Mr. Ernie Malik has now said:
Ernie Malik wrote:Let’s say the story’s adventures include the slave traders…sea serpent…the dragon…the storm…the Dufflepuds.
I would assume that this effectively rules out the possibility of the underwater battle (which would come under the heading of "Adventures" obviously!) with the merpeople. So my guess would be that the underwater battle does indeed have something to do with the sea serpent. It would be just like movie makers to change a triumph of brain over brawn into some sort of "Epic" combat, possibly complete with casualties.
I hate to say this, but that thought reminds of the scene in PotC with the giant squid. (Or is it an octopus? I never saw the movie; I just noticed that part in a commercial or something)