Define: Ostensible Authority

Ostensible authority, also known as apparent authority, refers to the authority that a principal (such as a company or employer) appears to grant to an agent (such as an employee) based on the principal’s actions or representations, rather than actual authorisation.

Ostensible authority differs from actual authority in that it is based on appearances or representations made by the principal, whereas actual authority arises from explicit authorization or delegation of authority.

Examples of ostensible authority include situations where a company’s actions or representations lead third parties to believe that an individual has the authority to act on the company’s behalf, even if that individual does not have explicit authorisation.

Ostensible authority is typically established when a principal engages in conduct or makes representations that lead a reasonable third party to believe that an agent has authority to act on the principal’s behalf, and the third party relies on that belief to their detriment.

Ostensible authority can have significant legal implications, as it may bind the principal to contracts or agreements entered into by the agent with third parties, even if the agent lacked actual authority to do so.

Ostensible authority can be revoked or terminated by the principal through actions or communications that clarify to third parties that the agent no longer has authority to act on the principal’s behalf.

Factors that determine whether ostensible authority exists include the principal’s representations or conduct, the agent’s position or title within the organization, the nature of the transaction or relationship, and the reasonableness of the third party’s reliance on the agent’s apparent authority.

Ostensible authority can significantly impact agency relationships by expanding the scope of an agent’s authority beyond what is explicitly granted by the principal, potentially exposing the principal to liability for actions taken by the agent.

Principals facing claims based on ostensible authority may assert defences such as lack of reliance by the third party, absence of representations or conduct by the principal, or evidence that the agent exceeded the scope of any apparent authority.

Principals can mitigate the risk of ostensible authority claims by clearly defining and communicating the scope of authority granted to agents, regularly monitoring and supervising agent activities, and ensuring that third parties are aware of any limitations on an agent’s authority.