The co-branded outlets are offering a 4 cent-a litre discount to customers who spend over $30 at Woolworth stores, undercutting non-co-branded stores.

A group of Caltex franchisees has set up an entity called the Caltex Ampol National Action Group which has taken legal action against Caltex for what it claims is a breach of franchise agreements, unconscionable conduct and breach of fiduciary duty.

The claim went before the Federal Court yesterday with the franchisees claiming the co-branding directly undercuts the viability of the non-co-branded stores.

"The inevitable consequence . . . (of the Caltex-Woolworths discount petrol plan) undermines the viability - not just the profitability but the viability - of the entire franchise network," the petrol outlets' barrister, James Kewley, told the court.

"The fundamental complaint of the franchisees is that they are being discriminated by their own franchisor."

Currently both parties have been ordered into private mediation.

The joint venture plans to open another 11 co-branded sites by the end of March to add to the 35 petrol stations which are already part of the discount plan.

Woolworths now operates 290 of its own Petrol Plus outlets and plans a national network of 450 sites by converting them to the co-branded entity and opening new stores.