The adoption of AI tools in business has accelerated dramatically over the past two years. From contract review software to generative AI writing assistants and AI-driven customer service platforms, the technology is embedded in operations across virtually every sector. What has not kept pace is legal due diligence — and the gap is creating real, if often unquantified, risk.
The first area of concern is vendor contracts. AI tool agreements are frequently complex documents with unusual provisions around data use, model training rights, liability caps, and intellectual property ownership. Many businesses sign them without specialist review, not realising that they have licensed their proprietary data to train a vendor's model, or that the vendor's liability cap is so low as to be commercially worthless if the tool causes a significant business disruption.
The second issue is liability for AI outputs. When AI-generated content, advice, or decisions cause harm to a third party, the question of who is liable — the business that deployed the tool, the vendor, or the individual who acted on the output — is live and largely untested in Australian courts. Businesses that rely on AI-generated outputs for consequential decisions (legal, financial, medical, engineering) need to think carefully about their exposure and whether their indemnity and professional liability arrangements provide adequate cover.
The third dimension is regulatory. The EU AI Act has extraterritorial reach that affects Australian businesses dealing with EU counterparties, and the Australian government's own AI regulation agenda — including the proposed Voluntary AI Safety Standard and the ongoing review of the Privacy Act — is evolving rapidly. Businesses in regulated sectors (financial services, healthcare, legal) face particular scrutiny from ASIC, APRA, and other regulators on AI governance and explainability.
Our recommendation to clients is to treat AI tool adoption with the same rigour as any other significant technology procurement — with proper contract review, data protection assessment, and board-level risk sign-off. The Mornington Legal commercial team is advising a growing number of clients on AI contracting, governance frameworks, and liability management. We are happy to discuss your specific situation.