I am at the combat arena at Zerkies bar and it says to press L1 to interact with the terminal here but when I click it, nothing happens. I am not able to interact with the terminal to select some of the challenges.
This may be a bug relating to controller remapping. The game does not register that you have changed it and is showing you the default controls. Press triangle and you should be able to interact with the terminal and enter the combat arena.
You may need to check your control remapping for this though. I am not sure if triangle works for me because of how I have remapped the controls or whether this terminal is just broken. L1 was the prompt for many other terminals in the game and they always worked. This was the only one that never worked for me but pressing triangle was the workaround for it.