Risks of using AI for contracts don’t do it

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Why AI Can’t (Yet) Replace Your Lawyer

Clients are asking us: “Can I use ChatGPT for legal contracts?” or “Are AI agreements legally binding in Australia?” “Why can’t I use AI to get legal advice?”

At first glance, AI-powered legal documents seem like a clever shortcut—fast, cheap, and just a few clicks away. But as some real-life cases show, relying on AI instead of a lawyer can backfire in unexpected and costly ways.

Using AI for Legal Work?

With tools like ChatGPT, Bard, and other AI platforms, many people think they can save time and money by generating contracts, NDAs, supply agreements and more.

Sometimes, clients bring these to their lawyer for a “quick sign-off”, convinced they’ve solved all their legal problems but soon find out that legal work is about more than filling in the blanks.

What Can Go Wrong? Lessons from Real Cases

One headline-making case in 2025 involved an Australian lawyer who unwittingly submitted a court document referencing legal cases that never existed. The AI tool “hallucinated”—making up case law, which wasn’t picked up until it reached the judge.

It looked so real only it wasn’t.

The lawyer faced reprimand, and the case was put at risk.

In another recent scenario, a junior lawyer in England used a supposedly “helpful” AI tool to find legal precedents for a housing case. The tool generated a case that didn’t exist, and when the mistake came to light, the court issued a costs order—a financial penalty for the error.

AI Contracts That Fail in the Real World

Local business owners have landed in trouble after relying on AI-generated contracts without legal review.

If a Melbourne retailer for example was to copy a supply agreement generated online, unaware it left out critical dispute resolution and limitation of liability clauses. When a disagreement with a supplier happened, the contract was nearly useless—costing thousands in legal fees to sort out afterwards.

Jurisdictional Mismatches

A Queensland creative agency used an online AI tool to draft a Non-Disclosure Agreement (NDA) for a project, thinking it would save time and money. When they encountered a dispute, they discovered crucial problems: the NDA referenced U.S. law instead of Australian law, failed to define what counted as “confidential information,” and didn’t include a proper dispute resolution process. Even worse, because business information wasn’t correctly protected, some of the ideas just slipped into the public domain.

The agency soon realised their document was unenforceable in Queensland courts, leaving their ideas and confidential information exposed.

They had to pay thousands in legal fees to fix the mess, renegotiate terms, and put stronger agreements in place with expert help. This simple mistake shows why getting professional legal advice is essential for protecting your business.
Now onto those all-important certification marks and branding!

Common AI Legal Traps

AI-generated legal documents come with serious risks that people often don’t notice until it’s too late. Sometimes, AI tools invent legal cases or statutes that sound convincing but never really existed—these hallucinations can mislead clients and even end up in court documents, putting cases at risk. Many contracts made with AI use overseas templates, which aren’t always tailored for Australian law, so important local requirements get missed.

It’s common to find key clauses missing when using AI contracts, such as governing law, liability, or dispute resolution terms. AI also can’t give strategic business advice or ensure your documents meet local regulations. If something goes wrong, you can’t hold the AI accountable—real lawyers carry insurance and back up their work. Finally, entering confidential information in public AI systems can cause data leaks and privacy breaches, which is a serious issue for both businesses and law firms.

What Should You Do Instead?

Always have contracts reviewed by an Australian lawyer—especially for important business, intellectual property, or employment agreements.

Check that all jurisdiction, dispute, and privacy clauses are appropriate for Australia.

Keep records of all legal edits and advice, especially if you use AI as a starting point.

Five FAQs About AI and Australian Law

1. Are AI-generated contracts valid in Australia?
Not without careful review and customisation—they rarely meet all legal requirements for Australian law.

2. Can lawyers use AI for drafting documents?
You risk an ACCC investigation or consumer claims if the impression is misleading; “natural” should match what shoppers expect.

3. What happens if I use an AI contract and something goes wrong?
You may have little legal protection and no recourse if the document fails in court.

4. Has anyone gotten in trouble for AI legal mistakes?
Yes, several lawyers (in Australia and overseas) have been cautioned or penalised for submitting AI-generated documents with errors or fake case law.

The Hidden Dangers of Relying on AI for Legal Advice