The Victorian branch of the Liberal Party has taken court action against its biggest donor, in a fight for access to a multi-million-dollar fund.

The Cormack Foundation was established by senior Liberals in 1988 with $15 million in proceeds from the sale of radio station 3XY.

Since then, its coffers have swollen to more than $68 million.

The Liberal Party in Victoria launched legal action over control of the funds, taking the matter to the Federal Court.

State president Michael Kroger told the court the foundation was set up to benefit the Liberal Party, but had autonomy and independence from it.

"We made requests for donations, we accepted what they gave us, sometimes unhappily," he said.

However, he maintained the foundation was established with two of the three shareholders holding the shares in trust for the Liberal Party.

Mr Kroger told the court he objected when he found out the Cormack Foundation was making donations to other political parties, seeking to defeat the Turnbull Liberal government.

Foundation financing Liberal-friendly causes

Mr Kroger told the court he learned in December 2016 that some of the Cormack directors believed they held its assets for advancing libertarian causes, not solely for the benefit of the Liberal Party.

However, lawyers for the Cormack Foundation argued it had donated $1.7 million to the Institute of Public Affairs while Mr Kroger was at its helm, suggesting he was aware its generosity was not limited to the Liberal Party.

Mr Kroger said the foundation had distributed money to like-minded causes.

"I don't consider those organisations as hostile to the Liberal Party," he said.

"They are a free-enterprise-aligned think tank. We are a free-enterprise-aligned party."

Tide has gone out on Liberal members

Asked about Liberal Party membership at the time of the 3XY sale, Mr Kroger told the court there were between 18,000 to 22,000 members in 1988.

"Regrettably, the tide has gone out," he said.

He said there were now about 10,000 paid members of the party in Victoria, with another 3,000 pending or yet to pay.

"We did buy a software system under a previous director, Mr Mantach, that's caused us some trouble," he said.

"But I believe they're accurate."

Former state director Damien Mantach was jailed in 2016 for stealing more than $1.5 million from the party.

The Federal court case between the Liberals and the Cormack Foundation is set to continue for four days.