I am not well-versed in dendroclimatology, but I believe this issue is described here and is uncontroversial:

Briffa, K.R., Schweingruber, F.H., Jones, P.D., Osborn, T.J., Shiyatov, S.G. and Vaganov, E.A., 1998 "Reduced sensitivity of recent tree growth to temperature at high northern latitudes." Nature 391, 678-682 (R)

Basically, since tree-ring density is influenced by temperature, you can use it to reconstruct temperatures. I believe the data set in question uses maximum latewood density (MXD), which accorded well with instrumental temperature readings until 1960, at which point they begin to show a decline in temperature while thermometers show an increase. The proposed solution is simply: Don't use the reconstructed temperatures after 1960, since they're wrong.