Navigating the Risks of Using AI for Commercial Contracts: A Lawyer's Perspective

company - 25 June 2024

Risks of Using AI for Commercial Contracts

Artificial Intelligence (AI) is rapidly transforming the landscape of commercial law, offering the potential to revolutionise the drafting, negotiation, management, and enforcement of contracts. However, it is imperative to recognise that alongside these advancements come significant risks. This article aims to highlight the potential pitfalls of using AI for commercial contracts and provide guidance on how to navigate them effectively.


Inaccuracy and Errors: The Double-Edged Sword of AI Drafting

While AI can expedite the contract drafting process, it is not without flaws. AI systems depend heavily on the data they are fed and the algorithms that process this data. Any inaccuracies or biases in the data can lead to drafting errors, resulting in ambiguous or unfavourable terms that could cause issues down the line. The complexity and nuance of legal language are challenging even in the best of circumstances, and AI is not yet adept at handling these intricacies. This can lead to potential misinterpretations and significant legal risks.


Accountability: The Question of Responsibility

One of the major concerns with AI in commercial contracts is the lack of clear accountability. If an AI system makes a mistake, who is responsible? Is it the software developer, the company using the AI, or the AI itself? This lack of clear responsibility can lead to disputes and complications. In the absence of established legal precedents, businesses may find themselves in uncharted waters, facing significant legal uncertainties and potential liabilities.


Data Privacy and Security: Safeguarding Sensitive Information

AI systems require vast amounts of data to function effectively, often including sensitive information about the parties involved in the contract. This raises significant data privacy and security concerns, especially with regulations like the GDPR in place. Unauthorised access or data breaches can lead to severe legal and financial repercussions. Therefore, it is crucial to handle data with the utmost care, ensuring robust security measures and compliance with all relevant regulations.


The Bias Trap: Ensuring Fairness

AI systems can inadvertently perpetuate bias and discrimination. If the data used to train AI models contains biases, these biases can be reflected in the contracts the AI generates or the negotiation strategies it suggests. This can lead to unfair terms and conditions and potential discrimination against certain parties. Continuous monitoring and intervention are necessary to ensure AI systems remain unbiased and that your contracts reflect equitable and just positions.


Navigating Legal Uncertainty

The use of AI in commercial contracts is relatively new, and the regulatory framework is still catching up. This legal uncertainty can pose risks for businesses adopting AI. Compliance with existing laws and regulations can be challenging, as the legal landscape changes, AI systems may not always be  updated to reflect these changes. Businesses must stay well informed about developments and seek advice from a specialist to ensure they are protected.


Ethical Considerations: Transparency and Fairness

The deployment of AI in commercial contracts also raises various ethical issues. Transparency in AI decision-making processes is a significant concern. Parties involved in a contract might not fully understand how the AI arrived at specific terms or recommendations, leading to questions about fairness and integrity. Ensuring transparency in AI operations and maintaining ethical standards is essential to fostering trust and fairness in contractual relationships.


Conclusion: A Balanced Approach to AI in Commercial Contracts

While AI offers numerous advantages in the context of commercial contracts, it is essential to recognise and address the associated risks. A cautious and well-informed approach is crucial to navigating the evolving impact of AI on commercial law. Always seek legal advice to ensure your interests are protected and your contract is prepared in line with your intentions going into the negotiations. AI tools should be used responsibly and contracts should always be checked before being finalised.

If you have any queries about your commercial contract or if it’s time to update your commercial templates, please do not hesitate to get in touch with our Commercial Team by telephone on 0207 052 3545 or by email