THE AUTHOR:
Oleg Shaulko, Partner at Kennedys
International arbitration is beginning to confront a new category of disputes: cases arising from the extraordinary expansion and internationalisation of the defence industry. And with the major continental war in Europe and continuing tensions in the Middle East, the trend is no longer theoretical.
A Ukrainian state-owned defence company is pursuing a US$347 million claim before the London Court of International Arbitration (“LCIA”) against a US weapons exporter arising from contracts for artillery rounds and rockets (SpetsTechnoExport v. Regulus Global). Ukraine has recently obtained a Swiss arbitration award exceeding US$18 million in another arbitration concerning the alleged non-delivery of artillery ammunition. An Estonian government agency has meanwhile commenced proceedings in Switzerland seeking to recover approximately €59 million in advance payments under contracts for ammunition intended for Ukraine (See, Jack Ballantyne, ‘Estonian agency files claim over Ukrainian artillery contracts’, GAR, 7 September 2026).
In Ukraine itself, defence-related disputes reportedly accounted for approximately 10% of new cases filed with the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry in 2025.
These cases point to something larger than a temporary wave of wartime procurement disputes. Defence arbitration is developing into a distinct area of international disputes practice — one in which the combination of national security, technology, sanctions, export controls, sovereign counterparties and unusually sensitive evidence places particular demands on tribunals.
That has an important practical consequence: who sits on the tribunal may matter considerably more in a defence dispute than parties sometimes appreciate.
Ukraine Is Producing the First Generation of Modern Defence Disputes
The war in Ukraine has radically accelerated global defence procurement. The initial imperative was simple: governments needed to acquire weapons and ammunition quickly. Conventional procurement cycles measured in years were compressed into months. New suppliers entered the market. Large advance payments were made. Supply chains extended across multiple jurisdictions. In the absence of the usual safeguards and bureaucracy, and given the immediate need to defend against an existential threat, disputes were inevitable.
The litigation surrounding SpetsTechnoExport’s arbitration against US-based Regulus Global illustrates the scale of the resulting cases. English court proceedings arising from two pending LCIA arbitrations reveal disputes concerning several high-value contracts for artillery rounds and rockets for Ukraine. The Ukrainian entity’s claims reportedly reach approximately US$347 million. The dispute has also moved beyond straightforward questions of delivery and payment. Recent proceedings reportedly include allegations that corporate restructuring by the respondent could frustrate enforcement of a future award.
That trajectory — procurement dispute, arbitration, asset-preservation concerns and potential enforcement strategy — is likely to become increasingly familiar in defence cases.
Other Ukrainian disputes demonstrate the same phenomenon. In January 2026, Ukraine announced that it had prevailed in a Swiss Arbitration Centre proceeding against an American supplier arising from a contract concluded shortly after Russia’s full-scale invasion. According to Ukraine’s Ministry of Justice, the supplier was required to deliver artillery ammunition within a short period, received 100% prepayment, but delivered only around one-third of the contracted ammunition and did so with significant delays. The tribunal ordered the recovery of more than US$18 million.
A separate dispute being litigated in New York concerns enforcement of an approximately US$5 million Ukrainian arbitral award arising from a US$84.5 million drone supply contract.
These are not isolated commercial cases. They are early examples of a much broader disputes market being created by the transformation of defence procurement.
The Phenomenon Is Already Spreading beyond Ukraine
September brought another useful illustration. The Estonian Centre for Defence Investments has reportedly commenced international arbitration seeking approximately €59 million in advance payments made under contracts with an Indian-owned supplier for artillery shells intended for Ukraine.
The procurement was funded through an EU mechanism connected with profits generated by immobilised Russian sovereign assets. The parties’ competing accounts, meanwhile, demonstrate why defence cases can become unusually complex.
Estonian officials have raised issues concerning the quality of ammunition and termination. The supplier disputes that account and says it delivered substantial quantities of material. It has also pointed to the complexity of the international supply chain and the need for approvals, authorisations and clearances from governments and regulatory authorities in different jurisdictions.
