Libertarians believe that everything can be worked out with backroom deals and lawsuits. In reality, a system described above would lead to the rich guy poisoning the little guys water, who would be forced to take it. There would be no upward mobility, because the wealthy would have no check on anything they do. Generations of children would live and die in poverty and ignorance.
OR, someone would string the water poisoner up while the community cheered and society would degrade to rule by force (instead of wealth).
Either way, I like regulations that (in theory) treat everyone the same.