Case No: A3/2001/1539
Neutral Citation Number:  [2002] EWCA Civ 1115
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HART J)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Wednesday 31 July 2002

Before :

LORD JUSTICE THORPE
LORD JUSTICE ROBERT WALKER
and 
LADY JUSTICE ARDEN

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Between :

	COMMISSIONERS OF CUSTOMS & EXCISE	Appellants	
	
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PING (EUROPE) LTD	
Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Mr Kenneth Parker QC and Mr Alun James (instructed by Solicitor for Customs & Excise) for the appellants
Mr David Milne QC and Mr Richard Barlow (instructed by Burton & Dyson) for the respondent

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Judgment
As Approved by the Court
Crown Copyright ©

Lord Justice  Robert Walker: 
Introduction
1.	This is a second appeal in a VAT case raising once again the vexed question of non-monetary consideration.  The taxpayer is a company called Ping (Europe) Ltd (“Ping”) which is an assembler and wholesale supplier of golf clubs with premises at Gainsborough, Lincolnshire.  It has been registered for VAT purposes since 1992.  The heads for the clubs which Ping assembles are provided by an associated American company, Karsten Manufacturing Inc (“Karsten”).  Other components come from other sources.
2.	The point at issue is a sequel to a dispute between Karsten and the Royal and Ancient Golf Club (“the R&A”) as to whether a club head manufactured by Karsten, the Ping Eye 2 iron, infringed the rules of the R&A, with the consequence that it could not be used in competitions held under R&A rules.  A fairly detailed account of the dispute is given in the written decision of the VAT and Duties Tribunal.  At one stage it involved proceedings commenced by Karsten in Arizona against the R&A and others, claiming damages of $300m.  But for present purposes the most important outcome of the dispute was that Karsten agreed to stop manufacturing and selling non-conforming clubs; the R&A declared a limited moratorium, ending in 1996, and apparently applying worldwide except for the USA and Mexico, which permitted continued use of non-conforming clubs in amateur competitions; and steps were proposed by Karsten and Ping, and agreed to by the R&A, to meet what the R&A’s press release, quoted by the Tribunal, referred to as
“concern for golfers who incurred the substantial costs of purchasing clubs which are non-conforming and for whom the purchase of new clubs may be a financial hardship.”
3.	Ping offered each owner of non-conforming clubs (which the Tribunal and the judge referred to as ‘old clubs’) a choice, only one limb of which gives rise to a VAT question.  That was that an owner of old clubs could surrender them and on payment of £22 (or £24 in the case of copperheaded clubs, but that variant can be ignored) for each club surrendered, obtain the supply of a new conforming club.  That was the general shape of the offer; I shall have to come back to some of the details, and the Tribunal’s findings of fact.
4.	The VAT issue which has arisen concerns the monetary equivalent of the non-monetary element of the consideration in the transactions which took place (through retailers as agents) between Ping and those who accepted the offer and handed over old clubs.  A new club cost Ping slightly less than £22.  Its normal wholesale price was £49.99, and its recommended retail price was £72.
5.	Before the Tribunal Ping contended, successfully, that the non-monetary consideration was nil, since the old clubs were worth nothing to Ping.  The Tribunal regarded the facts as unique and unlikely to be repeated.  The Commissioners of Customs & Excise appealed to the High Court, but on 27 June 2001 Hart J dismissed their appeal.  In doing so he commented that although the transaction might, at one level of abstraction, have been unique, a manufacturer’s recall of a defective product or component (such as a petrol pump in a car) was quite a familiar transaction.
6.	The Commissioners have now appealed again with permission which I gave on paper.  One factor influencing the grant of permission is that Hart J had been referred, among other authorities, to the decision of Carnwath J in Customs & Excise Commissioners v Bugeja [2000] STC 1, and since Hart J’s decision Bugeja has been reversed by this court: see the four appeals, of which the first-named is Customs & Excise Commissioners v Littlewoods Organisation plc, reported at [2001] STC 1568.  I shall refer to these as ‘the Littlewoods appeals’.
The law
7.	The relevant provisions of Community and United Kingdom legislation are set out in detail in paragraphs 2 to 7 of the judgment of the court, delivered by Chadwick LJ, in the Littlewoods appeals.  For the present it is sufficient to refer, as Hart J did below, to parts of section 19 of the Value Added Tax Act 1994 (“the 1994 Act”) and of Article 11A of the Sixth Directive (EC Council Directive 77/388 of 17 May 1977).
