A lawsuit has been filed in the Supreme Court of Victoria by developer Julian Gerner, alleging a breach of agreement by a consortium led by the Victor Smorgon Group regarding the sale and development of the Continental Hotel in Sorrento. The legal proceedings commenced on December 24, approximately two weeks after the property was listed for sale, with an expected valuation of at least $150 million.
Allegations of Breach of Agreement
Gerner's company, The Oceanic Amphitheatre Company, claims it was excluded from a deal that would have granted it 20% equity in the hotel and its subsequent development. The lawsuit targets the consortium entity Continental Hotel Investments, along with Smorgon family companies SI Capital and VBS Investments.
According to court documents, Gerner alleges that a meeting held in early 2020 with Peter Edwards, executive chairman of Victor Smorgon Group, and Michael Iacobucci resulted in an agreement for Gerner's involvement in the development, with a 20% equity stake dependent on financial performance. Gerner claims Edwards provided an assurance, stating, 'Don’t worry, we will not be doing this project without you.'
Further meetings reportedly occurred throughout January 2020, leading to a formal terms sheet allegedly signed by Edwards and Gerner. Following this, Gerner asserts he provided the Smorgon consortium with access to a 'data room' containing financial modeling and development plans to facilitate due diligence.
Consortium's Response
A spokeswoman for the consortium stated awareness of the recently filed claim, confirming it relates to discussions from early 2020. The spokeswoman declared the allegations to be 'without merit' and indicated an intention to 'vigorously defend the proceedings.' Both Gerner and the consortium declined to comment further, citing ongoing legal processes. Gerner clarified that his claim does not seek to prevent the sale of the hotel.
Background of the Continental Hotel Acquisition and Development
The Continental Hotel, a landmark in Sorrento, was acquired in early 2020 by a consortium including the Victor Smorgon Group, the Kanat family, and Trennery Property. This acquisition followed an extensive bidding process.
Following the acquisition, the consortium undertook a $100 million refurbishment and expansion of the heritage-listed venue. The redevelopment transformed the property into a five-star resort featuring over 100 rooms, a wellness center, event spaces, multiple eateries, a cocktail lounge, and a rooftop bar.
Prior Ownership and Development Challenges
Julian Gerner had previously purchased the Continental Hotel in 2016 with intentions for redevelopment. In 2017, he entered a joint venture with property developer Steller Group. The Steller Group's collapse in 2019 led to the failure of this joint venture and the appointment of receivers over the property.
An attempt by receivers to sell the property to a partnership between Gerner and LBA Capital subsequently failed due to LBA's asset freeze. During this period, Gerner was already in discussions with the Smorgon-led consortium.
Alleged Exclusion from the Final Deal
In February, Gerner claims receivers offered him $200,000 to relinquish his rights and remove caveats, which he declined. By March, Gerner alleges the consortium agreed to acquire the property at a reduced cost if the offer originated from a consortium partner. Gerner states he agreed to relinquish his rights and withdraw caveats, believing he would remain part of the consortium.
Gerner claims that on May 4, Edwards again assured him that due diligence was ongoing. However, on May 25, the property was reportedly purchased by Continental Hotel Investments, a company that Gerner alleges was not a party to the formal agreement he had with the broader consortium, leading to his exclusion from the development.