IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2004-404-1677

BETWEEN

SINTEL-COM LIMITED (IN LIQUIDATION) Plaintiff/Respondent TELECOM NEW ZEALAND LIMITED Defendant/Applicant

AND

Hearing:

17 June 2005

Appearances: JRF Fardell QC and C Baird for the Plaintiff/Respondent JS Kos and J Goodall for the Defendant/Applicant Judgment: 6 April 2006 JUDGMENT OF RODNEY HANSEN J

Solicitors:

Duncan Cotterill, P O Box 5326, Auckland for the Plaintiff/Respondent Russell McVeagh, P O Box 10-214, Wellington for Defendant/Applicant

SINTEL-COM LIMITED (IN LIQUIDATION) V TELECOM NEW ZEALAND LIMITED HC AK CIV 2004404-1677 [6 April 2006]

Introduction

[1]

Between 1997 and 1999, when it went into liquidation, the plaintiff (Sintel) The

was in the business of providing audiotext telecommunications services.

defendant (Telecom) contracted to provide Sintel with telecommunication services. Disputes arose between Sintel, Telecom and ANZ Banking Group (New Zealand) Limited (ANZ) which had provided Sintel with a substantial loan facility secured by debenture. A settlement was reached by all parties which provided in part for ANZ to assign its debenture to Telecom. [2] In this proceeding Sintel seeks to set aside the settlement agreement and to

sue Telecom for breaches of contract and other duties. Telecom acknowledges that Sintel is entitled to seek to set aside the settlement agreement but says it is prevented by the terms of the debenture from pursuing the other causes of action against Telecom. It applies to strike out those causes of action.

Further background

[3]

Sintel derived its income from telephone services provided to subscribers in

South Korea who were able to enjoy specialised services by calling a Cook Island number provided by Telecom. The calls were routed through a server in South Korea, then through Telecom to Sintels telecommunications network in Takapuna. The overseas server, Telecom and Telecom Cook Islands each received a fee from the payment made by the overseas caller. Sintel received the residue. [4] When it commenced business, Sintel entered into an agreement with ANZ

pursuant to which ANZ provided Sintel with a US$3.5m loan facility. The facility was secured by a debenture which provided for the assignment by Sintel to ANZ of its present and future assets. The Telecom contracts were specifically referred to and Telecom was given notice of the assignment of its contracts to ANZ. At that time Telecom agreed to deposit monies due to Sintel (which it would receive from the

overseas server) into a specific bank account at ANZ. Telecom failed to make the deposits required, resulting in a claim by ANZ against Telecom. [5] When Sintel was put into liquidation in 1999, ANZ appointed receivers as it

was entitled to do under the debenture. At this time, Sintels debt to ANZ was approximately $2.5m. [6] Differences arose between Telecom and Sintel as to the amounts payable to

Sintel under the Telecom contracts and between Telecom and ANZ as to Telecoms liability for its failure to make payments under the contracts direct to ANZ. The settlement agreement entered into on 15 June 2000 provided for the full and final settlement of all disputes between the parties, for Telecom to pay ANZ $2.225m and for ANZ to execute a deed of assignment of the facility agreement and debenture to Telecom. The assignment was subject to the assignment back to ANZ of a 28% share of the interests arising under the instruments. This proportion reflected the unsatisfied portion of Sintels debt to ANZ which, by the time of settlement, had risen to $2.955m. Subsequently, in 2001, the receivers retired.

Issues

[7]

In this proceeding Sintel claims that Telecom failed to properly account to it

for payments received from the overseas telecommunications carrier. The first six causes of action seek recovery based on breach of contract, misrepresentation, breach of fiduciary duty and deceit. The seventh cause of action seeks to set aside the settlement agreement. Sintel alleges that its liquidators and receivers were

induced to enter into the settlement agreement by Telecom misrepresenting the amount of its indebtedness to Sintel. [8] Telecoms application to strike out the first six causes of action is brought on

the basis that Sintel has assigned all its property and assets under the ANZ debenture, including those causes of action, and has covenanted in the debenture that it will not deal with secured property without the consent of the debenture holder. Telecom maintains that Sintel cannot advance its claims without first redeeming the security. For this purpose, Telecom says it is irrelevant whether it holds the

debenture or ANZ does. The argument is said to hold good even if the assignment of the debenture by ANZ to Telecom were to be set aside. [9] Sintel maintains that it is entitled to sue Telecom. Its position is that the

causes of action against Telecom did not become part of the security but, if they did, the express terms of the debenture or terms to be implied give Sintel the right to sue subject to accounting to the debenture holder for sums recovered up to the amount of the indebtedness. Sintel also contends that to deny it the ability to sue Telecom would be a clog on the equity of redemption.

