /determined in these types of scenarios?

Answer 31

If the holding out is alleged to consist of a course of conduct wider than merely describing the agent as holding a particular office, then, although the authority normally found in the holder of such an office is very material, it must be looked at as part and parcel of the whole course of the principal’s conduct in order to decide whether the totality of the principal’s actions constitutes a holding out of the agent as possessing the necessary authority:

Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36 at 41 per Browne-Wilkinson LJ.

In that case, the documentary credit manager of a bank signed a letter of guarantee on his own. This was held to fall within the agent’s ostensible authority. This was so because of not only the agent’s position (which on its own may not have been conclusive) but also the facts that the bank undertaking was not unusual provided the bank had security from its customer, the undertaking was given at the bank’s premises after discussions spread over three days, it was signed in the presence of the third party, the bank’s stamp was affixed and there was no way in which the third party could know whether the agent was authorised: at 42.

Question 32

Explain ‘within the ordinary Scope of business or business custom’ of a particular type of Agent, for example, a stockbroker?. How can OA be determined to exist ?

Answer 32

If it can be shown that it is customary for an agent to do certain things within the ordinary course of their business then this will provide the foundation for the agent’s ostensible authority.

The court is entitled to take judicial notice of the particular category of agent’s practice: London Joint Stock Bank v Simmons [1892] AC 201.

In Tobin v Broadbent (1947) 75 CLR 378 at 406– 7, Dixon J held:

If it is in the ordinary course of such an agent’s business to sell in his own name goods entrusted to him by clients, then a sale of the goods in his possession will bind his principal whether actually authorised or not. But an unauthorised pledge or mortgage by him will not bind his principal, unless to pledge or mortgage goods of his clients in his possession is also within the ordinary course of his business.

We have no ground for holding that it is within the recognised scope of a sharebroker’s business in Australia to raise money in his own name by mortgaging or pledging his client’s interests in securities in his hands.

Question 33

Can a 3rd party rely on the articles of a company that authorised delegation of a power to an officer acting on behalf of the company? What knowledge does a 3rd party have to have, if any?

Answer 33

Whether a third person dealing with a company could rely on a provision in the company’s articles of association which authorised delegation of a power to the relevant officer acting on behalf of the company when the third party was unaware of the provision was historically a matter of controversy: Northside Developments Pty Ltd v RegistrarGeneral (1990) 170 CLR 146 at 158.

Since then, Slade J in Rama Corp Ltd v Proved Tin & General Investments Ltd [1952] 2 QB 147 held that a person who has no knowledge of the company’s articles cannot rely on them as conferring ostensible authority on the agent of the company with whom he dealt.

Subsequently, however, in Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 the Court of Appeal qualified this by holding that the proposition only applies where the contract sought to be enforced is not a contract of a kind which a person occupying the position which the agent was permitted to occupy would normally be authorised to enter into on behalf of the company.

Consequently, it was held in Freeman & Lockyer that a director who had acted as though he was managing director with the concurrence of the company, but who had not been officially appointed, was able to bind the company in a transaction which fell within the ordinary scope of the authority of such a managing director.

Because the contract was within the scope, there was no need for the third party to have had knowledge of the particular provision in the articles which permitted delegation to the managing director.

Question 34

If P permits A to use a business card - is it automatically found that P has represented A is authorised to act for P?

Answer 34

In Prospect Industries v Anscor Pty Ltd [2003] QSC 296, the only holding out relied upon at trial consisted in the principal’s conduct in permitting the ‘agent’ to use pre-printed business cards which identified the ‘agent’ as an authorised representative of the principal.

It was argued that the fact that the principal was described as a ‘financial planner’ meant that this constituted a holding out of the ‘agent’s’ authority to deal with financial planning matters.

The card was held not to constitute a holding out as the third party understood that the ‘agent’ was not there on behalf of the company named on the card.

The card had been supplied because it contained the agent’s contact details and the third party had in fact handwritten a different company name on the card.

In Taylor v Gould a business card was stapled to a folder which contained the relevant signed contract, which, the court said, indicated the business card was not relied upon before the contract was signed and was therefore not relevant to the plaintiff’s holding out case: at [24].

Question 35

Previous course of dealings - what needs to be shown to establish OA? What knowledge does the 3rd party need to have?

Answer 35

In order to establish ostensible authority on the strength of the previous conduct of the agent in matters of the same kind, it must be shown that what the agent did on previous occasions was done with the knowledge of the principal: Robinson v Tyson (1888) 9 LR (NSW) 297 at 305.