The dispute therefore potentially brings together contractual performance, technical specifications, regulatory approvals, international supply chains and public funding. That combination is likely to become increasingly common.
Yesterday’s Defence Contract Is Not Tomorrow’s Defence Dispute
There is a temptation to treat these cases as ordinary international sale-of-goods disputes involving unusual products. That would be a mistake since the defence market itself is changing.
Future disputes will increasingly involve drones, autonomous systems, artificial intelligence, electronic warfare, satellite technology, cybersecurity and software rather than simply conventional weapons platforms.
Ukraine provides perhaps the clearest indication of the direction of travel. Its Ministry of Defence reported this year that 95% of drones procured for its armed forces are domestically manufactured, while unmanned systems procurement has overtaken ammunition procurement.
The commercial consequences are significant. A dispute concerning an artillery shell may principally involve manufacturing standards, delivery and quality. A dispute concerning an autonomous system may involve software, algorithms, electronic countermeasures, intellectual property, data, continuous modifications and performance in a contested electromagnetic environment. That is a fundamentally different evidential exercise.
The Battlefield May Become Part of the Evidential Record
Defence technology is also increasingly tested through operational use rather than solely through conventional factory acceptance procedures. This raises difficult questions for future tribunals.
Suppose a manufacturer argues that its drone satisfied the contractual specification during testing. The purchaser responds that operational data demonstrates that the system repeatedly failed when exposed to electronic warfare.
Which evidence matters? What if software was modified after delivery? What if the military altered the system in theatre? What if battlefield data demonstrates a performance characteristic that conventional testing could not reproduce?
Tribunals may increasingly encounter telemetry, electronic warfare data, operational reports, software logs, testing results, and evidence derived from actual combat use. The technical complexity alone is considerable, let alone the fact that, according to Ukrainian defence experts, any given technology used on the battlefield most likely will be out of date within 90 days of the procurement.
But there is a further complication: some of the most probative evidence may also be classified.
Confidentiality and Classification Are Not the Same Thing
International arbitration practitioners instinctively emphasise confidentiality as an advantage for defence disputes. That is correct, but incomplete.
Commercial confidentiality is something parties can regulate contractually or procedurally. National-security classification is not. A confidentiality order cannot give an arbitrator, lawyer, expert or witness the legal right to access classified information. That distinction can fundamentally affect how a defence arbitration is constituted and conducted.
Disputes involving NATO provide a particularly clear illustration. NATO enjoys extensive immunity from national jurisdiction, making contractual arbitration especially important. But its procurement architecture may also impose nationality or security requirements affecting who can participate in proceedings and access relevant material.
Comparable difficulties can arise in state defence procurement. A tribunal may need bespoke arrangements for secure document review, restricted-access evidence, closed hearings, redacted submissions or awards, and information that cannot be uploaded to ordinary arbitration platforms.
These are not administrative details. They may determine whether the tribunal, as well as counsel on both sides, can see the evidence necessary to arbitrate the case.
Sanctions and Export Controls Can Determine the Merits
Defence disputes also sit at the intersection of commercial law and public regulation.
A supplier may be contractually obliged to deliver equipment but unable to obtain an export licence. Components may originate in another country whose export-control regime prevents re-export. A counterparty, bank or intermediary may become sanctioned after the contract is signed. Technology-transfer restrictions may prevent information being provided even where disclosure would otherwise be required in the arbitration.
All of this creates difficult questions of contractual risk allocation.
Who assumed the risk of obtaining licences? Does a regulatory prohibition amount to force majeure? Was performance legally impossible or merely commercially inconvenient? Could alternative components have been sourced? Was a sanctions clause triggered?
These questions cannot always be separated neatly into “law” and “fact”. They require an understanding of how defence transactions actually operate.
Urgency Creates Different Procedural Expectations
There is another distinction. A conventional commercial dispute may tolerate an 18- or 24-month arbitration. A dispute affecting an operational defence programme may not.
