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Nature of agency

Agency is the relationship existing between two persons, one of whom expressly or impliedly consents that the other should represent the former or act on that person's behalf, and the other of whom similarly consents to represent the former or act in this way¹. Whether or not an agency exists is a matter to be decided based on the evidence².

An essential element of agency is that both parties have consented to the relationship of principal and agent, even if they do not recognise that their agreement amounts to such a relationship³. Another common feature is the existence of a fiduciary arrangement with an obligation on agents to account to their principals at some stage in the relationship⁴.

For example, Music and Video Exchange Ltd⁵ is a case concerning a taxpayer who sold second-hand musical equipment. When an owner ('O') brought in an instrument, O was given a valuation for it. If willing to proceed,