Last Updated on 22/08/2025 by Damin Murdock
As Artificial Intelligence (AI) systems become increasingly integral to business operations, performing complex tasks and interacting directly with users. As AI develops, the question of what legal risks do you face if your AI misrepresents, misinforms, or causes harm. Organisations are indeed facing a rapidly changing landscape of legal liabilities, spanning from potential misrepresentation and data security vulnerabilities to the crucial concern of direct and indirect harm to users. Understanding these multifaceted risks, which can arise from both the actions and omissions of AI-driven processes is an important consideration for any business deploying AI in Australia.
At Leo Lawyers, we specialise in guiding businesses through these emerging legal complexities. This article outlines the key areas of AI liability in Australia and provides considerations for robust risk management in the face of misrepresentation, misinformation, and potential user harm.
Understanding AI Liability: Misrepresentation and Misleading Conduct
AI systems, through their outputs or automated interactions, can potentially misrepresent information, or mislead or misinform users. Misrepresentation is rarely the sole cause of loss, damage might also flow directly from the AI system’s actions or omissions, and indirectly from the misleading information it provides.
Technical Risks and Controls: Safeguarding Against Data Security Vulnerabilities
The deployment of AI systems introduces specific technical risks, particularly concerning data security and system integrity. These vulnerabilities can indirectly lead to misrepresentation (e.g., if compromised data leads to flawed AI outputs) or direct harm. Key risks include unauthorised access to the datasets used by AI, improper changes to data (whether intentional or accidental), inaccurate data processing by algorithms, inappropriate access privileges within the AI system, and broader system failures that affect data availability or access.
Organisations should consider both internal and external unauthorised access risks to their AI infrastructure and data. Cybersecurity breaches affecting AI systems may have significant impacts, including on financial reporting, and often require mandatory disclosure. Ensuring strict compliance with data protection legislation, such as the Privacy Act, is fundamental when managing AI-related data.
Public Interest and Harm Prevention: Addressing Risks to Users
Beyond financial and data security concerns, organisations deploying AI systems face obligations related to public interest and harm prevention. This directly addresses the risk of AI “causing harm.” Where serious risks to public health, safety, security, or matters of comparable importance exist, there may be clear obligations to disclose information related to the AI’s operations or potential impacts.
The risk of harm should be properly identified and assessed. This includes pinpointing the true source of potential injury within the AI system or its data, and understanding the general causal mechanism of how that injury might occur. Proactive identification and mitigation of these risks is important for responsible AI deployment.
Proactive Risk Management: Key Considerations for AI Users
To effectively mitigate the legal risks associated with AI systems, particularly those concerning misrepresentation, misinformation and potential harm, organisations should consider adopting a proactive risk management strategy.
- Risk Management:
Implement IT controls and security measures specifically tailored for AI systems and their underlying data. Conduct regular assessments of potential risks, vulnerabilities, and maintain documentation of all risk management procedures related to your AI operations.
- Legal Compliance:
Consider both the direct and indirect effects of relevant laws and regulations on your AI systems. Ensure proper disclosure and transparency regarding AI’s functionalities and limitations, and maintain adequate records of all AI-related decision-making processes.
- Liability Protection:
Document the AI system limitations, known biases, and potential risks clearly. Implement transparent user agreements and disclaimers where AI interacts with individuals or affects outcomes. Additionally, consider maintaining proper insurance coverage specifically designed for AI-related risks.
- Public Interest Obligations:
Proactively consider the public interest implications of your AI operations. Establish clear protocols for handling and disclosing potential public safety risks identified by or within your AI systems. Maintain transparency in AI decision-making processes, especially in areas with significant public impact.
Conclusion
The deployment of AI systems, while offering opportunities, introduces a complex web of legal risks related to misrepresentation, misinformation, and potential harm to users. Organisations are increasingly facing liability for both the direct and indirect consequences of AI-driven actions or omissions. Proactive risk management, stringent legal compliance, and a commitment to transparency are not just good practice, but essential for navigating this evolving legal landscape in Australia.
Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to newsletter via our Website, and subscribe to our YouTube , LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.
DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.
Damin Murdock (J.D | LL.M | BACS - Finance) is a seasoned commercial lawyer with over 17 years of experience, recognised as a trusted legal advisor and courtroom advocate who has built a formidable reputation for delivering strategic legal solutions across corporate, commercial, construction, and technology law. He has held senior leadership positions, including director of a national Australian law firm, principal lawyer of MurdockCheng Legal Practice, and Chief Legal Officer of Lawpath, Australia's largest legal technology platform. Throughout his career, Damin has personally advised more than 2,000 startups and SMEs, earning over 300 five-star reviews from satisfied clients who value his clear communication, commercial pragmatism, and in-depth legal knowledge. As an established legal thought leader, he has hosted over 100 webinars and legal videos that have attracted tens of thousands of views, reinforcing his trusted authority in both legal and business communities."
