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CULTURAL GIFTS PROGRAM When does an Agency relationship arise? *Please note that this is general advice and does not constitute legal advice. DEFINITION An ‘Agent’ is a person who is authorised to act for another (the agent’s principal) through employment, by contract or apparent authority. The importance is that the agent can bind the principal by contract or create liability if he/she causes injury while in the scope of the agency. To be precluded from undertaking a valuation there has to be some act that establishes an ‘agency’ type of relationship between the parties such that a conflict or a perceived conflict of interest arises. WHAT IS A CONFLICT OF INTEREST? Generally it would be said that a conflict of interest would arise where a reasonable person looking at all the relevant facts and circumstances of the particular case would think that there was a ‘real sensible possibility of a conflict’. We have presented some typical scenarios below: NOT AN AGENT A gallery owner sells an artwork to a purchaser but has no relationship with the creator of the artwork other than to have the artwork in the gallery for sale, presumably to get a commission. There is nothing to preclude the gallery owner/valuer from later valuing a work that was sold by the gallery. CONSIDERED TO BE AN AGENT Gallery representing Artist A gallery owner exclusively represents an artist and the only way to buy a work by that artist is to deal with that gallery. There is a legal relationship created between the artist and the gallery owner under which the artist agrees to supply exclusively to that gallery and the gallery agrees to sell, that artist’s works. In this situation the gallery owner/valuer could not later carry out a valuation on a work which he or she had sold as there would be a clear conflict of interest. Valuer acting as bidder at auction for purchaser/donor Acting as a bidder at auctions could constitute an agency type relationship and potentially give rise to a perceived conflict of interest in preparing valuations particularly where the bidder has given the purchaser advice about the amount to bid for the artwork. This is because a valuer has an obligation to ensure that valuations are completely independent and are based purely on the GST market value of the item at the time of the valuation. In this situation, where an item was purchased at auction for a substantial sum at some time in the past, but where the market for that type of work has subsequently fallen, it is important for the valuer to be able to value the item at a much lesser sum, based on the current market value and the other supporting evidence of like sales. It would be very important that a valuation not be open to any perception that a valuer may have felt under pressure to take into account in coming to the valuation figure, the fact that as a bidder for an item on behalf of a donor he/she might have advised the buyer/donor of an appropriate amount to spend at that time, but is now valuing the item at a lot less. A perceived conflict of interest could equally exist where the valuer values the item for a lot more. Providing advice to a purchaser This depends on the relationship between the parties at the time that the advice is given. If the person/valuer is acting in a capacity where the purchaser will rely on that advice, for example, the advisor says the work is worth $100,000 and the purchaser pays that amount, there would at least be a perception of a conflict of interest if the person/valuer were to later value that work. The reasoning for this is similar to that for the bidder at the auction and rests on the perception of the independence being applied to the valuation.