Terms of debenture

[10]

The security for the debenture is provided by cl 1.1 which reads:

Security: The Company charges and assigns in favour of the Bank all its right, title and interest (present and future, legal and equitable) in, to, under or derived from the Secured Property, as continuing Security for the payment of the Secured Indebtedness and for the performance of all other obligations that the Company has agreed to perform under this Debenture, each Facility Document or any Collateral Security.

Secured Property is defined as meaning:

all the assets of the Company whatsoever and wheresoever, both present and future and whether held in trust or beneficially owned by the Company, including without limitation those assets that are acquired by the Company after the crystalisation of the floating charge created under this Debenture;

Assets are defined as including:

the whole or any part of the relevant persons business, undertaking, property, revenues and choses in action (in each case, present and future, legal and equitable):

[11]

The debenture created a fixed charge over all choses in action and for their

absolute assignment by way of mortgage. Clause 1.2 relevantly provides:

Fixed Charge: The security interest created by the Company in clause 1.1 is a fixed charge over each of the following kinds of property (present and future, legal and equitable):

(j)

all choses in action including, without limitation, all book debts and other monetary debts;

Clause 1.3 provides:

Assignment of Choses in Action: The security interest created by the Company in clause 1.1 is an absolute assignment by way of mortgage of all the Companys book debts, other monetary debts and other choses in action (present or future). If requested by the Bank, the Company will promptly give written notice of this assignment to such person or classes of persons as the Bank may specify, being persons from whom the Company is entitled to receive or claim any chose in action, book debt or other monetary debt.

[12]

Clause 3 of the schedule to the debenture specifies that the choses in action

assigned under cl 1.3 include rights arising under the agreements with Telecom. It provides:
Assignment: The security interest created by the Company in clause 1.3 of the Debenture includes an absolute assignment by way of mortgage of: (a) all the Companys right, title, interest, powers and remedies (present and future, legal and equitable) in and to each Agreement (but in each case specifically excluding any of the obligations or responsibilities (whether of a monetary nature or otherwise) of the Company therein); the Earnings,

(b)

to secure payment to the Bank of the Secured Indebtedness and performance and compliance by the Company of all other obligations which the Company has agreed to perform under the Debenture.

The agreements referred to in cl 3(a) are defined as including the agreements between Telecom and Sintel which were essential to Sintels business operations and earnings are defined as including monies payable to Sintel arising out of or in connection with the agreements.

Whether Telecom claims are choses in action

[13]

The charging clause extends by virtue of the definitions of secured property

and assets to choses in action, present and future, legal and equitable. They are subject to the fixed charge created by cl 1.2 and by cl 1.3 are assigned absolutely by way of mortgage. As rights of action are choses in action, the words of the

debenture appear to leave little room to doubt that the causes of action against Telecom are part of the secured property. [14] Mr Fardell QC submitted, however, that the claims against Telecom in the

first to sixth causes of action are not choses in action for the purpose of the debenture. He said the debenture should be interpreted so as to distinguish between choses in action which arise in the ordinary course of business and those which do not. He relied on a decision of the English Court of Appeal, Re New Bullas Trading Limited [1994] 1 BCLC 485 where it was held that the debenture under consideration should be interpreted as providing for book debts to be the subject of a fixed charge while uncollected and a floating charge following realisation. [15] In CIR v Agnew [2002] 1 NZLR 30 the Privy Council refused to follow New

Bullas but whether or not it is good law I find it of no assistance. All choses in action are the subject of the fixed charge created by cl 1.2. By cl 1.4 a floating charge is created over all assets other than those which are the subject of the fixed charge or may not be fully effective as a fixed charge. I am unable to find in these provisions any basis for distinguishing between choses in action which arise in the ordinary course of business and others. If it is a chose in action, it is part of the secured property and that is the end of the matter.