8.	Section 19 of the 1994 Act provides as follows:
“(1)	For the purposes of this Act the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6, and for those purposes subsections (2) to (4) below have effect subject to that Schedule.
(2)	If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration.
(3)	If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.
 ...
(5)	 For the purposes of this Act the open market value of a supply of goods or services shall be taken to be the amount that would fall to be taken as its value under subsection (2) above if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration.”
9.	Article 11A provides
“1.  The taxable amount shall be:
(a)  in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies ...(d) in respect of supplies referred to in Article 6(3), the open market value of the services supplied.  “Open market value” of services shall mean the amount which a customer at the marketing stage at which the supply takes place would have to pay to a supplier at arm’s length within the territory of the country at the time of the supply under the conditions of fair competition to obtain the services in question.
 .....
3.  The taxable amount shall not include:
(a)  price reductions by way of discount for early payment;
(b)	price discounts and rebates allowed to the customer and accounted for at the time of the supply ...”
10.	In the judgment of this court in the Littlewoods appeals Chadwick LJ added this comment about ‘open market value’:
“Sections 19(5) may be read in conjunction with Sch 6 to the 1994 Act, which contains provisions which enable the Commissioners ... to direct that the value of a supply shall be taken to be its open market value where the person making the supply and the person to whom it is made are connected.  The importance of the provision, in the context of the present appeals, is that it recognises that ‘open market value’ is the exception to the general rule.  The general rule is that the value of the supply is specific to the particular transaction which gives rise to the charge to tax.  The value of the supply effected by the transaction is equal to the monetary consideration actually paid for the supply, or, where the supply is for a consideration not consisting or not wholly consisting of money, the monetary equivalent of the consideration (see s 19(2) and (3) of the Act).”
11.	Chadwick LJ then embarked (paragraphs 8 to 49) on a long and detailed exposition of the principles established by the Court of Justice in a series of important appeals, starting with Staatssecretaris van Financien v Cooperatieve Aardappelenbewaarplaats GA [1981] ECR 445.  This was one of the first cases in which the Court of Justice articulated the principle that the consideration for a supply of goods or services is to be arrived at by a ‘subjective’ valuation, in the sense (as Chadwick LJ put it at paragraph 14) that
“The inquiry excludes any valuation which is independent of the actual transaction; that is to say, any valuation based on criteria which are not those adopted by the parties themselves.”
12.	Chadwick LJ then referred to the rather more recent decisions of the Court of Justice in Naturally Yours Cosmetics Ltd v Customs & Excise Commissioners [1988] STC 879 and Empire Stores Ltd v Customs & Excise Commissioners [1994] STC 623 and to the decisions of this court in Rosgill Group Ltd v Customs & Excise Commissioners [1997] STC 811 and Customs & Excise Commissioners v Westmorland [1998] STC 431.  Those were all cases in which an individual who might be loosely described as an intermediary (the beauty consultant who got a hostess to hold a sales party in Naturally Yours, the party hostess herself in Rosgill, a mail order customer who introduced a friend in Empire Stores, and a coach driver who stopped with a full coach at a service station in Westmorland) obtained goods or services either without payment (the ‘free gift’ in Empire Stores or the free meal in Westmorland) or on special terms (£1.40 in Naturally Yours for a pot of skin cream with a normal wholesale value of £10.14, or £20.76 in Rosgill for a blouse which normally retailed at £27.99).
13.	Those cases (and others concerned with ‘money off’ vouchers and discounts) were very carefully analysed by Carnwath J in his judgment in Bugeja, and were again very carefully analysed by Chadwick LJ in the judgment of this court in the Littlewoods appeals.  Reports of those judgments are readily available and it would serve no useful purpose for me to attempt what would be an inadequate summary of what are, in my respectful view, two full and illuminating discussions of the problems which have arisen in this area. 
14.	These problems are partly a matter of trying to reconcile the well-established ‘subjective’ approach with the equally well-established need to evaluate non-monetary consideration by the method
“which proves most direct and least distorting and which is most in conformity with the general scheme of the Sixth Directive.”
(see the opinion of the Advocate General da Cruz Vilaça in Naturally Yours 1988 STC 879, 891).  There is sometimes tension between those two principles, and it is clear that precisely the same economic effect may be arrived at by two different forms of transaction with different VAT implications (see the judgment of Arden J in Lex Services plc v Customs & Excise Commissioners [2000] STC 697, 706-7, a passage approved by this court when it upheld the decision as one of the four appeals in the Littlewoods appeals [2001] STC 1568, 1602-3).
