While the legal battle between Vodacom and the inventor of the ‘Please Call Me’ for his adequate compensation continues, many aren’t aware that this legal showdown delivered a powerful message to the corporate world back in 2016 already: the appearance of authority (ostensible authority) can be as binding as actual authority.

The landmark Constitutional Court ruling of Makate v Vodacom provides a critical reminder for all businesses to review their internal processes for contracting and delegation of authority. The court confirmed that a director’s apparent authority to contract on behalf of a company was sufficient to bind the company to an agreement, regardless of whether or not he had the authorisation of the company’s board.

What every business leader should learn from the Makate judgment:

• A director or employee’s position, influence, and involvement in business processes can create the impression that they have authority to bind your business to a contract, even if technically they have not received express authority to do so.
• If a director or employee with apparent authority enters into an agreement with a third party, the third party can prevent your company from denying that the director or employee had the required authority, by pleading ostensible authority.

To mitigate risk, we advise reviewing your internal authority mandates to avoid legal obligations your company does not want. Ensure that only those directors or employees who are authorised to act on behalf of the company are represented as having that authority. Make sure you communicate the actual authority of all your agents in all your agreements, correspondence, marketing and conduct, to avoid legal headaches down the line.

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