Most AI risk isn’t about the technology — it’s about the contracts behind it.

When people think of AI risk, they often think of algorithms, bias, or automation gone wrong.

But for most Australian businesses, the real risk isn’t in your tech stack — it’s in your contracts.

Whether you’re using AI for client work, marketing, or analytics, your contracts may not yet reflect how AI changes liability, ownership, and compliance.

Key issues in contracts

1. You’re Liable for the AI You Use

Even if you didn’t build the tool, you’re still responsible for what it produces.

Under Australian Consumer Law, your business is accountable for the accuracy and quality of what you deliver — even if AI helped create it.

If an AI-generated report, image, or recommendation is inaccurate or misleading, “the algorithm did it” isn’t a defence.

Action

• Disclose where AI is used in your services.

• Avoid promising accuracy or originality if AI is involved.

• Update your contracts to limit liability for automated outputs.

2. AI Vendors Shift Risk Onto You

Most AI SaaS agreements contain sweeping disclaimers — “We’re not responsible for accuracy or errors.”
That means if something goes wrong, you may bear the loss, not the tool provider.

Action

• Review indemnities, warranties, and data-handling clauses.

• Ask about sub-processors and where data is stored.

• Mirror those risk limitations in your client contracts.

3. IP Ownership Is Still Unclear

Australian copyright law only protects works created by humans. If an AI system generates part of your deliverable, it may not be protectable — or it could infringe on training data.

Action

• Record human creative input for authorship evidence.

• Update IP clauses to cover AI-assisted work.

• Be transparent with clients about ownership limitations.

4. Privacy Rules Are Catching Up

AI systems often process personal data — and “anonymised” information isn’t always safe.
With Privacy Act changes likely to take place, businesses using AI-driven analytics or decision-making will need new transparency measures.

Action

• Map where AI interacts with personal data.

• Update your privacy notices and consent wording.

• Keep a log of how AI tools are used in operations.

5. Treat AI Like Any Other Business Risk

AI should now sit alongside cybersecurity, compliance, and data governance in your risk framework.
Most businesses already use AI indirectly — through vendors, SaaS tools, or marketing platforms — so it needs oversight like everything else.

Action

• Create an internal AI-use register.

• Review all contracts for ownership and liability gaps.

• Assign someone responsible for AI governance.

Summary

AI introduces new risks, but they’re mostly contractual, not technical. The businesses that address them early — through strong contracts, clear privacy terms, and practical governance — will be better protected when the law catches up.

About Pixel Legal

Pixel Legal helps businesses in Australian stay legally confident with AI by creating contract templates, playbooks, policies and systems.

We review and update contracts, privacy frameworks, and risk policies so your business stays compliant and future-ready.

Book a consultation or learn more at pixellegal.com.au