15.	But while I will take as read most of the long judgment in the Littlewoods appeals I must refer more fully to Bugeja, the case in which this court allowed the Commissioners’ appeal after Hart J had made his decision in the present case.  Mr Bugeja traded in videos.  The facts as found by the tribunal were summarised by Carnwath J as follows:
“(1)  The published terms of business are £20 to buy and £10 to exchange.  (There was in fact a notice which read: “Videos.  Sale £20: Part-Exchange £10”.)  (2) The videos that are on offer in Mr Bugeja’s shop are all marked with the unique Bugeja security tag.  The tag cannot be removed without leaving a mark on the video.  (3) Videos bought in by Mr Bugeja from “wholesalers” as stock of the business cost £2 to £3.  (4) Apart from the videos purchased by Mr Bugeja from wholesale sources and those with Bugeja security tags already affixed to them which are taken back from customers, no other videos are stocked.  In particular a video which does not bear the Bugeja security tag is not accepted by Mr Bugeja from a customer.  (5) Where an “introductory supply” is made to a customer, ie in return for the £20 payment, that customer learns that if he brings the video back he will be able to take another on payment of £10.  (6) There is no obligation on any customer to return any video taken from the shop.  70% to 80% of the videos taken by customers from the shop are brought back, mostly within a week, by customers in return for replacement supplies.  (7) The right to a replacement supply does not depend on the length of time which the handed-in video has been away from the shop or on the time the replacement video is to be away.  (8) No record is kept of the persons taking videos either following introductory supplies or following replacement supplies.  (9) Mr Bugeja will not accept a badly damaged video in return for a replacement supply.  A replacement supply is not available to a customer who has lost the video that was previously supplied to him by Mr Bugeja.”
16.	The tribunal rejected the argument that the transaction was essentially one of hire, and that argument was not pursued on appeal.  On the basis that the transaction was a sale, the question was what monetary value should be put on the non-monetary consideration (the returned tagged video) when a customer received the replacement supply of a video for a cash payment of £10.  The Commissioners contended that the answer was £10 (being the difference between the cash consideration on an introductory supply and a replacement supply) and the tribunal accepted that (see [2001] STC 1568, 1605),
“The terms of the replacement supply were dictated by the introductory supply.  The parties had no scope to attribute any monetary consideration to it, other than the £10.”
17.	Carnwath J reversed that decision, holding that the monetary equivalent was the £2 or £3 which the tribunal found to be the wholesale price of the videos (comparable to the wholesale cost price of the ‘free gift’ in the Empire Stores case).  The ground of the decision was stated as follows ([2000] STC 1, 9:
“In the present case, by contrast, there is nothing intangible about the consideration received by Mr Bugeja, nor any obvious problem of valuation.  The consideration is partly in cash, and partly in the form of an object (a second-hand video), of a type which is regularly bought and sold.  There is no need for any ‘approximation’ or ‘indirect’ method.  We know that the ‘subjective value to the recipient’ is not more than £2 to £3.  If one is looking for the method which is ‘most direct and least distorting’, and which avoids him having to pay tax on more than he receives, that value provides a ceiling.  It would be surprising and unfair if he were required to pay tax as though he had received something worth £10.  I conclude that this is a case where it is appropriate to adopt a method analogous to that used in Empire Stores.”
18.	This court reversed Carnwath J and restored the decision of the tribunal.  The directly relevant part of the Littlewoods appeals judgment is at [2001] STC pp.1603-9, paragraphs 89-105.  I will set out the whole of paragraphs 100 to 103 (inclusive):
“[100]  In our view there is no reason, in principle, to distinguish between those cases – of which a part exchange transaction is an obvious example – in which the non-monetary element of the consideration for the supply takes the form of goods and those cases in which the non-monetary element takes the form of services.  In each case the inquiry is the same: what is the monetary equivalent of consideration not consisting or not wholly consisting of money (see art 11A(1)(a) of the Sixth Directive and s 19(4) of the 1994 Act).  Nor, in our view, is there conflict – in the case of a bi-partite transaction under which goods are supplied by one party for consideration provided by the other wholly or partly in the form of goods or services – between the inquiry as to the monetary equivalent of the non-monetary consideration and the principle that a person should not be required to account for tax on the basis of a taxable amount which exceeds what he has received.  There is no difficulty, in such a case, in identifying what the supplier has received as consideration for the supply.  The problems with which the Court of Justice was faced in the Argos case and the Elida Gibbs case do not arise.  It is pertinent to note that, in the Rosgill case, Sir Richard Scott V-C found those cases of no assistance.  The question, in a case such as the present, is not ‘what is the consideration for the supply?’; rather, the question is ‘what is the monetary equivalent of the non-monetary element of that consideration?’
