Anja Pich is a commercial lawyer and the Managing Lawyer at Lawpath. She practises across all areas of commercial law and advises businesses of every size, from first-time founders to established companies, on their legal, regulatory and commercial needs.
Reviewing a contract written by ChatGPT or Claude means checking an AI-drafted agreement for the three things these tools reliably get wrong: Australian law they don’t apply, clauses they invent, and protections they leave out. The output reads like a finished contract. It isn’t. Treat it as a first draft and review it before anyone signs.
An AI contract looks polished and sounds confident, so people skim it and sign. That confidence is the risk. A clause that reads beautifully can still point at the wrong Act, default to US law, or hand the other side an indemnity you’d never agree to if you noticed it.
- AI contracts are a good first draft. ChatGPT and Claude write fluent clauses, but they don’t know your deal, your risk, or current Australian law.
- The biggest tell is US defaults. AI often reaches for US-style wording, the wrong governing law, and dollar figures or statutes that don’t apply here.
- Check what’s missing as well as what’s there. AI tends to leave out dispute resolution, a clear termination path, and GST treatment on payment terms.
- Unfair terms carry real penalties now. Since November 2023, an unfair term in a standard form contract with a small business or consumer can attract court penalties under Australian Consumer Law.
- High stakes means a human review. For anything you can’t afford to get wrong, start from a proper template or have a lawyer check it.
Can you trust a contract written by ChatGPT or Claude?
As a drafting tool, yes. As a final contract to sign or send, no. AI is genuinely useful for getting a structure down, suggesting clauses you hadn’t thought of, and turning a messy brief into something that reads like a contract. That’s real value, and it saves hours.
What it can’t do is know your deal. It doesn’t know what you actually agreed, what you’re worried about, or what the other side is likely to pull. It also doesn’t reliably know Australian law. Much of what it learned from is American, so left alone it drifts toward US wording and US assumptions.
The other problem is subtler. AI wants to be helpful, so it fills gaps with plausible-sounding text rather than telling you it doesn’t know. A made-up clause reads exactly like a real one. So a review is mostly about catching confident mistakes.
Where AI-written contracts go wrong
Most AI contract problems fall into a handful of patterns. Once you know them, they’re quick to spot.
| What the AI does | Why it’s a problem | What to check |
|---|---|---|
| Defaults to US law and wording | References the wrong jurisdiction, spells it “license” in the wrong spots, cites statutes that don’t exist here | Governing law clause names an Australian state or territory; no US statutes referenced |
| Invents clauses that sound real | A confident clause can reference a schedule, Act, or definition that isn’t in the document | Every cross-reference points to something that actually exists in the contract |
| Leaves out the boring protections | Dispute resolution, termination for convenience, and liability caps often go missing | You can answer “how do we end this?” and “what happens if it goes wrong?” from the text |
| Writes a lopsided indemnity | AI often drafts a broad indemnity without noticing which way it points | Read who indemnifies whom, and for what. Make sure it’s not all one-way against you |
| Ignores GST and payment mechanics | Payment clauses that don’t say whether amounts include GST cause disputes later | Amounts state whether they’re inclusive or exclusive of GST, with clear payment terms |
A common pattern is the contract that’s mostly fine and wrong in a few places that matter. Those few clauses are what a review is for. You’re not rewriting the whole thing. You’re hunting the few clauses that would hurt.
How to review a contract written by ChatGPT or Claude, step by step
Work through these in order. The first three catch the AI-specific errors. The rest are the review any contract deserves.
- Check the governing law first. Find the clause that names the law and jurisdiction. It should name an Australian state or territory, not Delaware, New York, or “the applicable jurisdiction”. If it’s wrong here, assume the rest leans American too.
- Chase every cross-reference. When a clause says “subject to Schedule 2” or “as defined in clause 1.1”, go and confirm Schedule 2 and that definition exist. AI invents these. A reference to a schedule that isn’t there is a dead giveaway.
- Read for what’s missing. Can you answer three questions from the text alone: how does this end, what happens if someone breaches, and how do we resolve a dispute? If any answer isn’t in there, the AI left it out.
- Check the parties and the deal. Correct legal names, correct ABNs, and a scope that matches what you actually agreed. AI writes generic scope. Make it specific to your job.
- Follow the money. Payment amounts, timing, what triggers an invoice, and whether figures include GST. Vague payment terms are where small business disputes start.
- Read the risk clauses slowly. Liability, indemnity, and warranties are where a contract bites. Read who carries the risk and whether there’s a cap. One slow read here is worth ten fast reads elsewhere.
- Sanity-check against a real template. Open a proper Australian services agreement template next to the AI draft and compare. Anything the template has that yours doesn’t is a question to answer.
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The clauses AI most often gets wrong in Australia
Five clauses do most of the damage. Spend your review time here.
Governing law and jurisdiction
This is the single most common AI miss. An Australian contract should be governed by the law of an Australian state or territory, and disputes should be heard in its courts. If this clause names a US state, nothing else in the contract can be trusted to fit Australian law either.
