The use of artificial intelligence (AI) tools in a commercial context is on the rise, with some businesses and individuals turning to AI-generated contracts as a quick and seemingly cost-effective solution for creating commercial agreements.
At first glance, these tools offer convenience, speed, and simplicity, but are the contracts they produce legally sound?
Our team of Corporate & Commercial solicitors has seen an increasing number of new clients come to us with AI-generated contracts, which are now being put to the test due to a company or shareholder dispute, or simply, a company wanting to change the way it is structured.
We outline the key risks associated with using AI-generated contracts without a formal legal review and explain why incorporating legal input remains critical, regardless of how advanced the technology appears.
Producing bespoke contracts with AI
Whilst AI can produce commercial documents that appear on the surface to be fit for purpose, the technology cannot fully grasp your specific commercial needs, the nuances of your industry, or the nature of your company.
For example, a commercial contract that works for a tech startup would not be suitable for a construction business or family-owned company. Contracts need to reflect a company’s goals, values, risk profile, and regulatory landscape. AI tools cannot tailor the contract to those considerations, they simply predict what a “typical” contract clause might look like.
Missing or incorrect clauses in contracts
An AI-generated contract will include standard clauses, but whilst lawyers consider the use of standard clauses, AI does not comprehend what is and is not appropriate. Recently, we have seen:
- Lengthy limitation of liability clauses, giving the impression that you are protected but are actually unenforceable.
- Jurisdiction clauses that are inappropriate and an increased use of arbitration, despite being a simple local supplier/customer relationship.
- Contracts drafted based on U.S. law and that interpretation, despite stating the contract is subject to the laws of England and Wales.
These errors can expose your business to disputes, reputational and financial damage, and a higher risk profile.
One-size-fits-all contract templates, fit no one
AI-generated templates often adhere to a one-size-fits-all approach. This increases the likelihood of including irrelevant or inappropriate terms and, more importantly, missing key terms. Worse still, it may give companies false confidence that their legal risks are covered when, in fact, the contract is not legally sound.
AI is not regulated or accountable
When you use an AI tool, there is no duty of care owed to you. If the contract is flawed and your business suffers loss as a result, there is usually no legal recourse. A lawyer is professionally regulated and is required to have insurance to protect you.
How to draft commercial contracts that work for your business
AI tools have their place, and for very simple, low-risk matters, they may be helpful as a starting point. However, if you are relying on a contract to protect your business, your finances, or your legal rights, it’s essential to have it reviewed by a qualified lawyer.
Saving money on legal fees by using an AI tool to create your commercial documents might seem a good way to save costs, but as contracts are put in place to govern the terms of valuable business relationships or agreements, getting these wrong by relying on off-the-shelf AI tools could be a very expensive mistake.
Contact our commercial lawyers in Reading & Henley-on-Thames
Our experienced commercial lawyers understand that your Terms & Conditions, contracts, and commercial agreements need to reflect your business, so we tailor the agreements we create to fit your specific business requirements.
We can draft, advise, and negotiate on a range of commercial contracts for the provision of goods and services and make sure that your business is protected by written agreements that meet your needs and protect your interests and assets.
Contact our Corporate & Commercial team to discuss your requirements and get a quote.