[101]That question has to be answered in the light of the decisions of the Court of Justice in the Naturally Yours case and the Empire Stores case.  We think that the judge may have been misled by references, in those cases and in the subsequent decisions of this court in the Rosgill case and the Westmorland case, to ‘the subjective value’ of non-monetary consideration.  Robert Walker LJ in his recent judgment in this court in F & I Services Ltd v Customs and Excise Comrs [2001] EWCA Civ 762 at [53], [2001] STC 939 at [53], referred to ‘the special sense in which the Court of Justice uses that term in this context’.  The Advocate General (Fennelly) explained in his opinion in the Argos case in a passage to which we have already referred (see [1996] STC 1359 at 1366, [1997] QB 499 at 521, para 21) that ‘in this context, the word “subjective” is not used here in its normal sense in English, but rather to describe the value placed by the parties on key elements in a transaction ...’.  The sense in which the term ‘the subjective value’ is used by the Court of Justice in this context may, we think, be expressed as ‘the value for the purposes of the transaction’; the distinction is between the value placed on the goods or services in the context of the particular transaction and some ‘objective’ value which the goods or services might command in the market generally.
[102]It is clear, from the decision of the Court of Justice in the Empire Stores case, that where no monetary value has been placed upon the non-monetary element of consideration for the supply of goods – whether that non-monetary element takes the form of goods or services – by agreement between the parties, the relevant inquiry is as to the monetary equivalent which the supplier (as the recipient of the consideration) places upon that element for the purposes of the transaction.  We would accept that that is the relevant inquiry, also, in a case where the parties to the transaction have agreed on the monetary equivalent of the non-monetary element.  That is made clear by the decision in the Argos case – as appears from the contrast between the approach of the Court of Justice and that of the Advocate General.  But, in the case of a bi-partite transaction under which goods are supplied by one party for consideration provided by the other wholly or partly in the form of goods or services and the parties have agreed on the value to be attributed to those goods or services,     the answer to the inquiry ‘what monetary equivalent has the supplier placed upon the non-monetary element for the purposes of the transaction?’ is provided by the agreement.  In such a case there can be no difference between the value which the parties have agreed to place upon the non-monetary element for the purposes of the transaction between them and the value which one of those parties (the supplier, as the recipient of the consideration) places upon that element for the purposes of the transaction.
[103]We are satisfied, therefore, that the judge’s decision in the present case could be upheld if, but only if, he were entitled to (and did) take the view that there was no agreement between Mr Bugeja and his customer as to the value to be attributed to the Bugeja video which the customer returned by way of part exchange.  Although there is some indication that the judge may have been attracted to that view (see [2000] STC 1 at 9) – it cannot be said that he decided the appeal before him on that basis.  Nor do we think that he would have been entitled to do so.  In our view the only conclusion open to him on the facts found by the tribunal was that both Mr Bugeja and his customer treated the returned video as having a value equal to the difference between the ‘Sale’ price of £20 and the ‘Part-Exchange’ price of £10.”
The judgment below
19.	As I have already made clear, Hart J did not have the benefit of considering the judgments in the Littlewoods appeals.  But he did have the benefit of the tribunal’s written decision which contained clear findings of fact (apart from one finding which the judge found puzzling) and a full discussion of the authorities.  His judgment is now reported at [2001] STC 1144.
20.	The findings of fact of which the judge made special mention included the following:
i)	Ping was required by Karsten to return to the United States all the old clubs surrendered to it.  Even if the old clubs had some scrap value, Ping did not receive it, and did not expect to receive it.  Ping attributed no monetary consideration to old clubs.  (Mr Kenneth Parker QC, appearing in this court with Mr Alun James for the Commissioners, submitted that this last finding was not a finding of primary fact, but was a conclusion containing an element of law.)
ii)	Ping and those surrendering old clubs did not make any joint agreement on the value of the non-monetary consideration.
iii)	The true wholesale price of goods is normally, and was in this case, regarded as a secret to be kept from retail customers.  The extent of the price reduction was not therefore readily ascertainable by the owner of old clubs who was surrendering them.
