The campaigners argued they were being used by the Saudi-led Arab coalition in Yemen in violation of global humanitarian law.
However, judges dismissed the claim, saying the decision to continue trading with Saudi Arabia was "not irrational or unlawful".
This secret evidence presented by the Government is said by the court to have included Saudi Arabia's "fast-jet operational reporting data", "high-resolution MoD-sourced imagery" and "UK defence intelligence reports and battle damage assessments".
"The evidence that we saw in the opening court sessions showed that there was a clear risk of global humanitarian war breaches by the Saudi coalition in Yemen".
He added: "Every day we are hearing new and horrifying stories about the humanitarian crisis that has been inflicted on the people of Yemen".
Saudi Arabia has insisted that it is not targeting civilians in leading an worldwide coalition against Houthi rebels who pose a major threat in the neighbouring country.
Saudi Arabia accounted for about 21% of BAE's £19bn annual sales previous year.
"We're disappointed in this verdict and will be pursuing an appeal process".
Campaigners outside the High Court
CAAT lawyers said in a three-day hearing in February the fighting in Yemen had created a humanitarian catastrophe, destroying vital infrastructure and leaving 80 per cent of the population in need of aid.
More than £3.3 billion worth of arms has been sold to the Gulf state since it began bombing neighbouring Yemen in March 2015.
Dr Fox admitted that "Yemen is indeed a humanitarian disaster" but said it was right to keep selling arms to Saudi Arabia. Indeed, all the evidence we have seen from Yemen suggests the opposite: the risk is very real.
The ruling will come as a relief to the government following accusations that a report into worldwide terror funding, which was particularly critical of Saudi Arabia, was being suppressed. "Our government should not be allowing itself to be complicit in the grave violations of law taking place by the Saudi coalition in Yemen".
This constitutes a breach of our own export licensing criteria. The Gulf state has reportedly spent in excess of £3 billion ($3.9 billion) on United Kingdom weapons over the past two years.
The court ruled there had been extensive political and military engagement with Saudi Arabia regarding the conduct of operations in Yemen and the Saudis had "sought positively to address concerns about global humanitarian law".
They found the government had failed to conduct credible investigations into how British weapons were being used.