Can AI identify unfair clauses in contracts?

AI can identify potentially unfair clauses in contracts. Using Natural Language Processing (NLP) and machine learning, AI systems scan contract text to flag terms that deviate significantly from standard practices or contravene established unfair terms legislation like the Unfair Contract Terms (UCT) framework in common law jurisdictions.

These systems learn from vast datasets of contracts and legal rulings to recognize potentially problematic clauses, such as unilateral termination rights, disproportionate liability limitations, or terms lacking transparency. Their effectiveness depends on access to high-quality training data and sophisticated algorithms. While applicable across many standardized contract types (e.g., consumer agreements, NDAs, service terms), AI should be seen as an augmentation tool, not a replacement for legal counsel. Human review remains essential for context, jurisdiction-specific nuances, complex negotiations, and final determinations.

AI significantly speeds up contract review by automating the initial screening process for unfair terms. This enhances compliance efforts, reduces legal and operational risks, and leads to substantial cost savings by streamlining due diligence. It brings scalability to legal and procurement teams, allowing faster processing of large contract volumes while improving consistency in identifying potential issues early.