21.	The finding which the judge found puzzling was in paragraph 14 of the tribunal’s decision:
“But clearly the old clubs had a value to their owner on Ping agreeing, on their surrender, to replace them with new clubs at a price substantially below the new clubs’ wholesale price.  We find that the value was the difference between the wholesale price of a new club, £49.99, and the price which the owner of an old club was required to pay for a new club, £22.”
22.	The judge said of this (after having referred to the decision of the Court of Justice in Naturally Yours):
“In the present case, by contrast, there was no directly comparable “normal” transaction between Ping and the purchaser from which the inference can be drawn that the parties to the transaction attributed a specific monetary value to the supply by the customer to Ping of the old clubs.  Ping was a wholesaler which did not normally sell directly to the customer.  Ping’s “normal” transaction would have been a transaction with a retailer (at the wholesale price).  The customer’s “normal” transaction would have been a purchase from a retailer (presumably at or near the recommended retail price).  The Tribunal’s finding (at paragraph 14 of the Decision) that the value to the customer of the old clubs was the difference between the price paid for the new clubs and their normal wholesale price is perplexing, and only explicable if one assumes that customers could somehow have obtained new clubs at the wholesale price: otherwise one would have expected the value to the customer to have been higher.”
23.	The judge then referred to the authorities, and in particular to the summary of the leading authorities which Carnwath J appended to his judgment in Bugeja.  He also quoted in full Carnwath J’s commentary on those authorities ([2000] STC 1, 6-7).  He did not directly quote, but did refer to, a later passage in Carnwath J’s judgment (at p.9) where (after referring to consideration consisting of services of an intangible nature) he said:
“In the present case, by contrast, there is nothing intangible about the consideration received by Mr Bugeja, nor any obvious problem of valuation.  The consideration is partly in cash, and partly in the form of an object (a second-hand video), of a type which is regularly bought and sold.  There is no need for any ‘approximation’ or ‘indirect’ method.  We know that the ‘subjective value to the recipient’ is not more than £2 to £3.  If one is looking for the method which is ‘most direct and least distorting’, and which avoids him having to pay tax on more than he receives, that value provides a ceiling.”
24.	That is the passage in which Carnwath J erred, as this court has held, possibly through a misunderstanding of the special meaning, in this context, of ‘subjective value’.  There was no reason to suppose that Mr Bugeja’s customers knew the size of his gross profit on sales or that the parties attributed that value to a video which a customer returned in order to get a replacement video.  As this court said on appeal, the only conclusion on the facts found
“was that both Mr Bugeja and his customer treated the returned video as having a value equal to the difference between the ‘Sale’ price of £20 and the ‘Part-Exchange’ price of £10.”
25.	Hart J did not accept that Bugeja provided a complete solution.  He doubted whether Carnwath J’s distinction between goods and services was sound (and this court has ruled that his doubts were well-founded: see paragraph 100 of the Littlewoods appeals judgment).  He also observed that whereas in Bugeja the average returned video had some commercial value to the shopkeeper, the old clubs had no commercial value (as goods) to Ping.  It wanted the old clubs back only because of its agreement with the R&A that they would be taken out of circulation.  It was at this point in his judgment that the judge referred to the possible recall of cars because of a defective component.  He said that the VAT analysis of such a recall had not been debated before him, but that it would be extraordinary if it attributed any value to a defective component.
26.	The judge attached importance to the transactions being of a special and unusual character, unrelated to any normal sale (whether wholesale or retail):
“The premise of the transaction was that the old clubs had no value, were non-compliant and needed to be taken out of circulation.  Ping was persuaded to agree to price the supply to existing owners at £22.00.  No doubt Ping perceived advantages to itself in coming to the arrangement it did with the Royal and Ancient, but the value of those advantages had nothing directly to do with price at which it was prepared to sell wholesale into the “normal” market.  There was no necessary relation between the price of £22.00 at which it was prepared to supply new clubs to owners of the defective product and the price at which Ping was normally prepared to sell wholesale to persons who were ex hypothesi not owners of (or selling to owners of) the defective clubs.  So far as Ping was concerned the price at which it was prepared to sell new clubs to owners of the old clubs was simply the £22.00 plus the return of the intrinsically valueless old clubs.”
