Wow, lots of responses. Welp, let's see. Before I go on, I was 5 beers into it when the ships showed up as neutral.
But anyway, here's what happened. The radio message showed them as neutral, but they all had british flags confirmed by outside view (although, I'm not sure what the WWII Canadian flag looks like so that is a possibility). I had sunk 3 ships to date, all enemy and all red sunk marks on the map.
I torp'd 2 merchants in this 'neutral/british' fleet and one sank fairly quickly and left a red sunk mark (not green) on the map. I surfaced because my sonar guy said there were no warships. Welp, I took a shelling and quickly submerged to find 3 destroyers (definitely british) circling me. I spent the next 2 hrs trying to avoid them. While I was avoiding them, the second merchant finally sunk, however this one didn't leave a sunk mark on the map. No mark at all.
Finally, I lost the destroyers, primarily because it's only 1940 (definitely not from my abilities). I then clicked save and exit. When you do this, it shows how much tonnage and ships sunk before going to menu. It showed 5 ships sunk (so I did get credit for that second, but still no mark on the map) and all were definitely in the neutral category. So it changed my earlier ones to neutral.
I was going to go down and recheck today and see what it says, just to make sure I wasn't seeing things. But that's my recollection of the situation. So I am still on patrol, not in port.
Hope that answers the questions. I'll let you know what I find, unless of course I somehow was seeing things and then I'll just slip away to the depths, never to be heard from again.