An agency relationship arises where one party (“the principal”) authorises another (“the agent”) to act on its behalf in a manner that is legally binding.
There are many situations that may give rise to such agency relationship, such as in a property transaction setting, where you are appointing a real estate agent to sell your property, or in a business setting, where a business authorises someone to speak or act on their behalf.
If you need help on legal advice for your business, our business lawyers at HTW Legal Group can help.
Definition of Actual Authority
Actual authority refers to the authority granted to the agent by the principal to act on the principal’s behalf in specific circumstances.
This authority is explicitly given and can either be expressed, orally or in writing, or implied through the surrounding circumstances.
Obtaining Authority as An Agent
Express Actual Authority
To derive express actual authority, written communication is generally preferable as it provides clarity and is more readily verifiable compared to oral communications between the principal and the agent.
When a written communication is made, and the agent acts within the scope of their actual authority, the principal is legally bound by the agent’s actions and may incur contractual obligations or liabilities as a result.
In the absence of a written communication, proving an oral statement in court becomes challenging.
Implied Actual Authority
Whereas express authority is the clear and direct power the principal grant to the agent, either orally or in writing, implied authority is inferred from the circumstances surrounding the relationship.
The nature of the agent’s role and power is essential in determining what actions and authorities a typical agent would have in similar circumstances.
Actual Authority in a Corporate Setting
In a corporate context, actual authority may be given such that a “Store Manager” may be authorised to accept delivery of goods, a “Chief Financial Officer” may be empowered to open and operate the company’s bank accounts and a “Chief Executive Officer” may make public statements on behalf of the company.
Where the agent has acted within their actual authority, any contracts entered with third parties will be binding on the principal.
Revoking Actual Authority Given
Actual authority can be revoked by the principal, as it refers to the authority expressly or implicitly granted to the agent. The revocation must be communicated clearly, typically through notice to both the agent and any relevant third parties to prevent misunderstandings.
While a principal has the right to withdraw this authority doing so may amount to a breach of contract if it occurs without justification and potentially entitling the agent to damages.
Overview of Nevgold Pty Ltd as trustee for the Brian Jorgensen Family Trust v Floyd [2025] QCA 82
The principal, Nevgold Pty Ltd, appointed the agent, Floyd, to sell its’ commercial property. Under the real estate agency agreement, Nevgold Pty Ltd would pay Floyd a commission if Floyd introduced a buyer to Nevgold Pty Ltd and a contract of sale was completed.
Eventually, Floyd found a buyer and a contract of sales with a call option deed was signed. However, the buyer found by Floyd eventually did not buy the commercial property instead finding another nominee under the contract option deed to purchase the commercial property.
Nevgold Pty Ltd relied on the fact that the initial buyer found by Floyd did not buy the commercial property, and the initial buyer found through its own means, another buyer to fulfil the contract of sales, therefore claiming that Floyd was not the effective cause of the commercial property sales and commission are not due to Floyd.
Court Ruling and Key Legal Findings in Nevgold Pty Ltd as trustee for the Brian Jorgensen Family Trust v Floyd
The court ruled that despite the initial buyer, introduced by Floyd, not being the eventual buyer of the commercial property, the contract of sales remains valid as the eventual buyer was replaced as nominees under the same contract of sales. Nevgold Pty Ltd was therefore ordered to pay Floyd a commission.
Essentially, an agency relationship therefore exists between Nevgold Pty Ltd and Floyd. Floyd has discharged his duties under the authority, acting as the effective cause of sale, given by Nevgold Pty Ltd and should be paid his commission.
Definition of Ostensible (Apparent) Authority
Apparent authority, also known as ostensible authority, arises when the principal, by words or conduct, allows itself to be represented that another person has authority to act on its behalf.
If a third party reasonably relies on that representation, the principal may be bound by the acts of the purported agent, even if the agent lacks actual authority.
Are Agent’s Actions Under Apparent Authority Binding on the Principal?
This form of authority may bind the principal even in the absence of actual authority and extend to situations involving former agents, provided the third party reasonably believes the agent’s authority is attributable to the conduct of the principal.
In such cases, the law protects the legitimate expectations of third parties by treating the acts of the purported agent as if they had been authorised by the principal.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
In the UK landmark legal case on the topic of ostensible authority, the judges set out four conditions for establishing ostensible authority of which three are generally applicable in the Australian corporate context :
- There must be a representation by words or conduct made to the third party that the agent had authority to enter the type of transaction in question. This includes instances where a company’s board or senior officers knowingly accept the agent’s actions.
- The representation must come from someone with actual authority to bind the company, such as a director or officer acting under the company’s constitution or pursuant to a resolution.
- The third party must have relied on the representation and such reliance must have been reasonable in the circumstances. However, ostensible authority will not arise if the third party knew, or ought reasonably to have known, that the agent lacked authority, or if the circumstances gave rise to doubts that should have been investigated.
Ostensible Authority in a Corporate Setting
In a corporate context, ostensible authority arises when a company allows a certain employee holding the title of “Sales Manager”, to negotiate with suppliers and present himself as the decision-maker.
Consequently, a supplier reasonably relying on the information regarding the apparent authority of the sales manager enters a contract with him, may bind the company by the same contract, even without actual authority given by the company to the sales manager.
What Should You Do If You Have Questions Regarding Your Relationship?
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