Brawl over Sorrento pub ownership draws in billionaire Smorgon family

At stake is potentially millions of dollars which Gerner believes he has claim to after the hotel underwent after an extensive transformation. It now includes the 108-room InterContinental hotel, along with various dining and event venues as well as a spa and bathhouse.

Now running the Koonya Hotel nearby, Gerner is no stranger to high-profile litigation, taking his challenge to Victoria’s lockdown laws to the High Court six years ago.

The Conti hit the market in early December with a price tag of $150 million, which its owners – including the Smorgon family office, another wealthy Melbourne family, the Kanats and developer Trenerry Property – hoped would be the culmination of an ambitious redevelopment after it was bought out of receivership six years ago.

But in a Christmas Eve intervention, Gerner, a major player in Victoria’s hospitality sector for more than three decades, claims he was integral to that redevelopment vision before being unfairly excluded from the project in 2020, according to a writ filed in the Supreme Court of Victoria.

At the heart of the dispute is an agreement that Gerner claims to have had through his business, The Ocean Amphitheatre Company, with a Smorgon family-backed consortium. Discussions between Gerner and the consortium began after Gerner’s previous efforts to redevelop the popular hotel fell apart when his joint venture partner, Steller Group – led by another establishment scion, Nicholas Smedley – collapsed in 2019.

Adding to Gerner’s woes, a new development partner signed onto the project, but failed to settle on the deal, prompting the financiers to appoint receivers to the project in late 2019. A deal room was then opened which included the extensive plans and all the work Gerner had allegedly commissioned to redevelop the Conti with the addition of a wellness centre, function rooms, restaurants and accommodation.

But, according to the writ, in early January 2020 Gerner met with representatives of the Smorgon-backed consortium to talk through a plan whereby another of his companies would buy out the project, backed by entities linked to the billionaire family.

At their initial meeting at Morgan’s in Sorrento, Gerner alleges that he was assured he would remain part of the redevelopment and would be given a 20 per cent stake in it. “Don’t worry, we will not be doing this project without you,” Gerner was told during the meeting, according to the legal claim.

Discussions continued and a term sheet setting out the deal between Gerner and the consortium was struck that would allow the consortium to buy out the project, even as the project’s receivers pressed ahead with the deal room.

The lawsuit sets out in meticulous detail the efforts that Gerner claims to have gone to as he helped the consortium run through its due diligence on the project – on the understanding he would remain part of it.

One critical manoeuvre involved Gerner removing a caveat he had on the hotel property that would allow the consortium to buy the site.

Meanwhile, another entity associated with the Smorgon-backed consortium struck an agreement directly with the receivers to buy the site. In May 2020 the deal was done, effectively cutting Gerner out of the redevelopment.

Gerner claims the consortium and its entities “appropriated the lands and development project for themselves and excluded [Ocean Amphitheatre] therefrom without offering or paying [the company] any compensation”.

“The consortium lulled [Ocean Amphitheatre] into a false sense of security, causing them to believe that the terms sheet arrangement would be performed following the acquisition of the lands by a consortium entity,” according to the documents lodged with the Supreme Court.

Adding salt to the wound, the lawsuit claims Gerner’s help was critical to the consortium because one of Chemist Warehouse’s billionaire founders, Mario Verrocchi, was hovering in the wings and was interested in buying in.

“The advantage conferred by [Ocean Amphitheatre] on the consortium in this regard was considerable given the compressed time frame … and the limited window in which the consortium was afforded to assess the viability of the lands and the proposed development project,” the filings read.

Gerner is arguing for compensation after the redeveloped property was put on to the market. He is not seeking to stop any sale.

“The statement of claim sets out my position. I will allow the court process to run its course,” Gerner said in a statement.