Slitherine

Question:

Do Capital ships need to see / spot an enemy capital ship in order to RETURN fire?

I was "hotseating" Norway and moved the German navy so that I could see two British Capital ships via a destroyer screen two hexes away from the British ships (Spotting range = 2). I made sure my German crusiers (sitting two hexes behind the destroyers) were unspotted. When I fired on the British capital ship it returned fire even though it couldn't see me. Is this correct?

No they don't and yes it is.

The attacker still has the significant advantage though, as expressed through initiative changing in such naval encounters.

Thanks for the heads - up. Thinking about it, it would probably lead to some "gamey" tactics if a ship had to be spotted in order to return fire.