The authority of an agent to bind a principal

Ostensible authority arises where a principal, by words or conduct, represents that an agent has authority to act on its behalf, and a third party relies on that representation. The doctrine operates by way of estoppel.

Individual directors generally do not have ostensible authority to bind the company merely by virtue of their position. They typically act collectively as a board, and authority is exercised through board resolutions or delegated powers.

Managing directors usually carry broad actual and ostensible authority.

A company will be estopped from denying ostensible authority if a valid representation:

• was made by someone with actual authority;
• the third party relied on that representation; and
• the transaction was within the company’s capacity.

Ostensible or apparent authority

Ostensible authority arises from a representation made by the principal, or by a person who has actual authority from the principal, that an agent has authority.

The representation may be express/actual (e.g., a statement) or implied (e.g., permitting the agent to act in a role that usually carries certain powers) and the third party must have relied on the representation when entering the transaction.

Authority cannot be created by the agent’s own assertions of power.¹

Actual knowledge of the alleged agent’s lack of authority disentitles a party from relying on the apparent ostensible authority of the alleged agent.²

Ostensible Authority in the Context of Companies

The application of the principles of ostensible authority requires two further characteristics of a corporation to be considered:

• The agent cannot do anything the company cannot do.
• The company cannot delegate power to an agent which it is not permitted to do by its constitution

Ostensible Authority of Company Directors

Individual Directors
Where a company has several directors, a single director acting individually has no ostensible authority to bind the company. If a single director is to have power to bind the company, that director must be validly delegated power by a resolution of the other directors in accordance with the constitution, or must have power as an agent.

Although ordinary directors can have significant functions entrusted to them by the company, these are usually of a more or less formal nature, such as affixing the company seal to documents which the company requires to be executed.

However, the position of directors alone does not carry with it any ostensible authority to act on behalf of the company. Directors can act only collectively as a board and the function of an individual director is to participate in the decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it.

Managing Directors
A managing director is generally understood to have wide powers, actual or ostensible.

Their ostensible authority includes all the usual authority of a managing director and may even exceed their actual authority. The company is bound by the managing director’s ostensible authority in dealing with third parties that do not know of any limitation of their authority.

When a company is estopped from denying authority.

A company may be bound by estoppel if:

• a representation was made to the other party that the agent had authority to enter into a contract of the kind sought to be enforced on behalf of the company;
• the representation was made by a person or persons who had actual authority to manage the business of the company, either generally or in respect of those matters to which the contract relates;
• the other party was induced by such representation to enter into the contract; and
• under its constitution the company was not deprived of capacity to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.

Conclusion

The law is clear that:

• representations of authority must originate from the company (or someone with actual authority), not the agent.
• Individual directors ordinarily lack ostensible authority to bind the company, though managing directors may be assumed to have broad powers consistent with that role.
• Companies must therefore ensure clarity in delegations, while third parties should verify the basis of authority before contracting.

GPP Arundel Pty Ltd v Basford [2025] QSC 165

This recent case considered whether a property consultant, engaged to negotiate lease terms for a proposed new lease agreement, had actual or ostensible authority to bind the first respondent, Basford Pty Ltd and Wisely Pty Ltd (together, the Lessors).

The court held that the consultant had neither actual nor ostensible authority to enter into the proposed agreement on behalf of the Lessors.

Background

GPP Arundel Pty Ltd (GPP), operated a pharmacy from premises situated at Building 2, 1 Marble Arch Parade, Arundel, Queensland (Premises). On 28 August 2010, the Premises were leased to GPP for a period of 10 years, with one 5-year extension option. The Premises formed part of a larger parcel of land (Lot 21), owned by the Lessors as tenants in common in equal shares.

In 2016, the Lessors leased the whole of Lot 21 to United Petroleum Pty Ltd (United), under a concurrent lease. United’s property portfolio was managed by ASEH Property Services Pty Ltd (ASEH).

By early 2023, Walton Pharm Pty Ltd (Walton), had agreed to acquire an interest in the pharmacy operated by GPP. GPP’s agent, Mr Buckley of Australian Corporate Property and Projects (ACORPP), contacted ASEH to enquire whether the Lessors would sell the Premises or negotiate a new lease.

