Hi Colin, no doubt Oliver can answer your question in more detail than I, however I might be able to give a different aspect to the nature of this attack. U-boats were indeed much slower underwater (especialy U-boats of the 1914-18 era) and had a very limited range. Also torpedoes were the tomohawk missiles of their day and as such very expensive, they were also of course a limited commodity on board a U-boat (a sub operating off Gybralter in WWI was a very long way from home, and would have little if any opportunity to replenish its stock of these weapons) so it was always preferable to sink a ship by artillery fire.

As a diver in British waters I have had the oportunity to dive several victims of U-boat attack and it is noticable that WWI torpedoes were significantly less powerful than WWII torpedoes - and thus less likely to sink their foe. At least one vessel I have dived was finnished of by the attacking sub's deck gun after the vessel failed to sink having been holed in the engine room.
To give you a mental image, by way of a comparison; a WWI torpedo created a hole big enough for two people to swim through side by side, a hole created by a WWII torpedo would allow you to drive a fairly large vehicle through!

I hope this is a help to you, sounds like your Grandfather had a very exciting episode!