Assignment of choses in action

[16]

Clause 1.3 of the debenture is unambiguous. It provides that choses in action

are absolutely assigned by way of mortgage to ANZ. It was submitted, however, on behalf of Sintel that the rights of action against Telecom could not have been validly assigned under the debenture because the assignee did not have the requisite commercial interest in taking an assignment Trendtex Trading Corporation v Credit Suisse [1982] AC 679; First City Corporation v Downsview Nominees Limited [1989] 3 NZLR 710. In my view, there is nothing in the submission. The assignment of choses in action, present and future, was made to ANZ for the purpose of providing security for Sintels indebtedness. commercial interest in taking the assignment. Clearly ANZ had a genuine

Effect of assignment

[17]

The critical remaining point of difference between the parties is the effect of For Telecom it was submitted that the absolute nature of the

the assignment.

assignment means that Sintel cannot take steps to enforce or realise the choses in action without the consent of the debenture holder. Sintels position is that it is able to realise any of the charged assets, including the choses in action, provided it undertakes to account to the debenture holder for the debt secured. Mr Fardell argued that outcome is required by express and/or implied terms of the debenture and is, in any event, necessary in order to avoid an impermissible clog on the equity of redemption. [18] An absolute assignment by way of security effects a transfer of the legal title

to the secured property: Hughes v Pump House Hotel Company Limited [1902] 2 KB 190; Commercial Factors Limited v Maxwell Printing Limited [1994] 1 NZLR 724. In the case of an assignment of future property, equity treats the assignee as having the equitable interest as soon as the property comes into existence: Hadlee v Commissioner of Inland Revenue [1991] 3 NZLR 517 at 527-528 (CA). The

assignment is, however, subject to the equity of redemption; if the assignor repays the underlying indebtedness, it is entitled to call for the return of the property. I adopt the following statement of Sir Roy Goode relied on by Mr Kos:
A mortgage is a transfer of ownership of the asset (or of any lesser interest held by the transferor) by way of security upon the express or implied condition that ownership will be retransferred to the debtor on discharge of his obligation. A mortgage thus involves the acquisition of an existing interest, not the creation of a new one, a fact which distinguishes it from an equitable charge. (Legal Problems of Credit and Security (3rd ed, 2003), Sweet & Maxwell, p 35.)

[19]

The assignee as owner of the chose in action (including, in this case, causes

of action arising in the future) is able to act on the rights so acquired. However, Mr Kos submitted for Telecom that the assignor cannot so act without the assignees agreement and may be restrained from doing so. For this proposition he relied on Three Rivers District Council v Bank of England [1995] 4 All ER 312 (CA) where Peter Gibson LJ said at 326:

It is, in my judgment, elementary that where, as here, there is an agreement to assign a legal chose, in equity the assignee becomes the owner and controller of the legal chose An assignor, if the assignment is known, will not be allowed to sue in his own name for himself. He may sue as trustee for the assignee if the assignee so wishes, but in that event he should reveal his representative capacity and if he attempts to recover for himself, even if, for example, only part of the debt has been assigned, he will be required to join the assignee.

[20]

To similar effect is the following passage from Jeffs v Day (1886) 1 LR QB

372 where Blackburn J said at 374 with reference to an assignment of a debt:

There appears to me to be no difficulty in the present case. The debt has been assigned, and has become the property of [the assignee], and the plaintiff would be restrained in equity from suing the defendant for his own benefit. [The assignee] may bring an action for the debt in the plaintiffs name, on indemnifying him for costs; but if the plaintiff prosecutes an action for the benefit of any person other than the assignee, a court of equity would stop him. It is true, that at some future time the debt may possibly revest in the plaintiff, in which case he would have a right to sue; but then there would be a new state of circumstances, to which the injunction would not apply.

[21]

Mr Kos further submitted that the duties owed by a mortgagee similarly do

not permit the imposition of an obligation on Telecom to allow Sintel to pursue the claims. He pointed out that its duties as mortgagee are limited. It is under an equitable duty to act in good faith and for a proper purpose (Downsview Nominees Limited v First City Corporation Limited [1993] 1 NZLR 513 (PC)) and a duty to take reasonable care when realising or selling the secured property: Apple Fields Limited v Damesh Holdings Limited [2001] 2 NZLR 586 (CA). However, it is under no duty to take any actual steps to sell, realise or otherwise deal with the secured property. It is entitled to simply hold the property until it is repaid: China and South Sea Bank Limited v Tan [1990] 1 AC 536 (PC), followed in Countrywide Banking Corporation v Robinson [1991] 1 NZLR 75 (CA) and Apple Fields (supra). It follows, Mr Kos said, that Telecom is under no obligation to realise or otherwise deal with property secured under the debenture or to allow Sintel to realise or deal with the secured property. [22] In response Mr Fardell advanced three principal submissions. First, he