It is also essential for the third party to show when seeking to bind the principal by these previous actions that they knew that the agent had been acting in the same way before and entered into the relevant contract on the strength of that conduct:

Robinson at 304– 5; Learn & Play (Rhodes No 1) Pty Ltd (as trustee for Rhodes 1 Childcare Centre Unit Trust) v Lombe [2011] NSWSC 1506 at [11].

Question 36

For OA to exist P MUST have made a representation to 3rd party. But are there exceptions?

Answer 36

The representation must be made by the principal or by someone expressly authorised by the principal:

Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 per Diplock LJ;

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [36];

Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67 at [135].

In Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) [2013] FCAFC 5 the court said at [79]:

It is clear … that assertions made by the alleged agent that he or she is acting for the alleged principal can never by themselves prove the existence of the alleged agency. More is required.

There must be some conduct on the part of the alleged principal from which the relationship of agency can be inferred and which breathes life into the assertions of the alleged agent.

It is often said that the relevant representation cannot be made by the agent, and strictly speaking that is so. But there are some circumstances where the agent does make a representation to the effect that they have the necessary authority and the doctrine is held to apply.

Here, the relevant representation is not constituted by the words of the agent but either by a previous course of dealing or by the conduct of the principal in putting the agent in a position from which it can be inferred that the actual representation of authority in the agent is in fact correct:

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 at 78;

Kelly v Fraser [2013] 1 AC 450 at 459– 460;

Wilh. Wilhelmsen Investments Pty Ltd v SSS Holdings Pty Ltd [2019] NSWCA 32 at [103];

Birdsey v Vincent [2017] VSC 27 at [60].

This was referred to as ‘assisted representation’ by the High Court in Tobin v Broadbent (1947) 75 CLR 378 at 387. There, it was argued that the third party assumed the broker was authorised to pledge shares owned by somebody else. This assumption was induced, it was argued, by conduct of the owners in allowing the broker to have possession of the share certificate which in addition bore signed indorsed transfers of shares in blank.

The broker had signed the transfers as attorney for the owners and the words ‘power of attorney noted’, certified by the company, had been written on the transfers.

The High Court held that this did NOT not amount to ostensible authority. Persons like the third party take the risk of the person in possession of personal property having authority to enter into the dealing.

Question 37

Can A ‘self authorise’ by making representation to P that A has the requisite authority?

Answer 37

No. This principle to reject that A can self authorise is based in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep 194 at 201. What the agent says may constitute a warrant of authority but that avails against the agent only (Crabtree-Vickers Pty Ltd v Australian Direct Advertising & Addressing Co PL).

IF the MD was aware of the representations of A, a finding that the company held out A as having authority WOULD BE OPEN on the basis that the MD had the right to control the making of such representations by A.

Question 38

Given the finding in Crabtree - when will P be bound by A to a 3rd party?

Answer 38

Thus, if the principal has expressly or impliedly authorised the agent to hold themselves out or to represent themselves as having authority when in fact there is no authority, then that representation will be binding on the principal:

Armagas Ltd v Mundogas SA [1986] 1 AC 717 at 749;

Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd (2007) 14 ANZ Ins Cas 61-732; [2007] VSC 158 at [203].

In such circumstances the agent has authority to make representations regarding their authority to enter into a transaction.

This issue was discussed at some length by Browne-Wilkinson LJ in Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36 at 42– 3:

Mr Stamler submitted that a principal cannot be held liable as a result of the agent holding himself out as possessing an authority he does not in fact possess: he relied on remarks to that effect in the Freeman & Lockyer case at p 505, Attorney General for Ceylon v Silva [1953] 1 Lloyd’s Rep 563; [1953] AC 461 at pp 571 and 479;

The British Bank of The Middle East case (sup) and

Armagas Ltd v Mundogas SA [1985] 1 Lloyd’s Rep 1.

As at present advised, I am not satisfied that the principle to be derived from those cases is as wide as Mr Stamler suggests:

they were all cases or dicta dealing with the position where the agent had neither authority to enter into the transaction nor authority to make representations on behalf of the principal.

It is obviously correct that an agent who has no actual or apparent authority either (a) to enter into a transaction or (b) to make representations as to the transaction cannot hold himself out as having authority to enter into the transaction so as to effect the principal’s position. But, suppose a company confers actual or apparent authority on X to make representations and X erroneously represents to a third party that Y has authority to enter into a transaction; why should not such a representation be relied upon as part of the holding out of Y by the company?

By parity of reasoning, if a company confers actual or apparent authority on A to make representations on the company’s behalf but no actual authority on A to enter into the specific transaction, why should a representation made by A as to his authority not be capable of being relied on as one of the acts of holding out?

