Complex sentence: It's possible that they saw or heard the approach of HMS Exmouth and the Cyprian Prince then lay in wait or that they were simply attempting to slip out of the Firth when paths crossed.
Split into simpler sentences: It's possible that they saw or heard the approach of HMS Exmouth and the Cyprian Prince, then lay in wait. Or, they were simply attempting to slip out of the Firth when their paths crossed.