You can't willfully cause loss to a neighbor without facing repercussions.
This is a tort at minimum; the construction neighbor caused a loss to the neighbor with the tree who's now forced to pay for removal of the tree. Nature doesn't follow property lines and the construction neighbor can't argue that it was an unforeseen event. Of course, the poorly written article doesn't mention any variances or issues identified when the permits were filed.
I mentioned the setback because, depending on the town, the construction neighbor may not be able to justify digging right up to the property line, even for a retaining wall. While a setback is for buildings, it can also be for any construction, including driveways, depending on local laws. The tree might have survived if the digging wasn't right up to the line.
On a related note, if the tree had fallen on the excavation crew, the excavation company and the construction homeowner would be responsible for the deaths and/or injuries.