On 1 May 2023, Mr Meerkin of ASEH emailed Mr Buckley confirming that the Lessors were not prepared to sell but were willing to discuss a lease variation.

On 2 May 2023, Mr Buckley was referred to Mr McCarthy, a property consultant with ASEH, described in correspondence as “Head of Property”. Under Mr McCarthy’s consultancy agreement, he was expressly prohibited from acting as an agent and binding ASEH unless specifically authorised in writing by ASEH.

From May to June 2023, Mr Buckley and Mr McCarthy engaged in negotiations by email and telephone. Mr McCarthy’s communications consistently included the caveat that any agreement was “subject to Lessor’s agreement”, in accordance with his instructions that approval from a director of United was required for any agreement regarding lease terms.

On 12 June 2023, Mr Buckley sent an email to Mr McCarthy proposing key terms for the new lease. On 14 June 2023, Mr McCarthy responded with amendments and the parties’ reached consensus on key terms.

On 23 June 2023, GPP’s solicitors prepared a letter of offer recording the agreed terms. Mr Buckley returned the executed letter on behalf of GPP and Walton to Mr McCarthy. Upon review, Mr McCarthy identified two discrepancies from the previously agreed terms and made two handwritten amendments to the lease term and GST treatment of the bank guarantee. In addition those changes, Mr McCarthy inserted the words “on behalf of” in parentheses next to the words “Lessor’s Acceptance” in the signing clause, and had his signature witnessed by Ms Kaur of ASEH. Ms Kaur had not yet obtained the approval of one of the directors of United to the proposed terms for a new lease.

On 26 June 2023, Mr McCarthy returned the letter of offer to Mr Buckley by email. His covering email contained no text and consequently did not identify the person who had signed the letter of offer or that person’s position.

Issues

Were the Lessors bound by Mr McCarthy’s act of signing the letter of offer?

GPP asserted that Mr McCarthy had ostensible authority to sign the letter of authority such that, upon his signing the document, the Lessors were immediately bound by its terms. GPP and Walton plead that Mr McCarthy’s authority could be inferred from two matters:

• the Lessors’ conduct in granting Mr McCarthy authority to negotiate commercial terms for new leases and lease renewals; and

• Mr McCarthy’s position as a property consultant for ASEH, considered in the context of ASEH’s role within the United Group and its association with the Lessors.

The judge was not satisfied that the Lessors represented to GPP and Walton that Mr McCarthy had authority to contractually bind them to the terms of a new lease by signing the letter of offer. Mr McCarthy communicated with Mr Buckley on several occasions that any proposed terms upon which the agents reach consensus remained subject to approval by the Lessors, and those statements amounted to an express disclaimer of his authority. Additionally, there was no evidence that a person who holds the position of a property consultant would be regarded as having authority to bind those companies to a new lease. The express disclaimer also displaced any inference which might otherwise have arisen from the appointment of Mr McCarthy as property consultant for ASEH.

Did Mr McCarthy have actual authority to bind the Lessors?

There was no scope to imply actual authority given the acknowledgement by GP and Walton that the Lessors had not accepted or approved the terms of the letter of offer when Mr McCarthy sent the signed document to Mr Buckley. An agent cannot have implied authority to inform that an offeror that has been accepted when no decision has been made by the principal to accept that offer. It is, therefore, clear the Lessors had not agreed with Mr McCarthy that he would communicate to GPP and Walton that the Lessors had accepted the terms of the letter of the offer.

Decision

The Court found that Mr McCarthy did not have actual or ostensible authority to bind the Lessors to the terms of the letter of offer, either by signing that document on the Lessors’ behalf or by communicating the Lessors’ acceptance of those terms by sending a copy of the document bearing his unauthorised signature.

Comment

This decision is a timely reminder that:

• Ostensible authority must be based on a representation by the principal.
• Ostensible authority cannot be established merely from an agent’s participation in negotiations.
• Principals should ensure that intermediaries expressly state the limit of their authority to avoid unintended contractual commitments.

Counterparties must ensure that the person signing on behalf of a principal is authorised to do so, particularly where communications are qualified as being “subject to approval”.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.

Footnotes