I've encountered the same thing on Spellbreaker EU. But it was a different charactet than the one you met.
It was not me having an issue as the other people with me on ts experienced exact the same thing. He was nearly invisable, untargetable with single target skills and could still attack and kill us.
It is obviously the fault of The Nightblade and the notorious 3 second long OP easily breakable cloak that no one can break.
that was another Joke:D
OK. This is obviously a bug of some sort. The DK has to know, as no one in their right mind would ambush you like that in the middle of a keep with allies around; report it and hope that ZOS does something about it.