Actual and Ostensible authority

See the principles in relation to actual and ostensible authority in Junker v Hepburn [2010] NSWSC 88 (Junker) at [39]-[48] (Hammerschlag J)

Agency

39 The authority of an agent may be:

• actual (either express or implied) where it results from a manifestation of consent that the agent should represent or act for the principal expressly or impliedly made by the principal to himself; or
• apparent, where it results from such a manifestation made by the principal to third parties: Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell at Ch 3, Art 22.

40 The rules concerning actual and apparent authority apply where the principal is a company. They are supplemented by provisions of the Act where companies are concerned. The usual starting point in any consideration of a director’s actual authority is the constitution of the company, which invariably provides for directors’ powers. Express actual authority of a director usually derives from the constitution of the company or from some antecedent act such as a resolution of the board of directors: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205; Perkins v National Australia Bank Ltd (1999) 30 ACSR 256 at 262.
41 Implied actual authority is the authority which the law regards as having been given to an agent because of the interpretation put by the law on the relationship and dealings of the two parties: Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell par 3-003. The Court’s inquiry concerns the intention of the principal in conferring authority on the agent: Gino Evan Dal Pont, Law of Agency, 2nd ed (2008) LexisNexis Butterworths par 8.1.
42 Ordinarily, where a company has more than one director, a single director does not have authority to bind it. A director’s normal power is to bind the company only by joining with other directors in a collective resolution of the board of directors: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 198, 205.
43 An implied grant of actual authority can result from acquiescence in the course of behaviour by persons who have actual authority to delegate. For example, if directors as a board stand by whilst a single director enters into transactions outside his or her authority, the board’s acquiescence in that course of dealing can constitute the grant, by implication, of actual authority to enter into those transactions.
44 In Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 134, Clarke JA and Cripps JA said in relation to implied actual authority:

A recent example of the application of the principle in Australia is to be found in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, where (at 360-361) the Appeal Division of the Supreme Court of Victoria applied Hely-Hutchinson v Brayhead Ltd . In the joint judgment there was a finding of implied actual authority in relation to one Goldberg to manage the business and to hold out a person as secretary who  was in fact not the secretary. The facts and circumstances there relied upon to justify such a finding included the following: Goldberg had actual control over the group of companies and invariably asserted control over each of the companies in the group; Goldberg was known as the alter ego of group companies; Goldberg made decisions for the group companies; there was no evidence that he found it necessary to refer to any board to seek approval for the course of action he proposed; the boards in question had never previously attempted to interfere with his action; Goldberg had obtained board approval of transactions to which he had already committed Brick and Pipe without first seeking authorisation from the board; and that individual directors in evidence confirmed the acquiescence of board members in the activity of Goldberg which culminated in completed transactions for which the board gave no prior approval. One final and, perhaps, decisive element in the scope of the authority the court was prepared to find vested in Goldberg, was that: “… in most, if not all, cases, the transactions committed assets of Brick and Pipe or its subsidiaries as security for borrowings by other Goldberg companies”.

Whether authority is to be implied and, if so, the scope of the authority implied is, in our view, to be found in a close analysis of the evidence before the court which is relied upon to support the implication of actual authority.

45 The authors of Company Directors: Principles of Law and Corporate Governance (2005), LexisNexis Butterworths at par 3.41, citing Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 opine that to confer implied actual authority there would have to be not only the acquiescence of the individual board members but evidence of communication by word or conduct of their respective consents to one another and to the agent.
46 Apparent or ostensible authority is conferred where a principal represents that another has authority. The principal will be bound as against a third party by the acts of that other person within the authority which that person appears to have, though the principal had not in fact given that person such authority or had limited the authority by instructions not made known to the third party: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 466; Bowstead and Reynolds on Agency, 17th ed (2001) Sweet & Maxwell par 3-005.
47 Ostensible authority often coincides with, but sometimes exceeds, actual authority. For instance, when a board appoints a managing director, they may expressly limit his authority, but his ostensible authority will include all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583 per Lord Denning M.R.
48 An ordinary individual director of a company does not have ostensible authority to bind it. Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205.