submitted that on its true construction the debenture does not confer on the debenture holder the unqualified rights referred to in these authorities. He contended that the

rights acquired by the debenture holder and surrendered by Sintel under the debenture are qualified by the words as continuing Security for the payment of the Secured Indebtedness in cl 1.1. He argued that the debenture must be interpreted so as to permit Sintel to realise any of the charged property provided it undertook to account first to the debenture holder for the outstanding indebtedness. To do

otherwise, he said, would lead to manifest absurdity and an unreasonable outcome. [23] Secondly, Mr Fardell submitted that the Court should find an implied term

that the assets secured by the debenture could not exceed total indebtedness and that the debenture holder could not unreasonably or arbitrarily withhold consent to Sintel taking steps to realise the assets charged. In this case he said it would be

unreasonable and arbitrary to withhold consent as Sintel is seeking to recover in excess of total indebtedness and would undertake to account to the debenture holder for any lesser sum recovered. [24] Thirdly, he relied on Brooklands Motor Co Limited (In Receivership) v

Bridge Wholesale Acceptance Corp (Australia) Limited (1994) 7 NZCLC 260,449 in which Blanchard J held that the directors of a company in receivership could pursue a right of action charged under a debenture as long as in doing so they would not prejudice the position of the debenture holder. He said at 260,457:
The powers of the directors in relation to the assets charged under the debenture are suspended so far as requisite to enable the receiver to discharge his functions: Re Emmadart Ltd [1979] Ch 540 at p 544. Although the suspension of power may often be very extensive its purpose, enabling the discharge of the receivers functions, must not be lost sight of, and the suspension unduly enlarged. When a receiver has no interest in a charged asset, such as a right of action possessed by the company, the directors may, so long as they do not prejudice the position of the debenture holder by threatening or imperilling the assets in which the debenture holder and receiver are truly interested, utilise the asset and exercise the rights of the company by bringing proceedings: Newhart Developments Ltd v Cooperative Commercial Bank Ltd [1978] 2 All ER 896; [1978] QB 814, Paramount Acceptance Co Ltd (in rec) v Souster (1981) 1 NZCLC 95-021; [1981] 2 NZLR 38.

Mr Fardell submitted that the liquidators of Sintel similarly should be free to pursue the causes of action against Telecom provided that Telecom is not prejudiced in its capacity as a creditor of Sintel.

Companies Act 1993

[25]

Reference to the Brooklands Motor case led me to a consideration of the

Companies Act 1993 which had not been referred to in argument. Blanchard J was considering the position of directors of a company in receivership. The position of the directors of a company in liquidation is different. On liquidation their power to act on behalf of the company ceases immediately: s 248(1)(b) Companies Act 1993. Subparagraph (c) of s 248(1) provides that, unless the liquidator agrees or the Court orders otherwise, a person must not exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property. That does not, however, affect the rights of secured creditors. Section 248(2) provides:
Subsection (1) of this section does not affect the right of a secured creditor, subject to section 305 of this Act, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.

[26]

By s 305(1) three courses are open to a secured creditor of a company in

liquidation. It provides:
A secured creditor may (a) (b) (c) Realise property subject to a charge, if entitled to do so; or Value the property subject to the charge and claim in the liquidation as an unsecured creditor for the balance due, if any; or Surrender the charge to the liquidator for the general benefit of creditors and claim in the liquidation as an unsecured creditor for the whole debt.

[27]

Section 305 goes on in subss (2) and (3) to spell out the powers and duties of

a secured creditor who elects to realise property subject to a charge pursuant to subs (1)(a). Subsections (4) (7) deal with a secured creditor who elects to value the charged property and to claim in a liquidation under subs (1)(b). Subsections (8) and (9) permit the liquidator to require a secured creditor to elect which of the powers in subs (1) it wishes to exercise. They provide:
(8) The liquidator may at any time, by notice in writing, require a secured creditor, within 20 working days after receipt of the notice, to

(a) (b)

Elect which of the powers referred to in subsection (1) of this section the creditor wishes to exercise; and If the creditor elects to exercise the power referred to in paragraph (b) or paragraph (c) of that subsection, exercise the power within that period.