27.	The judge then came back to the Tribunal’s observations about the difference between the actual sale price of a new club (£22) and its normal wholesale price (£49.99).  He concluded that it was irrelevant because it was explicable only by imagining a hypothetical transaction which did not take place, rather than looking at the value attributed by the actual transaction which did take place.  He concluded the main part of his judgment with the observation that the average owner of an old, non-conforming club
“might have been surprised to be told that in paying £22 for a club which did not break the rules of the game he was ascribing a value of £27.99 to a club which did.”
The judge dismissed the Commissioners’ appeal on these grounds and did not find it necessary to consider the alternative argument based on a price discount or rebate under Article 11A(3)(b) of the Sixth Directive.
Submissions on this appeal
28.	On this second appeal Mr Parker (who did not appear below) began his main submissions with what he has described as a short point, based on the difference between Naturally Yours and the cases following it (Rosgill, Westmorland and Bugeja) on the one hand and Empire Stores on the other.  In the Naturally Yours type of case there are normal terms of trade which are usually well known to (and at the least readily ascertainable by) both sides.  (For instance the consultant in Naturally Yours would have been familiar with the supplier’s wholesale price-list, and most coach-drivers would be familiar with the prices on the menu at motorway eating-places.)  In Empire Stores the position was different.  Mr Parker emphasised that Chadwick LJ treated it as a decision on its facts, and in particular the fact that the ‘free gift’ was specifically identified, in the question referred to the Court of Justice, as ‘non-catalogue’ goods (see [1994] STC 623, 635).  So in that sort of case there were no existing ‘terms of trade’ which provided a ready means of ascertaining what monetary value the parties had attributed to non-monetary consideration.
29.	I have no difficulty in accepting that analysis, which is in line with the judgment of this court in the Littlewoods appeals.  Nor was the analysis disputed by Mr David Milne QC, appearing with Mr Richard Barlow for Ping.  What they did dispute was what Mr Parker sought to build on that foundation, that is the proposition that the non-monetary consideration must be valued at £27.99, since this was the value which Ping, as the recipient of the non-monetary consideration, must be taken to have attributed to it. 
30.	This was, Mr Parker submitted, Ping’s ‘opportunity cost’.  By that he meant that it was the amount which Ping was willing to forgo by disposing of new clubs under the special offer rather than selling them, as it would otherwise have done, at its normal wholesale price of £49.99.  Mr Parker dismissed as irrelevant the suggestion that disgruntled owners of non-conforming clubs might, in the absence of the special offer, have been disinclined to have anything more to do with Ping clubs, and might have decided to buy some other brand.  
31.	Mr Milne (who also did not appear below) described the ‘opportunity cost’ theory as wholly novel and contrary to all the jurisprudence of the Court of Justice, going back to the Aardappelenbewaarplaats case.  The proposed test would, Mr Milne said, revive heresies about open market value which had been exploded in that case.  It would run counter to the principle summarised by Chadwick LJ (see paragraph 13 above) that 
“The inquiry excluded any valuation which is independent of the actual transaction; that is to say, any valuation based on criteria which are not those adopted by the parties themselves.”
Mr Milne also referred to Argos Distributors Ltd v Customs & Excise Commissioners [1996] STC 1359 as contrary to Mr Parker’s ‘opportunity cost’ theory.  
32.	In my view the ‘opportunity cost’ theory is novel and is not supported by authority.  It might perhaps be used as another way of describing a Naturally Yours type of case, in that both sides are taken to acknowledge that (for instance) the skin cream might have been sold for £10.14 rather than £1.40 (and would be sold for the larger sum if the sales party were not held).  It does not really fit the Empire Stores type of case because the ‘free gift’ items were not in the catalogue.
33.	However the rejection of the theory does not by itself answer the question of how the non-monetary consideration should be valued in this case.  I venture to think that both very experienced leading counsel may have been rather too ready (no doubt in order to simplify the issues as much as possible) to invite the court to assume that every case on non-monetary consideration must, on examination, prove to be either the Naturally Yours type or the Empire Stores type.  The summary by Hutchinson LJ in Westmorland [1998] STC 431, 434 cannot, I think, have been intended to be a comprehensive statement of the principles applying to every possible problem on non-monetary consideration, as opposed to principles to be extracted from the two cases. 