Unfair contract terms
If you use a standard form contract with consumers or small businesses, Australian Consumer Law applies, and since November 2023 an unfair term can attract court-imposed penalties, not just be struck out. AI doesn’t know your contract is a standard form one, so it won’t flag this. A one-sided termination right or an unbalanced indemnity is exactly the kind of term a court can find unfair. The rules sit in the Competition and Consumer Act 2010 (Cth).
Indemnity and liability
AI loves a broad indemnity and rarely checks which way it faces. Read it twice. Work out who is promising to cover whom, for what, and whether your liability is capped at a sensible number. An uncapped indemnity running against you is the clause most likely to cost real money.
Termination
You want to know how to get out. Look for termination for convenience with a notice period, and termination for cause on breach. AI often writes one and forgets the other, which leaves you locked in or unable to exit cleanly when a deal sours.
Intellectual property
If the contract involves work product, make sure the IP clause says who owns what, and when ownership passes. AI drafts are often vague here, or assign everything one way without anyone noticing. If you’re the one paying for the work, check you actually get the rights you’re paying for. If you need a contractor-specific setup, start from a contractor agreement template.
The review mistakes people make with AI contracts
Most failures come from trusting fluent writing. Three come up most.
Treating fluency as accuracy. A contract that reads well feels like it’s been reviewed. The polish is the AI’s strength and your blind spot. Slow down exactly where the writing is smoothest.
Asking the AI to check its own work. Pasting the contract back in and asking “is this fine?” gets you a confident yes most of the time. It’s the same system that wrote the error. A second AI pass is not a review.
Skipping the schedules. People read the clauses and ignore the annexures, pricing tables, and definitions. That’s where AI drift hides, because it’s the detail the model is least able to get right for your specific deal.
Should you paste a contract into ChatGPT or Claude at all?
Before the review question, there’s an earlier one: what happens to the contract once you paste it in? A contract is full of names, prices, and commercial terms you may be contractually bound to keep confidential. Some AI tools retain what you type and use it to improve future models, so pasting a client’s agreement in can itself breach a confidentiality clause.
Check two things before you paste. First, whether the contract has a confidentiality or non-disclosure term that covers what you’re about to share. Second, the AI tool’s own data settings, because some let you switch off training on your inputs and some don’t.
A safer habit is to strip the identifying detail out. Swap real names, ABNs, and dollar figures for placeholders, get the AI to draft or check the structure, then put the real details back yourself. You keep the speed without handing a third party your commercial terms, and you’ve already done half the work of protecting your position in the deal.
If the document is genuinely sensitive, a shareholder deal, an acquisition, anything under an NDA, keep it out of a public AI tool entirely and work from a template or a lawyer instead. None of this makes AI off limits for contracts. It makes the paste itself a decision, the same way you’d think twice before emailing a draft to someone outside the deal.
When should you get a lawyer to review it?
Not every contract needs a lawyer. A low-value, low-risk agreement with a trusted party is fine to handle yourself with a careful review and a solid template. Match the effort to the stakes.
Get a human review when the numbers are big, the relationship matters, the IP is valuable, or the downside would hurt. Shareholder arrangements, long-term supply deals, anything with a large indemnity, and anything you’ll rely on in court are all worth a lawyer’s eyes. A fixed-fee check from a business lawyer costs far less than the dispute a bad clause creates, and an on-demand legal advice plan makes that review quick to arrange.
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Frequently asked questions
Is a contract written by ChatGPT or Claude legally binding?
Yes, if it meets the usual requirements of a contract: offer, acceptance, consideration, an intention to be bound, and certain terms. Who or what drafted it doesn’t matter. The risk is that it may bind you to terms you didn’t mean to agree to.
Is it safe to use ChatGPT or Claude to write a contract?
It’s safe for a first draft, as long as you review it before signing. Use AI to get the structure and language down, then check it against Australian law and a real template. Don’t paste in sensitive business details you wouldn’t want stored by a third party.
How can I tell if a contract was written by AI?
Look for US spelling and law, generic scope that could apply to any business, cross-references to schedules or clauses that don’t exist, and very smooth but vague risk clauses. The giveaway is a contract that reads perfectly but doesn’t quite fit your actual deal.
What’s the most common mistake in AI-written contracts?
The governing law clause pointing somewhere other than Australia. Much of what AI learned from is American, so it drifts toward US jurisdictions and wording. If that clause is wrong, treat the whole document as needing a closer look.
Can I just ask the AI to review the contract for me?
Not as your only check. The same system that confidently wrote an error will often confidently approve it. AI can help you spot questions to ask, but a second AI pass isn’t a substitute for a human review against current Australian law.
Do I still need a lawyer if I used AI to draft the contract?
Not always. Low-value, low-risk contracts are fine to self-review from a good template. For high-value deals, valuable IP, or anything with a big indemnity, a fixed-fee lawyer review is cheap insurance against a clause that costs you later.
Where to start
Using AI to draft a contract is a smart shortcut, as long as you still read it. Using these tools puts you ahead. You just need a review habit that matches how they fail.
The simplest safety net is to start from a lawyer-built template and adapt, rather than starting from a blank prompt. Browse Lawpath’s services agreement and other business contract templates, and have a lawyer review anything that really matters.
