The AI paper trail: an emerging legal risk for business

The use of AI tools in legal matters is viewed as a complex grey area. Judiciary guidance from October 2025 states that “you should treat all public AI tools as being capable of making public anything entered into them”, meaning that confidentiality is considered to be lost the very moment privileged information is uploaded.

 

The consequence of inputting such information into consumer AI tools is significant. Businesses must be aware that they risk the irreversible loss of legal professional privilege (LPP) as a direct result of such actions.

 

 

AI is a growing legal tool for both claims and defence

With AI tools now widely accessible to the general public, there has been a considerable uptick in consumers using AI to draft and submit complaints and legal claims. Consequently, well-meaning staff are also increasingly using these same consumer-grade AI tools to review customer complaints and generate quick solutions without involving internal legal teams.

 

A growing number of employees, albeit with the best intentions, are using AI tools such as ChatGPT and Claude to provide advice on legal matters. This could be to quickly check a contract, understand a legal position or to play out a potential dispute scenario. AI tools offer easily accessible and digestible legal know-how, without ‘bothering the legal team’.

 

Even a company’s well-intentioned CFO could find themselves caught up in legal privilege uncertainty after trying to streamline matters with AI. By relying on AI as a legal tool without proper oversight, these individuals are unwittingly potentially jeopardising the future legal defence of their employers.

 

 

Loss of legal privilege is just the tip of the iceberg

Plugging information into public AI tools can expose sensitive legal information to systems that do not have the proper protections. From the moment this information is uploaded onto these AI platforms, LPP is undermined.

 

However, losing LPP is not the only legal risk that misguided use of AI tools can lead to. The knock-on effect is that any future litigation strategy is impacted and the defence may be considerably weakened.

 

It can also have significant commercial ramifications, as unchecked use of AI in a legal dispute may result in a business having to disclose its internal communications and AI-generated outputs to opposing parties, prosecutors and regulators that demand sight of them. It is also worth noting the potentially significant time and cost ramifications of a satellite privilege dispute, as well as the broader impact on a business’s risk profile, which shareholders take seriously.

 

Unchecked use of AI as a legal tool is therefore a hugely costly action with complex implications. The fault, however, should not fall on the individual unwittingly using these AI tools. While their actions may ultimately undermine LPP, business leaders should recognise that their own prior inaction to instil good AI governance is where the real fault lies.

 

 

Good governance should be top of the boardroom agenda

The absence of good AI governance puts businesses at high risk of damaging legal and commercial positioning. Boards must therefore take AI governance as seriously as they would take the consequences of its misuse. For many businesses, this may require the immediate escalation of AI up the Board agenda, or else risk self-inflicting a complex and potentially lengthy legal dispute that’s hiding in plain sight.

 

Some initial questions businesses should ask themselves when assessing the strength of their AI governance include: 

• Are teams aware of internal AI policies and do they understand them?
• Are new employees informed of these policies from the get-go?
• Can employees easily raise concerns with the legal team?
• Do employees understand AI misuse and what accidentally waiving legal privilege looks like? 

Organisations rightly recognise AI as a valuable tool, but this must be in tandem with a recognition of the serious legal and commercial risks posed by its accidental misuse. 

 

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Louise Wilson is Partner, Dispute Resolution at Freeths

 

Main image courtesy of iStockPhoto.com and AndreyPopov