34.	In my view it is necessary to go back to the Tribunal’s findings of fact, and to the general principles and guidance to be found in the jurisprudence of the Court of Justice.  Mr Milne has emphasised the Tribunal’s findings of fact (in paragraph 13) that an old club had no intrinsic value to Ping, and that Ping attributed no monetary consideration to an old club.  The Tribunal also found (paragraph 44) that the surrender of an old club represented a burden to Ping, not an advantage: it might equally well have been represented by a certificate of destruction of a non-conforming club, which would have brought the matter into line with the ‘voucher’ cases such as Boots Co plc v Customs & Excise Commissioners [1990] STC 387.
35.	I think Mr Parker was right to describe the finding of ‘no attribution’ as having the character of a legal conclusion, and as not being a finding of primary fact (see Westmorland at p.435).  Nevertheless I am not persuaded that it was an erroneous conclusion.  In opening the appeal Mr Parker showed the court some documentary material which was before the Tribunal but was not all quoted or summarised in its decision.  But none of it seemed to me to cast any new light on the question of attribution of value.
36.	Mr Milne suggested, towards the end of his oral argument, that his reliance (if necessary) on Article 11A(3)(d) (price discount or rebate) was not in truth an alternative argument, but simply a natural development of his main argument.  The old clubs were really no different from an intrinsically valueless voucher which entitled a customer to a discount. Mr Parker did not refer to this in his reply but Mr James had in his supplemental skeleton argument contended that it was no more a discount than the special price at which pots of skin cream were sold to the consultants in Naturally Yours.
Conclusions
37.	I agree with Mr Parker that the point at issue is in the end a short one.  But it is still necessary to search for the principle on which it should be decided; and the unusual facts of this case make it difficult to discern the principle.  Working backwards from Mr Milne’s discount point, I do not think that something which constitutes consideration for a sale can simultaneously be a discount.  In the retail trade a shopkeeper who gives a discount does so not out of altruism, but because he hopes to increase turnover either directly (by selling more of the discounted articles) or indirectly (by generating goodwill).  Nevertheless the discount is a reduction in the normal retail price, not part of the consideration for the sale.  It does not become part of the consideration merely because the trader hopes to obtain an advantage from it.  Nor does it become part of the consideration merely because it is evidenced by some sort of ‘money off’ voucher.  Although the point was not very fully argued, I do not think that the discount point is open to Ping on the Tribunal’s findings of fact.  
38.	The paradox of this case is that the return of the old club was consideration, but both the Tribunal and the judge reached the conclusion (for largely the same reasons) that the monetary value of the consideration was nil.  That is an unusual conclusion, but it is an unusual case.  Ping wanted the old clubs back not because they were of any value to it but simply in order to comply with its obligation to the R&A.  
39.	The real difference between this case and Bugeja is not that a second-hand video was worth £2 or £3 to Mr Bugeja, but that he and his customers knew the terms of trade: “Videos.  Sale £20 : Part-Exchange £10”.  Had Ping been unwise enough to frame and advertise its special offer in similar terms the result might have been different (although that would probably have depended on the Tribunal’s findings).  But there were no normal ‘terms of trade’ relevant to this very unusual transaction, and it is not to my mind likely to open any floodgates.  I think that the Tribunal and the judge were right, and (despite the reversal of Bugeja) largely for the reasons which they gave.  I would dismiss this appeal.
Lady Justice Arden:
40.	Article 2 of the Sixth Directive (77/388/EEC) subjects to value added tax (VAT) the supply of goods or services effected “for consideration”.  The term “consideration” is thus a concept of European Community law.  However, its meaning has now been considered on several occasions by the European Court of Justice.  Those cases were carefully considered and fully analysed by this court in the appeals referred to by Robert Walker LJ as the Littlewoods appeals.
41.	I gratefully adopt the analysis of the case law appearing in the judgment of Robert Walker LJ, and his statement of the facts and the parties’ submissions on this appeal.  I agree with him as to the outcome of this appeal and summarise my reasons thus.
42.	As appears from the case law set out in the judgment of Robert Walker LJ, the following principles apply to the interpretation of the phrase “for consideration” for the purposes of community law:
i)	A direct link must exist between the goods or services supplied and the consideration received.
ii)	The consideration must be capable of being expressed in money and the appropriate method of valuation is to ascertain the “subjective” value of the goods or services supplied.  This constitutes the value placed on the consideration by the parties, or, if none, the value of the goods or services supplied to the recipient.