(9)

A secured creditor on whom notice has been served under subsection (8) of this section who fails to comply with the notice, is to be taken as having surrendered the charge to the liquidator under subsection (1)(c) of this section for the general benefit of creditors, and may claim in the liquidation as an unsecured creditor for the whole debt.

[28]

As s 305 appeared to have potential application, I invited counsel to file

memoranda giving particular consideration to the liquidators ability to issue a notice under s 305(8) and, by this means, to acquire the right to realise the secured property. After considering the memoranda in response, I determined that the strike out application should not be determined until the parties had taken such steps under s 305 as they saw fit. (The completion of these steps has accounted for much of the delay in the delivery of this judgment.) [29] The liquidators duly gave notice to Telecom pursuant to s 305(8) requiring it

to elect which of the powers in subs (1) it wished to exercise and, if it proposed to act pursuant to subparas (b) or (c) of subs (1), to do so within 20 days. In response Telecom advised that it elected to value its security, comprising the companys right to claim against Telecom, at $3,263,434. A supporting valuation was provided. [30] The liquidators rejected Telecoms valuation and claim pursuant to

subs (6)(b). It attached a valuation which placed a nil value on the secured property. The liquidators invited Telecom to make a revised valuation, as it was entitled to do, under subs (6)(b)(i). Telecom chose not to do so. [31] Telecoms position is that its valuation must stand for the purpose of the It

liquidation, with the consequence that it cannot participate in distributions.

maintains that the liquidators can acquire or deal with the secured property only by redeeming the security at common law by repaying the underlying indebtedness or, under s 305(7), by paying a sum equal to Telecoms valuation.

[32]

Sintel contends that Telecoms valuation is unrealistic and excessive but I do

not understand counsel to say that Telecom is not entitled to rely on the valuation for the purpose of s 305. That is realistic. It is not suggested that Telecoms valuation is false or misleading in terms of s 305(11). The liquidators have no ability to

substitute their own valuation. They must either accept or reject the valuation. [33] The steps taken under s 305 have not therefore affected the position.

Telecom remains in possession of and has the right to realise the secured property. The question is whether, Telecom having chosen for obvious reasons to take no steps to realise the property, the liquidators are prevented from doing so unless they first redeem the security by repaying the underlying indebtedness.

Powers and duties of liquidators

[34]

By s 253 of the Act the principal duty of a liquidator is to take possession of,

protect, realise and distribute the assets of the company. That is, however, subject to s 254 which relevantly provides:
Notwithstanding any other provisions of this Part of this Act, (a) Except where the charge is surrendered or taken to be surrendered or redeemed under section 305 of this Act, a liquidator may, but is not required to, carry out any duty or exercise any power in relation to property that is subject to a charge:

[35]

As noted in Brookers Company and Securities Law at CA254.02, s 254(a)

operates to reverse the result of Re Your Size Fashions Limited [1990] 3 NZLR 727; (1990) 5 NZCLC 66, 804 in which Williamson J held that if a secured creditor does not take any steps in relation to assets which are the subject of his security, or resort to them, the liquidator is obliged to collect those assets since they remain assets of the company. A liquidator is no longer obliged to act if the secured creditor chooses not to. However, s 254(a) makes it clear that where the charge is not surrendered or redeemed under s 305 of the Act, a liquidator may exercise any power in relation to the property.

[36]

It appears not to be in issue that the security in this case is a charge for the

purposes of the Act. The definition in s 2(1) is:

Charge includes a right or interest in relation to property owned by a company, by virtue of which a creditor of the company is entitled to claim payment in priority to creditors entitled to be paid under section 313; but does not include a charge under a charging order issued by a court in favour of a judgment creditor.

The definition is broad enough to include a mortgage; it is not confined to a charge in the strict sense in which the term is sometimes used: see the discussion by Goode in Legal Problems of Credit and Security (supra) at 1-49 - 1-52. For the purpose of s 305, both parties proceeded on the basis that the chose in action is subject to a charge. [37] By ss 253 and 254, the liquidators may therefore exercise their powers in

relation to the secured property but are not obliged to. By s 260 their powers include those set out in Schedule VI which relevantly provides:
A liquidator of a company has power to (a) Commence, continue, discontinue and defend legal proceedings: (g) Sell or otherwise dispose of the property of the company:

[38]

The question is whether the authorities relied on by Telecom or the terms of

the debenture prevent the liquidators from exercising these statutory powers to pursue the causes of action against Telecom.