There is substantial authority that it can be: see British Thomson-Houston Co Ltd v Federated European Bank Ltd [1932] 2 KB 176, especially at p 182 (where the only holding out was an erroneous representation by the agent that he was managing director); and the Freeman & Lockyer case per Lord Justice Pearson at p 499; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 per Lord Denning MR at p 593 A– D.

Question 39

To whom must the representation be made?

Answer 39

The representation must be made either:

(a) directly to the party who claims they relied on it and acted accordingly; or

(b) publicly, provided it can be inferred to have reached the third party:

International Paper Co v Spicer (1906) 4 CLR 739 at 746.

Lord Lindley in Farquharson Brothers & Co v King & Co [1902] AC 325 at 341 said:

It was pointed out by Parke J, afterwards Lord Wensleydale, in Dickinson v Valpy [(1829) 10 B & C 128 at p 140], that ‘holding out to the world’ is a loose expression; the ‘holding out’ must be to the particular individual who says he relied on it, or under such circumstances of publicity as to justify the inference that he knew of it and acted upon it.

In Robinson v Tyson (1888) 9 LR (NSW) 297 at 306 it was held:

Now the question is — What is the meaning of ‘holding out to the world’ or ‘to the public’ in a case of this kind? It is quite clear that the holding out to the public which may bind a person means allowing one to act towards others in such a way that those members of the public who know of such actings may reasonably infer that the person so acting has authority to act in the same way if they deal with him.

Question 40

Element 2 - RELIANCE

Who bears the onus of proving reliance on the representation?

Answer 40

Reliance is a question of fact, in respect of which the plaintiff has the onus: Sidhu v Van Dyke (2014) 251 CLR 505.

There must be a causal connection between the representation to the third party and the dealing between the third party and agent.

The third party cannot hold the principal liable where the third party was not aware of the representation, did not believe it or knew or had the power to know the truth: HelyHutchinson v Brayhead Ltd [1968] 1 QB 549 at 559 and 567– 8.

Question 41

Causal connection - what is the test?

Answer 41

The issue has arisen as to the strength of the casual connection required between the holding out and the relevant dealing between the third party and agent.

In Priestley v Priestley [2017] NSWCA 155, Emmett AJ observed at [136]:

The question is not whether the promisee or representee acted, or desisted from acting, solely in reliance on the promise or representation of the other party.

Rather, the question is whether the conduct of the representee or promisee was so influenced by the promise or representation that it would be unconscionable for the promisor or representor thereafter to enforce her or his strict legal rights.

It is sufficient for the promisee or representee to show that the promise or representation was a significant factor taken into account by the promisee or representee when deciding whether to act or not to act.

If the belief of the promisee or representee is a contributing cause of the conduct of the promise or representee, that will be a sufficient connection between the assumption induced by the belief and the detriment.

Question 42

Is the ‘but for’ test appropriate in the context of estoppel?

Answer 42

A ‘but for’ test has been applied in some instances: Priestley v Priestley [2016] NSWSC 1096 per White J.

However it has been observed that application of the ‘but for’ causation test in the context of estoppel ‘risks being misinterpreted or misapplied, particularly if understood as a “sole cause” test’: Wilh. Wilhelmsen Investments Pty Ltd v SSS Holdings Pty Ltd [2019] NSWCA 32 at [142]–[143] per Beazley ACJ.

Question 43

Does constructive notice apply in commercial transactions?

Answer 43

Clearly it is easier to establish no reliance by the third party where the third party had express notice that the representation of authority was false.

More complicated is the issue of what constitutes notice and when there is a duty on the third party to inquire.

In the context of commercial transactions, it is often said that constructive notice does not apply: Manchester Trust v Furness [1895] 2 QB 539.

While this, it is argued, excludes the notion of constructive notice as it applies in equity, it does not prevent the court from inferring from the circumstances that the person concerned must have known the representation was false or at least been suspicious to the extent that further inquiries would have been appropriate.

If the third party was put on inquiry, for example, in the case of an unusual transaction, then it may be difficult to establish reliance:

Rama Corp Ltd v Proved Tin & General Investments Ltd [1952] 2 QB 147.

In Jacobs v Morris [1902] 1 Ch 816 the defendants were taken to have had full notice of the terms of a power of attorney which they were given but did not read which showed that the agent did not have authority to borrow money.

As Stirling LJ said at 833: ‘The primary cause of that loss is not anything done or omitted to be done by the [principal], but the neglect of ordinary business precautions by the defendants.’

Similarly, in Smith v Peter and Diana Hubbard Pty Ltd [2006] NSWCA 109 the defendants were held to have had constructive notice of the agent’s lack of authority in that a simple inquiry or company search would have revealed that the agent had no authority to direct payment of the purchase price to a third party which bore no relationship to the vendor.

