Through of artificial intelligence (AI) and advanced search engines, an increasing number of people can finding legal documents online with ease. With just a few prompts, ChatGPT can seemingly produce a tailor-made agreement within seconds. While this may appear efficient and cost-effective, appearances can be deceiving. Using an AI-generated agreement without a professional review entails risks. Incomplete or ambiguous provisions, or the absence of essential clauses, can result in (costly) disputes between parties. A recent ruling by the District Court of Amsterdam illustrates this.
What is the case about?
The parties entered into a service agreement under which the defendant was to perform investment activities on behalf of the claimant. According to the claimant, the agreement was not properly performed. The agreement included a provision regarding the duration of the collaboration and the amount invested by the claimant. It stated that if the total investment incurred a loss exceeding 15%, the defendant was obliged to notify the claimant. A discussion between the parties would then have to take place to reconsider the investment strategy concerning the remaining amount. The claimant considered this a key term of the agreement.
The defendant admitted that he panicked when the value of the investments dropped. As a result, he did not inform the claimant, and no discussion took place regarding a revised strategy.
A dispute subsequently arose between the parties as to the validity of the agreement, since it had been drafted using ChatGPT or another AI tool. Additionally, there was disagreement as to whether the defendant had failed to fulfil his obligations under the agreement, assuming it was legally binding.
The Court’s judgment
The court held that the mere fact an agreement was drafted using ChatGPT or another AI tool does not affect its legal validity. The contractual provisions are legally binding. Furthermore, the court found that the defendant’s panic did not justify his failure to comply with the agreement. There was a breach of contract, as the defendant had failed to honour the agreed terms. This breach justified termination of the agreement, as the failure to notify the claimant of a loss exceeding 15% could not be considered a minor breach.
The subdistrict court therefore terminated the agreement between the parties. The defendant was ordered to repay the full amount invested by the claimant. Although the work carried out by the defendant could not be undone, the court attributed no value to it. As a result, the defendant must reimburse the claimant’s full investment.
Read the full judgement here.
What does this judgment mean for the use of AI in legal practice?
This judgment demonstrates that documents drafted with the help of AI, such as ChatGPT, can be legally valid. The method or tool used to create an agreement does not, in itself, affect its validity. However, this is not always the case.
In a recent ruling by the District Court of Midden-Nederland, an 'Agreement of Intent' was found to carry little legal weight. The parties had not drafted the document themselves but had used an English-language template found online. Neither party had a sufficient command of the English language, and they poorly understood the contents. Furthermore, the agreement referred to a 'foundation agreement', a type of contract unknown in Dutch law. The court concluded that the parties had essentially signed something they assumed “looked about right”, based solely on the title and how easily it could be found online. However, this did not amount to a valid agreement.
These examples show that while digital tools, including AI, can assist parties in getting started, they offer no guarantee of producing a legally valid agreement. AI does not understand context, the parties' intentions, or legal nuance to the extent that an experienced lawyer does.
Conclusion
In legal practice, AI can at most be used as a supporting tool in the preparatory phase. However, human review and customisation remain essential for drafting valid, clear, and appropriate agreements. In other words: agreements that are useful in the event of a dispute.
Do you want to do business on the basis of a reliable and watertight contract? The team of SPEE advocaten & mediation is ready to assist you with expert legal advice.