Don’t Get Caught

20 Feb, 2016

During December 2015 we were approached by a client with a specific situation, however in looking at this situation we felt with the start of 2016 it would be valuable to highlight to our clients and the industry the potential for problems resulting from this type of situation that could arise in sales as well as property management.

How could the advertising agency, by use of Ostensible Authority, look to hold the agency liable for the debt

The issue: –

  • An advertising salesperson (rep) attended the premises of our client to look to sell advertising space on an electronic advertising board which was in a large fast food chain. The rep was referred to the agency sales team by one of the agency directors and subsequently one of the sales team took up the offer to advertise to promote himself in the area.
  • The salesperson was paying for the advertising from his personal credit card account.
  • After a period, the salesperson, for a range of reasons, ceased paying the fee and the advertising company issued a letter of demand on the agency.

We don’t propose to go into a discussion in relation to whether this charge to the agency was right or wrong. What we want to focus on is how could the advertising agency, by use of Ostensible Authority, look to hold the agency liable for the debt.

What is ostensible authority: –

  • There are three types of authority, that can bind you, recognised at law
    • actual authority
    • implied or apparent authority
    • ostensible authority or agency by Estoppel

Ostensible Authority can be defined as: –

Authority that appears from the circumstances to exist, whatever the reality maybe.

Ostensibly authority refers to the situation we’re it would be reasonable for a third party to assume/understand that a person/agent (agent) has authority to act on behalf of the principal/agency (principal) and so bind the principal to a binding contract. This means a principal is bound by the agent’s actions even if the agent had no actual authority, whether it was expressed or implied.

An example could be: –

Telstra subcontract work to an outside contractor. This sub-contractor drives a van with a Telstra logo and wears a uniform bearing a Telstra logo, under ostensible authority it can be deemed by a third party that the sub-contractor has authority to act on behalf of Telstra and as such these actions can bind Telstra.

Using the issue that sought to bind our client, you have the rep who was introduced to an employee of the agency by a person in authority from the agency, the employee was, as was the case here, in the work environment and wearing the office uniform during discussions regarding contracting to take out advertising. Under ostensible authority the view of the court could well be that it was reasonable for the rep to assume that he was speaking with a person who had authority to enter a contract that would bind the agency.

What can be done to prevent being caught in the Ostensible Authority web

  1. in your employment agreement have a clearly defined clause stating that the employee has no authority and should not suggest that they have any actual, implied or ostensible authority to bind the agency.
  2. all purchase orders should clearly state that the purchaser needs to confirm that the person placing the order has the authority to contract on behalf of the company or the agency for the goods or services being provided
  3. ensure that the accounts department is vigilant in looking for new charges/invoices and clarifying those charges/invoices should they appear.

You May Also Like…

Contact Barclay MIS

Get in touch with the Barclay MIS team.

T: 1300 883 916
F: 1300 883 917

For over 35 years, Barclay MIS has been innovative in the field of debt recovery. We offer a range of products and services that utilises cutting edge technology that securely recover debt in accordance with legislation.

Copyright © 1985 - 2024 BARCLAY MIS. All Rights Reserved. ABN 79 096 963 692

Except as permitted by the copyright law applicable to you, you may not reproduce or communicate any of the content on this website, including files downloadable from this website, without the permission of the copyright owner.

Barclay MIS Protect & Collect Pty Ltd supports and encourages the dissemination and exchange of the information. However, copyright protects material on this website.

Although we have no objection to this material being reproduced, we assert the right to be recognised as author of our original material and to have our material remain unaltered.

Enquiries regarding the reproduction of our material may be directed to or telephone 1300 883 916.

Copyright of Barclay MIS Protect & Collect Pty Ltd’s materials resides with Barclay MIS Protect and Collect Pty Ltd. Apart from any fair dealings for the purposes of private study, research, criticism, or review as permitted under the Copyright Act 1968, no part may be reproduced or re-used for any commercial or other purpose without written permission from our department.