Steve Whyte of Queens Park, a builder, says hotel staff served his family a large bowl of ice cream covering what looked like compacted chocolate.
Immediately after tasting the ice cream, the family reportedly went to the police, and then had the food tested at an independent laboratory which confirmed it was contaminated with faecal matter.
The laboratory report by the Federal Government's National Measurement Institute confirms that the matter served to the Whyte family and partly consumed by Whyte's wife, Jessica - has an offensive odour and physical properties similar to human excreta ... and to contain fragments of a variety of plant matter typical of excreta.
Hotel owner Chris Cheung and general manager Tony Williams have offered the Whytes $5000 without admitting liability, but the family has rejected the offer.
Mrs Whyte said the whole episode would have a lasting effect on her. She said she now struggled when wiping her youngest son's bottom and was anxious about eating out.
The minute I put the spoon to my lips, the stench went through my nostrils. I retched and spat it into the napkin, she said.
My friend thought I was over-reacting, but when she smelt it, she started screaming: 'Oh my god, they've served us s.
The family told the staff what had happened and immediately went to the Waverley police station, where they were advised it was a Health Department matter.
The Whytes took their boys Tom, eight, Thomas, seven, and Ben, three, to the hotel with another family after it was advertised as a family friendly venue to watch the NRL grand final.
Whyte has now employed law firm Slater&Gordon in a legal action against the management of the hotel who, he says, have demonstrated arrogance and a complete lack of contrition and, worse, accused the family of only being after money.
The Whytes say they are outraged that someone would serve human waste to children.
They allege the incident was deliberate and followed a trivial altercation with the hotel s management when the builder complained about not being able to properly watch the grand final as advertised because the television screen was in another room - and bought ice creams for his children from another business.
I don t care about money, although it's obvious to anyone the damage to a business from this sort of thing would be a significant amount, Whyte told The Sunday Telegraph
, which has inspected the remains and can confirm it to be consistent with human faecal matter.
The penalty for knowingly breaching NSW food laws include prosecutions with fines of up to $110,000 for individuals or imprisonment for two years or both, and $550,000 for corporations.
In a statement yesterday, Williams accused the Whytes of making suspicious allegations.
We are aware of the allegation that has been made, and are treating it as extremely suspicious, he said.
The couple making the suspicious allegation have made a demand for up to $1 million from The Coogee Bay Hotel, which we believe borders on extortion.
The Whytes deny they are trying to extort money from the hotel.
I just don't think they should be allowed to get away with it by trying to give us money, Mr Whyte said.
In a letter from the hotel to the Whytes, Williams acknowledges that they have made a serious complaint about being served with a gelato dessert contaminated with faecal matter.
Williams also raises the possibility of industrial sabotage - with the hotel itself as much of a victim.
Williams has met with the family several times and, on one occasion. inspected the sample of waste for confirmation.
The Coogee Bay Hotel has long been marred in controversy for alcohol related violence.
It has recently spent a large amount of money trying to change its image and encouraging a more family oriented atmosphere.
A spokeswoman for New South Wales Primary Industries Minister Ian Macdonald said the family should contact the state Food Authority without delay so that an investigation could be launched quickly.
This is an absolute disgrace. Food safety is our priority. Consumers deserve to get what they pay for, and that includes clean, safe food, she said.