Source: The Conversation (Au and NZ)
It might seem easier than ever to start and run a business using artificial intelligence (AI).
At the extreme end, some AI tools offer to run key business functions “while you sleep”, or even build entire apps from a single prompt.
But this technology carries new risks and is reshaping some old ones. And we aren’t just talking about how “vibe coding” – creating something like an app from scratch, without needing any coding skills – might result in glitches for customers.
No matter how big your business, the key customer protections in the Australian Consumer Law still apply. Businesses are also bound by their own contractual obligations to deliver what they promised on time, in the way they promised.
If you’re running or looking to start a business using AI tools – from writing your marketing text, to AI chatbots interacting with your customers – here are some of the key legal risks you need to manage.
When a chatbot gets it wrong
Australian law has well-established protections against misleading conduct. While it is a new technology, there is no “free pass” for disruption caused by a rogue AI instead of a human being.
Canada, where similar protections apply, offers a now infamous example. In this case, an Air Canada customer assistance chatbot provided incorrect information about the process for requesting “bereavement” fares, leading to the customer proceeding to pay for a full fare.
In 2024, a tribunal found this information was misleading and ordered the airline to pay compensation.
There are several other ways an AI chatbot used by a business could accidentally mislead consumers. Importantly, liability does not depend on this business intending to mislead, or even being careless.
For example, an AI pricing tool that means some consumers do not receive a discount represented as available to them would be misleading.
And a chatbot that manipulates consumers’ emotional responses – whether by flattery, emotional targeting or deceptive design – could fall foul of the existing ban on unconscionable conduct and the new ban on unfair trading that comes into effect next year.
It’s not just chatbots; marketing is another place businesses are exposed to AI risks.
Many businesses are now using AI to create social media content and are likely responsible for images that are inaccurate, either in the way they present the product being sold or suggesting the social media influencer promoting it is human.
Managing paperwork, quotes and orders
AI can also be rolled out to assist a new business with managing paperwork and orders. Errors – such as misquoting the price of a product – may be costly.
And while they may be able to improve efficiency, these activities are still bound by the law, including meeting Corporations Law obligations relating to reporting and governance.
The performance of the AI needs to be overseen by a human with the right expertise.
Managing artificial employees
Using AI “agents” poses other risks too. These are AI systems that act with a high level of autonomy to complete discrete tasks, as opposed merely to generating content.
Emerging uses include retail sales, managing merchandise distribution, and engaging in high-frequency crypto trading.
Agentic AI is “multi-modal”, meaning it interacts with external tools, databases and even other AI agents to complete tasks.
Using AI agents or agentic AI may have real-world stakes for a business’s money, inventory or more.
Any agentic AI system that messes up an order – to consumers or another business – still leaves responsibility with the party contractually obliged to deliver the product or service.
A business that rolls out an underperforming AI may itself suffer losses. These could include having to pay compensation to customers, through to facing fines from regulators.
Who is responsible?
So what if things do go wrong with the AI tools you’ve used? Could your business seek compensation from the developer or tech firm that supplied that AI product? And what about all the other companies involved in developing that product? Are they legally responsible too?
The answer is: it depends.
In an ordinary supply chain context, this is governed by the contracts between the parties. As I discuss in a forthcoming chapter, under Australian law many statutory consumer law protections also apply to business-to-business contracts.
So if you were promised an outcome that wasn’t provided, you may have a case. And fine print contractual terms may not apply to exclude that claim.
But if a business deploying AI features has itself tinkered with the underlying AI – such as by building its own agent or chatbot – then responsibility for poor performance may sit squarely with that business.
For now, if you’re considering starting a business with AI, or using it in your operations, be mindful that you may be legally responsible for any mistakes it makes.
Jeannie Marie Paterson receives funding from the Australian Research Council – previously for a project on misleading conduct and currently for the ARC Centre of Excellence for Quality Work in a Digital Age. She is an affiliate of the ARC Centre of Excellence for Automated Decision Making + Society
Original source: https://analysis1.mil-osi.com/2026/07/27/starting-or-running-a-business-with-ai-there-are-legal-risks-you-cant-afford-to-ignore/