I updated my FreeNAS installation from 11.2-U7 to 11.3-RC1. This did work fine.
Then I tried to upgrade a jail from 11.2-RELEASE-p15 to U11.3-RELEASE. I got messages like
The following file could not be merged automatically: /etc/freebsd-update.conf Press Enter to edit this file in /usr/bin/vi and resolve the conflicts manually...
and when continuing I was not able to login. See also
which describes the same issue as I experienced.