This a complete no-brainer.
You do what the Ops Manual says to do. If the Air Nelson Ops Manual resembles the one most airlines use, it will say that an engine failure (which is what it is) warrants, at the minimum, a PAN call. I'm not an ATCO, but I'm betting that the ATCO on duty has no choice but to go to a "local standby" if he knows that the aircraft has a problem. He will normally ask the pilot whether he wishes to declare either urgency (PAN) or emergency. I can't imagine any possible reason for not doing so. If he doesn't follow the Ops Manual, he is in fact breaking the law.
By the way, zero torque is correct. There is no measurement of thrust on the flight deck, but there is a guage that gives you a measurement of torque, and that is what tells you the engine isn't producing any.