Ian Ryan, for the defence, told Wimbledon magistrates that the unemployed labourer, 31, had been convinced somebody was after him in the wake of the not guilty verdict ordered by an Old Bailey judge.
Stagg had been hounded by journalists and received a string of threatening letters and phone calls. "His life, in short, was a complete and utter misery," Mr Ryan said. "He lost his sense of reality." He armed himself with an axe and gave a cosh to his fiance Diane Beddoes. When they went on to Wimbledon Common, where Rachel, 23, was stabbed to death in front of her young son in July 1992, the weapons went too.
The court was told Stagg had made every effort to walk away from people who harassed and abused him - until 22 January.
Mark Dennis, for the prosecution, said Stagg, of Roehampton, south- west London, and Beddoes, 26, who lives with him, "crossed the path" of Jamie Roberts and his 11-year-old son. Mr Roberts made a somewhat aggressive call to his dogs.
Stagg pulled the axe out of his jacket and a fight ensued. Stagg ended up on the ground and Beddoes, who had weighed in with her cosh, was pushed into a pond. By the time passers-by intervened, all three had lumps and bruises, Mr Dennis said.
Initially, the pair were charged with affray, assault and possession of the weapons and appeared yesterday to be committed to the Crown Court. Discussions between defence and prosecution lawyers and legal submission to the court led to the affray and assault charges being dropped. The couple admitted possessing the weapons, with Stagg admitting a new count of threatening behaviour.
Mr Ryan told the court: "He has been living in a completely mad environment, a mad world for a long time ... What he did is not excusable but it is understandable." The case was adjourned until 4 May for pre- sentence reports and both were granted unconditional bail.
Stagg's court appearance came 24 hours after he announced that he was suing police for malicious prosecution and wrongful arrest in connection with the murder.