Also known as apparent authority, ostensible authority is the authority an agent is assumed to have been given by a principal in the eyes of a reasonable third party as a result of the principal’s conduct, omissions or representations (Hely-Hutchinson v Brayhead Ltd).
The conduct of the agent is not relevant, nor is the actual authority, if any, that the agent may have been given. Ostensible authority is closely aligned with the doctrines of agency and estoppel. It frequently arises in partnerships, companies, and employer-employee relationships, and becomes a complex issue where the principal attempts to escape liability for the actions of a director, company officer or partner (ostensible agent), where that person acted outside his/her actual authority, created an undesirable obligation for the principal, or cast an unfavourable image on the principal.
The law that covers ostensible agents is codified primarily in the Corporations Act 2001 (Cth) at s 129(3) as well as state-based Partnership Acts. The laws mandate that partnerships, companies and employers ensure third parties correctly understand the extent of the authority possessed by agents of the principal. In cases where an agent leaves the business, the principal may be liable for that former agent’s actions if the principal has failed to inform third parties dealing with the firm that the authority has ceased, and that former agent has purported as though they remain an agent.