Decision

[39]

In my view, the assignment of the rights of action by way of mortgage by

itself is not an obstacle to the liquidators action. The authorities relied on by Telecom and referred to at paras [19] and [20] above do not stand for the proposition that the assignor of an equitable assignment cannot sue to recover the assigned chose. As the quoted passages make clear, what the judgments say is that the assignor can sue in his own name but not for his own benefit.

[40]

The judgments in both cases recognise that normally it will be the equitable

assignee who will bring the action with the assignor joined as a party in order to bind him at law. But there may be exceptional cases in which the assignor sues and will be permitted to do so provided the assignee is joined. Three Rivers itself was such a case. The issue was not whether the assignors of the claims could sue but whether it was necessary for the assignee to be made a party. After referring to Walter & Sullivan Limited v J Murphy and Sons Limited [1955] 2 WLR 919, [1955] 2 QB 584, [1955] 1 All ER 843, Peter Gibson LJ said at 328-329:
That case recognises that normally it is the equitable assignee who seeks to recover the debt and who must join the assignor to bind him, but that in the exceptional case where the assignor sues and admits that there is an assigned interest in an assignee the Court requires the assignee to be joined.

[41]

There is no reason in principle therefore why an assignor may not sue to

recover a chose provided the assignee is a party to the action or, I would add, is fully protected by other means. On this analysis the fact that the assignee itself is under no obligation to realise the property (as discussed in para [21] above) is of no consequence. [42] Sintel is not therefore prevented from suing by reason only of its status as

assignor of the secured property. However, Mr Kos argued that it could only do so with the consent of Telecom, relying on cl 7.1(a) of the debenture which provides:
7. 7.1 COVENANTS Covenants Relating to the Secured Property: agrees that it will: (a) The Company

Dealings with Secured Property: not dispose of, lend, factor, subordinate, part with possession of or otherwise deal with any Secured Property, other than: (i) (ii) with the prior written consent of the Bank; or (in the case of Secured Property that is subject to a floating charge which has not converted or been converted into a fixed charge under this Debenture), in the ordinary course, and for the purpose of carrying on, its ordinary business; in the case of insurance proceeds, in accordance with clause 8; or

(iii)

(iv)

in the case of real property, by way of granting a lease, tenancy or licence to occupy that real property for full market value and in reasonable commercial terms; or as otherwise permitted by this Debenture.

(v)

[43]

I doubt that cl 7.1(a) covers the action being taken by Sintel. It is clearly

intended to preserve the secured property by prohibiting the company from taking any steps which might compromise the debenture holders interest. Sintels action will not prejudice the security interest. On the contrary, it will preserve an asset which can be realised, if at all, only by action against Telecom. The consent of the debenture holder is therefore not required. [44] But even if consent is required under cl 7.1(a), I do not think Telecom is

entitled to withhold it. It can only be doing so to avoid being exposed to the claim by Sintel. That is a collateral and improper purpose. Telecom is acting contrary to its primary duty to act in good faith for the purpose of securing repayment of the debt, as to which see Downsview Nominees (supra) at 522-524 and para [21] above. [45] There is force in Mr Fardells submission that the position of the liquidators

is analogous to that of directors when a receiver is appointed. If a secured creditor has no interest in realising or surrendering a charged asset, the liquidator may take action provided the interests of the security holder are not prejudiced. And where, as here, the security holder has a conflict of interest it would, as Blanchard J said in Brooklands (supra) at 260,458, not be in accord with the principles of equity if it were to obstruct the mortgagors fundamental right to retrieve its property. practical terms it would become a clog on the equity of redemption. [46] The interests of the debenture holder will not be prejudiced as long as it is not In

exposed to the costs of the proceeding and, by joinder or otherwise, its right to be paid its underlying indebtedness from the proceeds of the action is protected. Those conditions are met in this case. In my view, Sintel is entitled to pursue all causes of action against Telecom.

Result

[47]

For these reasons the strike out application is declined. The plaintiff is

entitled to costs on a Category 2 Band B basis.