If production has stopped, technology is being transferred, critical components are being withheld, or military equipment is urgently required, the commercial purpose of the contract may disappear before a final award is issued.
Emergency arbitration, expedited procedures and interim relief are therefore likely to play a significant role in this field. Tribunals may be required to preserve production capacity, protect technology, maintain supply obligations, safeguard evidence or prevent dissipation of assets. Procedure needs to reflect that reality, and arbitral institutions that offer such expedited procedures are likely to benefit.
Why Specialist Arbitrators Matter
All of the above raises a question that deserves considerably more attention from parties and arbitral institutions: should defence disputes be arbitrated by specialist defence counsel and arbitrators?
The answer requires some nuance. International arbitration has traditionally and successfully relied upon highly experienced generalist arbitrators. Neither counsel nor a tribunal needs to include an engineer simply because a dispute concerns an engineering project. Nor should defence-sector experience ever substitute for independence, judgment and first-class arbitration skills.
But defence disputes present an unusually compelling case for sector expertise within the tribunal.
Consider the decisions a tribunal may have to make before it ever reaches the merits. Can particular evidence safely be disclosed? Do nationality or security-clearance restrictions affect tribunal composition? How should classified material be handled? What significance should be attached to military acceptance procedures? Is battlefield testing relevant to contractual compliance? How do export-control restrictions affect an order for disclosure? Can an interim order requiring continued supply actually be performed within the applicable regulatory framework?
These questions are easier to ask than to answer.
An arbitrator familiar with defence procurement is more likely to identify them early and structure the proceeding accordingly. Counsel on both sides should be expected to work with a tribunal in tandem to make sure the procedures are “bulletproof”.
Expertise Also Improves Proportionality
Sector expertise has another, less obvious benefit. It helps counsel and tribunals determine what does not require extensive evidence.
Defence cases can easily become overwhelmed by technical material. Parties may feel compelled to explain every aspect of a weapons system or procurement programme.
An experienced counsel and tribunal should be able to identify which technical issues actually determine contractual liability and which are peripheral. That distinction is particularly important where access to sensitive material is itself difficult.
Expertise therefore does not necessarily make arbitration more technical. Properly deployed, it can make it considerably more efficient.
A Specialist Pool Rather than Specialist Rules?
The emergence of defence arbitration has already generated discussion about whether military supply contracts require specialised arbitration rules. There is a respectable argument that they might. But new rules may not be the immediate priority.
The existing frameworks of institutions such as the International Chamber of Commerce (“ICC”) or LCIA are deliberately flexible. They can accommodate secure hearings, confidentiality regimes, expedited procedures and sophisticated evidential protocols.
The more immediate need may instead be to develop a credible international pool of counsel and arbitrators who understand defence disputes.
That pool need not consist exclusively of former military officials or defence lawyers. Indeed, some of the strongest tribunals may combine different expertise: an experienced international arbitration chair, a member familiar with defence procurement or technology, and another with relevant public international law, sanctions or state-contract experience.
The important point is that tribunal composition should be considered strategically rather than treated as a conventional appointment exercise.
Defence Arbitration Is Becoming a Practice Area
The recent Ukrainian cases are significant because they provide a glimpse of what comes next.
The first generation of disputes has principally arisen from emergency procurement: advance payments, non-delivery, delay, quality and termination.
The second generation is likely to be more complicated. As governments move from emergency procurement towards joint production, localisation and long-term industrial partnerships, disputes will increasingly concern joint ventures, technology transfer, intellectual property, licensing, investment, production rights and ownership of innovations.
European rearmament, NATO procurement and the reconstruction of defence-industrial capacity are creating a large network of cross-border contractual relationships. Some will inevitably fail.
International arbitration is well suited to defence disputes due to neutrality, enforceability, flexibility and the ability to select decision-makers with relevant expertise. As these disputes become more technically complex and geopolitically sensitive, specialist legal expertise will become increasingly important. The defence industry is becoming more specialised, and its counsel and arbitration tribunals should do the same.
