In Devren Pty Ltd v Old Coach Developments Pty Ltd
and Ors  QSC 53, funds payable to a company were paid to
other entities in accordance with the direction of Mr Clair, the
purported managing director of the company. The critical question
was whether Mr Clair had authority on behalf of the company to
direct that the payments be made to the third parties.
At the relevant time, Mr Clair was disqualified from managing a
corporation and he was not qualified to be a director.
The company claimed that it was still owed the money by the
defendant, who was its joint venture partner because the payment
was made to the third parties and not to the company.
The defendant argued that the company had received payment
because Mr Clair directed the defendant to pay the money to the
specified accounts of the third parties. The company disputed the
authority of Mr Clair to give such a direction in circumstances
where he had not been validly appointed as managing director.
Agency by estoppel
The Court held that, even though Mr Clair was not a director, he
had ostensible authority as agent to bind the company (this is also
known as agency by estoppel).
The Court identified the following principles relating to agency
by estoppel as it applies to a company:
It arises when the company represents to another person that a
third party has been authorised as agent for the company and, in
reliance, the other person enters into transactions with the
company within the scope of that ostensible authority.
The law will not allow the company to renege on the
representation by subsequently denying the third person's
It is immaterial whether the ostensible agent has no authority,
or merely acted in excess of the actual authority.
The holding out may be by acts of the company, or by the
company knowingly allowing the agent to hold themself out as having
No representation made solely by the agent as to the extent of
their authority can amount to holding out by the company.
The Court said that ostensible authority does not only relate to
the company's representations by their words or conduct.
Importantly, it can also arise when the company allows the agent to
hold themself out as having authority and remains silent, knowing
that the third party believes that the agent has been validly
The Court's analysis
The Court placed weight on the course of dealings between the
joint venture partners, which the company's other director was
aware of and had participated in. There was nothing in Mr
Clair's conduct that ought to have caused the defendant to have
reasonably considered there was a limitation on the authority of Mr
Clair to bind the company.
The Court said that, on their face, the directions from Mr Clair
to pay the money to the third parties were in accordance with the
interests of the company. There was no reason for the defendant to
suspect Mr Clair's directions were not authorised by the
The defendant was not informed that Mr Clair lacked authority to
bind the company. If there was a restriction on Mr Clair's
authority, a clear statement to that effect would be expected to
have been made by the company.
The dispute in Devren highlights the danger for anyone who owes
money to a company if they pay the money to a third party in
accordance with the direction of a representative of the
There is the risk that the representative may not be
appropriately authorised. Whether the representative has authority
will depend upon the the representations of the company, the nature
of the transaction and the scope of the ostensible authority.
A prudent debtor should insist upon the production of clear
authorisation from the company before making payment to the third
party. The safest course in the absence of, for example, a
garnishee notice or the intervention of a secured creditor is to
pay the outstanding debt directly to the creditor.
The risk for a company is that it could be bound by the acts of
its representative if that person has ostensible authority to act
on behalf of the company. Although Devren concerned the
payment of money to third parties, the risks of ostensible
authority also apply to other commercial dealings such as contract
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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