International Arbitration Trends in 2026
The defense sector is undergoing significant transformation, driven by escalating geopolitical tensions, technological innovation and supply chain pressures. As defense spending climbs and the industry becomes more complex, disputes grow more sophisticated and increasingly sensitive. International arbitration offers defense stakeholders the flexibility, confidentiality and neutrality needed to safeguard both commercial interests and national security.
In detail
The evolving defense ecosystem
The shift towards decentralized supply chains
Global instability has led nations to prioritize defense. Defense spending in the European Union (EU) reached €343bn in 2024 and was projected to hit €381bn in 2025, up 63% since 2020. In the United Kingdom, annual defense spending increased by 30.2% over the past decade, reaching £60.2bn in 2024/2025. Meanwhile, military expenditure in the United States approached US$1tn in 2024.
In parallel, resource nationalism has escalated around critical raw materials essential for technologies like advanced batteries and drones. Export restrictions have surged as a result, intensifying competition for materials like copper, nickel and lithium.
Against this backdrop, supply chain adaptability (both security of information and of supply) is critical, supported by initiatives like NATO’s Defence-Critical Supply Chain Security Roadmap and the EU’s Defence Industry Transformation Roadmap. Drawing on Ukraine’s experience, the EU advocates shifting from centralized procurement authorities to decentralized supply chains involving a broader range of stakeholders for greater responsiveness and agility. Any related disputes are likely to span multiple jurisdictions and involve several parties, requiring proactive risk management.
The emergence of “New Defense” companies and new technologies
Advanced digital and cyber tools, such as AI-backed software and quantum technologies, are becoming central to national security, creating opportunities for startups and small-to-medium enterprises, often at the forefront of technological advancements. The emergence of these “New Defense” companies and the growing reliance on cutting-edge technologies increases the likelihood of disputes over intellectual property, data security breaches and liability for system failures.
Space: The new frontier for defense disputes
Space has become vital for defense, with satellites and other space-based assets underpinning surveillance, communication and strategic operations. Government investment in space is rising, with EU investment reaching a record €122bn in 2024. At the same time, private investment and mega-constellation projects are booming, led by companies such as SpaceX, Amazon, Eutelsat and new entrants like Canada’s Telesat and China’s SatNet. The race for orbital slots and frequency rights creates new flashpoints for disputes.
The defense industry is undergoing profound change as new technologies, geopolitical shifts, and a wider range of market participants reshape traditional dynamics. Defense stakeholders must be prepared to navigate increasingly complex supply chains, emerging regulatory frameworks and the novel disputes these changes bring.
Kate Gough
Partner
Arbitration remains the preferred method of resolving disputes under commercial defense contracts, including those involving state entities, and its relevance is only increasing.
Safeguarding sensitive information
Defense disputes often involve classified information and proprietary technology. Arbitration offers a robust framework to safeguard this sensitive data. Most major arbitration rules include confidentiality provisions, and parties can agree on bespoke confidentiality protocols or “Attorneys and Experts’ Eyes Only” regimes, to put in place further situation-specific safeguards.
Classified documents are protected under Article 9.2(f) of the 2020 IBA Rules on the Taking of Evidence, which allows tribunals the discretion to exclude them from evidence where compelling grounds exist. Parties and tribunals can, however, obtain security clearance or seek declassification under the applicable regulations to use classified documents in arbitration (as occurred in the ICSID case of Gabriel v. Romania).
Adapting to multi-contract and multi-party transactions
Modern defense projects link contractors, governments and suppliers globally. Arbitration’s flexibility helps manage multi-party and multi-contract disputes. Arbitration rules generally allow the joinder of additional parties and the consolidation of related proceedings where cases share the same or compatible arbitration agreements, or common legal or factual issues. These mechanisms help to reduce fragmentation, save costs and ensure consistency of outcomes.
Practical takeaways
As complexity in the defense sector grows, stakeholders should proactively consider adapting their dispute resolution strategies.
- Review contractual framework: Ensure arbitration clauses in existing and new contracts are fit for purpose and compatible across the supply chain to allow joinder/consolidation.
- Protect confidentiality: Identify sensitive information and applicable secrecy/classification restrictions and incorporate robust confidentiality provisions into the arbitration clauses and early procedural orders.
- Assess treaty protection: Foreign investors should assess whether investment treaties could provide additional protection against adverse state measures, including revocation of licenses, export restrictions, or termination of long-term supply agreements.
- Evaluate enforcement risks: Carefully evaluate asset location and whether relevant jurisdictions may challenge arbitrator neutrality on political grounds. Consider applicable immunity rules when contracting with states or state-owned companies, as well as supranational entities.
Our team understands these dynamics intimately and assists clients in proactively resolving disputes across this critical sector. Please contact us to learn more.
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