Publish date

12 September 2023

Embracing Artificial Intelligence in commercial contracts whilst navigating the risks

“Success in creating effective AI, could be the biggest event in the history of our civilization. Or the worst. We just don’t know. So, we cannot know if we will be infinitely helped by AI, or ignored by it and side-lined, or conceivably destroyed by it.” – Stephen Hawking

Commercial contracts can be complex. In today’s digital age, Artificial Intelligence (AI) and automation continue to revolutionise various industries and commercial law is no exception. AI provides enhanced contract analysis and risk management capabilities and its systems can review contracts for potential risks, non-compliance, and inconsistencies. Furthermore, AI-based contract negotiation tools offer a collaborative environment where parties can engage in real-time discussions and secure faster agreement. Machine Learning algorithms, for example, can analyse historical data and provide insights into negotiation levers, including typical terms and agreement points. They can also provide alternative clause suggestions, enhancing the flexibility and creativity of contract agreements. AI’s unique ability to process vast amounts of data is a game-changer in commercial contract management and it can identify patterns and trends in contracts, allowing businesses to make data-driven decisions.

These technological advancements offer significant benefits that can streamline processes, reduce costs, improve efficiency, and enhance decision-making, however, they also create serious potential risks and challenges. As competition grows and the demands of clients evolve, it is crucial that commercial law firms embrace AI and automation whilst navigating these risks in order to maintain ethical practices, protect client interests, and uphold the integrity of the legal profession.

Data privacy

One of the main risks associated with using AI and automation in commercial law revolves around data privacy and security. As these technologies necessitate accessing and analysing vast amounts of sensitive, confidential or personal information, there is a potential for data breaches and unauthorised access. Ensuring data privacy and security is paramount to protect the interests of clients and businesses. Consequently, law firms in particular must ensure robust cybersecurity measures, data encryption, and strict access controls are in place to prevent unauthorised access or breaches and to protect client data, maintain confidentiality, and comply with relevant data protection regulations like the General Data Protection Regulation (GDPR).

Bias and ethical complications

AI algorithms are trained to use historical data which may contain inherent biases present in society. If the training data is biased or incomplete, AI systems can inadvertently perpetuate existing biases, leading to discriminatory outcomes. In commercial law, this bias can result in unequal treatment, unfair business practices, or unintended discrimination. Law firms and their staff must exercise significant caution when implementing AI and automation, from carefully selecting training data, regularly auditing algorithms to address potential bias and counteracting any negative ethical implications.

Legal liability and responsibility

Whilst AI technologies become more sophisticated and can greatly assist in contract analysis, due diligence, and legal research, they are not exempt from legal liability. Errors or omissions can and will occur due to the use of AI or automation and determining legal responsibility can become complex. For example, the interpretation of legal texts, such as statutes or case law, often involves nuanced reasoning and context-specific understanding. AI algorithms, whilst efficient in processing vast amounts of data, currently lack the ability to grasp the intricacies of legal principles fully and this raises concerns about the accuracy and reliability of AI-generated legal advice or judgements. Law firms must, therefore, exercise caution when relying on AI systems and should implement transparency measures and obtain appropriate insurance coverage to help mitigate the risks associated with potential legal liabilities.

Limited human oversight

Overreliance on AI and automation can lead to complacency and a loss of critical thinking. Whilst these technologies offer significant benefits and can augment decision-making, it should not replace human judgement and oversight, and it is imperative that lawyers maintain their legal expertise and exercise their professional judgement at all times. Blindly accepting the output of AI algorithms without questioning or verifying can lead to costly errors, misinterpretation and oversight. Law firms and their lawyers must strike the right balance between leveraging AI technology and retaining their legal acumen to ensure optimal outcomes for their clients.

Jobs at risk

This AI age is likely to cause economic disruption and job displacement. Routine and repetitive tasks that were previously carried out by junior lawyers or paralegals can now be automated, and it could significantly reduce the number of billable hours for lawyers, potentially leading to reduced demand for certain roles in the legal industry.

About 114,000 legal jobs are likely to be automated in the next 20 years, a 2016 study by Deloitte predicted. The report predicted another 39 per cent of jobs were at “high risk” of being made redundant in the next two decades.

Research published this year by Princeton University, the University of Pennsylvania and New York University suggested that legal services is the industry most at risk from this latest wave of AI.

Whilst the use of AI can result in increased efficiency and reduced costs for law firms, it is vital to proactively address the impact on human resources. As a first step, law firms should focus on upskilling their workforce, redefining roles, and emphasising the value of human expertise alongside inevitable technological advancements.

The introduction of AI and automation technologies has transformed the practice of commercial law, presenting new opportunities to law firms and their clients but also bringing about new and associated risks. As the commercial law landscape continues to evolve, law firms that harness the power or AI and automation can get ahead of the competition, deliver better results to their clients, and foster growth in an increasingly digital world. Striking a delicate balance between human expertise and technological advancements is key to harnessing the potential of AI and automation in commercial law while upholding the integrity and ethics of the legal profession. It is, therefore, paramount that the legal industry embraces this technological revolution to drive innovation and propel commercial law into a more efficient, accurate, and client-centric future.

This article first appeared on Insider Media.

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