Can AI Legally Draft Contracts in Australia?

Disclaimer: It is important to note that AI tools should never replace the advice of a qualified legal professional. We strongly recommend consulting a qualified commercial lawyer to ensure any contract is legally sound, enforceable, and tailored to your business needs.

Artificial intelligence (AI) tools are making it easier than ever to speed up business operations and processes. But can AI legally draft contracts for you and/or your company — and should you rely on them?

The short answer: AI can help with contract drafting, but it shouldn’t replace legal advice.

Business owners and property investors must understand AI’s limitations before relying on it for legally binding agreements.

In this article, we explain the risks, outline when AI might be useful, and help you make informed decisions about contract drafting in your business.

Why Business Owners Are Turning to AI for Contracts

Before we get into the weeds of legality, let’s first acknowledge the practical reasons for AI adoption. Tools like Chat GPT, Copilot, and Google Gemini appeal to business owners for two main reasons: speed and cost. AI-generated content can be created in seconds, making it an attractive option when:

You need a contract quickly
You want to avoid legal fees for “simple” agreements
You’re using AI to automate admin tasks

These tools are useful for initial outlines or brainstorming. But for enforceable legal documents like employment contracts, the risks are greater.

Can AI-Generated Contracts Be Legally Binding?

Yes — AI-generated contracts can be legally binding, but only when they meet all legal requirements under Australian law and are properly reviewed.

To be enforceable, a contract must include:

An offer and acceptance
Intention to create legal relations
Consideration (something of value exchanged)
Clear and certain terms
Legal capacity of the parties

AI tools can reproduce contract templates, but they don’t always ensure that these elements are clearly expressed or compliant with current law. They also don’t tailor the agreement to your business model, risk profile, or legal obligations.

FAQs: Can AI Legally Draft Contracts?

Is it illegal to use AI for contracts?

No, but relying on AI alone can result in unenforceable terms or missed obligations.

Are AI-drafted contracts enforceable?

Only if they meet Australian legal standards and include the right clauses.

Can I use AI to save time and money?

Possibly — but not at the expense of legal protection. A poorly drafted contract can lead to expensive disputes.

Common Risks of AI-Drafted Contracts

While AI can generate content that looks just like a regular contract, there are significant limitations.

Missing or Weak Clauses

AI often overlooks key clauses such as termination rights, intellectual property ownership, dispute resolution processes, and governing law clauses. These omissions can leave you exposed if the relationship breaks down.

One-Size-Fits-All Approach

AI uses generic templates. It doesn’t understand your commercial goals, industry nuances, or the practical realities of how you operate.

Limited Updates

AI models don’t always reflect current Australian legislation or case law. A contract drafted using outdated information may be unenforceable or non-compliant.

No Risk Advice or Strategy

AI cannot identify potential risks in your agreement or help you negotiate terms that better protect your interests.

Real-World Concerns with AI in Legal Contexts

In the past two years, Australian courts have seen multiple cases involving AI-generated legal submissions that included fake case citations or inaccurate legal reasoning. In one recent case, a WA lawyer was reprimanded and ordered to pay costs after submitting AI-drafted documents with four non-existent cases.

These incidents highlight why relying solely on AI without verification is risky. Courts, regulators, and professional bodies have made it clear: AI cannot replace a lawyer’s judgment or ethical responsibilities.

When AI Might Be Useful in Contract Drafting

AI does have a place in the contract process — when used appropriately.

It may be useful for:

Drafting a first version or checklist
Preparing a briefing for your lawyer
Reviewing large volumes of standardised documents (with oversight)

While many Australian businesses now use AI to speed up legal tasks, it’s crucial that all AI-generated outputs are reviewed by qualified lawyers.

Use AI Wisely — Don’t Skip the Legal Review

Whether you’ve already used generative AI to draft contracts or are considering utilising models in the future, always treat the AI-generated content as a draft, not a final agreement. AI is improving, but it still lacks the insight and personalisation needed to protect your business interests.

This article set out to answer: Can AI legally draft contracts in Australia? The answer is yes, in theory — but without expert review, you risk enforcement issues, disputes, and costly mistakes.

How City Pacific Lawyers Can Help

At City Pacific Lawyers, we help business owners and property investors ensure their contracts are transparent, compliant, and tailored to their goals. Don’t leave your legal protection to chance — let our experienced team review or draft your contract to safeguard your interests. Reach out now for practical, cost-effective advice that gives you peace of mind.

Contact us today on (03) 9592 3356 or book a free consultation to discuss your legal needs.