I'm on the third Varys quest, and the knights aren't there. I've looked everywhere, but they're just not there.
Look closely. They can spawn within the town's model, making them difficult to see. Mouse-over the whole area around the town and treeline.
Yes this happened to a friend of mine as well. It was impossible to see them if you did not view the city in a certain angle, they were in the midst of the city and invisible, kind of.