I'm not sure what did or did happen in this case, but I've reviewed enough papers and seen enough of my own reviewed that I know "failed to take into account relevant recent papers" is one of many ways a reviewer who wants to shoot a paper down for BS reasons can use.

To be clear, reading that reason in a negative review can mean at least two things, and I'm not judging which of the two happened here:

1. The paper did fail to take into account the results in some highly relevant and widely cited papers. (I've rejected papers claiming new results myself before now with "this problem was in fact already solved by X, published in Y".)

2. The paper was fine, but it didn't cite every paper published recently on the topic ever, and someone used that to shoot it down for whatever BS reason. Matt Might calls these reviewers snipers: http://matt.might.net/articles/peer-fortress/