43.	The European Court of Justice held in Empire Stores Ltd v Customs and Excise Commissioners  (case C-33/93) [1994] STC 623 that where the parties did not place a value on the goods or services supplied, the value attributed by the recipient to the goods or services supplied “must correspond to the amount which he is prepared to spend for that purpose”.  In the Littlewoods appeals, the Court of Appeal took the view that these words referred to the facts in the Empire Stores case (see Customs & Excise Commissioners v Littlewoods Organisation plc) [2001] STC 1568 at paragraph 20 per Chadwick LJ giving the judgment of the court).  Mr Kenneth Parker QC, for the Commissioners, placed emphasis on this interpretation by the Court of Appeal in the Littlewoods appeals.  In the context, the word “spend” must, in any event, have a very wide meaning and include the making of expenditure by way of the foregoing of the benefit or the obtaining of a discharge from a liability.
44.	It follows from the principles, as summarised above, that the value which the seller alone placed on the goods or services supplied is irrelevant.  Thus, in this case it is irrelevant that the tribunal considered that the old clubs had a value to their owners which exceeded £22.  Similarly, the objective value of the old clubs is irrelevant.
45.	The crucial paragraph in the decision of the tribunal is as follows:-
“13.  Ping and Karsten USA agreed with R & A that, in effecting the arrangement they had put in place to compensate the owners of the old clubs, they would ensure that the old clubs surrendered would be removed from the market.  To that end, Ping was required by Karsten USA to return all the old clubs surrendered to the United States.  Although we were not told which company paid the costs of transporting the old clubs across the Atlantic Ocean, it emerged, and we find, that Ping received nothing for the old clubs.  Consequently we also find that, even if the old clubs had a scrap value, Ping did not, and indeed never expected to, receive it.  Thus, we find that Ping attributed no monetary consideration to each old club surrendered.”
46.	I agree with Robert Walker LJ that the last sentence of this paragraph in the decision is a conclusion of law.  It is an application of the principle propounded by the European Court of Justice in the Empire Stores case as described above.
47.	Further, in my judgment, the usual selling price of a club and Ping’s usual wholesale price are irrelevant.  The offer which Ping made to holders of the old club was not “our usual selling price or if you surrender an old club £22”.  The offer was to acquire a new club for “a special one-off price” of £22 plus surrender of the old club.  It is not possible to convert the offer that was actually made into an offer of the first type by contending, as Mr Parker sought to do, that the usual price is information which is easily obtainable.  In any event, for the appellants so to do on this appeal, they would have to challenge not only paragraph 13 but also paragraph 15 of the tribunal’s decision in which the tribunal held that the parties did not jointly agree the amount of the non-monetary consideration or attribute an amount thereto.
48.	There is no reason why Ping should not agree to sell a new club at a discounted price or even at cost.  What the tribunal found was that £22 represented slightly more than the cost to Ping of a new club (paragraph 10 of the decision).  The tribunal ignored the difference between cost and £22 but no-one has suggested that it was wrong so to do.  
49.	The tribunal had to decide what value Ping had attributed to the old club.  There is no direct evidence that it placed any particular value on this item.  Thus, there was no evidence for instance that internally Ping had first attributed its usual wholesale selling price to the transaction with the customer and then attributed the difference between £22 and that price.  If this had been done, then the tribunal would doubtless have concluded that this sum, in effect “opportunity cost” for which Mr Parker contended, represented the consideration which Ping attributed to the old club.  The tribunal had to reach its conclusion on such evidence as was available.  It summarised that evidence in paragraph 13, set out above.  One important element of that evidence was that the old club had no scrap value.  If Ping had been able to obtain some price from Karsten, that would have suggested that Ping did not attribute a nil value to the old club.  I should add that there was no evidence, as there perhaps might have been, that the recall conferred any value on Ping.
50.	In my judgment, the tribunal was entitled to reach the conclusion which it did in the final sentence of paragraph 13 of its decision.  The Commissioners’ appeal cannot succeed unless they can challenge that conclusion.  It follows that in my judgment the judge was right to dismiss the Commissioners’ appeal to the High Court and that this court should dismiss the appeal from his decision to this court.
Lord Justice Thorpe:
51.	I have had the advantage of reading in draft the judgment of my lord, Robert Walker LJ.  I am in full agreement with its conclusion and reasoning.

Order: 
1.	Appeal dismissed with costs to be subject to detailed assessment if not agreed.
2.	Leave to appeal to the House of Lords refused.
(Order does not form part of the approved judgment)