In those circumstances the issue of authority was resolved in favour of the principal.

Question 44

Does A need to be aware of the representation?

Answer 44

The agent need not be, though they generally will be, aware of the representation: Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503 cited by Brennan J in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 172.

A failure to produce evidence to show that employees of a bank permitted a withdrawal by a Mr G because the withdrawal form was presented in company with documents emanating from a person actually authorised to make withdrawals on the company’s behalf, and to authorise others to do so, meant that the bank had failed to make a case that it relied on any ostensible authority of Mr G in Fried v National Australia Bank (2001) 111 FCR 322 at 359.

It was not able to be assumed that the bank would not have allowed the withdrawals unless it had relied on some ostensible authority of Mr G.

In some cases that might be an appropriate inference, but here, where the equally valid assumption could have been that the bank employee was prepared to take the risk, it was not: at 359.

It is not relevant that the contracting party, or their legal representatives, may, had they taken certain steps, have discovered the lack of authority: this was argued unsuccessfully in Klement v Pencoal Ltd [2000] QCA 152, where it was held at [30]:

It is not to the point that had Pencoal’s solicitors enquired actively into the validity of the appellant’s signature they may have discovered it was a forgery.

The fact is that the established ostensible agency of Lindner excused Pencoal’s solicitors from the need to take those steps (cf Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146) … The appellant’s own approach, in short, excused Pencoal from any need for further enquiry.

Question 45

What if 3rd party understood that A was acting outside the authority bestowed by their position?

Answer 45

If the third party understands that the agent is acting outside the authority bestowed by their position then they cannot establish ostensible authority:

Alliance Acceptance Co Ltd v Oakley (1987) 48 SASR 337.

In that case the respondent signed a mortgage as a ‘front’ borrower to overcome loan ceilings imposed on his relative by the lender. He was assured by the state manager of the lender that he would not be held personally liable on the mortgage.

When the lender sought to recover against him under the mortgage, the respondent claimed the mortgage was a sham having no legal effect.

The court held that an instrument could only be a sham if the parties mutually intended it to cloak a different transaction. This meant that it was necessary for the respondent to show that the state manager had actual or ostensible authority to enter into the sham arrangement.

The court held it plain beyond question that the manager did not have actual authority to enter into such an arrangement, the very purpose of the arrangement being to deceive his superiors.

Any ostensible authority the manager possessed derived from his position as state manager of the lender company. While the court agreed that his ostensible authority extended to negotiating loans and determining the security required and probably even included making decisions to depart from limitations imposed upon him as to the amounts of loans which could be made to particular customers, it did not extend to entering into an elaborate device designed to circumvent the lending policy of the company and which could only have been designed to deceive his superiors as to the true nature of the transaction.

As the court held at 342: Such conduct cannot possibly … be regarded as within the authority usually committed to a State Manager of a finance company. It is inconceivable that the respondent thought otherwise.

The principal company was not estopped by the representation of its agent for the same reasons; that is, that the agent was not authorised to make the relevant representation.

Question 46

Element 3 - Detriment

Answer 46

It is sufficient to establish this element that the third party has entered into a contract, for example, or altered their position as a result of relying on the representation.

If all elements are established the principal will be unable to resile from the consequences of the agent having authority.

In Egan v Ross (1928) 29 SR (NSW) 382 at 386, for example, it was held that the third party had clearly acted to his detriment ‘by engaging a solicitor and giving the necessary instructions for completion of the contract’.

Question 47

What are the consequences of a finding by the court of Ostensible Authority?

Answer 47

If ostensible authority is made out, the principal is bound to the third party.

The principal may be able to recover against the agent for damages for breach of duty; that is, in particular, for their failure to follow instructions.

The principal is responsible in an action for damages for the fraud of their agent acting within the scope of the agent’s ostensible authority.

It makes no difference that the agent committed the fraud for the agent’s own private advantage and not for the benefit of the principal, so long as the agent was acting within the scope of the agent’s ostensible authority:

Lloyd v Grace, Smith & Co [1912] AC 716 at 725, 731, 733– 4 and 736;

Clancy v Prince [2001] NSW ConvR ¶55– 981.

In circumstances where the principal’s conduct is so closely connected with that of their agent, the principal may be liable as an accessory for a contravention by their corporate agent of s 18 of the Australian Consumer Law (ACL) in Sch 2 of the Competition and Consumer Act 2010 (Cth): definition of ‘involved in the contravention’ in ACL s 2.

The principal must have aided, abetted, counselled or procured the contravention by their agent and/or been in any way, directly or indirectly, knowingly concerned in, or party to, that contravention: Clancy at 58,056.