AI Mistakes: Could Your Business Be Liable?

23rd Jun 2025

Author: Asim Din

Artificial Intelligence (AI) is no longer just a buzzword, it is a business tool being used every day to improve efficiency. From automated emails and AI-generated proposals to chatbots and smart invoicing, AI is helping businesses of all sizes to streamline marketing, customer service and daily operations.

But what happens when your AI gets it wrong?

An automated email might send the wrong price to a client. A chatbot could promise a delivery time you cannot meet. Or a sales proposal might include inaccurate or misleading claims.

When errors like these happen, they can damage your business, and it is usually you, not the software provider, who carries the legal responsibility.

Dispute Resolution Specialist Asim Din explains the risks and the steps you can take to protect your business.

Why AI errors can create legal headaches

Under the law of England and Wales, AI cannot enter into a contract or be held accountable when something goes wrong. That means if an AI tool causes an issue, such as sending false information, making an unrealistic promise, or miscalculating an invoice, your business could be liable, not the technology provider.

This can lead to:

• Breach of contract claims
• Allegations of misrepresentation
• Reputational damage that could affect future business

Even when the mistake is caused by third-party software, it is usually your business that remains legally accountable. If the client suffers financial loss or feels misled, it is your responsibility to put it right.

Top AI risks facing small and medium-sized businesses

As more businesses adopt AI tools, the risk of things going wrong grows too. Here are some of the most common problems we see:

• Inaccurate customer messaging Automated emails or chatbots might give out incorrect details about pricing, timelines or services.
• Incorrect invoicing AI-generated invoices may auto-fill incorrect figures or apply the wrong tax rate.
• False marketing claims Generative AI can produce persuasive content, but it may exaggerate features or make claims your business cannot legally support. This is known as AI hallucination.
• Operational errors AI-driven systems managing deliveries or stock can miss deadlines or generate planning errors that disrupt your supply chain.

These issues might seem minor at first, but they can have serious legal and commercial consequences.

How to protect your business from AI-related disputes

The good news is that you do not have to stop using AI to stay protected. With the right steps in place, your business can benefit from AI tools without taking on unnecessary risk.

1. Review client contracts

Make sure your contracts clearly explain what happens if automated systems make an error. Build in flexibility where possible and avoid overpromising.

2. Check your software agreements

Most AI providers include clauses that limit their own liability. Review your contracts carefully. If the terms leave you exposed, consider negotiating better protection.

3. Train your team to supervise AI outputs

Do not leave AI to make key decisions alone. Encourage your staff to check outputs before anything is sent to clients, especially when it involves contracts, pricing, or service terms.

4. Use clear disclaimers

If your website, marketing, or sales materials include AI-generated content, it might be worth adding a disclaimer, particularly if you work in a regulated sector.

5. Build in manual checks for key tasks

For critical communications, introduce a human sign-off step. Automation can speed up your processes, but some decisions still require human judgement.

Final thoughts: AI can be helpful, but your business is still responsible

AI is here to stay. When used properly, it can help your business grow, reduce costs and stay competitive.

But without the right legal and operational safeguards, a small AI mistake could escalate into a serious dispute—damaging client relationships, finances and your reputation.

At Butcher & Barlow, we help businesses of all sizes put the right protections in place. Whether it is reviewing your contracts, updating your terms with AI providers, or supporting you in the event of a dispute, we work alongside you to make sure your business stays protected.

Your business is responsible for what your AI says and does. Let us help you make sure it says and does the right things.

To discuss how we can help, contact Asim Din in our Dispute Resolution Team on 01606 334309 or adin@butcher-barlow.co.uk.

 

 

The information in this article was correct at the time of publication. The information is for general guidance only. Laws and regulations may change, and the applicability of legal principles can vary based on individual circumstances. Therefore, this content should not be construed as legal advice. We recommend that you consult with a qualified legal professional to obtain advice tailored to your specific situation. For personalised guidance, please contact us directly.