To anyone reading this and coming up with the same issue. I can confirm it was due to Docker 23.06. I tried upgrading a cluster with nodes running 20.10.24 and it worked. Terraform still output an error

Error: [ERROR] waiting for cluster (c-cxb82) to be updated: unexpected state 'error', wanted target 'active, provisioning, pending'. last error: %!s(<nil>)

but nevertheless, the cluster will successfully upgrade